United States: Will Amendments To Federal Rules Of Civil Procedure 26(b)(1) And 37(e) Reduce The Scope And Costs Of Discovery?

December 1, 2015, which quite fittingly has been declared the inaugural E-Discovery Day, marks the implementation of a package of amendments to the Federal Rules of Civil Procedure, concluding a process that began more than five years ago. Most notably, Rules 26(b)(1) and 37(e) have received substantial revisions. As many litigators will be surprised to learn, the language "reasonably calculated to lead to the discovery of admissible evidence" has been dropped from Rule 26(b) and replaced in part with a limitation that discovery must be "proportional to the needs of the case." As to Rule 37(e), courts are now prohibited from relying on inherent authority when imposing spoliation sanctions and are therefore limited as to when the most severe forms of sanctions can be imposed when electronically stored information (ESI) is lost or destroyed.

Statistics abound as to the costs of conducting discovery in today's digital age amid the growing volumes of ESI. But there is no need to delve into specifics to know that e-discovery is expensive, with costs ranging from tens of thousands to millions of dollars. Articles by commentators in recent months have indicated a great divide in thought as to whether these rule revisions will cause a drop in discovery costs by reducing the scope of discovery and ESI preservation efforts. Nevertheless, it remains to be seen how these amendments will cause a perceptible change in the scope of discovery or litigants' efforts to preserve ESI.

Amended Rule 26(b)(1)

Amended Rule 26(b)(1) has been viewed by many commentators as placing limits on the scope of discovery. This is technically true. But what impact will the revision truly have on discovery? To answer this question we must first review the new rule:

      Rule 26(b). Discovery Scope and Limits
             (1) Scope in General. Unless otherwise limited by court order,
             the scope of discovery is as follows:
             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 importance of the issues
             at stake in the action, the amount in controversy, the parties'
             relative access to relevant information, 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 need not be admissible in evidence to be

As noted above, the language "reasonably calculated to lead to the discovery of admissible evidence" has been dropped from the revised rule and replaced by the sentence "Information within this scope of discovery need not be admissible in evidence to be discoverable." In addition, under the revised rule, discovery must be "proportional to the needs of the case" considering six identified factors:

  • The importance of the issues at stake in the action
  • The amount in controversy
  • The parties' relative access to relevant information
  • The parties' resources
  • The importance of the discovery in resolving the issues
  • Whether the burden or expense of the proposed discovery outweighs its likely benefit.

Previously, 26(b)(1) was silent as to the concept of proportionality except for stating that "all discovery is subject to the limitations imposed by Rule 26(b)(2)(C)." Under the former 26(b)(2)(C)(iii), courts were obligated to limit discovery if "the burden or expense of 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." Importantly, the proportionality factors included in today's Rule 26(b)(1) were primarily present under the former Rule since 1983, albeit in a different order and in a less prominent subpart.

So, will the revised rule impact the scope of discovery? There is no question that litigants will continue to receive discovery demands seeking "all" documents, reports, data, correspondence and so forth pertaining to a wide variety of issues. But of course, producing parties have always limited their efforts to respond to such overbroad and unduly burdensome demands on the basis of proportionality. By way of example, courts certainly were not requiring parties to spend half a million dollars on discovery efforts in $250,000 cases under the former rule.

Under today's Rule 26(b)(1), the scope of discovery is limited to information that is "relevant to any party's claim or defense and proportional to the needs to the case," very much as it was under the former rule. Perhaps Amended Rule 26(b)(1) will provide responding parties with stronger arguments when they engage in discovery disputes with unreasonable requesting parties. The increased focus on proportionality also may encourage parties to devote more attention to discovery planning and give greater consideration to conducting phased discovery. But considering that the concept of proportionality is already well ingrained in the discovery process, litigants should not expect discovery costs to suddenly plummet overnight.

Amended Rule 37(e)

In contrast to Rule 26(b)(1), the amendment to Rule 37(e) will have a significantly more discernible impact on its respective subject matter, specifically spoliation sanctions. In recent years, many litigants have engaged in over-preservation of ESI in an effort to avoid being on the receiving end of severe sanctions for loss of ESI, such as a dispositive sanction or an adverse inference instruction to a jury at the time of trial. The amendment applies a uniform standard to the imposition of spoliation sanctions and limits when courts can impose a severe sanction for spoliation. (Courts remain free, of course, to impose severe sanctions for general discovery misconduct.) The critical question, therefore, is whether this revision will permit litigants to reduce their efforts to preserve potentially relevant ESI.

The Federal Rules of Civil Procedure did not, until today, address the standard to be applied by courts with regard to spoliation sanctions. Rather, courts have relied on their inherent power to sanction parties that have committed spoliation. The result has been a substantial lack of uniformity. At one end of the spectrum were so-called "bad faith" circuits, including the Fifth, Seventh, Eighth, Tenth and Eleventh, in which an adverse inference against a spoliating party could generally be imposed only upon a showing that evidence was lost as a result of a party's deliberate bad faith conduct. In stark contrast, courts in the Second Circuit have been free to impose an adverse inference instruction "where a party has breached a discovery obligation not only through bad faith or gross negligence but also through ordinary negligence." See Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 101 (2d Cir. 2002) (followed most famously by Judge Shira A. Scheindlin, U.S.D.J. in Zubulake v. UBS Warburg LLC ("Zubulake IV"), 220 F.R.D. 212 (S.D.N.Y. 2003) and its progeny).

But starting today, all federal courts follow the same standard:

     Rule 37(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:

(1)   upon finding prejudice to another party from loss of the information, may 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 may
       (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

Under Amended Rule 37(e), litigants must "take reasonable steps to preserve" potentially relevant ESI. Although this term is not defined, courts will almost certainly consider whether the subject litigant followed standard preservation best practices that have developed over the past decade, including (1) issuing a formal legal hold, (2) identifying ESI locations and key players, (3) conducting custodian and information technology personnel interviews, (4) suspending routine deletion, (5) monitoring employee compliance with the hold, and (6) amending and reissuing the hold when appropriate.

Regardless of a litigant's steps to preserve, an adverse inference instruction cannot be imposed for ordinary negligence, or even gross negligence, unless that sanction is "necessary to cure the prejudice." Where such a sanction is not necessary to cure the prejudice, an adverse inference instruction can be imposed only where there was "intent to deprive" the other party of that evidence. In other words, the Second Circuit's negligence standard has been overturned while the approach taken by many other courts has now been codified. In fact, overturning Residential Funding was a specific purpose of the drafters of Amended Rule 37(e). See Committee Note to Subdivision (e)(2).

Returning to the question at hand, will the amendment to Rule 37(e) permit litigants to reduce their efforts to preserve potentially relevant ESI? Depending on just how much a party reduces its preservation efforts, this may be playing with fire. A true conscious disregard of the duty to preserve could foreseeably be interpreted by a court as an "intent to deprive another party of the information's use in the litigation." On the other hand, a litigant that may have historically gone above and beyond to preserve ESI may find itself emboldened to apply principles of proportionality to its preservation efforts with less fear of being second-guessed down the road.

Additional Rule Revisions

In addition to the amendments to Rules 26(b)(1) and 37(e), litigants and practitioners should familiarize themselves with a handful of additional notable revisions that take effect on December 1, 2015:

Rule 4(m)

Reducing the time to serve a summons and complaint from 120 to 90 days.

Rule 16(b)(2)

Reducing the timing for a court to issue discovery orders by 30 days.

Adding ESI preservation as a topic to be addressed in discovery plans.

Rule 26(f)(3)(C)

Referencing the possible inclusion of an order under Federal Rule of Evidence 502.

Rule 34(b)(2)(A)

Revising the timing for serving discovery requests.

Rule 34(b)(2)(B)

Requiring that the grounds for objecting to discovery requests be stated with specificity.

Rule 34(b)(2)(C)

Requiring that objections state whether responsive materials are being withheld on the basis of the asserted objection.

Final Thoughts

Rule 26(b)(1) has been viewed by some commentators as potentially having a drastic impact on the scope of discovery. But it may ultimately prove little more than a codification of courts' current practices. On the contrary, the requirement of "intent to deprive another party of the information's use in the litigation" in Rule 37(e) will have an immediate impact on the imposition of spoliation sanctions in jurisdictions where bad faith was not previously a prerequisite for severe sanctions. But we are not so convinced that this revision will impact ESI preservation – only time will tell whether Amended Rule 37(e) will usher in an era of reduced preservation efforts and associated costs.

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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