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.

Summary

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

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