What Does FRCP Rule 37(e) Mean Now?

    Dec 22, 2015

    Changes in the U.S. Federal Rules of Civil Procedure (FRCP) went into effect December 1, and many experts predict they will accelerate the pace of litigation and provide cost savings for a very expensive process. Experts say the changes also will affect corporate information governance policies.

    Rule 37(e) has garnered the most attention because it provides a national standard for how courts should approach the failure by a party to preserve electronically stored information (ESI). The rule addresses spoliation, and the changes were designed to address the disparity among courts on the effects of failing to preserve ESI, as well as the risks parties face with spoliation sanctions.

    The revised rule states that upon finding prejudice to another party from loss of ESI, a court may order measures "no greater than necessary to cure the prejudice." Under a separate provision, the rule provides for harsher punishment by a court upon finding that a party "acted with the intent to deprive another party of the information's use in the litigation," including the use of adverse inferences in jury instructions and even dismissal of the action.

    Before these amendments, the U.S. Circuit Courts were split on the standard for when sanctions were appropriate. Some courts decided mere "negligence" was sufficient to trigger sanctions under the former Rule 37. Other courts looked for "intentionality" and/or "bad faith" as the trigger. The resulting uncertainty contributed to over-preservation of ESI, which resulted in many corporate parties begging for a uniform national rule.

    “What 37(e) tried to do is develop a uniform standard of imposing sanctions when a party fails to preserve this information,” Mark Michels, director at Deloitte, told Legaltech News. “The intent of the rule is that only in the most severe situation, where someone actually acts willfully, should they face more severe sanctions.”

    The revised Rule 37(e) is now called “Failure to Preserve Electronically Stored Information” and states that if data 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 has two options:

    1. Upon finding prejudice to another party from loss of the information, the court 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, the court may:

    • Presume that the lost information was unfavorable to the party;
    • Instruct the jury that it may or must presume the information was unfavorable to the party; or
    • Dismiss the action or enter a default judgment.

    Time will tell how the new rules will actually impact e-discovery and court decisions. But, in theory, the best way to avoid spoliation in light of the new rules is not over-preservation but more distinct processes and procedures to preserve in a repeatable way. Michels said companies should place a premium on “processes that are documented and repeatable … if you have processes in place that you are following routinely and are defensible, and you follow them, then in theory if something slips through the cracks, you shouldn’t have to worry about significant sanctions.”

    In fact, the Advisory Committee’s Note on Rule 37(e) emphasized that "due to the ever-increasing volume of electronically stored information and the multitude of devices that generate such information, perfection in preserving all relevant electronically stored information is often impossible" and that the amended rule "does not call for perfection."

    © 2017, ARMA International