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The New Federal Rule of Civil Procedure 37(e) – Preservation of Electronically Stored Information

By:  Offer Korin – KATZ & KORIN, PC

In days of old, document preservation meant banker boxes and filing cabinets gathering dust in warehouses, awaiting eager young lawyers to comb through them in search of that one document upon which the case would turn.  In modern days, the young associate sits in front of a computer searching for the infamous “smoking gun.”  While electronically stored information (“ESI”) may not collect dust, its preservation is critical to the pursuit of justice in a courtroom.

As of December 1, 2015, the Federal Rules of Civil Procedure have been revised to address how courts should handle failure to preserve ESI.

Specifically, the new Federal Rule of Civil Procedure 37(e) states:

(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)  instruct the jury that it may or must presume the 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 judgment.

Prior to December 1, 2015, Rule 37(e) provided that “[a]bsent 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 electronic information system.”

As the Committee Notes indicate, the prior Rule 37(e) failed to adequately address the issues resulting from the significant growth of ESI.  The different ways the Federal Circuits approached sanctions or corrective measures for parties who failed to preserve ESI have caused litigants to spend too much money and effort on preservation so as to avoid the risk of sanctions if it is later determined that they failed to do what is necessary to preserve ESI.  With the new Rule 37(e), specific measures are provided for a court to utilize, including specific findings that must be made by the court if ESI is not preserved.

Fortunately, the new rule provides that, if the ESI can be restored or replaced by some other means then there is no foul and no remedial action is to be taken.  However, if the ESI cannot be restored or replaced, and the court finds that although the loss was not intentional, the opposing party was prejudiced by the loss, then the court is to take the necessary steps to cure the prejudice.  The new Rule 37(e) provides that once prejudice is established, the court is authorized to take measures no greater than required to cure the prejudice.  The court should not penalize the party who unintentionally lost the ESI but should take steps to insure that there is no benefit gained by the loss.

Yet, if a party intentionally loses or destroys ESI, then new Rule 37(e) provides authority to the court to use specified and even severe measures.  If the court finds intent to lose or destroy ESI then prejudice is presumed, and the remedy can vary from a presumption that the lost or destroyed information was unfavorable to that party all the way to dismissing the action or entering a default judgment.  Ultimately, the court will fashion a remedy fit for the misconduct and the value of the information lost.

Time will tell how the courts interpret the new methodology in addressing lost or destroyed ESI.  The careful practitioner should immediately, upon determining that litigation is a reasonable possibility, direct the client, in writing, to place a litigation hold on ESI (and other documentation) and specifically addressing the reasonable steps that must be taken to preserve that information.  Only then can the lawyer feel comfortable knowing that the case will turn on the actual evidence rather than remedial actions for failure to preserve electronically stored information.

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