Early Judicial Interpretation of Amended Rule 37(e) Follows the Spirit of the Amendment While Staking Out a Claim to the Court’s Inherent Authority

The U.S. District Court for the Southern District of New York recently issued a decision which provides one of the first substantive analyses of amended Rule 37(e). In addition to determining that the new rule should be applied in a matter pending prior to the effective date of the amendment, the court applied a “clear and convincing” standard for establishing prejudice and resisted the Federal Rules of Civil Procedure Advisory Committee’s (Rules Committee) stated intention to foreclose reliance on courts’ inherent authority to impose sanctions.1

Background of Rule 37(e)

Litigants have struggled with a host of challenges associated with electronic discovery. There is no doubt that electronically stored information (ESI) is subject to discovery.  However, knowing when a preservation obligation is triggered and what information must be preserved is difficult and had been made even more so by both the lack of a consistent nationwide standard and the looming risk of serious sanctions. Recognizing that the consequence of this uncertainty was a move toward over-preservation, which in turn resulted in increased litigation costs and a shift away from the merits of the case, the Rules Committee undertook a revision of Rule 37(e) of the Federal Rules of Civil Procedure.  The result was a complete re-write that went into effect on December 1, 2015.

Old Rule 37(e) was enacted in 2006 to provide a safeguard from discovery sanctions when the good faith, programmed operation of litigants’ computer systems automatically destroyed ESI. Unfortunately, the rule fell short of its intended goal because its protective language was unclear and could be interpreted narrowly.  As a consequence, the rule was applied inconsistently across the U.S.  At one end of the spectrum, the Second Circuit adopted a “negligence or gross negligence” standard for the imposition of sanctions and curative measures.2   While at the other end, the Tenth Circuit required proof of bad faith associated with the loss of ESI.3

New Rule 37(e) strives to provide more protection and predictability for litigants by establishing a consistent national standard for preservation sanctions that provides a safe harbor for reasonable conduct, limits the remedial sanctions to means “no greater than necessary”, and requires a showing of “intent to deprive” for potentially case-terminating sanctions. The new rule will have a dramatic impact if judges and lawyers implement it in the manner intended by the Rules Committee.  However, as is apparent in the recent CAT3 decision, because the new rule leaves a great deal of discretion to the courts, whether or not it will be effective in meeting the Rules Committee’s goals remains to be seen.

CAT3, LLC v. Black Lineage, Inc.

In CAT3 plaintiffs brought a trademark case against a competitor alleging federal and New York state law causes of action based on their purported ownership of rights in the trademark SLAMXHYPE and website www.SLAMXHYPE.com. One of the key issues was whether defendants developed their FLASHXHYPE mark independently or, instead, sought to trade on the plaintiffs’ reputation after learning of their use of the SLAMXHYPE mark.

In discovery plaintiffs produced email communications to and from defendants’ employees which appeared to establish defendants’ awareness of the SLAMXHYPE mark prior to the adoption of their own. However, as the case progressed, alternate versions of the subject emails surfaced and forensic examination by defendants’ expert suggested that plaintiffs intentionally altered the emails to include reference to their mark and deleted the originals. Plaintiffs denied the accusation, but could not explain how the original emails were altered or deleted.

Defendants moved for sanctions under Rules 26 and 37, as well as the court’s inherent authority, seeking dismissal, adverse inference, evidentiary preclusion, and attorneys’ fees and costs. Plaintiffs maintained that sanctions were not available under Rule 37(e) because the deleted emails were recovered through forensic investigation by defendants’ expert.

As a preliminary matter, Judge Francis considered whether new Rule 37(e) should be applied to the dispute at hand. Per Supreme Court Order, the 2015 FRCP amendments shall govern all proceedings commenced after December 1, 2015, and “insofar as just and practicable, to all proceedings then pending.”4  Finding that the amendment did not establish a new rule of conduct and that its application would not be unjust or impracticable under the facts of this case, Judge Francis determined that the new Rule should apply.  He was careful, however, to note that if, under other facts, the relief available under the new rule was less adequate than that available under the prior rule in remedying the prejudice to the defendants, a different outcome might be warranted.

Having found that the new rule applies, Judge Francis moved on to the three part analysis required by Rule 37(e). Pursuant to the new rule, a court may impose sanctions for the loss of ESI if, and only if, the evidence lost is ESI which should have been preserved in the reasonable anticipation or conduct of litigation and which cannot be “restored or replaced” through additional discovery. There was no doubt that the evidence in question was ESI and that plaintiffs had an obligation to preserve. The open question was whether the evidence in fact had been “restored or replaced.”

Judge Francis was not prepared to permit the plaintiffs to save themselves from Rule 37(e) sanctions because “their misdeeds were discovered and the information recovered.” To do so would leave the court with no basis under the rule to preclude the altered emails which would remain in the case alongside the originals recovered by defendants’ expert, thereby casting doubts about the authenticity of both.  Instead, he adopted an expansive reading of Rule 37(e), finding that the ESI in question, the original emails, in fact could not be “restored or replaced through additional discovery.”

Interestingly, Judge Francis maintained that even if Rule 37(e) were construed not to apply to the facts of this case, the court could nonetheless exercise its inherent authority to remedy spoliation because the plaintiffs’ conduct threatened the integrity of the judicial proceeding. This view appears to be in direct conflict with the Rules Committee notes which explicitly state that new Rule 37(e) “forecloses reliance on inherent authority or state law to determine when certain measures should be used.”5

Turning to the issue of prejudice, Judge Francis recognized that there was disagreement in the courts about the appropriate standard of proof for spoliation claims and chose to employ a “clear and convincing” standard of proof because defendants were seeking terminating sanctions and because the plaintiffs’ state of mind was at issue. The court found clear and convincing evidence that plaintiffs “acted with the intent to deprive another party of the information’s use in the litigation”, satisfying subsections (e)(1) and (e)(2) of Rule 37, and rendering all available remedies open to the court. However, rather than impose drastic measures, Judge Francis precluded the plaintiffs from relying on “their version” of the emails to demonstrate notice to defendants and ordered that they bear the “costs, including reasonable attorney’s fees, incurred by the defendants in establishing the plaintiffs’ misconduct and securing relief.”


Litigants can take comfort in the court’s finding that new Rule 37(e) applies to actions pending prior to the amendment’s effective date and its compliance with the Rule Committee’s overarching intent by imposing remedies that were “no greater than necessary” to restore balance to the litigation.  Whether or not Judge Francis’ expansive reading of what it means for ESI to not be able to be “restored or replaced through additional discovery” will be adopted by other courts remains to be seen.  The motivation to stretch the language of Rule 37(e) so that sanctions can be imposed upon an intentional spoliator whose conduct threatens the administration of justice is certainly understandable.  Noted Judge Shira Scheindlin flagged this issue during the drafting process,6 and it will inevitably surface again as courts grapple with Rule 37(e).  In the meantime, we will continue to monitor the application of new Rule 37(e) and what it means in terms of litigants’ preservation practices.

For more information about how the FRCP amendments may impact your company, contact dgurfel@nullcondonlaw.com.

CAT3, LLC v. Black Lineage, Inc., No. 14 Civ. 5511 (AT) (JCF), 2016 WL 154116 (S.D.N.Y. Jan. 12, 2016).

2 Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002)( authorized the imposition of adverse-inference instructions on a finding of negligence or gross negligence); The Pension Committee of the University of Montreal Pension Plan. v. Banc of America Securities, LLC, 685 F. Supp. 2d 456, 464 (SDNY 2010).

3 See, e.g., Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir. 1997) (“The adverse inference must be predicated on the bad faith of the party destroying the records. Mere negligence in losing or destroying records is not enough because it does not support an inference of consciousness of a weak case.”).

4 2015 U.S. 0017.

5 FRCP 37(e) Advisory Committee note to 2015 amendment.

6 Sekisui Am. Corp. v. Hart, No. 12 Civ. 3479 (SAS)(FM), 2013 WL 4116322 (S.D.N.Y. August 15, 2013) fn. 51.