Why Businesses May Like the "Duke Rules Package": Clear Consequences for ESI Destruction

Posted on by John M. Erbach in Litigation

Part 2 of 4: Clear Consequences for ESI Destruction

Last week I introduced a four-part series about the "Duke Rules Package" which includes drastic changes to the Federal Rules of Civil Procedure pending adoption by the Supreme Court. The so-called "Duke Rules Package" gets its name from the 2010 Federal Rules Advisory Committee meeting held at Duke University. The Federal Judicial Conference has approved the amendments, which are designed to streamline federal litigation while reducing costs. For these reasons, businesses should take note--these rules appear to be business-friendly and may influence how you manage litigation costs.

In this Part 2 of 4, I discuss proposed amendments to Rule 37(e) governing electronically-stored information ("ESI"). For the last several years, the business community has increasingly hired eDiscovery firms to manage their document retention policies, citing fear of court decisions and costs. Initially, the drafters of the Duke Rules Package intended to establish detailed document preservation guidelines--a sort of code for eDiscovery establishing when the duty to preserve documents arises, its scope and duration in advance of litigation, and actions available to the court when such information is lost. This broad approach was quickly rejected as not feasible. Instead, citing a "lack of uniformity" among court decisions, the Committee focused on the consequences of destroying electronic documents. The well-established duty to preserve ESI when litigation is reasonably anticipated will remain intact.

Currently, rule 37(e) attempts to limit the penalties that courts may impose for destruction of electronic data, but it has been inconsistently applied. The Rule states 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 an electronic information system." As the Advisory Committee noted in its proposed amendments, "some circuits hold that adverse inference jury instructions can be imposed for the negligent loss of ESI and others require a showing of bad faith," which has "resulted in a tendency to over preserve ESI out of a fear of serious sanctions if actions are viewed in hindsight as negligent." By establishing clear penalties, it appears that the Duke Rules are intended to address such "over preservation."

As approved by the Judicial Conference, proposed Rule 37(e) attempts to clearly establish the consequences that may follow negligent versus intentional destruction of electronic evidence. The proposed rule 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) 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 judgment.

If the amendment is adopted, Rule 37(e) will limit the Court's authority to remedy the negligent destruction of ESI to "measures no greater than necessary." By contrast, it will reserve for only the most egregious cases the penalties of adverse jury instructions, dismissal, or default. And to impose the more exacting penalties, the court must make a finding of fact that a party "acted with the intent to deprive" his adversary of the data.

It is important to remember that proposed Rule 37(e) does not change a party's duty to preserve ESI. But, the proposed rule is designed to prevent the unfair result of a technical mishap determining the outcome of a case. If adopted, the business community should reach out to eDiscovery counsel to explore how these clearer lines might reduce the burden of over-preservation and reasonably focus preservations efforts.

Next week, in Part 3 of 4, I will address how proposed Rules 16 and 26 seek to speed up litigation.

About the Author

John M. Erbach represents a wide variety of business entities and individuals in complex business and commercial litigation, including employment disputes, defense of consumer protection claims, and intellectual property litigation.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.