United States: New Federal Rules Could Change Discovery As We Know It

In April of this year, the Civil Rules Advisory Committee ("Advisory Committee") will consider proposals to limit the scope of discovery under the Federal Rules of Civil Procedure (the "Rules"). The proposed amendments could result in the most significant changes to discovery since the 1993 amendments requiring initial disclosures. While historically most amendments to the Rules have broadened discovery obligations, there now appears to be wide support for proposals aimed at getting discovery back under control.

Key among these proposals will be amendments to Rule 26(b)(1), which would require proportional discovery restricted to information relevant to the claims and defenses of the parties. This proposal, which received wide support from the Advisory Committee at its November 2012 meeting, follows on the heels of another discovery-related amendment currently under consideration. In January 2013, the Committee on Rules of Practice and Procedure (the "Standing Committee") considered a proposal to amend Federal Rule of Civil Procedure 37(e), regarding the imposition of sanctions for failure to preserve discoverable information. That proposal was approved for publication on the condition that the Advisory Committee reconsider a handful of outstanding issues.

Thus, at its April meeting, the Advisory Committee will evaluate proposals to amend both of these Rules and resubmit its recommendations to the Standing Committee. If approved for publication by the Standing Committee this June, both proposals will be published for a six-month public comment period on August 15. Barring any unforeseen delays, the amendments could be enacted by December 2015. The proposed changes to each Rule will be discussed in turn.

Rule 26(b)(1)

Currently, Rule 26(b)(1) authorizes a discovery process that can be quite broad and far-ranging:

...Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense—including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence...

F.R.C.P. 26(b)(1)(emphasis supplied).

Proposals supported by the Advisory Committee would limit this broad scope by requiring that discovery be "proportional to the needs of the case" as measured by a cost-benefit calculus similar to that currently required by Rule 26(b)(2)(C)(iii). Committee on Rules of Practice and Procedure January, 2013 Agenda Book, 227. The current draft of Rule 26(b)(1) reads:

Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case considering the amount in controversy, the importance of the issues at stake in the action, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information [within this scope of discovery]{sought} need not be admissible in evidence to be discoverable. — including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C).

Id. at 227-228.

The proposals would also limit discovery in several other ways:

  1. The present authority to order discovery extending to "the subject matter of the action" would be eliminated, so that all discovery would be confined to what is relevant to the claims or defenses of the parties; and
  2. As is currently the case, information need not be admissible in evidence in order to be discoverable. However, the proposed amendment would eliminate the existing language extending discovery to information that appears "reasonably calculated to lead to discovery of admissible evidence."

The newly added proportionality consideration and other discovery restrictions stem from the Discovery Subcommittee's finding that the current Rule's "reasonably calculated" language has been too broadly interpreted. Many lawyers and judges reading the current Rule have concluded that, since almost any information could potentially lead to relevant and admissible evidence, almost anything is discoverable. Id. at 263-264. This conclusion, coupled with the recent growth in electronic storage capability, has rendered the discovery process virtually limitless. Id. at 226. The proposed Rule is intended to correct this overbroad understanding.

Rule 37(e)

Rather than merely amending Federal Rule of Civil Procedure 37(e), the Advisory Committee recommends replacing it entirely. Id. at 100. The current Rule addresses protection against sanctions for failure to preserve electronically stored evidence:

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.

F.R.C.P. 37(e).

That Rule, originally intended to provide a "safe harbor" for limiting sanctions, has done nothing of the kind. Courts can often find "exceptional circumstances," award sanctions based on other authority, and/or find that loss of evidence was not from "routine, good-faith operation[s]." Indeed, the Advisory Committee found that, in practice, the Rule has rarely been invoked. Id. at 99. In response, the proposed amendments to Rule 37(e) "provide more significant protection against inappropriate sanctions" for the failure to produce any type of evidence (whether electronic or other evidence). The amendments also seek to reassure those who might otherwise be inclined to engage in burdensome and expensive "over-preservation." Id.

These objectives are addressed in several ways. First, upon finding that parties failed to preserve evidence, the proposed new Rule presents several options for the court to consider before resorting to sanctions, including: permitting additional discovery; ordering the party to undertake curative measures; and requiring the party to pay the reasonable expenses, including attorney's fees, caused by the failure. Id. at 103.

If enacted, the amended Rule would preempt any other law, including state law in diversity cases, which imposes sanctions in the absence of willfulness or bad faith. However, it would have no impact upon independent tort claims for spoliation brought under state law, which would be governed by the applicable substantive law. Id. at 105-106.

Further, the amendments would set a new standard for the imposition of sanctions. Some case law has interpreted the current Rule to permit sanctions upon a finding of negligence. The proposed Rule would impose a uniform, higher standard for federal courts by requiring that the failure to preserve evidence was (1) willful or in bad faith and (2) that the loss of information caused substantial prejudice to the litigation. Id. The Draft Committee Note indicates that the "amended rule is designed to ensure that potential litigants who make reasonable efforts to satisfy their preservation responsibilities may do so with confidence that they will not be subjected to serious sanctions should information be lost despite those efforts." Draft Committee Note, 9.

37(e)(2) The court may impose any of the sanctions listed in Rule 37(b)(2)(A) or give an adverse inference jury instruction only if the court finds:

(A) that the failure was willful or in bad faith, and caused substantial prejudice in the litigation; or

(B) that the failure irreparably deprived a party of any meaningful opportunity to present a claim or defense.

Id. at 103-104.

The amended language does not define the concepts of willfulness and bad faith. Those are left to the courts to determine according to their expertise and experience. Id. at 101. The Draft Committee Note explains, however, that courts may consider the Rule 37(e)(1) remedies in weighing substantial prejudice. That is, even upon a finding of bad faith, sanctions could be inappropriate if alternative measures could sufficiently reduce prejudice to a party. Id. at 107.

In the absence of willfulness or bad faith, a court may still impose sanctions upon a finding that the lack of information "irreparably deprived a party of any meaningful opportunity to present a claim or defense." This safety valve provision should only be used in "the truly exceptional case... [t]he prejudice [must be] not only irreparable, but also exceptionally severe." Id. at 101. Again, if the lesser measures (such as those listed in 37(e)(1)) could reduce or cure the prejudice, sanctions should not be imposed. Id. at 108.

The proposed Rule does not prescribe the circumstances under which a preservation obligation arises. The determination of what evidence must be preserved will continue to be governed by common law. Id. at 102. Instead, the proposal sets out a non-exclusive list of factors that the court should consider in determining "whether a party failed to preserve information 'that reasonably should be preserved' and also whether that failure was willful or in bad faith." Id. at 108. In making its determination, the court's primary focus should be on the reasonableness of the parties' conduct.

37(e)(3) In determining whether a party failed to preserve discoverable information that reasonably should have been preserved, and whether the failure was willful or in bad faith, the court should consider all relevant factors, including:

(A) the extent to which the party was on notice that litigation was likely and that the information would be discoverable;

(B) the reasonableness of the party's efforts to preserve the information;

(C) whether the party received a request that information be preserved, the clarity and reasonableness of the request, and whether the person who made the request and the party engaged in good-faith consultation regarding the scope of preservation;

(D) the proportionality of the preservation efforts to any anticipated or ongoing litigation; and

(E) whether the party sought timely guidance from the court regarding any unresolved disputes concerning the preservation of discoverable information.

Id. at 104.

The Draft Committee Note helps to clarify a few of these factors. First, the concept of reasonableness, as addressed in 37(e)(3)(B), considers the entire scope of a party's preservation efforts. While a litigation hold may be part of those efforts, it should not be determinative. Id. at 108. Second, as in Rule 26(b)(1), Subsections 37(e)(3)(C) and 37(e)(3)(D) introduce the concept of proportionality, a central concern of the drafters. These sections direct that in preserving information, a party's focus should be on the needs of the litigation at hand. A party is not required to respond to an unreasonably burdensome preservation request, and may consider cost when selecting a means of preservation (provided that the forms of preservation are otherwise comparable). Id. at 109. The Notes urge "that counsel become familiar with their clients' information systems and digital data – including social media – to address these issues." Id.

While the fate of these proposals remains to be seen, the groundwork has been laid to reshape the state of discovery in U.S. federal litigation. The amendments to Rules 26(b)(1) and 37(e) would result in a more limited scope of discovery, with the focus on relevance to the parties' claims and defenses as opposed to any information possibly leading to admissible evidence. At the same time, a structure would be established to help parties navigate their preservation obligations. That structure would provide a framework for reasonable, proportional preservation, reasonable remedies, and a resort to sanctions only upon specific findings of bad faith or egregious prejudice to opposing parties.

These amendments seem well targeted to rein in a discovery process that many believe has gotten out of control in too many cases. The concept of proportionality has been around for a long time (see F.R.C.P. Rule 1) but has too often been overlooked in the face of the broad scope of discovery authorized by Rule 26(b)(1). In addition, the risk of e-discovery sanctions, which exists even absent clear guidance on the scope of preservation obligations and even where litigators and their clients have been acting in good faith, has been a real and justified concern for in-house counsel and their outside counterparts. One hopes that these proposed Rule amendments can help to ameliorate both of those problems and refocus the litigation process back to where the focus should be—on the merits of the claims and defenses rather than on any discovery sideshows or unfair leverage due to the sheer costs and burdens of unrestricted discovery.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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