Civil Rules Roundtable: Proportion – Not Perfection

Tuesday, December 1, 2015 - 20:05

The overhaul of Rule 37(e) is intended to address the unintended consequence of what has been described as “massive and costly over preservation.” While it will take time to see how courts apply the amended rules, corporate litigants are hopeful that the amendments will curtail the burgeoning costs associated with discovery, specifically over-preservation of Electronically Stored Information (ESI). 

While the 2006 amendments aimed to increase proportionality and provide protection against sanctions for loss of ESI, significant inconsistencies in courts’ impositions of sanctions left litigants with little guidance regarding what preservation standard would be deemed adequate. As a result, companies over-preserve ESI out of fear of being on the receiving end of adverse inferences or case-terminating sanctions.

The overhaul of Rule 37(e) is intended to address the unintended consequence of what the Committee on Rules of Practice and Procedure called the “massive and costly over-preservation” following the 2006 amendments and to establish uniform guidelines in how federal courts address the loss of discoverable information. (See http://www.uscourts.gov/rules-policies/archives/agenda-books/committee-r....) The amended rule is “designed to ensure that potential litigants who make reasonable efforts to satisfy their preservation responsibilities may do so with confidence that they will not be subjected to serious sanctions should information be lost despite those efforts.” 

Under the amended rule, for lost information to trigger the possibility of sanctions, the court must first determine that 1) the lost information should have been preserved pursuant to or in anticipation of the litigation, 2) the loss is a result of the party’s failure to take reasonable steps to preserve it and 3) the information cannot be restored or replaced through additional discovery. If these requirements are met, then the court may impose sanctions if it is found that another party is prejudiced by the loss. The rule directs that curative measures may be no greater than necessary to cure the prejudice. Further, imposition of severe sanctions, including adverse inference and terminating sanctions, may be imposed only if it is found that the producing party acted with the intent to deprive another party of the information’s use in the litigation.

The amended rule and the committee’s notes reinforce that the standard for preservation is reasonableness, not perfection. Whether a party’s preservation protocols are reasonable is fact-specific, but there are practices that corporate litigants can employ to increase discovery defensibility while reducing the expense and risks of over-preservation.

It is imperative for litigants to know what information they possess and to establish a defensible method for determining what information can be destroyed or should be retained. This is especially important for corporate litigants who generate voluminous ESI and requires close collaboration among representatives from the legal, information technology and records-management departments and the business to ensure compliance with regulatory requirements, business need or preservation for litigation. 

Establish a records-management program and follow it. Implementing and auditing records-management policies and procedures is critical. If potentially relevant ESI is lost, to avoid sanctions, it may be necessary to determine why the loss occurred. Documentation of a company’s records-management, information-storage and retention systems is critically important.

Once litigation arises, evaluate its scope and take reasonable steps to ensure that relevant data is preserved, including timely issuance of the Legal Hold. The revised rules limit discovery to “any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case.” [Emphasis added.] Litigants generally are obligated to preserve more information than what they will be required to produce, but they should not take a preserve-everything approach, unless the facts necessitate it. Further, over-preservation not only is expensive but puts the company at risk of having to continue to preserve, and ultimately produce, information unrelated to the current litigation, in future matters that arise.

The amended rules require that preservation be addressed early in case management and in the parties’ discovery plan. If there are sources the company knows cannot be preserved due to undue burden or expense, raise that issue early. Raising proportionality and the scope of preservation at the outset of litigation will forestall disputes later in discovery, which in complex litigation may be months or years later, after the loss of information may be significant.   

Release the Legal Hold. Once a matter concludes, release the Legal Hold in a timely fashion and destroy information in accordance with the company’s record-retention schedule.

While the courts’ application of the amendments remain to be seen, the principles of reasonableness and proportionality should provide guidance and limit companies’ over-preservation of information.

 

Makenzie Windfelder is a Wilmington, Delaware–based partner at McCarter & English LLP, where she represents pharmaceutical and medical device companies in products liability, patent and antitrust disputes. She serves on the firm’s E-Discovery Committee and is a member of the Sedona Conference Working Group on Electronic Document Retentionand Production. mwindfelder@mccarter.com