Federal Rule of Civil Procedure 37(e) was intended to be the new national standard setting forth the available sanctions for failure to preserve electronically stored information (ESI). When creating the new rule, the drafters hoped to resolve the circuit court split on this issue. In particular, the drafters rejected the Second Circuit standard in favor of one that is more forgiving, especially in situations where the ESI could be restored or replaced or where there is no prejudice to the aggrieved party. Importantly, the rule also purported to restrict the inherent authority of judges to impose sanctions for the failure to preserve ESI, which has previously resulted in a number of unexpectedly punitive sanctions decisions, particularly in the Second Circuit.
Since the enactment of Rule 37(e), a number of courts have challenged the notion that a rule can limit a judge’s inherent power to issue spoliation sanctions, especially when a party acted in bad faith. A recent decision from the Southern District of New York went even further. In Hsueh v. N.Y. State Dep’t of Fin. Servs., 2017 WL 1194706 (S.D.N.Y. March 31, 2017), Senior District Judge Paul Crotty, in a notable interpretation of the rule, determined that Rule 37(e) was inapplicable when a party intentionally destroys relevant ESI with the intent to deprive another party of its use, even though the rule expressly addresses such conduct. Judge Crotty instead invoked his inherent authority to impose the sanction of an adverse inference jury instruction, a severe sanction that nonetheless would have been available to him under Rule 37(e).
