A lawyer’s greatest fear is sanction by a court. This fear is justifiable because sanctioned lawyers become “toxic” to employers and clients even if the sanctions are later vacated, as in the Qualcomm case. Sanctions related to electronic discovery (“e-discovery”) have become a hotly-debated topic in the last few years because the number of sanctions has increased dramatically. In November 2012, the Advisory Committee on Civil Rules proposed an amendment to Rule 37(e) of the Federal Rules of Civil Procedure, which governs failure to produce information during e-discovery, that is designed to alleviate the problem of too many sanctions.
Problems with the Current Rule 37(e)
The rapid growth of electronically stored information (“ESI”) is at the root of the problem of too many sanctions. To illustrate, the total volume of digital information created increased from 130 exabytes (EB; 1 EB=1 billion gigabytes) to 1227 exabytes in 2010. And it keeps growing. For example, enterprise data is estimated to double every three years. The increasing volume of ESI makes it too costly to preserve everything. But knowing when the preservation obligation is triggered and what information must be preserved is difficult. Because of this, even litigants acting in good faith may find themselves in trouble. The failure to preserve ESI was the most common misconduct that led to sanctions in e-discovery cases.
Rule 37(e) was added to the Federal Rules in 2006 to protect litigants acting in good faith from sanctions for failure to preserve. Although Rule 37(e) is called a “safe harbor” provision, it fails to provide satisfactory protection. This is because the Rule’s protective language is unclear and can be interpreted narrowly. Consequently, the rule is applied inconsistently across jurisdictions and between individual judges. Litigants cope with this situation by adhering to the most strict standards to avoid potential sanctions in later litigation. For example, Microsoft reported in 2011 that it preserves 787.5 GB of data for every 2.3 MB of data that are actually used in litigation, which is a ratio of 340,000 to 1.
Unsurprisingly, the phenomenon of over-preservation drives the cost of litigation above what is necessary, placing an undue burden on organizations that face frequent litigation. The ambiguity of law has also led to increased sanctions motions for spoliation, or the act of destroying or altering evidence, shifting the focus away from the merits of the case and often resulting in settlement amounts disproportionate to the underlying merits.
The Proposed Amendment to Rule 37(e)
The Discovery Subcommittee of the Advisory Committee on Civil Rules proposed an amendment last November as a solution to these problems. According to its drafters, the amendment provides better protection than the current rule and sets a uniform national standard regarding sanctions for failure to preserve.
Subdivision (e)(1) provides a variety of measures that courts can use instead of sanctions, such as “additional discovery” and “curative measures.” These measures encourage courts to be more flexible rather than rely heavily on sanctions. Another subdivision, (e)(2)(A), sets the uniform standard of culpability that requires that “the failure [to preserve be] willful or in bad faith.” This standard of culpability essentially rejects the negligence or gross negligence standard set by the 2nd Circuit. Under this provision, the court must also find “substantial prejudice in the litigation” in addition to willfulness or bad faith before imposing sanctions. Subdivision (e)(2)(B) of the amendment creates a narrow exception allowing for sanctions in the absence of willfulness or bad faith, but only when the loss of information “irreparably deprived a party of any meaningful opportunity to present a claim or defense.” Finally subdivision (e)(3) of the amendment gives a non-exhaustive list of factors to consider when determining whether there was willfulness or bad faith.
Reactions to the proposed amendment vary. Many critics agree with the drafters that the proposed amendment to Rule 37(e) expands the protection under the current “safe harbor” rule. However, many also question whether the additional protection will do enough to solve the problem. Critics have identified a number of issues regarding proposed amendment, including its failure to give clear guidance in construing core concepts such as “reasonable anticipation of litigation” and “irreparably deprived.” Subdivision (e)(2)(B) of the amendment, though purporting to be a very narrow exception, still makes it possible for courts to bypass the requirements under subdivision (e)(2)(A), which would weaken the protective effect. Additionally, the factors listed in subdivision 37(e)(3) are a potential source of confusion, as even the drafters themselves could not reach consensus on them.
Will It Solve the Problems?
The proposed amendment to Rule 37(e) arguably provides more protection than the current rule. However, we have to wait to see the extent to which the amendment solves the over-sanctioning problem because its success will depend on the courts’ interpretation. Further, other unpredictable factors, such as its effect on plaintiffs in manufacturing defect cases, can also lead to complications that increase or decrease the effectiveness of the new Rule. In the meantime, lawyers would be well advised to look to the Sedona Conference for guidance in the e-discovery area, as it is an often cited authority in the court opinions.