Category Archives: Spoliation

Spoliation Redux in Virginia: Rule 37(e) in the Spotlight

Rule 37(e) remains a lightning rod among the eDiscovery amendments to the Federal Rules. The Rule, which governs ESI spoliation instructions, produced by far the most heated discussions in the 12-year FRCP eDiscovery amendments process. The Rule is now the subject of a May 1, 2018 Judge Robert E. Payne opinion in Steves and Sons, Inc. v.  JELD-WEN, Inc. 2018 WL 2023128. The Rule also seems to have been adopted at least in part by the Supreme Court of Virginia in Emerald Point v. Hawkins, 294 Va. 544 (2017).    Proposed Virginia legislation that would have overruled Emerald Point breezed through the Virginia House of Delegates on a 99-0 vote in February 2018 but stalled just short of becoming law.

Current Rule 37(e) finally made its way into the Federal Rules effective December 1, 2015. The process to shape a spoliation rule, however, had dogged the rule-makers for a more than a decade. An earlier version was included in the 2006 eDiscovery rules amendments but was recognized as a weak placeholder. The rule-makers returned to the task starting with the 2010 Duke Conference. The history and shape of the eventual rule are fully covered in our RPB Rule 37(e) White Paper, The Long-Awaited Proposed FRCP Rule 37(e) and Its Guidance for ESI Preservation (attached and also available for download from the website).

The battle behind Rule 37(e) is all about the appropriate sanction for the loss or destruction of relevant ESI. The Holy Grail for plaintiffs is an adverse inference jury instruction devoid of any bad faith element—an in limine ruling granting such an instruction likely produces a favorable settlement or puts a defendant in a high-risk gamble. From the other side, a principal target is a requirement for a showing of bad faith.

1. Steves and Sons Inc. v. JELD-WIN, Inc. — EDVa May 2018 Decision

A procedural oddity in this massive case (more than 1500 PACER entries) led to double jury trials in antitrust/trade secrets litigation before Judge Payne. The antitrust trial went to a jury in February 2018, with the result of a $58 million plaintiff’s verdict (which can be trebled to $170 million) for Steves.  In May 2018, another jury heard JELD-WEN’s trade secrets claims against Steves. In competing press releases, both sides claim victory in the second trial.

Prior to the second trial, JELD-WEN moved in limine for a spoliation instruction. Judge Payne denied the motion. The case went to trial, but hobbled by the ruling.

The facts featured John Pierce, a former JELD-WEN employee who consulted for Steves. Discovery showed that before litigation erupted Pierce proposed purging the files of emails, notes, and information that Pierce might have passed to Steves.

Rule 37(e) has four threshold requirements to be met before a court decides if any spoliation sanction is appropriate: (1) ESI should have been preserved; (2) ESI was lost; (3) the loss was due to a party’s failure to take reasonable steps to preserve the ESI; and (4) the ESI cannot be restored or replaced through additional discovery. Sanctions are available under subparts (e)(1) and (e)(2), with the possibility of an adverse inference instruction fund only in subpart (e)(2). Subpart (e)(2) requires proof of “an intent to deprive another party of the information’s use” element. Rule 37(e) does not specify the burden of proof—Judge Payne concludes that the party seeking spoliation sanction must prove all elements by clear and convincing evidence.

Judge Payne’s analysis starts with the threshold issues, with a focus on two issues. Was there a duty to preserve? And then, did JELD-WEN show that Pierce’s lost ESI could not be replaced or restored? Regarding preservation, Judge Payne turned to the eDiscovery stalwart Zubulake and Victor Stanley decisions:

“… a party generally “must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” … More or less might be required for preservation in unusual cases, but those principles reflect the standard reasonableness framework.

The finding that Pierce failed to take reasonable preservation steps followed.
It was on the restoration/replacement requirement that the Court found JELD-WEN failed. “This factor does not require that JELD–WEN pursue every possible avenue for replacing or restoring the ESI, but it must show that it made some good-faith attempt to explore its alternatives before pursuing spoliation sanctions.” The Opinion then faults JELD–WEN for not taking “the obvious step of seeking a forensic examination in this litigation of Pierce’s several hard drives, which might have confirmed the impossibility of restoration.”

Having found that JELD-WEN did not clear the threshold issues, John Payne could have stopped. But he continued with the observation that the Fourth Circuit “has not spoken about the level of intent that a court must find to impose a sanction under Rule 37(e)(2).” Pre-2015 amendment cases indicate, however, “that that the spoliating party’s conduct does not need to be in bad faith to qualify as intentional.” The Court concludes that evidence of Pierce’s intent was missing as well, and “[a]n adverse inference instruction would, therefore, not be warranted even if JELD–WEN could satisfy all the threshold Rule 37(e) requirements.”

Steves and Sons demonstrates how difficult the Rule 37(e) test can be in practice. JELD-WEN had seemingly strong evidence on all points, even on Pierce’s intent, but faced a heightened evidentiary standard and came away short-handed. The case will no doubt be cited in future EDVa spoliation fights for the general proposition that trial courts dislike spoliation instructions.

2. Supreme Court of Virginia – Emerald Point LLC v. Hawkins.

Virginia adopted into the Virginia Rules in 2009 nearly all of the 2006 Federal Rules eDiscovery amendments. Virginia did not adopt, however, the 2006 predecessor to Rule 37(e), and Virginia has not incorporated the current Rule 37(e). The Emerald Point case presented the Supreme Court of Virginia with a fairly clean slate to consider spoliation sanctions.

In Emerald Point, a landlord was sued over CO levels from a newly installed furnace. The evidence was that Hawkins suffered permanent injuries from the dangerous CO levels. Hawkins sought a jury instruction that directed the jury to accept as undisputed that the furnace had a “burned through” combustion chamber and that this was the source of the dangerous levels of CO in the apartment. The landlord had stored the furnace for about a year after the events, but the furnace was disposed of before the lawsuit was filed. While the landlord failed to preserve the furnace, there was no evidence of any “bad faith” by the landlord.

The Supreme Court of Virginia turned to FRCP Rule 37(e) for guidance. The Court first acknowledged that Rule 37(e) applies only to spoliation of ESI; nonetheless, it directed that “resolution of a spoliation issue in the Commonwealth should be guided by the same standard and applicable to all forms of spoliation evidence.” That standard, the Court concluded, requires some level of intentional loss or bad faith:

“… that the evidence must support a finding of intentional loss or destruction of evidence in order to prevent its use in litigation before the court may permit the spoliation inference. In short, we agree that “[t]o allow such a severe sanction as a matter of course when a party has only negligently destroyed evidence is neither just nor proportionate.” Brookshire Bros., Ltd. v. Aldridge, 438 S.W.3d 9, 24 (Tex. 2014). (Emphasis added.)

The Supreme Court’s favorable reliance on Rule 37(e) suggests the overall Rule provides the best available guidance for spoliation instructions in the Virginia state courts, and this means that the party pursuing an adverse inference instruction likely must meet the four threshold requirement in Rule 37(e) and then has to prove an intent to destroy the evidence or bad faith.

That is, unless the Legislature directs otherwise.

3. Virginia HB 1336—Spoliation of Evidence; Jury Instruction.

Emerald Point sparked an effort to write a much more lenient spoliation instruction standard into Virginia law. In February 2018 the Virginia House of Delegates voted 99-0 in favor of HB 1336, legislation that would remove any proof of intentional destruction or bad faith requirement for a permissive spoliation instruction. The bill, as amended by the Senate Committee for the Courts of Justice, provided:

If a party, or such party’s agents, employees, or servants, has possession, custody, or control of evidence that such party, or such party’s agents, employees, or servants, has been put on notice that such evidence is material to pending or probable litigation, and such evidence is disposed of, altered, concealed, destroyed, or not preserved by such party, or such party’s agents, employees, or servants, or by another person or entity at the direction or with the consent or knowledge of such party, or such party’s agents, employees, or servants, a court may instruct that a jury may infer, subject to any explanation that may be made by such party, that, if such evidence had been introduced, such evidence would be detrimental to the case of such party.

And, importantly:

The party seeking such instruction need not show that the disposal of, alteration of, concealing of, or failure to preserve such evidence was undertaken intentionally or in bad faith in order for such instruction to be given. (Emphasis added.)

The bill would require that a party at one time had possession of the evidence and had actual notice of litigation, but it would eliminate required proof of intentional destruction or bad faith. Read literally, the proposed law would erase the intent element that anchors Rule 37(e).

The bill did not make it into law in the 2018 Legislative Session but came very close. The 2018 Session ended with the bill still in the Senate Committee. The same bill, or a similar bill, could be introduced in the 2019 Session.

4. Summary

The spoliation war rages on.  Rule 37(e) was a victory for parties fighting off spoliation challenges. Steves and Sons raises the bar in the federal courts even higher and it confirms again the courts’ dislike of spoliation instructions. Emerald Point opens the door to Virginia’s wholesale application of Rule 37(e) in state court litigation. Given the intensity of the fight, Virginia’s consideration of a legislative reversal that eliminates the requisite showing of intentional destruction or bad faith should come as no great surprise.

Is the Specter of New Rule 37(e) Influencing District Courts in Spoliation Rulings?

We have written multiple times on the EDVa Update Blog about the Court’s handling of spoliation claims. Recently we covered the 4th Circuit’s remand of a District Court ruling applying an adverse inference following a failure to preserve certain evidence.  We have also written on the workings of amended Fed. R. Civ. P. 37(e).  With sweeping changes ahead with the amendment to Rule 37(e) (effective date: December 1, 2015), the Court’s analysis of spoliation claims and associated sanctions will undergo major changes.

The Eastern District’s 61-page opinion in Integrated Direct Marketing, LLC v. May & Merkle, Inc., Case No. 1:14-cv-1183 (E.D. Va. Sept. 8, 2015), is likely one of the last pre-Rule 37(e) amendment spoliation rulings we will see. In this case, the ruling is consistent with the analysis that will soon apply, but the District Court in the case took a very different route to get to the same place. Even though the record included substantial evidence of ESI spoliation, the Court based its ruling on its finding of false statements in an affidavit, which allowed it to side-step the current legal swamp on spoliation.

IDM Case Posture: Summary Judgment and Spoliation Arguments

The IDM case presented an unfortunate but common fact pattern.   It is alleged in the pleadings that Drew May, an Executive Vice President at IDM, was pushed out of the company.   As he left, he allegedly downloaded a large number of IDM’s electronic documents to an external hard drive. May then signed on as new vice president at Merkle, a competitor to IDM.   While IDM was threatening suit, the former VP allegedly deleted (on the day before the filing of the Complaint) many of the IDM documents that he allegedly downloaded to his external hard drive. The deletion activity allegedly continued for the next couple weeks. Since the VP knew of the credibly threats of a lawsuit, there was a duty preserve relevant ESI and documents.

IDM sued in the Alexandria Division of the Eastern District on multiple counts. The lead claims were for trade secrets misappropriation, breach of fiduciary duty, beach of a confidentiality agreement, and conversion. The discovery quickly turned to the ESI on the VP’s external hard drive.

IDM retained Craig Ball, a nationally-known eDiscovery attorney and forensic investigator to examine the VP’s external hard drive.  Ball uncovered the VP’s conduct and identified more than 500 deleted IDM documents. Ball’s work also identified incriminating dates of the VP’s alleged deletions.

After a prolonged discovery war, both defendants moved for summary judgment arguing that there were no trade secrets involved and there had been no misappropriation. Defendant Merkle was apparently able to distance itself from the VP’s conduct; the Court granted Merkle’s motion on all counts.

The VP’s defense was complicated by the spoliation and false statement issues. The Court’s opinion notes that relevant evidence was not truly lost, and in fact, had been recovered. The Court was nonetheless troubled by the conduct, which included false statements in an affidavit submitted to the Court. IDM’s substantive case, however, was deteriorating. It faced an added hurdle that its designation of experts came late, and the Court had barred the damages experts from testifying—a huge problem in proving IDM’s $46 million claimed damages.

In its post-discovery pleadings, IDM emphasized the evidentiary spoliation and the VP’s false statements, and it targeted the most severe spoliation sanctions—striking of defenses and/or an adverse inference instruction to the jury.

The District Court‘s solution in its rulings was to veer away from spoliation and to focus on the false statements in the VP’s affidavit. Curiously, the Court concluded that since the forensic work led to the recovery of the deleted ESI, there was “insufficient evidence to support a finding of spoliation.” In its remedy, the Court avoided the draconian sanctions requested by IDM, but imposed stiff financial sanctions against the VP.

The VP’s motion for summary judgment was granted on all but the conversion counts, but the Court ordered him to pay a portion of IDM’s attorney’s fees plus the forensic expert’s bill.

Influence of Rule 37(e)’s Upcoming Arrival?

The District Court’s ruling comes under the current rules and case law. In 10 weeks, however, amended Rule 37(e) will be effective, and the requisite analysis will shift. The coming rule will limit the Court’s inherent authority to impose spoliation sanctions (instead, authority will come from the new amended Rule), will structure the factual and legal analysis, and will direct turning away in most situations from the draconian sanctions and towards remedies that are not outcome determinative. Hopefully, what is currently a legal swamp will disappear, and District Courts will then see have a clearer analytical path and predictable sanctions.

Notwithstanding the District Court’s conclusion that there was insufficient evidence to support a finding of spoliation (the findings suggest egregious spoliation but not real prejudice to IDM), it appears that IDM had a serious argument that the VP’s conduct supported striking his defenses or giving IDM an adverse inference instruction. Even under the upcoming new Rule 37(e) provisions, the VP’s spoliation arguably could support the imposition of the requested draconian sanctions. But the new Rule and the accompanying Committee Note state a preference for the alternative yet less-severe sanctions.

The IDM Court arrived at a solution that would be consistent with the coming rule. But the Court arrived at this result by a very different route.   The lengthy opinion side-stepped entirely the spoliation issue, and thereby avoided the current legal swamp. Instead, the Court grounded its ruling on the VP’s submission of a false affidavit.   This is an understandably safe route, but an unnecessary path after December 1, 2015 under the new Rule 37(e).

Fourth Circuit Reverses Spoliation Sanctions: Case Remanded to District Court for Additional Findings

In a March 31, 2015 unpublished decision, the Fourth Circuit reversed and remanded the damages portion of an oral contract case decided by the Alexandria district court.  The opinion highlights the difference between a duty  to preserve all documents once there is a reasonable anticipation of litigation as opposed to a duty “to preserve documents that the party knew or should have known were, or could be, relevant to the parties’ dispute.”

The Case Facts: A Failure to Preserve and the Resulting Adverse Inference Instruction

The case, Blue Sky Travel et al. v. Al Tayyer Group, No. 13-2500 (4th Cir. Mar. 31, 2015), involved an oral contract for a US-based travel company to purchase airline tickets for a Saudi entity working for the Ministry of Higher Education of Saudi Arabia.  The front-end of the case focused on the oral contract and the statute of frauds.  The district court decided that the statute of frauds did not apply, and the Fourth Circuit affirmed this part of the decision.  However, the Fourth Circuit reversed on a spoliation instruction that influenced the damages part of the case.  The damages argument centered on an adverse inference instruction that followed the magistrate judge’s determination that defendant ATG spoliated evidence.  Specifically, it appeared that ATG either destroyed or failed to preserve invoices of its dealings with other vendors who also sold airline tickets to ATG. The district court awarded $10 million in damages to Blue Sky Travel for lost profits.

In the discovery phase of the case, the magistrate judge ordered ATG to produce a series of ATG’s 3rd party invoices. ATG failed to do this even after three orders.  It eventually surfaced that the invoices no longer existed.  The magistrate judge’s recommendation to the district court was for an adverse inference instruction as a sanction for the spoliation.  The sanction was appropriate, the magistrate judge concluded, “to address effectively the prejudice caused by defendant’s failure” to preserve.  The district court affirmed the sanction order for the reason given by the magistrate judge, namely the prejudice from the spoliation of evidence.

The magistrate judge had held that once litigation began, ATG had a duty to stop its document destruction policies “and to preserve all documents because you don’t know what may or may not be relevant” (emphasis added in appellate opinion).  The Fourth Circuit held that this is too broad a duty; a party is not required to preserve all its documents but rather only documents that the party knew or should have known were, or could be, relevant to the parties’ dispute.”   The Fourth Circuit determined that the spoliation finding and sanction were an abuse of discretion because the action was based on an erroneous principle of law.

At trial, by agreement between the parties, the lost profits component of damages was decided by the district judge, not by the jury.  The district court treated the adverse inference instruction as “an evidentiary presumption applicable to the damages hearing.”

The Fourth Circuit’s Holding, Reversal in Part, and Instructions on Remand

The Fourth Circuit’s reversal is grounded on the difference between a duty to preserve all documents once there is a reasonable anticipation of litigation as opposed to a duty “to preserve documents that the party knew or should have known were, or could be, relevant to the parties’ dispute.“   The Opinion recites the current Fourth Circuit law:

A party may be sanctioned for spoliation if the party (1) had a duty to preserve material evidence, and (2) willfully engaged in conduct resulting in the loss or destruction of that evidence, (3) at a time when the party knew, or should have known, that the evidence was or could be relevant in litigation.

Opinion at 21 (citing Turner v. United States, 736 F.3d 274, 282 (4th Cir. 2013)).

The Turner case dealt with the United States Coast Guard’s role in a tragic boating accident.  The plaintiff sought copies of audio tapes of Coast Guard communications during a search and rescue operation.  The Coast Guard did not preserved the tapes.  A claim of negligent spoliation followed.  The Fourth Circuit held that spoliation does not result from negligent conduct, and it restricted the preservation duty to evidence “relevant to some issue in the anticipated case.” The court in that case wrote:

[S]poliation does not result merely from the “negligent loss or destruction of evidence.” Rather, the alleged destroyer must have known that the evidence was relevant to some issue in the anticipated case, and thereafter willfully engaged in conduct resulting in the evidence’s loss or destruction.

Turner v. United States, 736 F.3d 274, 282 (4th Cir. 2013) (internal citation omitted).

Based on the appellate record in Blue Sky Travel, the Fourth Circuit was unable to determine whether ATG had a duty to preserve the 3rd party invoices.  Judge Keenan observed that:

In the present case, neither the magistrate judge nor the district court made the crucial finding whether ATG destroyed or failed to preserve the evidence at issue, despite having known or should have known that the evidence could be relevant in the case.

Opinion at 21 (citing Silvestriv. General Motors Corp., 271 F.3d 583, 591 (4th Cir. 2001); Turner, 736 F.3d at 282).

On remand, the Fourth Circuit directed the district court to answer two unresolved questions:

  • First, the district court should ascertain the date by which ATG knew or should have known that invoices relating to other vendors could be relevant in the case.
  • Second, the district court should establish when ATG destroyed the invoices from the other vendors.

 A Different Analysis under Proposed Fed. R. Civ. P. 37(e)

Blue Sky Travel confirms the current Fourth Circuit position on the duty to preserve. Beyond this, the case has little or no precedential value on spoliation issues and related sanctions.  First, it is only an unpublished decision, which the Fourth Circuit reminds us is not binding precedent.  But apart from this designation, the case facts may soon be governed by proposed FRCP Rule 37(e), which would likely dictate at least a different track at the trial level. Following that track, the magistrate would have more guidance on the necessary findings and the available remedies or sanctions.

Proposed Rule 37(e) (to be effective December 1, 2015) requires a party take “reasonable steps” to preserve ESI.  This seemingly limits the duty to preserve to relevant ESI and documents.  Moreover, the preservation duty should be viewed as proportional to the issues in the case and the dollars at stake.  Again, this dictates against an overly broad preservation duty (i.e., against a knee-jerk “all documents” approach) and directs the inquiry back to what is relevant.  As to the sanction, the key finding in the case was of “prejudice” to the plaintiff because of ATG’s spoliation, leading to an adverse inference instruction.  Under the proposed Rule 37(e), an adverse inference instruction may not be based on a finding of only prejudice, but requires a finding of an “intent to deprive” the opposing party of the use of the missing documents.  (Proposed Rule 37(e) applies to ESI only, so it would not cover physical copies of the invoices.  But if the invoice copies were scanned into electronic form, then the Rule would apply.)

The Fourth Circuit split 2-1 on the statute of frauds issue, but it was seemingly unanimous on the spoliation question.  The Appellant has petitioned for rehearing en banc, so practitioners should stay tuned for any further developments in this case

Proposed FRCP Rule 37(e) Cleared by the U.S. Judicial Conference

[This Blog post is an abbreviated version of an article published in the Fall 2014 Edition of the Northern Virginia Chapter of the Federal Bar Association’s Rocket Docket News and also available on the Redmon Peyton & Braswell LLP website here.]

The U.S. Judicial Conference has approved proposed FRCP Rule 37(e). The rule now goes to the U.S. Supreme Court. If the Court approves the changes before May 1, 2015, and Congress leaves the proposed amendments untouched, the amendment will become effective December 1, 2015.

The proposed rule presents a uniform process and standard which will resolve the split among the circuits on the availability of the most serious ESI spoliation sanctions. Proposed Rule 37(e) will replace entirely the current subpart, and, as stated in the Committee Note, “forecloses reliance on inherent authority or state law to determine when certain [curative or sanctioning] measures should be used.” The new standard will permit the most serious sanctions only when there is proof of “intent to deprive” the harmed party of the use of the ESI in its case.

This blog post outlines the workings of the proposed rule. Given the complexity of the challenge, the rule is surprisingly simple.

First, rather than generally dealing with lost evidence, the proposed rule addresses only lost ESI and applies only if a 3-part test is met. Second, if there is a finding of prejudice because the ESI has been lost, then a court may impose remedies to cure the prejudice, but no more. And third, the most serious remedies (including case dismissal and giving an adverse inference jury instruction) may only be utilized after a finding of “intent to deprive” the use of the lost ESI.

Rule 37(e) decision tree - wordpress1.    When Does the Rule Apply? The 3-Part Test.

The rule starts with the 3-part test:

a.    ESI Preservation Duty and Trigger. The inquiry begins with the preservation trigger event—the proposed rule applies only to ESI “that should have been preserved in the anticipation or conduct of litigation…” The Committee Note confirms that this does not create a new duty to preserve, but draws on the existing common law duty:

Committee Note:  Many Court decisions hold that potential litigants have a duty to preserve relevant information when litigation is reasonably foreseeable. Rule 37(e) is based on this common-law duty; it does not attempt to create a new duty to preserve. The rule does not apply when information is lost before a duty to preserve arises.

b.    Reasonable Steps to Preserve.   The proposed rule next limits its application to ESI that was lost “because a party failed to take reasonable steps to preserve the information . . .” The Committee Note explicitly identifies that only “reasonable steps” should be required:  “This rule recognizes that “reasonable steps” to preserve suffice; it does not call for perfection.”

In practice, the pursuing party will show that ESI has been lost, and that the other party was on notice to preserve. The defense then likely centers, as least initially, on the preservation steps taken. If the defending party demonstrates that it took reasonable steps to preserve ESI, then the spoliation claim should fail. The Committee Notes then adds proportionality as a “factor in evaluating the reasonableness of preservation efforts is proportionality.”

The Committee Note also recognizes that the party’s sophistication should be considered when a court analyzes whether a party realized what should have been preserved.

c.    Will Curative Measures Remedy the ESI Loss?   A court should not go any further in the analysis if the ESI loss can be “restored or replaced through additional discovery.”  The Committee Note repeats this point:

Committee Note:  Rule 37(e) directs that the initial focus should be on whether the lost information can be restored or replaced through additional discovery…If the information is restored or replaced, no further measures should be taken.

In many ESI cases, this third part will end the inquiry. ESI that may appear to be lost can often be located elsewhere. Before a court explores prejudice and searches for appropriate remedies, it must consider the possibility that seemingly-lost ESI can be restored or replaced.

2.    If there is a Finding of Prejudice, what may a Court Order?

Under the proposed rule, only when the 3-part test above is met does a court continue with its analysis. The question in subpart (e)(1) of proposed Rule 37(e) is whether there is a “finding of prejudice.” If so, then a court may reach into its bag of remedies, but is limited to “order[ing] measures no greater than necessary to cure the prejudice.” The remedies available at this stage do not include the most serious sanctions –the adverse inference jury instruction or dismissal. Those sanctions may be imposed only under subpart (e)(2).

The Committee Note emphasizes that the proposed rule is purposefully vague on which party has the burden of proving or disproving prejudice.

Committee Note: The rule does not place a burden of proving or disproving prejudice on one party or the other.

As to the available remedies, the Committee Note provides:

Committee Note: The rule leaves judges with discretion to determine how best to assess prejudice in particular cases.

The available remedies are not listed in the proposed rule, but case law identifies financial penalties, payment of attorneys’ fees, evidentiary limitations, and that certain facts are deemed proved. A close reading of the proposed rule and the Committee Note identifies these actions as remedies, not “sanctions.”

3.  A Court may Order the Most Serious Remedies only after a Finding of “Intent to Deprive” the Use of the ESI.

The center of the ongoing debate has been the required showing before a court may order the most serious remedies:  an adverse inference jury instruction, dismissal of claims, or a default judgment. Some courts have required proof of black-hearted destruction of ESI, while the Second Circuit has authorized giving an adverse inference instruction based on a mere finding of negligence or gross negligence. The rule-makers intend a uniform national standard, and they reject the Second Circuit’s approach.    

Committee Note:  It is designed to provide a uniform standard in federal court for the use of these serious measures when addressing failure to preserve electronically stored information. It rejects cases such as Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002), that authorize the giving of adverse-inference instructions on a finding of negligence or gross negligence.

The chosen test centers on proof of “intent to deprive.” The proposed rule language reads: “only upon a finding that the party acted with the intent to deprive another party of the use of the information in the litigation.”  f there is any confusion in this language, the Committee Note emphasizes the restriction:

Committee Note: Subdivision (e)(2) limits the ability of courts to draw adverse inferences based on the loss of information in these circumstances, permitting them only when a court finds that the information was lost with the intent to prevent its use in litigation.

Only if this hurdle is cleared does the door open to the serious sanctions.

In conclusion, the proposed amendments to Fed. R. Civ. P. 37(e) are intended to apply a uniform standard in federal courts regarding a party’s obligation to preserve ESI and the remedies available to the court when ESI is lost. The remedies are intended to be remedial, rather than punitive, and the most serious remedies are reserved to instances where dark-hearted intent is shown.

Before Receiving Spoliation Sanctions, a Party Must Demonstrate Prejudice

In a recent decision, Magistrate Judge Ivan D. Davis of the U.S. District Court for the Eastern District of Virginia denied a spoliation motion aimed at a corporate defendant using a new formulation of necessary legal elements.  In Professional Massage Training Center, Inc. v. Accreditation Alliance of Career Schools and Colleges, 1:12-cv-00911, the plaintiff argued that a telephone call from the plaintiff’s lawyer nine months prior to the filing of the Complaint triggered the defendant’s duty to suspend its regular document retention policy and institute a litigation hold.  After a full-day evidentiary hearing, including expert witness testimony, Judge Davis rejected this argument and instead noted that a mere “conditional threat of litigation” expressed over the telephone, coupled with the plaintiff’s failure to send a written litigation hold letter to the defendant, did not put the defendant on notice of potential litigation.

Judge Davis’s opinion is a useful reminder to practitioners:  Send a written litigation hold letter after any telephone conversation if you anticipate asserting a spoliation claim down the road.  While what is said during a telephone call can be disputed and is subject to the vagaries of memory, a written letter is definite and inexpensive.  (Of course, be careful that your own client has properly initiated its own litigation hold before you announce that “litigation is reasonably anticipated.”).

Judge Davis’s opinion is also noteworthy for his legal analysis.  In addition to finding that the defendant had no duty to initiate a litigation hold prior to receiving the complaint, Judge Davis made the alternate finding that the plaintiff suffered no prejudice from the operation of the defendant’s document retention policy.  While the opinion does not expressly say so, it appears that Judge Davis followed the reasoning of Judge Paul Grimm, a leading e-Discovery jurist from the Federal trial bench in Maryland, and his influential opinion in Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.d. 497 (D. Md. 2010).  In that case, Judge Grimm set forth three elements necessary to warrant spoliation sanctions: 1) a triggered duty to preserve documents or evidence, 2) destruction of relevant evidence accompanied by a “culpable state of mind,” and 3) prejudice resulting to the other party.

This is a subtle yet significant extension (or perhaps modification) of the Fourth Circuit’s controlling spoliation case law, Silvestri v. Gen. Motors Corp., 271 F.3d 583 (4th Cir. 2001).  Silvestri is nearly 13 years old, and the case did not involve the destruction of electronic or digital evidence.  Further, Silvestri states that spoliation sanctions could be ordered under two alternative situations: either that the spoliator’s conduct was sufficiently egregious or the effect of the spoliator’s conduct was sufficiently prejudicial.  Contrast that with Victor Stanley where a party must show all three elements (including prejudice) to warrant an order of spoliation sanctions.  In today’s modern e-Discovery era, Victor Stanley offers better guidance for practitioners than Silvestri, and it appears that Judge Davis finds Victor Stanley persuasive and useful in the e-discovery context.

Spoliation claims against institutional or corporate defendants are becoming more frequent, especially in high-stakes, aggressive litigation.  It is easy to see why:  a successful spoliation motion that leads to an adverse inference jury instruction can be a death knell for a corporate defendant.  It is critical for plaintiff’s counsel to adequately prepare for future spoliation claims through litigation hold letters and early Rule 30(b)(6) depositions of corporate representatives.  On the flip-side, defense counsel should argue the Victor Stanley three-element requirement when defending against spoliation claims.

A copy of Judge Davis’s opinion is available here.

Disclosure:  Redmon, Peyton & Braswell, LLP served as counsel of record for Defendant Accreditation Alliance of Career Schools and Colleges in this case.

The Duke Rules Ahead: Part 2 Rule 37(e) Amendment and No Presumption of Prejudice when Seeking an Adverse Inference Instruction

Read Part 1 here:The Duke Rules: Part 1.

In June 2013, the Standing Committee on Rules of Practice and Procedure approved a series of proposed amendments to the Federal Rules of Civil Procedure.  These proposals were published in August 2013.  The amendment process has several remaining steps, but if the process remains on course, then the new rules will take effect on December 1, 2015, subject to Supreme Court approval and Congressional inaction.

The focus in this Part 2 discussion is on one of the hot-button eDiscovery issues—whether a party aggrieved by spoliation must prove both relevance and resulting prejudice for the court to order an adverse inference instruction.  Since the lost data is obviously not available, proof in either direction will almost certainly be difficult.  Whether or not the law provides presumptions of both relevance and prejudice sharply tilts the playing field in a sanctions fight in one direction or the other.  The proposed amendment to Rule 37(e) would preclude a presumption of prejudice. Thus, a party seeking sanctions must prove prejudice.  In practice, this will limit the availability of an adverse inference instruction. 

Introduction and Summary

While the proposed Rule 37(e) amendment included in the Duke Rules identifies proof elements for serious sanctions, the broader issue is the breadth of the duty to preserve ESI under a litigation hold.  The availability and likelihood of serious sanctions for spoliation will dictate the ESI preservation efforts undertaken by parties.  Preservation costs are high; whatever preservation-related rule amendments emerge in the Duke Rules will impact these costs.

The Committee’s Comments show that it considered three approaches to the preservation issue:  1)  An explicit preservation rule that details when and how ESI must be preserved, 2)A a general preservation rule, but still contains a “front end” solution, that is, directions or guidelines for the ESI preservation process, and 3) A “back end” approach that focuses on the sanctions for failure to preserve relevant evidence.  The Committee has pursued option three.

The impact of a “back end” approach hinges on proof requirements given that the essential ESI has been destroyed.  Does the innocent party get the benefit of certain presumptions?  Or must that party prove the relevance of the destroyed ESI and the resulting prejudice to its case?

We begin with a short analysis of the August 2013 decision by Judge Shira Scheindlin in Sekusui American Corp v. Hart, No. 12 Civ. 3479, 2013 WL 4116322 (S.D.N.Y. Aug. 15, 2013).  Judge Scheindlin, applying 2nd Circuit precedent, started with a showing of willfulness.  Based on this, she provided the aggrieved parties with a presumption of prejudice, which led to an adverse inference instruction.

We then consider the same facts under the proposed replacement for the current Rule 37(e).  The amendment would preclude the prejudice presumption, with the consequence that adverse inference instruction ordered under the Sekusui test likely would not be available.

The sanctions provisions are one of the keys to eDiscovery rules.

Sekusui American Corp v. Hart

In Sekusui, the plaintiff corporation sued the Harts, the former owners of the company, for breach of contract tied to representations made at the time of the company sale.  Sekusui did not impose a litigation hold until 15 months after filing its lawsuit, and then waited another six months before notifying its eDiscovery vendor to preserve data.  During the 15-21 month period, the Harts’ ESI on the company’s servers, including years of email, was intentionally erased by Sekusui employees.  The Harts claimed spoliation and sought an adverse inference instruction.  The magistrate judge denied their motion, refusing to presume prejudice even through the evidence showed gross negligence by Sekusui.

Judge Scheindlin set aside the magistrate’s ruling and ordered the adverse inference instruction. The judge reasoned:

When evidence is destroyed intentionally, such destruction is sufficient evidence from which to conclude that the missing evidence was unfavorable to that party. As such, once willfulness is established, no burden is imposed on the innocent party to point to now-destroyed evidence which is no longer available because the other party destroyed it.

 Id. at 7 (emphasis in original).  Essentially, Judge Scheindlin decided  the fairest way to deal with problem of destroyed ESI is to place the burden on the party that destroyed it.  Her solution is to provide the innocent party with the necessary presumption of prejudice.  The opposing party has the opportunity to rebut the presumption, but it faces the obvious problem that the ESI itself is no longer available.

Proposed Rule 37(e)

The proposed amendment to Rule 37(e) would entirely replace the current rule.   The amendment language plainly requires proof of “substantial prejudice.” Nothing is said about a presumption, but the requirement of proof and the silence regarding any presumption tell all:  This is the opposite of the Sekusui approach.

The core of the amendment is proposed Rule 37(e)(1)(B), which reads:

(1)  Curative measures; sanctions. If a party failed to preserve discoverable information that should have been preserved in the anticipation or conduct of litigation, the court may:

* * * *

(B) impose any sanction listed in Rule 37(b)(2)(A) or give an adverse inference jury instruction, but only if the court finds that the party’s actions:

(i) caused substantial prejudice in the litigation and were willful or in bad faith; or

(ii) irreparably deprived a party of any meaningful opportunity to present or defend against the claims in the litigation.

The critical language is in subsection (1)(B)(i).  Where Judge Scheindlin applied a presumption of prejudice when there was proven willfulness or bad faith, the amended rule requires proof of “substantial prejudice.”

There is a caveat to this rule in subpart (B)(ii) where a party could prove conduct that “irreparably deprived a party of any meaningful opportunity to present or defend against the claims.”  Note that this is more demanding than “substantial prejudice.”

The outcome under the Sekusui facts would therefore likely be different under the proposed amendments.  Amended Rule 37(e)(1)(B)(i) would permit a court to give an adverse inference jury instruction only after proof that the party to be sanctioned has “caused substantial prejudice in the litigation and was willful or in bad faith,” or if the innocent party is “irreparably deprived . . . of any meaningful opportunity to present or defend“ claims in the litigation.


In sum, the proposed amendment to Rule 37(e) would require in most cases proof of prejudice from the spoliation, with no available presumption, which is in contrast to Judge Scheindlin’s Sekusui opinion.

The flood of comments to this amendment has already begun.  The proposed Rule 37(e) wades straight into a heated debate.  Suffice it to say that the fate of the proposed Rule 37(e) amendments is far from certain.

Committee MemorandumProposed Discovery Rules

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.

Lookout for Spoliation Attacks

A recent appeal of a decision from Judge Gerald Bruce Lee of the Eastern District of Virginia is another cautionary example that counsel defending corporate clients in civil litigation must be ever-vigilant against plaintiff’s claims of evidence spoliation.  In today’s modern commercial litigation, careful lawyers are (rightly) concerned about spoliation claims of Electronically Stored Information (“ESI”).  Civil practitioners in the Eastern District of Virginia are seeing more and more of such claims from parties attempting to gain a decisive advantage in litigation.  The stakes are obviously high: few corporate clients can hope to overcome the sanction of a judge’s jury instruction that the corporation has acted improperly to destroy relevant evidence.  Considering how easy it is to demonize corporate parties in a jury trial, such an obstacle usually leads to a generous settlement offer.

In Zellers v. NexTech Northeast, LLC, Case No. 1:11-cv-00967 (GBL/TRJ), Ms. Zellers sued her former employer, Rite Aid, after she was allegedly exposed to refrigerant coolant that leaked from a gas line in a freezer.  After the leak was discovered, a technician plugged the leak, which presumably contained the remaining refrigerant within the gas line.  Ms. Zellers then filed suit against the employer.  Several weeks later, another technician serviced the gas line after another reported leak and performed a triple evacuation of the freezer system,which removed all traces of the refrigerant in the system.

This technician was never aware of the newly-filed litigation, and instead, was simply following his instructions to service the freezer.  Later in the litigation, an issue developed that turned on the chemical composition of the refrigerant allegedly inhaled by the plaintiff.  But due to the evacuation of the gas lines, there was no refrigerant to test.

The plaintiff filed a motion seeking spoliation sanctions against the defendant which included an adverse inference instruction to be delivered to the jury by the trial judge.  The proposed instruction stated that the defendant had improperly released the refrigerant, and the jury was free to presume that the refrigerant was harmful to the defendant’s case.  As a practical matter, such adverse inference instructions are difficult for defense counsel to overcome.

Ultimately in this case, Judge Lee denied the plaintiff’s motion for sanctions as moot after he excluded the plaintiff’s proffered experts on Daubert grounds and granted summary judgment to the defendant.  But this case is an example and warning to corporate defense counsel.  The routine operations of a company can lead to spoliation claims under expected circumstances.  Thus, defense counsel must be vigilant to safeguard evidence that is connected to claims raised in any lawsuit.

Zellers v NexTech Northeast, LLC Opinion (PDF)

Please note:  This blog/Web site is made available by the firm of Redmon, Peyton & Braswell, LLP (“RPB”) solely for educational purposes to provide general information about general legal principles and not to provide specific legal advice applicable to any particular circumstance. By using this blog/Web site, you understand that there is no attorney client relationship intended or formed between you and RPB. The blog/Web site should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.