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It has become a meme in electronic discovery articles and blogs: The fear of sanctions is driving corporations to preserve excessive amounts of electronically stored information at great cost in terms of money, time, and operational efficiency.
For example, Lawyers for Civil Justice contends that e-discovery law is "a hodgepodge of varying standards and requirements [that] creates burdens on litigants far beyond what could be considered reasonable," and that, as a result, corporations are forced to incur huge costs by overpreserving ESI. Lawyers for Civil Justice, "Preservation -- Moving the Paradigm to Rule Text," Agenda Materials for Advisory Committee on Civil Rules, Washington, Nov. 7-8, 2011, at 372.
To address this problem, Lawyers for Civil Justice and other groups advocate sweeping amendments to the Federal Rules that would reduce the scope of discovery and largely abrogate the long-standing prohibition against spoliation of evidence. Proposals include permitting the destruction of relevant documents at any time before a complaint is actually filed, no matter how certain or imminent litigation is, and reducing the scope of discovery itself to documents that would be outcome-determinative in litigation.
To be sure, there are some inconsistencies among the federal circuits in some areas of e-discovery law. U.S. Magistrate Judge Paul Grimm of the District of Maryland acknowledged in Victor Stanley Inc. v. Creative Pipe Inc., 269 F.R.D. 491, 516 (D. Md. Sept. 9, 2010) (Victor Stanley II), that issues surrounding preservation and spoliation are among the most challenging tasks for judges, lawyers, and clients, and that "[t]he lack of a national standard ... appears to have exacerbated this problem."
In that case, Grimm reviewed the relevant law in each federal circuit, expressing the hope that "this analysis will provide counsel with an analytical framework that may enable them to resolve preservation/spoliation issues with a greater level of comfort that their actions will not expose them to disproportionate costs or unpredictable outcomes of spoliation motions."
The areas of agreement and disagreement among federal courts were further explored in Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, 685 F. Supp. 2d 456 (S.D.N.Y. 2010), by U.S. District Judge Shira Scheindlin (of Zubulake fame) and Rimkus Consulting Group Inc. v. Cammarata, 688 F. Supp. 2d 598 (S.D. Texas 2010) by U.S. District Judge Lee Rosenthal, both of which Grimm addressed in Victor Stanley II.
HOPES REALIZED?
So, the question of the moment is whether Grimm's hopes are being realized. Is e-discovery law evolving sufficiently to give litigants fair notice of what conduct is permitted to avoid disproportionate discovery costs and what measures are required to avoid spoliation sanctions? In other words, following Pension Committee, Rimkus, and Victor Stanley II, do we know with reasonable clarity what one really has to do to be sanctioned for e-discovery violations in federal court?
The quantitative evidence suggests that the law of e-discovery has turned a corner. Since 2010, litigants are not only being sanctioned less frequently, but the frequency with which sanctions are sought has also fallen. According to surveys by Los Angeles-based Gibson, Dunn & Crutcher, the percentage of e-discovery decisions involving sanctions fell from 44 percent in 2009 to 33 percent for the 18 months ending in June 2011. Gibson Dunn -- Mid-Year E-Discovery Update, July 22, 2011. This would indicate that litigants increasingly are resolving issues on their own or seeking court involvement before filing motions.
Moreover, according to the survey, the frequency of courts granting sanctions motions fell substantially, from 70 percent in 2009 to 55 percent for the 18 months ending in June 2011. The number of cases in which sanctions are granted remains a minuscule fraction of cases filed: In 2010, more than 293,000 civil cases were filed in the federal courts, compared with only 55 cases in which sanctions were granted.
The falling rates of sanctions and sanctions motions can be attributed to a variety of factors. The most obvious, of course, is the growing body of judicial decisions. A second major factor is almost certainly increased knowledge and competence among judges, litigants, and lawyers in e-discovery matters, including more effective use of existing Federal Rules to control the cost and burden of e-discovery.
Further reducing uncertainty is the guidance provided by some federal courts in the form of recommended protocols or pilot programs, such as a pilot program in the U.S. Court of Appeals for the 7th Circuit, which highlight the need for cooperation to avoid disputes over issues -- like the proper scope of preservation -- in which bright-line rules are not possible and the good-faith judgment of litigants and counsel is required.
Finally, there is a growing body of authoritative resources, like The Sedona Conference Commentary on Legal Holds, that synthesize the evolving case law and scholarship into practical guides to avoiding common pitfalls in e-discovery, such as over- or underpreservation.
Given the wealth of published court decisions and other sources of e-discovery guidance, it is not surprising that a review of recent cases reveals that, notwithstanding variances in black-letter law among the circuits on some issues, results on the ground in sanctions cases are generally consistent across the federal courts. While trial court judges interpret and apply the law of their circuits, the bottom line is that there is a strong national consensus regarding the types of conduct that should be sanctioned, the appropriate sanctions for various types of misconduct and the factors to be considered in making those decisions.
The issue that has attracted the most attention for perceived inconsistencies is the level of culpability required to justify various sanctions. For example, according to Victor Stanley II, the 2nd Circuit requires only ordinary negligence as a threshold for sanctions; negligence (or, perhaps, gross negligence) to impose an adverse inference; and "willfulness, bad faith or fault" to justify a case-terminating sanction. The 5th Circuit requires "some degree of culpability" to make spoliation sanctionable; a finding of bad faith to support an adverse inference; and findings of bad faith and prejudice for dispositive sanctions. The 8th Circuit requires a showing of bad faith for any and all sanctions (except for an adverse inference if the spoliation occurs after litigation commences). The 11th Circuit requires a finding of bad faith for any and all sanctions.
CONSISTENT OUTCOMES
And yet, despite these disparities, a review of 2011 decisions by these circuits in which the trial court considered ordering an adverse inference reveals results far more consistent than the legal standards themselves. In the most practical terms, it is exceedingly difficult to find a case that falls into the gaps among the legal standards, in which the result would be different because of the difference in the standards.
In large part, the reason for this is that trial courts in circuits requiring only negligence to support severe sanctions do not actually impose severe sanctions for mere negligence; in practice, they require aggravating circumstances, such as indicia of bad faith or very severe prejudice resulting from the spoliation. On the other end of the spectrum, trial courts in circuits that require a finding of bad faith before any sanction can be imposed tend to find indicia of bad faith in conduct that courts in a "negligence circuit" might consider negligence (or gross negligence), coupled with aggravating circumstances warranting the sanction.
For example, in Yu Chen v. LW Rest. Inc., 2011 WL 3420433 (E.D.N.Y. Aug. 3, 2011), in the 2nd Circuit, the defendant's loss of a flash drive containing the only copy of original payroll records was "at a minimum, grossly negligent" and "highly suspicious" and, in addition, the defendant had violated numerous court orders throughout discovery. But, because the level of prejudice resulting from the spoliation did not justify dismissal, the court precluded the defendant from presenting any other employment records and noted that the plaintiff would benefit from the statutory presumption that, in the absence of adequate records, an employee's testimony as to his wages and hours is presumed to be true.
In the 8th Circuit, similar facts yielded a similar result in Bootheel Ethanol Investments LLC v. SEMO Ethanol Co-op., 2011 WL 4549626 (E.D. Mo. Sept. 30, 2011). There, the court held that the timing and circumstances surrounding the plaintiff's disposal of his computer, combined with other discovery misconduct, warranted an adverse inference regarding the information on the missing computer, but reserved decision on specifics of the inference for trial.
The differences in black-letter culpability standards become even less significant when courts also focus on the level of prejudice caused by the spoliation to determine the appropriate sanction. For example, in PIC Group Inc. v. LandCoast Insulation Inc., 2011 WL 2669144 (S.D. Miss. July 7, 2011), in the 5th Circuit, the defendant's spoliating conduct was judged to be "egregious and irreversible" and emblematic of bad faith, but the court adopted the recommendation of the special master not to impose an adverse inference, based on the fact that the plaintiff was not "materially prejudiced" by the spoliation because the destroyed evidence related primarily to the question of liability, which was not hotly contested.
In Woodard v. Wal-Mart Stores E. L.P., 2011 WL 2711203 (M.D. Ga. July 13, 2011), a security video showing the area in which the plaintiff fell was lost accidentally and clearly unintentionally. Nevertheless, operating under the constraint of the rule in the 11th Circuit that a finding of bad faith is required to justify imposition of any sanction, the court held that, because the loss was unquestionably the fault of Wal-Mart and would prejudice the plaintiff's ability to present proof on a key element of his case, the circumstances were "sufficient to support a jury finding of bad faith on Wal-Mart's part." The court ordered a rebuttable presumption that the videotape contained evidence harmful to Wal-Mart.
As evidenced by these and other recent cases, decisions about preservation and spoliation are not mechanistic, but rather are appropriately fact-based, and parties do not draw sanctions for very different types of conduct depending on the black-letter law of the circuit in which the litigation is pending. Moreover, there are no recent reported cases in which significant sanctions have been imposed against parties that made good-faith, reasonable, and competent efforts to preserve potentially relevant data, and reported to the court on the decisions and actions they took in that regard.
In sum, it appears that real progress has already been made, and continues, toward a consistent body of e-discovery law that will, as Grimm hoped, enable parties to resolve preservation issues without undue fear of sanctions.
Ariana J. Tadler is a managing partner at Milberg and head of the firm's e-discovery practice. She serves on advisory boards for several e- discovery think tanks, including The Sedona Conference. Henry J. Kelston is senior counsel at Milberg and a member of the firm's e-discovery committee.
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