At the September 2011 Mini-Conference on Preservation and Sanctions held in Dallas by the Judicial Conference’s Civil Rules Advisory Committee (the “Rules Committee”), 1Materials from the mini-conference are available at
http://www.uscourts.gov/RulesAndPolicies/FederalRulemaking/Overview/DallasMiniConfSept2011.aspx a number of invitees convincingly described the prevalence of costly “over-preservation” of electronically stored information as a major issue.
According to them, the uncertainties related to common law preservation obligations created a risk of being unfairly branded as “spoliators” 2Courts have long recognized the impact of an adverse spoliation inference on juries. See, e.g., Morris v. Union Pacific, 373 F.3d 886, 900 (8th Cir. 2004) (An adverse inference “brands one party as a bad actor, guilty of destroying evidence that it should have retained for use by the jury”). if they acted otherwise.
The argument was made that only renewed rulemaking with more precise guidance to the parties and courts about preservation could provide relief.
Rule 37(e) had been included in the amendments to the federal rules made in 2006 to address e-discovery 3The proposed rules and Committee Notes, together explanatory remarks, were transmitted to Congress in April 2006. See
Rules Transmittal, 234 F.R.D. 219, 307, 398 (2006) (74 U.S.L.W. 2617). Congress failed to act to reject or modify the rules, which became effective on Dec. 1, 2006. to help deal with that type of problem. The rule limits rule-based sanctions for losses of ESI resulting from the “routine, good-faith” operation of information systems.
However, many courts have incorrectly viewed Rule 37(e) as essentially inapplicable once a duty to preserve attaches. While other courts correctly apply the rule even when good-faith preservation efforts fail to prevent routine losses, the resulting confusion has contributed greatly to the uncertainty about preservation obligations.
This paper traces the competing interpretations of Rule 37(e) and the root causes of its perceived ineffectiveness. 4Rule 37(e) or a variant thereof, has been adopted for use in federal courts and those in Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Minnesota, Montana, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Tennessee, Utah, Vermont, Wisconsin, and Wyoming. The paper then summarize proposals developed to deal with these problems, including innovations already adopted by several states.
The fundamental issue is how best to effectively remedy or restore the intended benefits of the original Rule.
Rule 37(e)
Concerns about the risk of serious sanctions for inadvertent losses of ESI prompted early advocacy for a preservation “safe harbor” as part of the 2006 federal rule amendments. ESI can be easily lost, either by individual idiosyncratic decisions or by automatic processes without any intent to interfere with litigation.
Given the different federal circuit views of the consequences of such losses, 5See, e.g., Matthew S. Makara, My Dog Ate My Email: Creating a Comprehensive Adverse Instruction Standard for Spoliation of Electronic Evidence, 42 Suffolk U. L. Rev. 683, 685 (2009) (collecting cases illustrating that “[n]otwithstanding the new standard offered by Rule 37(e), courts still use culpability based tests when contemplating adverse inference instructions for failure to maintain electronic files”). it was suggested that a “bright-line” exemption from sanctions, limited to ESI, was in order. 6Scheindlin and Wangkeo, Electronic Discovery Sanctions in the Twenty-First Century, 11 Mich. Telecomm. & Tech. L. Rev. 71, 72 (2004) (“spoliation has become a significant e-discovery problem, and businesses have expressed the need for a ‘safe harbor’ to protect themselves from sanctions for the inadvertent loss of electronic documents [citing to 2003 Allman article in The Antitrust source]”).
The Rules Committee ultimately responded with Rule 37(e), which purports to limit sanctions for ESI losses resulting from “routine, good faith” operations of information systems. 7Full Text (2011): “(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.” The rule does not apply when it resorts to its “inherent” sanctioning power 8Johnson v. Wells Fargo Home Mortgage Inc., 2008 WL 2142219, at *8 (D. Nev. 2008); Nucor v. Bell, 251 F.R.D. 191, 196 n. 3 (D.S.C. 2008) (refusing to apply Rule 37(e) to sanctions issued under inherent power even if the conduct would otherwise be covered by the rule). nor does it prevent the “kinds of adjustments” frequently used in managing discovery. 9Committee Note, Rule 37(f)(2006). When “exceptional circumstances” exist—involving “serious prejudice” resulting from loss of “potentially important information”—a court may nonetheless provide “remedies.” 10Changes Made [to Rule 37(f)] After Publication and Comment, Rules Transmittal, 234 F.R.D. 219, 375 (2006). See, e.g., KCH Services v. Vanaire, 2009 WL 2216601 (W.D. Ky .2009) (refusing to apply Rule 37(e) because plaintiff is “bereft” of the “very subject of the litigation”).
As initially proposed by the Rules Committee in 2004, the rule limited sanctions for ESI losses from “routine” operations based on whether “the party took reasonable steps to preserve the information after it knew or should have known the information was discoverable in the action.” 11See Thomas Y. Allman, Inadvertent Spoliation of ESI After the 2006 Amendments: The Impact of Rule 37(e), 3 Fed. Cts. Law Rev. 25, at 24 (2009) (quoting from initial Committee Report (2004). This was seen as a “negligence test.” 12Introduction to Rule 37(f), Rules Transmittal,
234 F.R.D. 219, 371 (2006) (initial proposal was deemed to be “a negligence test”).
After the Public Hearings, the Advisory Committee decided to move to a standard based on “good-faith,” while preserving the requirement that covered losses result from “routine operations.” 13Changes Made [to Rule 37(f)] After Publication and Comment, Rules Transmittal,
234 F.R.D. 219, 375 (2006). This reflected concerns that a negligence standard, as embodied in the Zubulake decisions, would not be effective in preventing sanctions for merely inadvertent failures to preserve. 14See, e.g., UBS v. UBS Warburg (“Zubulake IV”), 220 F.R.D. 212, 220 (S.D.N.Y. 2003) (“[o]nce a duty to preserve attaches, any destruction of documents is, at a minimum, negligent”).
Routine Operations
Rule 37(e) is available only for ESI losses which result from “routine” operation of information systems. The Report to Congress cited systems that recycle, overwrite, alter, or create, discard, or update ESI and are “designed, programmed, and implemented to meet the party’s technical and business needs.” 15Introduction to Rule 37(f), Rules Transmittal, 234 F.R.D. 219, 370 (2006)( listing examples of information system operations which are covered by the rule under current technology).
Webster, defines “routine” as including “ordinary” actions, such as those taken “according to a standard procedure.” 16Wedster’s II New Riverside Dict. (1996); see also Lewy v. Remington Arms, 836 F.2d 1102, 1112 (8th Cir. 1988) (referencing appropriateness of destruction pursuant to a document retention policy which occurs “[as] a matter of routine with no fraudulent intent”) (emphasis added).
While usually involving “larger scale ‘electronic information systems,’ ” the rule also applies to use by individuals of systems on home computers. 17Coburn v. PN II Inc., 2010 WL 3895764, at *3 (n. 3) (covering deletions from a home computer by use of “cleaner” software).
A party that engages in a deliberate exploitation of routine operations in order to thwart discovery obligations, however, is estopped from arguing that the operation is routine.
In Doe v. Norwalk Community College, 18248 F.R.D. 372 (D. Conn. 2007). the court refused to apply the rule to deletion of e-mail because the differences between the policy on retention of e-mail and the actual practice applied suggested a deliberate attempt to destroy the evidence. 19Id. at 378 (lack of a consistent, routine policy bars application).
The focus on pre-existing or “routine” activity builds on cases interpreting corporate retention policies adopted and implemented in good faith. 20Arthur Andersen LLP v. United States, 544 U.S. 696, 704 (2005) (“[d]ocument retention policies … are common in business [and] … [i]t is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances”). Losses due to such pre-existing corporate policies adopted for “legitimate business reasons” are presumptively not spoliation. 21See The Sedona Principles (2nd Ed. 2007), Comment 14.e (“the fact that the destruction occurred in compliance with a preexisting policy should be considered prima facie evidence of the good faith of the organization”).
Good Faith
The essential precondition of sanction limitations is that the operation of the system must have been in “good faith” at the time of loss. As noted earlier, the Rules Committee rejected use of a negligence standard in assessing the conduct which qualified for the benefits of the rule. 22Rules Transmittal, 234 F.R.D. 219, 371 (2006) (“the text version [of the initial proposal] adopted essentially a negligence test, requiring that the party seeking protection under the proposed rule have taken reasonable steps to preserve information after it knew the information was discoverable in the action”). It sought, instead, to promote a more lenient approach, given that mere negligence does not fairly permit an inference of intentional conduct designed to interfere with the litigation. 23See, e.g., Victor Stanley v. Creative Pipe, 269 F.R.D. 497, 525-526 (D. Md. 2010) (“the duty to preserve evidence … is a duty owed to the court, not to a party’s adversary”) (emphasis in original).
Unfortunately, the Advisory Committee Note to Rule 37(f) (2006) ambiguously states that, inter alia,
[w]hen a party is under a duty to preserve information because of pending or reasonably anticipated litigation, intervention in the routine operation of an information system is one aspect of what is often called a ‘litigation hold.’ 24Committee Note, Rule 37(f)(2006). The Note also states that “[g]ood faith in the routine operation of an information system may involve a party’s intervention to modify or suspend certain features of that routine operation, if that information is subject to a preservation obligation.”
The Note has been misread to mandate unequivocal actions involving that form of “intervention” in routine operations once a duty attaches. 25Disability Rights v. WMTA, 242 F.R.D. 139, 146 (D.D.C. 2007); Peskoff v. Faber, 244 F.R.D. 54, 60 (D.D.C. 2007); United States v. O’Keefe, 537 F. Supp. 2d 14, at *22 (D.D.C. 2008); Doe v. Norwalk Community College, 248 F.R.D. 372, 379 (D. Conn. 2007); In re Krause, 367 B.R. 740, 768 (Bky. D. Kan. 2007); Pandora v. Chamilia, 2008 WL 4533902, at *8, n.7 (D. Md. 2008); Keithley v. Home Store, 2008 WL 3833384, at 4-*5 (N.D. Cal. 2008); KCH Services v. Vanaire, 2009 WL 2216601 (W.D. Ky. 2009); In re Kessler, 2009 WL 2603104, at *18 (E.D.N.Y. 2009); Major Tours v. Colorel, 2009 WL 2413631, at *4 (D.N.J. 2009); Wilson v. Thorn Energy, 2010 WL 1712236, at *3 (S.D.N.Y. 2010); Cannata v. Wyndham Worldwide Corp., 2011 WL 3495987 (D. Nev. 2011”).
However, this means that once a duty to preserve attaches, any ESI losses—for any reason—cannot be the result of acting in good faith in courts that adopt the Second Circuit view of negligence. This amounts to unfairly imposing a strict liability standard on Rule 37(e). 26Burns, et.al., E-Discovery: One Year of the Amended Federal Rules of Civil Procedure, supra, 64 N.Y.U. Ann. Surv. AM L. 201, 217(2008) ( linking “good faith” to executing the duty to preserve “has rendered the Rule ineffective”).
As Judge Scheindlin put it, “what this toothless thing really tells you is the flip side of a safe harbor. It says if you don’t put in [an effective] litigation hold when you should there’s going to be no excuse if you lose information.” 27Panel Discussion, Sanctions in Electronic Discovery Cases: Views from the Judges, 78 Fordham L. Rev.1, 30-31 (October 2009) (“what this toothless thing [Rule 37(e) really tells you is the flip side of a safe harbor. It says if you don’t put in [an effective] litigation hold when you should there’s going to be no excuse if you lose information.”).
The Better View
The better view is that while efforts to preserve “bear” on the issue of “good faith,” they do resolve it. 28Rules Transmittal, 234 F.R.D. 219, 372 (2006) (“The steps taken …bear on good faith, as does compliance with any agreement the parties have reached regarding preservation and with any court orders directing preservation.”). Ohio explained, in its version of Rule 37(e), that a court may consider whether the party had “intervened in a timely fashion to prevent the loss of information.” 29Ohio Civ. R. 37(F) (2010) (listing five “factors” for the court to “consider” in “determining whether to impose sanctions under this division;” namely (1) whether and when the duty was triggered (2) whether resulted from “ordinary use” (3) timely intervention (4) steps taken under agreements or orders and (5) “any other factors relevant” to the determination.
As explained in Bootheel v. Semo Ethanol Cooperative, the proper inquiry in determining good faith “hinges on [the matter of] intent. 302011 WL 4549626, at *5 (E.D. Miss. 2011) (ordering live testimony to determine if a party acted in good faith in discarding computer or whether circumstantial evidence indicated otherwise). The fact that a duty to preserve existed 31Olson v. Sax, 2010 WL 2639853, at *3 (E.D. Wis. 2010) (overwritten occurred while “[the party] had a duty to preserve the evidence” but there was “no evidence the party engaged in ‘bad faith’ destruction of evidence for the purpose of hiding adverse evidence”). or that the party “failed to implement a proper litigation hold” 32Southeastern Mechanical Services v. Brody, 2009 WL 2242395, at *3 (M.D. Fla. 2009) (Rule 37(e)) (while the party may have failed to implement a proper litigation hold there is no evidence “that [the party] intentionally destroyed the backup tapes in bad faith”). is not decisive if the party acted in good faith. 33Escobar v. City of Houston, 2007 WL 2900581 (S.D. Tex. 2007) (Rosenthal, J.) (applying Rule 37(f) in the absence of a showing of bad faith). The mere fact that a litigation hold was not implemented does not mandate, per se, issuance of sanctions in the absence of intent to interfere with the ability to litigate. 34See, e.g., Culler v. Shinseki, 2011 WL 3795009, at *7 (M.D. Pa. 2011) no evidence that deletion of mailbox pursuant to routine practice was an intentional act designed to impair ability to litigate).
“[G]ood faith” excludes conduct emblematic of bad faith, “developed on an ad hoc basis over time by the case methodology.” 35Thomas Y. Allman, Defining Culpability, supra, 2006 Fed. Cts. L. Rev. 7, at *14, n. 86. In the absence of such a showing, the conduct is presumed to be in “good faith.”
One court explained that “[b]ad faith [conduct] is the antithesis of good faith” and involves actions undertaken dishonestly and “not merely negligently.” 36Cache La Poudre Feeds v. Land O’Lakes, 244 F.R.D. 614, 635 (D. Colo. 2007); see also Gerseta Corp. v. Wessex-Campbell Silk Co., 3 F.2d 236, 238 (2nd Cir. 1924) (“if [a holder] does not take in bad faith, his good faith is sufficient shown”). Bad faith in this sense turns upon “intent to deprive the other side of evidence.” 37In re Hitachi Television Optical Block Cases, 2011 WL 3563781, at *13 (S.D. Calif. 2011) (bad faith “require[s] more than destruction with notice of relevance”).
As Streit v. Electronic Mobility Controls explained, Rule 37(e) requires “a showing of bad faith by the non-moving party [as] a prerequisite to imposing sanctions for the destruction of [ESI]” for routine losses. 382010 WL 4687797, at *2 (S.D. Ind. 2010) (sanctions barred where operations logs over-written during the ordinary course of software procedures and no proof that the party had acted in bad faith).
Similarly, in Viramontes v. U.S. Bancorp, the court denied sanctions since there was “no evidence that the e-mails were destroyed in bad faith, or, put another way, that the destruction was done by [the party] for the purpose of hiding unfavorable information.” 392011 WL 291077, at *3 & *5 (N.D. Ill. 2011); c.f. Meccatech v. Kiser, 2008 WL 6010937, at *9 (D. Neb. 2008) (Rule inapplicable where party acted in bad faith to intentionally destroy evidence in furtherance of a desire to suppress the truth).
Additional Rulemaking
The current focus on addressing over-preservation can be traced to the recommendation of the E-Discovery Panel at the Duke Conference (2010) for a new federal rule on the topic. 40See Elements of A Preservation Rule, April, 2010 (compliance with a rule should “insulate” a party from sanctions), copy at http://pub.bna.com/lw/ElementsPreservationRule.pdf. The Rules Committee agreed to look into the issue 41Report to the Chief Justice of the United States (2010), copy at http://pub.bna.com/lw/2010chiefjusticereport.pdf. and asked its Discovery Subcommittee to develop possible scenarios embodying those elements.
In September 2011, the Discovery Subcommittee presented three alternative approaches proposals for discussion with invitees at a Dallas mini-conference on the topic. 42“Preservation/Sanctions Issues Memo,” copy at http://pub.bna.com/lw/PreservationSanctionIssues.pdf.
Two of the three Discovery Subcommittee proposals involved spelling out the preservation obligations in the federal rules, including those arising prior to litigation. 43See also Thomas Y. Allman, Preservation Rulemaking After the 2010 Litigation Conference, 11 Sedona Conf. J. 217, 225 (2010) (suggesting a general reference to a standard of care such as “reasonable and proportionate efforts to preserve … subject to the considerations of Rule 26(b)(2)(C) and Rule 37(e)”).
The proposals downplayed the concerns about the authority under the Rules Enabling Act 4428 U.S.C. § 2072 (a-b) (The U.S. Supreme Court shall have the power to prescribe “general rules of practice and procedure” provided they do not modify “substantive” rights). to do so 45Cf. John K. Rabiej, Proposed Federal Rules Amendments for Evidence Preservation, Side Bar, Fed. Bar Assn. J., Spring 2011 (cautioning about scope of authority), copy at http://pub.bna.com/lw/SidebarSpring2011.pdf. and employed modified versions of Rule 37(e) to govern sanctions for a party that did not adhere to the requirements of the preservation rule. 46Preservation/Sanctions Issues Memo, supra, 20-21.
In addition to barring sanctions for parties that “complied” with the preservation rule, the proposals suggested sanction limitations based on establishing “good faith in relation to the violation” or, alternatively, requiring proof of a specified degree of culpability (to be selected in the drafting process). The court would be authorized to use the sanctions in Rule 37(b) provided that the selection was “guided by proportionality” and was the “least severe sanction necessary to redress” the harm caused by the violation.
Lawyers for Civil Justice (“LCJ”) 47Lawyers for Civil Justice, Preservation–Moving the Paradigm to Rule Text (LCJ Rules Text”) (April 1, 2011), copy at http://pub.bna.com/lw/LawyersforCivilJustice.pdf. and the New York Bar Association 48NYSBA Interim Report, copy at http://pub.bna.com/lw/NYBAInterim.pdf. also submitted detailed proposals that addressed preservation obligations and sanction limitation. LCJ suggested that in the absence of “willful destruction for the purposes of preventing the use of information in litigation, a court may not impose sanctions on a party for failing to preserve or produce relevant and material information.” 49LCJ Rules Text, supra, 35. The LCJ proposal also required the party seeking sanctions to prove “a willful breach of the duty to preserve has occurred.” See proposed Rule 37(e)(1).
For a variety of reasons, not germane to this discussion, the likelihood of a comprehensive incorporation of preservation obligations in the federal rules seems unlikely in the short run.
The ‘Sanctions Only’ Approach
The Discovery Subcommittee also proposed, alternatively, a rewrite of Rule 37(e) to incorporate preservation guidance through a “back-end” list of “factors” to be considered by courts in applying the rule. As noted earlier, Ohio utilized this approach in 2008 as part of its adoption of Rule 37(e).
The Discovery Subcommittee proposal authorized use of the sanctions in Rule 37(b) (and use of adverse inference jury instructions) but limited sanctions “unless the party’s failure to preserve discoverable information was willful or in bad faith and caused [substantial] prejudice in the litigation.” 50Preservation/Sanctions Issues Memo, supra, 23.
One of the factors to be considered in that process would be the reasonableness of the actions undertaken to preserve, “including the use of a litigation hold.” 51Preservation/Sanctions Issues Memo, supra, 24–25 ((1) the extent of notice that the information was discoverable and litigation likely; (2) the “reasonableness” of the efforts to preserve, including use of a litigation hold” and the scope of the efforts; (3) the clarity of the request, if any, that information be preserved and any offer of good-faith consultation; (4) the resources and sophistication of the party; (5) the proportionality of any preservation efforts to anticipated litigation; and (6) whether a party sought timely guidance for a court).
While intended to provide guidance to potential producing parties, 52Preservation/Sanctions Issues Memo, supra, 26. the risk is that this could mean that mere negligence (or failure to fully implement a litigation hold) would be held to negate reasonability, thereby reviving the uncertainties created by the original Committee Note.
On the other hand, the issue could be addressed by making it clear that a high threshold of culpability is required to overcome the presumptive limitation. 53The Sedona Conference Working Group on E-Discovery (“WG1”), for example, has informed the Rules Committee that it is taking up the issue of a “sanctions-only” rule, with “factors,” based on a consensus approach of its diverse members and hopes to submit it prior to the next Rules Committee meeting.
Connecticut has undertaken one approach in that direction. 54See Thomas Y. Allman, Change in the FRCP: A Fourth Way (2011), copy at http://pub.bna.com/lw/ThomasAllman.pdf. In that state, as of January 1, 2012, a judicial authority is barred from imposing sanctions for failure to provide information, including ESI, lost as the result of the “routine, good-faith operation of a system or process in the absence of a showing of intentional actions designed to avoid known preservation obligations.” 55See Connecticut Practice Book, Sec. 13-14 (2011) (eff. Jan. 1, 2012), copy at http://pub.bna.com/lw/PB070511.pdf.
Other Enhancements
Other important enhancements to Rule 37(e) could include, as California 56Cal Code Civ. Proc. §§1985.8(l); 2031.60(i); 2031.300(d); 2031.310(j); 2031.320(d) (extending the scope of the safe harbor to apply to “any attorney of a party” and broadening scope to include sanctions issued under inherent powers). and Oklahoma 5712 Okla. St. § 3237(G)(2010) (broadened to include sanctions issued under inherent powers). have already done, elimination of the express limitation of the rule to sanctions under the Rules. 58As Justice Brandeis noted in New State Ice v. Liebman, 285 U.S. 262, 387 (1932), “a single courageous state may, if its citizens choose, serve as a laboratory … without risk to the rest of the country.”
Rule 37 sanctions could be made available as an alternative or supplement to spoliation remedies resting on use of inherent powers. This would also help reduce court reliance on powers not rooted in the rulemaking, a goal advocated by the U.S. Supreme Court.
Conclusion
A significant number of lower courts have accepted Rule 37(e) for what it is: a conscious policy decision, supported by Congress, that the Rule applies even where a duty to preserve exists—and losses of ESI occur.
It is equally clear that this conclusion is independent of whether a litigation hold—or any other action—is or is not undertaken.
The intent of the rule is to apply in the absence of showing of intentional conduct designed to prevent or interfere with its use in discovery. 59See, e.g., Point Blank Solutions v. Toyobo, 2011 WL 1456029, at *12, n. 11 (S.D. Fla. 2011) (noting that “negligent or grossly negligent failure to timely and adequately implement a litigation hold will not, by itself, support the inference of bad faith”). As the chair of the Rules Advisory Committee recently wrote, “[p]er se rules are too inflexible for this factually complex area of the law.” 60Surowiec v. Capital Title Agency, 790 F. Supp. 2d 997, 1007 (D. Ariz. 2011).
However, far too many courts have committed themselves to the view that Rule 37(e) is either meaningless—because it does not apply if any losses occur despite good faith efforts—or ineffectual—because it can be avoided by simply invoking inherent powers.
Thus, it appears necessary to support some form of rulemaking to restore the original intent of the Rule. It is of little moment whether this emerges from a wholesale revision incorporating both preservation and sanction rules or from a “sanctions only” approach.
