FRCP Amendments: Breakdown of Newly Revised Rule 37(e)

I was very privileged to attend the Advisory Committee on Civil Rules meeting in Portland, Oregon [April 2014], which is a sub-committee of the Judicial Conference's Committee on Rules of Practice and Procedure (“Standing Committee"), advising the Supreme Court's Judicial Conference on the promulgation of rules of procedure. In this post, I address the most contentious proposed amendment, that to Rule 37(e), sometimes referred to as the Safe Harbor rule. Before I discuss the proposed rule (which was changed again by the Advisory Committee on April 10), some background is in order.

The Federal Rules of Civil Procedure were amended in December of 2006 to both establish the legitimacy of so-called electronic discovery and address the challenges inherent in requesting the production of electronic data. One amendment was Rule 37(e):

Failure to Provide Electronically Stored Information. Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.

Commentators sometimes referred to this as the Safe Harbor rule; however, as a practical matter, it saw little use and provided little safety when potentially responsive Electronically Stored Information (ESI) was destroyed before or during litigation. A 2002 2nd Circuit case, Residential Funding Corp. v. DeGeorge Fin. Corp., held that when a party could not produce ESI (either it was lost or destroyed), ordinary negligence was sufficient grounds for an adverse inference instruction. This is in contrast to other circuits, which used a gross negligence or bad faith standard. Corporations have suggested that, as a consequence, they have pursued a policy of broad preservation (owing to the cross-jurisdictional nature of litigation) and such measures have resulted in excessive cost. The impetuous of revising Rule 37(e) was to create a national standard of culpability for determining sanctions in the event that requested ESI could not be produced. The Advisory Committee's first draft of amendments to the rule received about 2,000 responses, prompting an additional round of changes. Those changes were further amended on April 10th by the Committee and distributed on April 11th. They appear here:

(e) FAILURE TO PRESERVE ELECTRONICALLY STORED INFORMATION. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve the information, and the information cannot be restored or replaced through additional discovery, the court may:

1. Upon a finding of prejudice to another party from loss of the information, order measures no greater than necessary to cure the prejudice;
2. Only upon a finding that the party acted with the intent to deprive another party of the information's use in the litigation,

• (A) presume that the lost information was unfavorable to the party;
• (B) instruct the jury that it may or must presume the information was unfavorable to the party; or
• (C) dismiss the action or enter a default judgment.

Exterro E-Discovery Case Law Library

Noteworthy among the changes are the following:

• No strict liability. The “because a party failed to take reasonable steps" language of section (e) sets the foundation for culpability; there is no strict liability for inability to produce ESI.
• Opportunity to search. Using the “though additional discovery" language of section (e), the court can order the producing party to try to find duplicates of the requested ESI elsewhere, perhaps in backup tapes. This is similar to the “court may nonetheless order discovery from such sources" language of Rule 26(b)(2)(B).
• Residential Funding rejection. The “intent to deprive" language of section (e)(2) was designed to reject the negligence standard used in Residential Funding.
• ESI only. This rule only applies to electronic evidence, rather than tangible evidence. As a consequence, it would not apply in a matter such as Silvestri v. General Motors Corp., where the matter was dismissed for spoliation when a key piece of evidence (an automobile airbag) was lost or destroyed.
• Not mandatory. Judges are not required to use this rule; they still have the ability to draw on the inherent power of the court to address issues of spoliation.

Final notes from the meeting:

The events leading up to the amendment as well at the text of proposed Rule 37(e) were very expertly and succinctly summarized by Judge Paul Grimm. The process to amend this rule began about four years ago, and the Committee members indicated that was a particularly arduous one. For one thing, it was tough to create this rule without running afoul of the Rules Enabling Act, which restricts changes to those addressing procedural law.

Another was getting consensus on setting a standard for culpability. The Committee acknowledged the growth of ESI and the need to address preservation but still wished to maintain the discretion of the court in fashioning remedies in disputes over alleged spoliation. It also acknowledged that there was a dichotomy between the originally proposed amendment and the way the real world worked; it is impossible to preserve all possible ESI and a loss isn't automatically prejudicial. Attempts to borrow remedies from Rule 37(b) were not fruitful because there is (typically) no court order that has been violated in these matters. While one Committee member stated that this amendment represents a huge improvement over the current state of the law, another cautioned it will still be tough to apply it.