The proposed revision of Rule 37(e), which recently cleared another hurdle in the rulemaking process, could dramatically limit the exposure companies face from spoliation claims. It may also go too far.

The current version of Federal Rule of Civil Procedure 37(e) provides that parties who do not appropriately preserve documents related to litigation may face sanctions. While it does contain a “safe harbor” for loss of electronically stored information (ESI) due to “routine, good-faith operation of an electronic information system,” the Committee Note to Rule 37 provides that the prospect of litigation could require alteration of “routine operation[s]” and mentions that a “litigation hold” may be required. Generally, Rule 37 can lead lawyers and clients, respectively, to rush litigation holds and preservation efforts in an effort to avoid the specter of discovery sanctions.

In June 2013, noting that “the amount and variety of digital information has expanded enormously in the last decade, and the costs and burdens of litigation holds have escalated as well,” the Judicial Conference Advisory Committee on Civil Rules approved for public comment a new version of Rule 37(e). The new rule is designed to ameliorate pressure that parties feel to preserve a wide scope of information in order to avoid sanctions.  As revised, the rule would require that in order to recover sanctions for loss of information parties must show all three of the following:

  1. that there was substantial prejudice in the litigation;
  2. that the other party’s actions were willful or in bad faith; and
  3. that the loss of information irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation.

In addition, the new Rule 37(e) provides that courts should consider “all relevant factors” in determining whether a party’s efforts to preserve were appropriate and whether the failure was willful or in bad faith. The new rule lists five of these factors: reasonableness of the party’s preservation efforts, whether the party received a clear and reasonable request to preserve, the “proportionality” of the preservation efforts to the litigation, and whether the party timely sought the court’s guidance on preservation issues.

The proposed changes are discussed in depth beginning on page 270 of The Advisory Committee Report.

While aimed at easing the litigation burden on parties, by excusing a party from sanctions absent willful/bad faith spoliation, the new rule may incentivize poor preservation habits.  Judge Schira Schiendlin, who presided over the influential Zubulake v. US Warburg cases in the Southern District of New York that set guidelines for the scope of electronic discovery, recognized this potential pitfall of the new rule.  In Sekisui American Corp. v. Hart, she noted that “[u]nder the proposed rule, parties who destroy evidence cannot be sanctioned . . . even if they were negligent, grossly negligent, or reckless in doing so” and “would require the innocent party to prove that it has been substantially prejudiced by the loss of relevant information, even where the spoliating party destroyed information willfully or in bad faith.”  The new Rule 37 will also undoubtedly create more litigation in connection with parties’ preservation efforts as courts are asked to interpret the criteria for such efforts and whether they were sufficient.

The public comment period for the new rule ended on February 18, 2014, and the Advisory Committee is now considering the public comments that it received.  The rule, including any changes approved by the Advisory Committee, will next go to the Standing Committee, and then on for Judicial Conference approval, Supreme Court approval, and finally Congressional approval. Thus, it will likely take many months before the new rule takes effect. As you will see in an upcoming post on The Compass, in the interim, the burden remains squarely on the preserving party, the “reasonable and appropriate” standard remains in place, and sanctions for failing to appropriately preserve ESI and other documents can be catastrophic.