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Failure to Take "Reasonable Steps" to Preserve Electronically Stored Information May Cost Your Client

April 10, 2017 BY Melody Kiella

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In December 2015, Federal Rule of Civil Procedure 37(e), which concerns a party’s failure to preserve electronically stored information (“ESI”), was amended because it did “not adequately address the serious problems resulting from the continued exponential growth [of ESI]”. See Fed. R. Civ. P. 37(e), Advisory Committee notes to 2015 amendment. In applying former Rule 37(e), federal circuits established significantly different standards for imposing sanctions that in turn “caused litigants to expend excessive effort and money on preservation in order to avoid the risk of severe sanctions.” Id.

Under amended Rule 37(e), “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 the 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.” Fed. R. Civ. P. 37(e)(1) and (2).

ESI Must be Lost and Incapable of Being Restored or Replaced

Both amended Rule 37(e) and the Advisory Committee notes to the Rule make it clear that sanctions are only available if the ESI is lost and the party had a duty to preserve it. See Rule 37(e) Advisory Committee notes to 2015 amendment. Because ESI exists in multiple locations, the loss of ESI from one source may be harmless when substitute information can be found elsewhere. See Rule 37(e), Advisory Committee notes to 2015 amendment.

In Fiteq, Inc. v. Venture Corporation, 2016 WL 1701794 (N.D. Ca. 2016), the plaintiff sought an adverse inference instruction as a result of the defendant’s destruction of e-mails from its Executive Vice President relevant to the project at issue. Id. at *2. The plaintiff further argued that later-produced documents, which were recovered e-mails by the defendant, were so slight as compared to the Executive Vice President’s role in the project that it would be reasonable to infer that additional documents were in fact destroyed by the defendant. Id. at *2. The court denied the plaintiff’s request for sanctions under Rule 37(e) on the ground that the plaintiff did not offer any persuasive evidence to show that the allegedly destroyed ESI was not restored or replaced through the subsequent production of e-mails by the defendant. Id.

The denial of the plaintiff’s request for an adverse inference instruction in Fiteq supports the conclusion that a party seeking sanctions under Rule 37(e) must prove, either by reliance upon evidence already produced or though witness testimony or affidavits, that the alleged lost evidence did in fact exist at one time and cannot be restored or replaced through other discovery. A bare allegation that ESI was lost and/or cannot be replaced is simply not enough.

Additionally, because Rule 37(e) applies only if a party had a duty to preserve the lost ESI, the Rule does not purport to create any new duties with regard to preservation of evidence. See Rule 37(e) Advisory Committee news to 2015 amendment. Generally, a duty to preserve evidence arises when litigation is anticipated or is reasonably foreseeable. See Rule 37(e) Advisory Committee notes to 2015 amendment. For example, a spoliation letter may trigger a party’s duty to preserve ESI by putting the party on notice of possible future litigation. See O’Berry v. Turner, 2016 WL 1700403, at *3 (M.D. Ga. 2016) (applying amended Rule 37(e)).

The “Reasonable Steps” Analysis

Generally, what constitutes “reasonable steps” to preserve ESI under amended Rule 37(e) depends upon the sophistication of the litigant and the facts of the case.

The “reasonable steps” standard is helpful to a party that has made an effort to preserve relevant ESI because it allows the party to explain why and how it was unable to preserve the evidence. Preserving every type of relevant ESI is becoming increasingly difficult in light of the numerous methods of electronic communication, including e-mail, social media messaging, video chatting and text messaging. The Advisory Committee notes explain that, with the increasing volume of ESI and the various devices that generate such information, amended Rule 37(e) does not demand perfection in preserving ESI. See Rule 37(e), Advisory Committee notes to 2015 amendment. Rather, a “court should be sensitive to the party’s sophistication with regard to litigation in evaluating preservation efforts; some litigants, particularly individual litigants, may be less familiar with preservation obligations than others who have considerable experience in litigation.” See Rule 37(e), Advisory Committee notes to 2015 amendment.

In Living Color Entertainment, Inc. v. New Era Aquaculture, Ltd., 2016 WL 1105297 (S.D. Fla. 2016), while the court found that one of the defendants had deleted relevant text messages and that such text messages were in fact lost, it denied a request for sanctions because it found that the individual defendant had not acted with the intent to deprive the plaintiff of evidence. Id. at *6. Specifically, the court found persuasive the fact that the defendant regularly deleted text messages prior to the litigation and that it was common practice amongst cell phone users to delete text messages as they are received, or soon thereafter. Id. Additionally, the court found that the individual defendant was a relatively unsophisticated litigant and that, as a result thereof, his deletion of the relevant text messages was negligent, at best. Id.

In contrast, in GN Netcom, Inc. v. Plantronics, Inc., 2016 WL 3792833 (D. De. 2016), the court analyzed whether the defendant took reasonable steps to preserve ESI when it issued multiple litigation holds and conducted training sessions to ensure compliance with such holds, but when the evidence also showed that a Senior Vice President of defendant intentionally deleted thousands of relevant e-mails. The court concluded that the issuance of litigation holds and training on compliance with such holds did not make up for the fact that a senior member of defendant’s management team intentionally destroyed thousands of relevant e-mails and instructed other lower level employees to do the same. Id. at *6. The court found that defendant failed to take reasonable steps to preserve all evidence, especially considering the fact that the evidence was intentionally destroyed by a senior member of defendant’s executive team who played a critical role in the very issue at the heart of the litigation. Id. at *6.

The holdings in Living Color Entertainment and GN Netcom suggest that courts expect an individual, unsophisticated litigant to know far less about his or her duty to preserve relevant evidence than a high-level executive with knowledge of litigation holds and with a close connection to the issues involved in the pending litigation. Additionally, the holding in GN Netcom makes it clear that simply issuing a litigation hold and providing your employees with training on how to preserve relevant evidence may not, standing alone, be considered “reasonable,” especially if one of your employees is purposefully destroying relevant evidence.  

Intentional Conduct or Failing to Have a Document Retention Policy May Result in a Finding of Bad Faith

Amended Rule 37(e) outlines specific sanctions that a court may order upon a finding that the party acted with the intent to deprive the opposing party with information.

In O’Berry v. Turner, 2016 WL 1700403 (M.D. Ga. 2016), plaintiff filed a motion for sanctions due to the defendant’s failure to produce relevant ESI. Id. at *1. In applying amended Rule 37(e), the court focused on the methods utilized by the defendant in preserving the ESI. Id. at *3. The facts showed that the defendant printed off one copy of the ESI at issue and placed it in a manila folder, which manila folder was subsequently moved to a different building by a moving crew and was lost. Id. at *2-3. After receiving a spoliation letter, the defendant took no additional steps to ensure that the relevant ESI was preserved and in his possession. Id. at *3. Because there was only one copy of the ESI and such copy was placed in the hands of various people and was subsequently lost, the court concluded that the defendant failed to take “reasonable steps” to preserve the ESI. Id. Specifically, the court found that, based upon the defendant’s lack of a document preservation policy and the failure of the defendant to preserve the relevant ESI while it was in his possession, the defendant acted with the intent to deprive the plaintiff of the evidence. Id. at *4. As a result, the court held that an adverse inference instruction, in which it would instruct the jury that it must presume that the lost evidence was harmful to the defendant, was the appropriate remedy. Id.

In GN Netcom, Inc. v. Plantronics, Inc., 2016 WL 3792833 (D. De. 2016), the court found that the defendant acted in bad faith and with the intent to deprive the plaintiff of thousands of e-mails that were purposefully deleted by a high level management executive. Id. at *6-7. The finding of bad faith was based upon the fact that the executive instructed other lower level employees to delete relevant e-mails, despite his knowledge of the litigation hold, because he was concerned about how the e-mails would be used in the pending litigation. Id. Additionally, the court found that the defendant’s conduct in litigating the deletion issue supported a finding of bad faith when the defendant’s counsel denied that deletion of the e-mails had occurred and refused to disclose the identity of its forensic expert who was attempting to recover the relevant e-mails until ordered to do so by the court. Id. at *8. The court ordered the defendant to pay $3 million in sanctions to the plaintiff and also held that an adverse inference instruction in which the jury may, not must, presume that the information missing was unfavorable to defendant was an appropriate sanction. Id. at *13.

Notwithstanding the fact that the O’Berry court and the GN Netcom court were analyzing amended Rule 37(e), the O’Berry court issued a much harsher sanction than the GN Netcom court even though the defendant in O’Berry, as compared to the defendant in GN Netcom, did not purposefully delete relevant ESI. Thus, while amended Rule 37(e) has provided a more uniform framework concerning the issuance of sanctions, courts may still come to vastly different conclusions regarding the appropriate sanctions and the “reasonable steps” to be taken by parties to preserve ESI. 

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley
(Editor-in-chief)