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Why Courts Should Not Go 'Over and Above' the Federal Rules to Impose Sanctions for Loss of ESI

Client Alert

Author: Matthew J. Hamilton

3/02/2017
Why Courts Should Not Go 'Over and Above' the Federal Rules to Impose Sanctions for Loss of ESI

The Federal Rules foreclose the exercise of inherent authority to impose sanctions.

A recent case offers a cautionary tale of how courts may cite to the requirements of amended Federal Rule of Civil Procedure 37(e), which governs imposing sanctions for failure to preserve electronically stored information (ESI), but then fail to follow the rule. The Committee Note to the 2015 amendment to Rule 37(e) makes clear that the Rule forecloses the exercise of inherent authority to impose sanctions. Some courts, however, have continued to assert their inherent authority and rely on pre-amendment case law, leading to aberrant results. Addressing a motion for sanctions, the court in Cohn v. Manhattan Mortgage Co., Inc., 2016 U.S. Dist. LEXIS 169670 (N.D. Ill.), recited the requirements of Rule 37(e) but then, by reference to pre-amendment law, asserted its inherent authority to impose sanctions “over and above the provisions of the federal rules.” The protections offered by the amended Rule mean little if courts can disregard them, and so parties must frame the dispute in terms of the amended Rule, its committee note and the growing body of post-amendment case law.

The 2015 Advisory Committee Note to Rule 37 makes clear that the new Rule “forecloses reliance on inherent authority or state law to determine when certain measures should be used.” Pre-amendment case law may be instructive in broad terms, but it is not when it comes to the specific requirements and findings that must be made to justify sanctions under Rule 37(e). The Rule makes clear that sanctions must be limited to those necessary to cure any prejudice found and requires a finding of intent to deprive in order to impose the most severe sanctions. Crucially, the plaintiff in Cohn did not cite to Rule 37(e) or its Advisory Committee Note in her brief, and the court may not have been aware of the limits on its authority.

The Cohn court considered a motion for sanctions on the basis that the plaintiff had deleted emails from her Gmail account that were relevant to the alleged breach of a nonsolicitation agreement. The court found that the plaintiff had intentionally deleted the emails after she was aware that litigation would be filed, violating her duty to preserve. The court cited Rule 37(e), as amended, as describing “some of the remedies that the court may enter in the event that electronically stored information is destroyed.” The court asserted that it had “broad, inherent power to impose sanctions for failure to produce discovery and for destruction of evidence, over and above the provisions of the federal rules.” The court cited pre-amendment case law in support of its assertion. While the court ultimately denied a terminating sanction, instead directing the parties to meet and confer to arrange for in-person access to the plaintiff’s email account, its departure from the strictures of the Rule threatens to undermine the purpose of the amendment.

Perhaps the most notorious example of a court’s awarding sanctions not provided for in the Rule is GN Netcom v. Plantronics, 2016 WL 3792833 (D. Del., July 12, 2016). There, GN Netcom moved for sanctions because a Plantronics senior vice president of sales had intentionally deleted more than 40 percent of his own emails relating to the subject matter of the litigation. The court acknowledged that Rule 37(e) “specifically addresses the applicability of sanctions for spoliation of electronically stored information,” but also reasoned that “Rule 37(e), as amended, substantially reflects pre-existing Third Circuit law regarding sanctions for spoliation.” Id. at *5. While that may be true in some respects, such as with the requirement that spoliation be done with bad faith intent in order to merit an adverse inference, pre-amendment case law can have little bearing on the application of the specifically defined sanctions provided for by the amended Rule. Rule 37(e) explicitly “authorizes and specifies measures a court may employ if information that should have been preserved is lost and specifies the findings necessary to justify these measures.” Rule 37(e), 2015 Advisory Committee Note.

The court conducted a Rule 37(e) analysis and awarded fees incurred in connection with bringing the sanctions motion. But then the court went further. Finding a high degree of fault, the court, without citation to authority, imposed sanctions of $3 million. The legal basis for the sanction is not clear. Rule 37(e) does not contemplate punitive monetary sanctions, and the court did not offer any explanation. As noted above, Rule 37(e) forecloses such a use of inherent authority in this situation, but it is hard not to view the court’s sanction as one imposed, pursuant to its inherent authority, that is “over and above” that provided for in the Federal Rules.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.