United States: The 2014 Proposed Amendments To The Federal Rules On E-Discovery – What Didn’t They Get Right?

Originally published July 30, 2014

In an earlier article, I wrote about the pending proposed amendments to the Federal Rules of Civil Procedure on e-discovery, and what the new Rules seem to get right as far as improving certain procedures. (You can see that article here.)

Now let's look at the problems that weren't addressed by the proposed amendments, as well as the brand new set of questions that are created by these revisions.

1. What Questions Did the Proposed Amendments Leave Unanswered?

Most notably, the proposed Rules don't address the "trigger" for implementing a litigation hold, or identify exactly when a "reasonable anticipation of litigation" arises. As a result, Courts and the parties will still need to resort to the case law of the specific jurisdiction (which can vary from court to court) as to when the duty to preserve evidence arises.

Similarly, although proposed Rule 37(e) talks about the consequences of losing ESI if it "should have been preserved in the anticipation or conduct of litigation," there may be significant room for disagreement and litigation over exactly what the parties' obligations to preserve entail. This may only get more uncertain in light of the other proposed changes to the Rules. For example, as discussed in the companion to this article, the proposed Amendments call for greater proportionality and seem to be aimed at trying to control or reduce the scope of e-discovery in litigation. Do those principles also extend to what must potentially be preserved in the case?

In practice, lawyers and their clients have routinely struggled in answering the question of "what do I need to preserve"? The proposed amendments don't answer that question. If anything, by emphasizing greater proportionality and stating that sanctions will be available if lost ESI "should have been preserved in the anticipation or conduct of litigation," the new Rule would seem to create room for more debate and uncertainty.

2. What New Questions Are Posed by the Proposed Amendments?

Perhaps the biggest questions surround the proposed change to Rule 37(e), which deals with sanctions for failing to disclose or cooperate in discovery. Although the new Rule sets out the standards for imposing sanctions for "intentional" e-discovery misconduct, other changes to the Rules – specifically, the standards for awarding relief based on the unintentional spoliation of evidence – may only result in greater uncertainty and lack of uniformity among the Courts.

a. The New Proposed Rule 37(e).

The proposed amendment to Rule 37(e) makes the following types of relief available for e-discovery violations:

Rule 37. Failure to Make Disclosures or to Cooperate in Discovery; Sanctions

(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 it, and it cannot be restored or replaced through additional discovery, the court may:

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

    1. presume that the lost information was unfavorable to the party;
    2. instruct the jury that it may or must presume the information was unfavorable to the party; or
    3. dismiss the action or enter a default judgment.

Therefore, these proposed amendments establish two categories of conduct that may support an order of relief for the spoliation of ESI: (1) where spoliation was "intentional" (i.e., meant to deprive the other party of the use of the information) (Rule 37(e)(2)); and (2) where spoliation was not intentional but still resulted in prejudice to the innocent party (Rule 37(e)(1)).

Significantly, with respect to unintentional spoliation, proposed Rule 37(e)(1) does not distinguish between "negligent" and "grossly negligent" destruction of evidence (as various Courts have done). Instead, the Rule would allow for the Court to award relief regardless of intent, where ESI that should have been preserved was not, and where that spoliation of evidence results in prejudice to the innocent party.

b. What Does Rule 37(e) Mean, When Applying it Practically to E-Discovery Cases?

The issue of "prejudice" under proposed Rule 37(e)(1) could be subject to varying interpretations and may very well turn out to be the most problematic language in the proposed amendments.

First, although the new Rule states that the Court must find prejudice to the innocent party in order to award relief, the Rule does not indicate which party bears the burden of proving prejudice (or the lack of prejudice). The Committee's Notes confirm that the proposed amendment "does not place a burden of proving or disproving prejudice on one party or the other."

Instead, the proposed Rule and associated Notes provide rather ambiguous direction as to the assignment of the burden of proof. On one hand, the Committee notes that "[d]etermining the content of lost information may be a difficult task in some cases, and placing the burden of proving prejudice on the party that did not lose the information may be unfair." Meanwhile, the Committee notes that in other situations, "the content of the lost information may be fairly evident, the information may appear to be unimportant, or the abundance of preserved information may appear sufficient to meet the needs of all parties," in which case it may be reasonable to place the burden of proof on the party requesting relief.

In other words, the Committee suggests that the burden of proof may be assigned based on the ability to ascertain the content of the lost information. Of course, whenever ESI is lost, it is difficult (if not impossible) to precisely determine "the content of the lost information." True, the parties may be able to resort to alternative sources of similar information to determine the character of the ESI lost by the spoliating party (although this may render a request for relief entirely moot, based on the introductory language of proposed Rule 37(e)). But the proposed amendments and comments don't provide any direction for the parties or the Court as to who bears the burden of proving that the content of the lost information is (or is not) evident. Is it enough for the non-producing party to present evidence that some evidence was lost, without first making an effort to determine if the discovery may be obtained from alternate sources, thereby effectively placing the burden on the allegedly spoliating party to try to obtain the evidence from other sources? Or must the innocent party first make some (unsuccessful) effort to obtain discovery from other sources and attempt to characterize the nature of the lost ESI?

The Rules and Committee Notes make no suggestions on these issues. Although the Committee's Notes expressly reject cases such as Residential Funding that authorize an adverse-inference instruction upon a finding of negligence or gross negligence, will the Courts still distinguish between prejudice and gross negligence for purposes of shifting the burden of proof, as seen in Residential Funding, Pension Committee, etc.?

Second, on a related point, how high is the burden, on either party, to prove or disprove prejudice under the proposed amendment to Rule 37(e)? Must the loss of ESI be potentially so great as to hinder the innocent party from presenting their case, or is some lesser standard appropriate? Certainly, if the moving party bears the initial burden of proof, the fact that the ESI has been lost will make it extremely difficult (again, if not impossible) for that party to prove the extent of any harm to the case.

The non-moving party bears a similar problem in proving the lack of any harm from the loss of evidence. Indeed, viewing the problem from the perspective of the party accused of spoliation, who is to say that the lost evidence didn't actually support their case? In those instances, the spoliating party would suffer not only the loss of helpful evidence, but also, the entry of sanctions or relief.

Third, proposed Rule 37(e)(1) is far from clear as to what types of relief can be awarded against the spoliating party if the Court does find prejudice. Rule 37(e)(2) identifies specific types of sanctions that can be entered as a result of intentional spoliation. But Rule 37(e)(1) does not say anything about the kinds of relief that may be available for unintentional spoliation. Does that mean that none of the sanctions allowed for intentional spoliation are available in cases of unintentional spoliation?

Certainly, a party who has been prejudiced by an unintentional spoliation of ESI might contend that an adverse jury instruction or a presumption as to whether the lost information was helpful or harmful to the case might be necessary to "cure the prejudice" that results from spoliation. Indeed, the Committee's Note suggests that "serious measures" may be necessary to cure prejudice, "such as forbidding the party that failed to preserve information from putting on certain evidence, [or] permitting the parties to present evidence and argument to the jury regarding the loss of information." The Note also indicates that such relief may include "giving the jury instructions to assist in its evaluation of such evidence or argument."

On the other hand, the Note rejects the Residential Funding adverse inference in cases of negligence or gross negligence, suggesting that any such instructions should be different than those "to which subdivision (e)(2) applies," and that "[c]are must be taken... to ensure that curative measures under subdivision (e)(1) do not have the effect of measures that are permitted under subdivision (e)(2) only on a finding of intent to deprive another party of the lost information's use in the litigation." It is unclear how such "serious" measures cannot have both a remedial and punitive effect.

Therefore, because proposed Rule 37(e)(1) does not specify any particular forms of relief, the Courts may have to start from scratch in identifying what types of relief are available for an unintentional but prejudicial loss of ESI.

Overall, the proposed amendments to Rule 37(e) do appear to promote greater uniformity among the Courts in awarding sanctions based on an "intentional" spoliation of ESI. However, significant questions remain as to the standards that apply to cases of unintentional spoliation. It is this latter category of spoliation that seems to comprise the far greater percentage of today's e-discovery motion practice. As a result, it is not difficult to predict that different Courts will produce different results on applications for relief brought under Rule 37(e)(1).

Certainly, all new rules necessarily require judicial interpretation and application of the facts on a case-by-case basis, to reach a just result. However, where the proposed rules offer unclear guidance on the standards and factors to be applied by the Courts, we may very well see inconsistent and scattered results.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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