As we have noted in previous issues of this Update, the scope of the duty to preserve relevant documents in anticipation of litigation is a major and hotly contested issue in litigation today. See, e.g., New York State Appellate Division, First Department, Adopts Federal Zubulake Standards for E-Discovery Preservation Obligations, Cost Allocation, and Spoliation Sanctions, Electronic Discovery Update, April 2012, available at http://www.kramerlevin.com. The ever-increasing volume of electronically stored information (“ESI”) has made preservation exercises increasingly expensive and perilous for prospective litigants. A party who fails to preserve – even inadvertently – may face sanctions for spoliation of evidence. In recognition of the persistent uncertainty and expense of preserving ESI, the Civil Rules Advisory Committee (the “Advisory Committee”) is currently considering amendments to the Federal Rules of Civil Procedure (the “Federal Rules”) that are intended to address the scope of prospective litigants’ preservation duties, as well as the appropriate imposition of curative measures or sanctions when relevant ESI has been destroyed.
The Scope of Preservation
The scope of preservation, while generally broad, is not without limits. Even when an individual reasonably expects litigation, courts have noted that it is not feasible to require that party to preserve every document created during the period covered by the anticipated litigation. Such a rule would be particularly burdensome for large corporations who are frequently involved in litigation. See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003). Rather, parties must only preserve what they know, or should know, is reasonably likely to be relevant to the action, may lead to the discovery of admissible evidence, or may be subject to a future discovery request. Id. However, the risk of sanctions in the event that a potentially relevant document is accidentally destroyed may prompt parties to go to extreme lengths to fulfill their preservation duties. Limiting the scope of preservation is further complicated by timing: because preservation decisions frequently arise at a nascent stage of a lawsuit (or before one has even commenced), it may be somewhat unclear what will likely be relevant to the litigation.
Proportionality in Preservation
There is currently no Federal Rule governing the scope of preservation. Rather, the duty to preserve is based on the common-law principle that a party should not be permitted to gain an advantage in litigation by destroying evidence relevant to the dispute. Traditionally, the expense of preservation and the amount-in-controversy of the litigation were immaterial to a party’s duty to take reasonable preservation steps. The federal rules are simply silent on what limitations or balancing factors might govern a preservation exercise. In contrast, the scope of discovery is governed by Federal Rule 26, which requires that the court limit discovery in cases where “the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.” Federal Rule 26(b)(2)(c)(iii). This discovery rule is often referred to as one of “proportionality.”
This asymmetry between the standards for preservation and production has led some commentators to suggest that the Federal Rules should be amended to introduce the concept of “proportionality” to preservation obligations. Proponents of the concept of proportionality argue that the lack of guidance regarding the extent of required preservation, combined with the threat of harsh sanctions, has forced parties to err on the side of caution and “over-preserve” — sometimes at great expense and with little benefit to either party. See, e.g., Costs and Burdens of Civil Discovery: Hearing Before the Subcomm. on the Constitution of the Comm. on the Judiciary, 112th Cong. 1, 66-67, 334-35 (2011). Some courts have endorsed the idea that the scope of preservation should, like the scope of discovery, be proportional to the likely significance of the documents to be preserved and the amount-in-controversy of the litigation.
An Illustrative Case
Earlier this year, this publication reported on a recent case illustrating the potential costs involved in large-scale document preservation exercises. See Court Requires Employer in Class-Action Labor Litigation to Preserve Over 2,500 Hard Drives and Defines “Key Players” to Include All Potential Plaintiffs, Electronic Discovery Alert (Feb. 17, 2012), available at http://www.kramerlevin.com. In short, the named plaintiffs in Pippins v. KPMG LLP contended that all the potential class members – certain accountants in defendant’s audit practice – were “key players” for the purposes of preservation duties, and therefore the hard drives of those employees must be preserved for the purposes of the anticipated litigation. 2011 WL 4701849, at **5-6 (S.D.N.Y. Oct. 7, 2011); 279 F.R.D. 245, 249 (S.D.N.Y. 2012). Defendant argued that the cost of preserving over 2,500 hard drives – estimated to be approximately $1,500,000 – was overly burdensome and disproportionate to the amount in controversy. Pippins, 279 F.R.D. at 250. It contended that a random sample of hard drives was sufficient for the purposes of preservation. The Magistrate Judge ruled that the defendant were required to preserve the hard drives of all putative class action members, since these individuals were “key players” in the contemplated litigation, further noting that the defendant had failed to cooperate with the plaintiffs in developing a workable preservation plan. Id. at 256.
On appeal, District Court Judge Coleen McMahon affirmed the Magistrate Judge’s decision, noting that while “proportionality is necessarily a factor in determining a party’s preservation obligations,” in this particular case, she was unable to determine whether the proposed scope of preservation was appropriate, due to the lack of sample information about the hard drives. Id. at 255. In the absence of such evidence, the Judge declined to limit the scope of defendant’s preservation duties.
While the Pippins court invoked the concept of proportionality approvingly, without being in a position to apply it, other courts have declined to embrace such a standard in their interpretation of parties’ preservation duty. See, e.g., Orbit One Commc’ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 436 (S.D.N.Y. 2010) (pointing out that proportionality may be too “amorphous” a concept to aid defendants in deciding which documents to preserve).
Civil Rules Advisory Committee Deliberations
Over the past several years, the Discovery Subcommittee of the Advisory Committee on Civil Rules (the “Discovery Subcommittee”) has engaged with practitioners, working groups, and non-profit organizations to discuss possible solutions to preservation concerns. In recognition of the uncertainty and expense surrounding ESI preservation, the Discovery Subcommittee solicited empirical data and working papers on the subject of preservation and hosted a conference at Duke University School of Law in 2010. At a September 2011 mini-conference, the Discovery Subcommittee developed three draft preservation rules with input from scholars, practitioners and technology experts. The draft rules were designed to promote consistent and equitable application of the duty to preserve. These three drafts were discussed at the Advisory Committee on Civil Rules’ Meeting in March 2012.
Three Proposed Draft Rules
The first proposed rule is very detailed, providing explicit guidance on what events trigger the duty to preserve documents, as well as specific provisions addressing the form, scope, and extent of document preservation. Advisory Committee on Civil Rules Minutes for Mar. 22-23, 2012 Meeting, at 36, available at http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/Agenda%20Books/Civil/CV2012-03.pdf) (the “Advisory Committee Minutes”). At the mini-conference attorneys from plaintiffs’ bar pointed out that an overly detailed rule might encourage destruction of potentially relevant documents that are not specifically enumerated within the rule. Id. at 37. At the same mini-conference, Discovery Subcommittee members noted that such specific requirements might rapidly become outdated in light of technological innovation. Id. at 113. At the March meeting, Advisory Committee members expressed concern that such a detailed rule might be overly narrow and too rigid to be universally workable. Id. at 38.
The second proposed rule encompasses the same elements as the first, but is more general, essentially requiring that parties abide by “reasonable” standards with regard to the timing and scope of document preservation. Id. at 113. The Discovery Subcommittee noted that such a broad standard would not provide substantial additional guidance to practitioners. Id.
The third proposed rule, rather than providing direct guidance as to the scope of the preservation duty, addresses the relevant factors that a judge should consider when determining whether to impose sanctions in the event of a failure to preserve documents. Id. The proposed new Rule 37(g) would distinguish between “curative measures” which are designed to make plaintiffs whole in the event of a failure to preserve, and “sanctions,” which are intended to punish a spoliating party. Id. at 37. Curative measures may include the provision of extra time for the opposing party’s discovery efforts or require the spoliating party to pay the cost of producing replacement documents for those which were improperly destroyed. Id. Sanctions, in contrast, include more serious measures, such as adverse inference jury instructions, claim preclusion, dismissal or entry of judgment. Id. Under the proposed rule, the imposition of sanctions would require a showing of some heightened level of culpability (for example, bad faith), in addition to a failure to preserve relevant documents. Id.
The third proposed rule is also notable in that it incorporates the concept of proportionality into the preservation requirements, for the purposes of sanctions. Id. The amendment would allow (or possibly, require) judges to consider whether the preservation effort was “proportional” to the litigation when determining whether preservation steps were adequate. Id. With regard to this facet of the amendment, the Discovery Subcommittee noted that there is a general consensus that the concept of proportionality should “loom” over a judgment on the adequacy of preservation. Id. at 258-60.
However, questions remain regarding the application of the concept of proportionality to preservation duties. Invoking the term “proportional” (which mirrors the language in Rule 26(b)(2)(c) with regard to discovery) may serve as an invitation to apply the same standard that is applied in determining the proper scope of discovery. The Discovery Subcommittee noted that the goals of a potential 37(g) rule are not the same as those implicated by Rule 26(b)(2)(c); but the scope of the preservation and discovery rules are necessarily related. Advisory Committee Minutes at 260.
Some members of the Discovery Subcommittee pointed out that the problems with preservation appear to stem from the massive amount of ESI which is currently subject to preservation. Id. at 250. Rule 37(e) notes that sanctions should not apply in the case of accidental destruction of relevant ESI when the destruction results from the “routine, good-faith operation of an electronic information system.” Federal Rule 37(e). Since Rule 37(e) only applies to ESI, an interesting possibility would be to incorporate the amendments set forth in potential new Rule 37(g) into existing Rule 37(e), and thereby limit the scope of any preservation rule to ESI. As of January 2012, the Discovery Subcommittee remained undecided as to whether the amendments should apply to all preservation or only ESI preservation. Advisory Committee Minutes at 250.
After lengthy discussion, the Advisory Committee determined that the Discovery Subcommittee should continue to receive input on the three proposals, and that all three should be considered to be open for discussion at the next full Advisory Committee meeting in November 2012. Id. at 7, 38.
Opponents of a rule amendment of any kind point out that the proposed rules might not be permissible under the Rules Enabling Act, since the duty to preserve often arises prior to pending litigation. Id. at 38. However, the Advisory Committee has decided to draft the best possible version of a potential rule, and then determine whether or not it fits within the Rules Enabling Act. Id. at 119. Others within the Advisory Committee pointed out that immediate action is not necessary, and that delaying amendment to the rule may allow the Advisory Committee to better understand the potential consequences of a rule change. Id. at 119-20. Even if the Advisory Committee reaches a consensus soon, it will be at least several years before a rule change is agreed upon and promulgated.
Moreover, even if a clear and effective Federal Rule is adopted, such a rule would not provide relief to litigants in state court, which have different procedural rules affecting the scope of the preservation duty. Advisory Committee Minutes at 38.
Since preservation duties often attach before the parties know whether the venue will be federal or state court, even a clear federal rule is only a partial solution to the preservation problem unless state courts opt to implement similar rules.
The lack of uniformity in the application of preservation duties and spoliation sanctions currently complicates parties’ assessment of the extent of preservation necessary to prepare for impending litigation. While the current deliberations by the Advisory Committee may not result in a rule change soon – if at all – the many meetings that have taken place on the subject of ESI preservation reflect its current and growing importance. The Advisory Committee will consider the Discovery Subcommittee’s ongoing deliberations regarding potential rule changes at its next meeting in November 2012.
Summer Associates Daniel Lennard, David Mayo, Anna Schoenfelder, and Alexander Traum.