León Cosgrove

New Rule 37(e) Provides Uniform Sanctions for Loss of ESI

By: Ellen Ross Belfer

Amendments to the Federal Rules of Civil Procedure relating to discovery and electronic discovery became effective on December 1, 2015. In addition to addressing proportionality, party cooperation, and judicial oversight in discovery, the amended Rules established a new uniform standard for sanctions related to the loss of electronically stored information (ESI). This piece will discuss the major overhaul of Rule 37(e), which was made necessary due to differing sanctions standards in the federal courts and the resulting tendency towards overspending and over-preservation of ESI.


The amendment process dates to 2010, when the Advisory Committee on Civil Rules organized the Duke Conference to explore the current costs of civil litigation, particularly discovery, and to discuss possible solutions. One of the most pressing problems the Advisory Committee addressed was diversity in the federal circuits’ response to burgeoning discovery disputes related to the loss of ESI and the imposition of ESI-loss sanctions.

The old Rule 37(e) to which the Advisory Committee turned its attention was bare-bones and provided for a so-called safe harbor regarding the failure to provide ESI:

(e) Failure to Preserve Electronically Stored Information. Absent exceptional circumstances, a court may not impose sanction 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.

At the same time, as issues of loss of ESI became more prevalent, various federal circuits began to establish different standards for imposing sanctions for loss of ESI. There was no uniform standard.

For instance, in the Second Circuit, under the rule from Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002), courts were authorized to give adverse-inference instructions for negligent or grossly negligent failure to preserve the ESI. Likewise, the Sixth and Ninth Circuits followed this same standard. See Beaven v. U.S. Dep’t of Justice, 622 F.3d 540, 554 (6th Cir. 2010); Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993); see also World Courier v. Barone, No. 06 Civ. 3072, 2007 WL 11196, at *2 (N.D. Cal. Apr. 16, 2007).

Meanwhile, the standard adhered to by the Third and Fourth Circuits required intentional or willful destruction in order for adverse inference instructions to be given. See Brewer v. Quaker State Oil Ref. Corp., 72 F.3d 326, 334 (3d Cir. 1995); Vodusek v. Bayliner Marine Corp., 71 F.3d 148, 156 (4th Cir. 1995). And in the Fifth, Seventh, Eighth, Tenth, and Eleventh Circuits, a finding of bad faith was required for the sanction of an adverse-inference instruction. See Condrey v. SunTrust Bank of Ga., 431 F.3d 191, 203 (5th Cir. 2005); Faas v. Sears, Roebuck & Co., 532 F.3d 633, 644 (7th Cir. 2008); Greyhound Lines, Inc. v. Wade, 485 F.3d 1032, 1035 (8th Cir. 2007); Turner v. Pub. Serv. Co. of Colo., 563 F.3d 1136, 1149 (10th Cir. 2009); Mann v. Taser Int’l, Inc., 588 F.3d 1291, 1310 (11th Cir. 2009).

The New Rule 37(e)

This lack of a uniform standard created uncertainty as to when serious sanctions would be imposed, leading to over-spending and over-preservation of ESI. Thus, when drafting its 2015 amendments, the Advisory Committee sought to establish a set of uniform standards for federal courts to apply:

New Rule 37(e):


New Rule 37(e):

(e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:

(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or

(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:

(A) presume that the lost information was unfavorable to the party;

(B) instruct the jury that it may or must presume the information was unfavorable to the party; or

(C) dismiss the action or enter a default judgment.


Four Threshold Requirements for Sanctions

The new Rule 37(e) has four threshold requirements before any kind of sanctions can be imposed for the loss of ESI.

First, the court must find a breach of the duty to preserve the ESI. The new Rule does not create a new duty to preserve. Rule 37(e) is based on the common-law duty to preserve relevant information when litigation is reasonably foreseeable. The Advisory Committee notes provide some guidelines:

  • “The rule does not apply when information is lost before a duty to preserve arises.”
  • When deciding whether and when a duty to preserve arose, “[c]ourts should consider the extent to which a party was on notice that litigation was likely and that the information was relevant.”
  • “[C]ourts may sometimes consider whether there was an independent requirement that the lost information be preserved.”
  • “The duty to preserve may in some instances be triggered or clarified by a court order in the case. Preservation orders may become more common.”

Second, the court must find a failure to take reasonable steps to preserve the ESI. The new Rule does not require perfection. Similar to old Rule 37(e), absent a duty to preserve, the routine, good-faith operation of an electronic information system is a relevant factor. According to the Advisory Committee, courts should also be “sensitive to the party’s sophistication with regard to litigation in evaluating preservation efforts.” Proportionality is another factor to consider when evaluating the reasonableness of preservation efforts. “The court should be sensitive to party resources; aggressive preservation efforts can be extremely costly, and parties (including governmental parties) may have limited staff and resources to devote to those efforts.” The court should balance a party’s resources with the effectiveness of preservation.

Third, the court must find that the lost information cannot be replaced or restored through additional discovery. In considering whether the information can be replaced through additional discovery, courts can use Rule 26(b)(2)(B) to order discovery from sources that would usually be considered inaccessible. Courts can also use Rule 26(c)(1)(B) to allocate expenses for recovery of the information. However, the Advisory Committee “emphasize[s] that efforts to restore or replace lost information through discovery should be proportional to the apparent importance of the lost information to claims or defenses in the litigation.”

Fourth, the court must find that the loss of ESI caused prejudice to the other party. Rule 37(e) is intended to provide discretion to judges to determine how to best determine prejudice. However, it is necessary to consider the lost information’s importance in the litigation when assessing prejudice. The Advisory Committee also purposefully does not place the burden of proving or disproving prejudice on any one party. Rather, this may depend on how difficult it is to prove the content of the lost information. Further, if a court makes a finding of bad faith—that a party acted with the intent to deprive another party of the information—the court does not need to make a separate finding of prejudice. This is because the bad faith itself supports an inference that the opposing party was prejudiced by the loss.


Remedies Under Rule 37(e)

Rule 37(e)(1) and (e)(2) provide for the court to issue sanctions once threshold requirements are met. But it is important to distinguish between sanctions under Rule 37(e)(1) and (e)(2). While the court has broad discretion in authorizing a range of curative measures, it may only issue the sanctions of Rule 37(e)(2) “upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation.” Thus, a court must make a finding that a party acted in bad faith in order to issue the most serious sanctions of Rule 37(e)(2), which include the well-known and much-feared sanction of the adverse-inference. Rule 37(e)(2) covers any instruction that directs or permits the factfinder to infer that the lost information was unfavorable.

Rule 37(e) was written to provide a uniform standard in federal court for the issuance of severe adverse-inference sanctions (or sanctions having a similar effect as the adverse-inference instruction). It was also written to expressly overrule cases such as Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002), which authorized an adverse-inference instruction on a finding of negligence or gross negligence.

No Adverse Inference Sanction for Negligence or Gross Negligence

Rule 37(e) rejects the adverse-inference sanction for loss of information due to negligence or gross negligence. The Committee reasoned that negligently lost information may have been favorable or unfavorable; unlike bad faith, negligence does not necessarily reveal the nature of the lost information. Moreover, the Committee recognized that as ESI continues to proliferate, so, too, will the loss of ESI from a variety of causes.

Because courts are still permitted to issue serious sanctions under Rule 37(e)(1) without a finding of bad faith, the Advisory Committee warns courts to exercise caution in utilizing the severe sanctions of Rule 37(e)(2). “The remedy should fit the wrong, and the severe measures authorized by this subdivision should not be used when the information lost was relatively unimportant or lesser measures such as those specified in subdivision (e)(1) would be sufficient to redress the loss.”

To make the remedy fit the wrong, courts may, instead, rely on (e)(1) remedies “such as forbidding the party that failed to preserve information from putting on certain evidence, permitting the parties to present evidence and argument to the jury regarding the loss of information, or giving the jury instructions to assist in its evaluation of such evidence or argument, other than instructions to which subdivision (e)(2) applies.” Care must be taken, however, to ensure that curative measures under subdivision (e)(1) do not have the effect of measures that are permitted under subdivision (e)(2) only on a finding of bad faith.



Ellen BelferEllen Ross Belfer, of counsel at León Cosgrove LLC, focuses her practice on complex commercial litigation in federal and state courts nationwide.