Brush up on the latest e-discovery preservation developments

Not only is the field of e-discovery becoming more and more visible to lawyers, it is now impatiently knocking on the doors of the legal profession with cautionary warnings that require them to pay attention for the benefit of their clients and as protective action against claims of possible malpractice.

The array of new cases and the increasing impatience with lawyer gamesmanship expressed especially by the federal bench presents a wakeup call that bodes ill for those who refuse to respond to the message. Examining the legal landscape in this field, especially noteworthy are cases that deal with sanctions.

The cornerstone of e-discovery practice is the duty to preserve evidence as soon as litigation is contemplated. This was etched in stone by U.S. District Judge Shira A. Scheindlin (ret.) through her series of groundbreaking opinions rendered in the Zubulake v. UBS Warburg cases as far back as 2003. For all the publicity those cases generated within the litigation bar, it is a wonder that sanctions of lawyers and their clients continue to be assessed for failing to perform this duty.

Under the 2015 amendments to the Federal Rules of Civil Procedure, Rule 37(e), a new limited "safe harbor" is provided for unpreserved electronically stored information (ESI), shielded from sanctions. While proper legal hold procedures will still apply, the purpose of relaxing the rush to seek sanctions under the new rules is to acknowledge that certain discoverable data in the normal course of "good faith" business operations will occur normally and regularly in the operation of a data system.

This was recognized in HCC Ins. Holdings, Inc. v. Flowers (N.D. Ga. Jan. 30, 2017), where the court defined spoliation as "the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation."

In that case, notwithstanding questionable behavior on the part of defendant and her husband, no sanctions were imposed because the court determined plaintiff failed to "meet its burden to show spoliation sanctions are appropriate here," to support the claim that plaintiff's trade secrets and confidential information ever had been on defendant's "personal laptop or on a cloud-storage service under her control." Plaintiff's request for an adverse inference instruction was denied even though plaintiff alleged that defendant deleted the information and discarded a thumb drive. On examination of defendant's laptop and contents, the court determined there was no evidence of the claimed information that plaintiff alleged had been deleted.

The court made it clear the party seeking spoliation sanctions must prove: (1) the missing evidence had existed, (2) defendant had a duty to preserve it, and (3) the evidence was crucial to plaintiff's prima facie case. Spoliation not only requires evidence that the information existed in the first instance, but that it was under defendant's control. An adverse inference is only permitted on a showing of bad faith. Specifically, the 2015 amendment to Rule 37(e) requires a finding of the intent by defendant to deprive plaintiff of the information.

In Fulton v. Livingston Fin., LLC (W.D. Wash. July 25, 2016), the court clarified that, under Rule 37(e), the old "safe harbor" provision had been replaced, so that if lost ESI can be replaced or restored, no sanction will be imposed. If ESI cannot be replaced and if the requesting party is prejudiced, the court may order sanctions "no greater than necessary to cure that prejudice." Thus, whereas the former Rule 37(f), in the absence of "exceptional circumstances," provided a "safe harbor" for loss of ESI "because of the routine, good faith operation of an electronic information system," its replacement new Rule 37(e) takes the "bull by the horn" and in effect eliminates any "safe harbor."

Fulton explains in the event the loss of ESI "that would have been preserved in the anticipation or conduct of litigation" is due to failure "to take reasonable steps to preserve it," and which "cannot be restored or replaced through additional discovery," additionally the court may issue an adverse instruction to the jury that will enable it to consider the missing evidence was unfavorable to the party at fault. Further, the court may either "dismiss the action or enter a default judgment."

In the case of the latter ultimate sanction, Fulton expresses a caveat: Where "the spoliation is the result of the plaintiff's intentional destruction or gross negligence, the relevance of the evidence lost or destroyed is presumed ... However, the sanction must reflect 'an appropriate balancing under the circumstances' ... Generally, dismissal of the complaint is warranted only where the spoliated evidence constitutes 'the sole means by which the defendant can establish its defense ... or where the defense was otherwise 'fatally compromised' ... or defendant is rendered 'prejudicially bereft' of its ability to defend as a result of the spoliation."

Finally, lest it be assumed that intentional action is a necessary pre-condition to imposition of sanctions, "at least a grossly negligent, irresponsible and cavalier manner" may justify issuance of an adverse instruction depending on the prejudice the complaining party has suffered. See Andreana Reed v. Kindercare Learning Centers, and Knowledge Universe Education (W.D. Wash. 2016).

E-discovery authority Michael R. Arkfeld suggests it might be beneficial at the outset for counsel for the various parties to enter into an agreement concerning "what ESI will not be preserved. See United States v. La. Generating LLC (M.D. La. Mar. 5, 2010), where an order was entered "affirming the stipulation of the parties as to the nonpreservation of specific ESI." This would provide a perfect opportunity to use the mediation process to resolve an e-discovery dispute.

For those interested in obtaining an up-to-date education in this critical and ever-changing area of litigation, the 6th Annual ASU-Arkfeld eDiscovery and Digital Evidence Conference will take place March 8-10 at the Sandra Day O'Connor College of Law at Arizona State University. Judge Scheindlin will again be among the list of distinguished members of the bench who have presided over these cases. The five previous Arkfeld annual conferences have proved invaluable.