Fall 2013 - Volume V - Issue 4

Electronically Stored Information and Sanctions: The Proposed Change to FRCP 37(e)

Robert Sprague, Editor-in-Chief, Workplace Data: Law and Litigation (Committee on Technology in the Practice and Workplace, ABA Section of Labor and Employment Law

Proposed Change to Rule 37 of the Federal Rules of Civil Procedure  

Federal Rule of Civil Procedure 37(e) provides a safe harbor against sanctions for the routine, good faith destruction of electronically stored information (ESI): absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.1

In its May 2013 Report of the Advisory Committee on Civil Rules, the Advisory Committee unanimously recommended that Rule 37(e) be replaced in its entirety to address the overbroad preservation many litigants and potential litigants felt they had to undertake to ensure they would not later face sanctions.2

Fundamentally, the proposed amendment focuses on sanctions rather than attempting directly to regulate the details of preservation. It provides guidance for a court by recognizing that a party that adopts reasonable and proportionate preservation measures should not be subject to sanctions.3 Under the proposed amended rule, except in exceptional cases in which a party's actions irreparably deprive another party of any meaningful opportunity to present or defend against the claims in the litigation, sanctions may be imposed only on a finding that the party acted willfully or in bad faith.4 The proposed Rule 37(e) is as follows:

     (e) Failure to Preserve Discoverable Information.

          (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

               (A)  permit additional discovery, order curative measures, or order the party to pay the reasonable expenses, including attorney's fees, caused by the failure; and

               (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.

          (2) Factors to be considered in assessing a party’s conduct. The court should consider all relevant factors in determining whether a party failed to preserve discoverable information that should have been preserved in the anticipation or conduct of litigation, and whether the failure was willful or in bad faith. The factors include:

               (A)  the extent to which the party was on notice that litigation was likely and that the information would be discoverable;

               (B) the reasonableness of the party's efforts to preserve the information;

               (C) whether the party received a request to preserve information, whether the request was clear and reasonable, and whether the person who made it and the party consulted in good faith about the scope of preservation;

               (D) the proportionality of the preservation efforts to any anticipated or ongoing litigation; and

               (E) whether the party timely sought the court's guidance on any unresolved disputes about preserving discoverable information.

To some extent, an amended Rule 37(e), as proposed, would abrogate the standards so painstakingly developed by Judge Scheindlin in the Zubulake decisions discussed in the second part of this article. There is a risk that Judge Scheindlin’s concern that “[t]he tedious and difficult fact finding encompassed in [Zubulake V] and others like it is a great burden on a court’s limited resources”6 will be for naught if Rule 37(e) is amended as proposed. 

While UBS was found to have willfully destroyed evidence in Zubulake V7, had the proposed amended Rule 37(e) been in effect, it would have required the court, before it could have imposed sanctions on UBS, to make an additional finding that the plaintiff, Zubulake, had been irreparably deprived of any meaningful opportunity to present her claims in the litigation. Judge Scheindlin has since stated in dicta: 

     [T]he proposed rule would permit sanctions only if the
     destruction of evidence (1) caused substantial prejudice and was
     willful or in bad faith or (2) irreparably deprived a party of any
     meaningful opportunity to present or defend its claims. The
     Advisory Committee Note to the proposed rule would require the
     innocent party to prove that "it has been substantially prejudiced
     by the loss" of relevant information, even where the spoliating
     party destroyed information willfully or in bad faith. I do not
     agree that the burden to prove prejudice from missing evidence lost
     as a result of willful or intentional misconduct should fall on the
     innocent party. Furthermore, imposing sanctions only where
     evidence is destroyed willfully or in bad faith creates perverse
     incentives and encourages sloppy behavior
. Under the proposed
     rule, parties who destroy evidence cannot be sanctioned (although
     they can be subject to "remedial curative measures") even if they
     were negligent, grossly negligent, or reckless in doing so.8

The issues raised in this discussion are explored in the employment context in the following chapters in the forthcoming ABA/Bloomberg BNA treatise, Workplace Data: Law and Litigation:

Chapter 3: E-Discovery Issues Related to Workplace Data; Chapter 4: E-Discovery in the Workplace: Employer Perspective; Chapter 5: E-Discovery in the Workplace: Employee Perspective; and Chapter 7: Preservation, Spoliation, and Sanctions. 

The Background: the Zubulake Decisions

In 2003 and 2004, U.S. District Judge for the Southern District of New York Shira A. Scheindlin issued a series of rulings, known as the Zubulake decisions9, which established standards for the obligations of parties to preserve and produce electronically stored information (ESI), and the possible sanctions for failing to do so. Zubulake was an employment discrimination case in which Laura Zubulake sued her former employer, UBS Warburg LLC, for sex discrimination, including disparate treatment and wrongful termination, and retaliation in violation of, inter alia, Title VII of the Civil Rights Act of 1964. She believed it was critical for her case to obtain various e-mails exchanged among UBS employees that existed only on backup tapes or perhaps other archived media.10 UBS argued restoring those e-mails would cost approximately $175,000.00, exclusive of attorney time in reviewing them.
Zubulake's motion for an order compelling UBS to produce those e-mails was the basis for the Zubulake decisions.

Having decided that the requested e-mails were relevant to Zubulake's claims11, the issue in Zubulake I was who should bear the cost of production. The presumption is that the responding party-here, UBS-must bear the expense of complying with discovery requests12. However, courts have adopted a cost-shifting strategy when otherwise discoverable evidence is only available from expensive-to-restore backup media13. Citing Rowe Entm't, Inc. v. William Morris Agency, Inc.14, Judge Scheindlin listed eight factors to determine whether discovery costs should be shifted: 

     (1) the specificity of the discovery requests;

     (2) the likelihood of discovering critical information;

     (3) the availability of such information from other sources;

     (4) the purposes for which the responding party maintains the requested data;

     (5) the relative benefits to the parties of obtaining the information;

     (6) the total cost associated with production;

     (7) the relative ability of each party to control costs and its incentive to do so; and

     (8) the resources available to each party15.

Under this decision, cost-shifting should be considered only when electronic discovery imposes an “undue burden or expense” on the responding party16. Implied in this analysis is that the responding party bears the burden of proving that cost-shifting is warranted17. The burden or expense of discovery is, in turn, “undue” when it "outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues.18 However, Judge Scheindlin noted that electronic evidence is frequently cheaper and easier to produce than paper evidence because it can be searched automatically, key words can be run for privilege checks, and the production can be made in electronic form obviating the need for mass photocopying.19  

While Judge Scheindlin noted that although the Rowe eight-factor test had unquestionably become the “gold standard” for courts resolving electronic discovery disputes, she also believed it generally favored cost-shifting20. She therefore modified the Rowe eight factor test into her own seven-factor test:

  1. The extent to which the request is specifically tailored to discover relevant information;
  2. The availability of such information from other sources;
  3. The total cost of production, compared to the amount in controversy;
  4. The total cost of production, compared to the resources available to each party;
  5. The relative ability of each party to control costs and its incentive to do so;
  6. The importance of the issues at stake in the litigation; and
  7. The relative benefits to the parties of obtaining the information.21

These seven factors are not to be weighted equally. They are listed in descending order of importance.

However, Judge Scheindlin imposed one final step before applying her modified cost-shifting analysis: 

     Requiring the responding party to restore and produce responsive
     documents from a small sample of backup tapes will inform the
     cost-shifting analysis laid out above. When based on an actual
     sample, the marginal utility test will not be an exercise in
     speculation-there will be tangible evidence of what the backup
     tapes may have to offer. There will also be tangible evidence of
     the time and cost required to restore the backup tapes, which in
     turn will inform the second group of cost-shifting factors. Thus,
     by requiring a sample restoration of backup tapes, the entire
     cost-shifting analysis can be grounded in fact rather than

After ordering UBS to produce a sample restored from any of the backup tapes in Zubulake I24, Judge Scheindlin applied her cost-shifting analysis in Zubulake III25. Applying the first two factors, Judge Scheindlin concluded that the sample restoration, which resulted in the production of relevant e-mail, demonstrated that Zubulake's discovery request was narrowly tailored to discover relevant information and the marginal utility of additional discovery was, at least, potentially high.26

Ultimately, Judge Scheindlin determined that factors three and four tipped against cost shifting27; factors five and six were neutral; and factor seven favored cost-shifting. Judge Scheindlin concluded that “[b]ecause some of the factors cut against cost shifting, but only slightly so—in particular, the possibility that the continued production will produce valuable new information—some cost-shifting is appropriate in this case, although UBS should pay the majority of the costs.”28

But, wait, there's more. During discovery of the back-up tapes, six tapes and part of a seventh were found to be missing29. The issues in Zubulake IV were at what time did UBS have a duty to preserve potential evidence and what are the appropriate sanctions
for its failure to do so. Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation30. The spoliation of evidence germane to proof of an issue at trial can support an inference that the evidence would have been unfavorable to the party responsible for its destruction.31 However, “a party can only be sanctioned for destroying evidence if it had a duty to preserve it.” 32 Judge Scheindlin summarized a party's preservation obligation as:  

      Once a party reasonably anticipates litigation, it must suspend
      its routine document retention/destruction policy and put in place
      a “litigation hold” to ensure the preservation of relevant
      documents. As a general rule, that litigation hold does not apply
      to inaccessible backup tapes (e.g., those typically
      maintained solely for the purpose of disaster recovery), which may
      continue to be recycled on the schedule set forth in the company's
      policy. On the other hand, if backup tapes are accessible
      (i.e., actively used for information retrieval), then
      such tapes would likely be subject to the litigation

      . . . If a company can identify where particular employee
      documents are stored on backup tapes, then the tapes storing the
      documents of "key players" to the existing or threatened litigation
      should be preserved if the information contained on those tapes is
      not otherwise available. This exception applies to
      all backup tapes.33  

Zubulake then argued that UBS's spoliation warranted an adverse inference instruction.34 A party seeking an adverse inference instruction (or other sanctions) based on the spoliation of evidence must establish the following three elements:

(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a “culpable state of mind” and (3) that the destroyed evidence was “relevant” to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.35 Here, although Judge Scheindlin found UBS, as discussed above, had a duty to preserve the tapes and that it was culpable because it was negligent (and possibly reckless) in failing to preserve the tapes, she nevertheless refused to order an adverse inference instruction because Zubulake could not demonstrate that the lost evidence would have supported her claims.36

Judge Scheindlin did, however, order UBS to bear Zubulake’s costs for re-deposing certain witnesses for the limited purpose of inquiring into issues raised by the destruction of evidence and any newly discovered e-mails.37 During those depositions Zubulake discovered that even more e-mails subject to litigation hold had been destroyed and that other existing e-mails had never been produced.38 While Judge Scheindlin found that UBS counsel had failed to adequately communicate the litigation hold to all the key players, it was also plain that UBS deleted some e-mails in defiance of explicit instructions not to.39 Judge Scheindlin therefore concluded that UBS acted willfully in destroying potentially relevant information and because UBS’s spoliation was willful, the lost information was presumed to be relevant.40

In formulating sanctions against UBS, Judge Scheindlin recognized that a major consideration in choosing an appropriate sanction—along with punishing UBS and deterring future misconduct—was to restore Zubulake to the position that she would have been in had UBS faithfully discharged its discovery obligations.41 Therefore, Judge Scheindlin ordered the jury be given a permissive, rather than required, adverse inference instruction with regard to the missing e-mails.42

Judge Scheindlin added a postscript in her Zubulake V decision: 

     Now that the key issues have been addressed and national
     standards are developing, parties and their counsel are fully on
     notice of their responsibility to preserve and produce
     electronically stored information. The tedious and difficult fact
     finding encompassed in this opinion and others like it is a great
     burden on a court's limited resources. The time and effort spent by
     counsel to litigate these issues has also been time-consuming and
     distracting. This Court, for one, is optimistic that with the
     guidance now provided it will not be necessary to spend this amount
     of time again. It is hoped that counsel will heed the guidance
     provided by these resources and will work to ensure that
     preservation, production and spoliation issues are limited, if not


1. Fed. R. Civ. P. 37(e) (emphasis added).

2. Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, Report of the Advisory Committee on Civil Rules 35 (2013), available at http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/Reports/CV05-2013.pdf.

3. Id.

4. Id. (expressly rejecting Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 106-07 (2d Cir. 2002) (holding that "[e]ven in the absence of a discovery order, a court may impose sanctions on a party for misconduct in discovery under its inherent power to manage its own affairs") and similar cases that would permit sanctions for negligence).

5. Id. at 43-44; see also id. at 44-50 (providing the Committee Notes for the proposed amended Rule 37(e)).

6. Infra  note 43.

7. See infra notes 39-40 and accompanying text.

8.  Sekisui Am. Corp. v. Hart, No. 12 Civ. 3479, 2013 WL 4116322, at *4 n.51 (S.D.N.Y. Aug. 15, 2013) (emphasis added) (citations omitted).

9. Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003) (Zubulake I); Zubulake v. UBS Warburg LLC, 230 F.R.D. 290 (S.D.N.Y. 2003) (Zubulake II); Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) (Zubulake III); Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (Zubulake IV); Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (Zubulake V).

10. Zubulake had already discovered one "smoking gun" e-mail suggesting that she be fired "ASAP" after her EEOC charge was filed, in part so that she would not be eligible for year-end bonuses. Zubulake I, 217 F.R.D. at 311 n.8.

11. Id. at 317.

12. Id. at 316.

13. Id.

14.  205 F.R.D. 421, 429 (S.D.N.Y. 2002).

15. Zubulake I, 217 F.R.D. at 316.

16. Id. at 318 (citing Fed. R. Civ. P. 26(c)).

17. Zubulake III, 216 F.R.D. 280, 287 (S.D.N.Y. 2003).

18. Zubulake I, 217 F.R.D. at 318 (quoting Fed. R. Civ. P. 26(b)(2)(iii)).

19. Id.

20. Id. at 320.

21. Id. at 322.

22. See id. at 323.

23. Id. at 324.

24. Id.

25. 216 F.R.D. 280 (S.D.N.Y. 2003). Zubulake II involved a motion to release a deposition transcript UBS claimed was confidential, and is not included in this discussion.

26. Zubulake III, 216 F.R.D. at 287.

27. See id. at 289.

28. Id. Judge Scheindlin determined that a 25 percent apportionment of production costs to Zubulake was appropriate. Id.

29. Zubulake IV, 220 F.R.D. 212, 219 (S.D.N.Y. 2003).

30. Id. at 216 (citing West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999)) (internal quotation marks omitted).

31. Id. (citing Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998)) (internal quotation marks omitted).

32. Id.

33. Id. at 218.

34. Id. at 219.

35.  Id. at 220 (citing Byrnie v. Town of Cromwell, 243 F.3d 93, 107-12 (2d Cir. 2001)).

36. Id. at 220-22.

37. Id. at 222.

38. Zubulake V, 229 F.R.D. 422, 426 (S.D.N.Y. 2004).

39. Id. at 436.

40. Id.

41. Id. at 437.

42. Id. at 437, 440.

43. Id. at 440-41.