Since the December 2015 amendments to Federal Rule of Civil Procedure 37(e), which overhauled the process for imposition of sanctions for spoliation of electronic evidence, controversy has persisted regarding whether federal courts may continue to look to their inherent authority to impose such sanctions, at least where the conduct would not be technically sanctionable under the amended Rule.
The Advisory Committee notes to Rule 37(e) seem to indicate that such authority is no longer available, but several influential district courts and the Second Circuit have disagreed. The Third Circuit has yet to speak on the issue, and district courts in that circuit (to the extent they have waded into this controversy) have not provided much clarity. Ultimately, the Third Circuit (and others) may follow the apparent lead of the Second—but the issue remains undecided, and litigants should be aware that arguments can, and likely will, be made either way.
This article will provide a brief overview of inherent authority in relation to Rule 37-based powers to sanction, the changes and controversy ushered in by the December 2015 amendments, and the direction the courts in the Third Circuit may take on this issue.
Inherent Authority and Amended Rule 37(e)
In Chambers v. NASCO, 501 U.S. 32 (1991)—perhaps the seminal case on the scope of federal court inherent authority—the Supreme Court explained that “the exercise of the inherent power of lower federal courts [to sanction bad faith conduct] can be limited by statute and rule,” but emphasized that “the inherent power of a court can be invoked even if procedural rules exist which sanction the same conduct.” Id. at 47, 49. Importantly, however, the court continued:
A court must, of course, exercise caution in invoking its inherent power, and it must comply with the mandates of due process, both in determining that the requisite bad faith exists and in assessing fees. Furthermore, when there is bad-faith conduct in the course of litigation that could be adequately sanctioned under the Rules, the court ordinarily should rely on the Rules rather than the inherent power. But if in the informed discretion of the court, neither the statute nor the Rules are up to the task, the court may safely rely on its inherent power.
Chambers, 501 U.S. at 50 (emphasis added).
Against this backdrop, courts, including in the Third Circuit, have regularly invoked their inherent authority to sanction litigants for discovery misconduct, including spoliation of electronic evidence. See, e.g., Rorrer v. Cleveland Steel Container, 564 F. App’x 642, 645 (3d Cir. 2014) (finding that lower court was “well within its discretion under its inherent power” to impose sanctions “[e]ven if there was no rule discovery violation”); Eash v. Riggins Trucking, 757 F.2d 557, 561 (3d Cir. 1985) (recognizing courts’ “historical reliance on inherent powers, including Supreme Court jurisprudence dating back to 1812”); see also Mosaid Techs. v. Samsung Electronics Co., 348 F. Supp. 2d 332, 335 (D.N.J. 2004); Henkel Corp. v. Polyglass USA, 194 F.R.D. 454, 456 (E.D.N.Y. 2000).
The passage of the December 2015 Federal Rules amendments, however, may have significantly altered this landscape. Amended Rule 37(e)—titled “Failure to Preserve Electronically Stored Information”—lays out the analysis a court must undertake before one of two levels of remedial measures and sanctions may be imposed. The Rule states that only “[i]f electronically stored information that should have been preserved in 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,” can the court impose any remedial measures. Moreover, only upon an additional finding of “intent to deprive another party of the use of the information in litigation” may certain serious sanctions like dismissal and adverse inference instructions be imposed.
The question of whether and to what degree amended Rule 37(e) has limited or eliminated courts’ ability to impose “inherent authority” sanctions stems from this comment in the Advisory Committee’s note to new Rule 37(e): “[New Rule 37(e)] forecloses reliance on inherent authority or state law to determine when certain measures should be used [to address spoliation of ESI].” (Emphasis added.)
Not surprisingly, therefore, since the Rule’s enactment, numerous courts have held that “inherent authority” sanctions are simply no longer available to address ESI spoliation. See, e.g., Waymo v. Uber Technologies, No. 17-cv-939, 2018 WL 646701, at *14 (N.D. Cal. Jan. 30, 2018); Wooden v. Barringer, No. 16-cv-446, 2017 WL 5140518, at *3 (N.D. Fla. Nov. 6, 2017); Snider v. Danfoss, No. 15-cv-4748, 2017 WL 2973464, at *2 n.8 (N.D. Ill. July 12, 2017).
Disagreement remains, however. For example, influential e-discovery authority James C. Francis, formerly a Magistrate Judge in the Southern District of New York, and Eric Mandel have noted in a scholarly discussion of the subject that “the intent of the Advisory Committee to proscribe reliance on inherent authority with respect to the entire arena of spoliation sanctions applicable to ESI is less than clear,” and “even if it were, there is substantial question whether the Advisory Committee could effect such an outcome by means of a note.” Limits on Limiting Inherent Authority: Rule 37(e) and the Power to Sanction p. 644, Hon. James C. Francis IV & Eric P. Mandel, The Second Conference Journal 17:2 (2016). The authors further noted that “the text of Rule 37(e) [itself] is devoid of any reference to inherent authority.” Id. at 646. Ultimately, the authors concluded that Rule 37(e) does not displace inherent authority insofar as there are interstices—or “gaps”—in the Rule or, said differently citing Chambers, the Rule is “not up to the task” of ensuring the ability of federal courts to protect the integrity of the courts and address misconduct. Id. at 667.
The Second Circuit’s Support for ‘Inherent Authority’
In one highly publicized opinion issued shortly after the rule amendment, Judge Francis commented on situations where spoliation-related misconduct occurred but a “gap” in Rule 37(e) may not permit sanctions under the Rule, such as where a party attempts to destroy or alter electronic evidence but does not succeed. See CAT3 v. Black Lineage, 164 F. Supp. 3d 488, 497 (S.D.N.Y. 2016) (addressing a party’s intentional alteration of electronic evidence and noting that “[i]f … Rule 37(e) were construed not to apply to the facts here, I could nevertheless exercise inherent authority to remedy spoliation under the circumstances presented”). Other New York federal courts appear to be following suit. Ronnie Van Zant v. Pyle, 270 F. Supp. 3d 656, 668 n. 16 (S.D.N.Y. 2017); Hsueh v. New York State Dep’t of Fin. Servs., No. 15-cv-3401, 2017 WL 1194706, at *4 (S.D.N.Y. Mar. 31, 2017).
Recently, the Second Circuit also seemed to endorse this view. In Klipsch Group v. ePRO E-Commerce Ltd., 880 F.3d 620 (2d Cir. 2018), a case involving (at least in part) clearly intentional spoliation of electronic evidence, the court affirmed the district court’s imposition of inherent authority-based sanctions, including an adverse inference and a fees and costs award of $2.7 million (shockingly, in a case where total damages were estimated at only $20,000), without any resort to Rule 37(e). Id. at 632. Interestingly, in Klipsch, it is not at all evident that Rule 37(e) would not have been “up to the task” of addressing the spoliation conduct in that case, i.e., that any of the “gaps” in the remedial scheme discussed by Francis and Mandel were present.
Indications that the Third Circuit will Align with the Second
As a general matter, “inherent authority” sanctions are alive and well in the Third Circuit. See, e.g., Benkovich v. Gorilla, No. 15-cv-7806, 2017 WL 4005452, at *2 (D.N.J. Sept. 12, 2017); Jutrowski v. Twp. of Riverdale, No. 13-cv-7351, 2017 WL 1395484, at *5 (D.N.J. Apr. 17, 2017). It remains to be seen, however, whether the Third Circuit will follow the lead of the Second, and find that “inherent authority” sanctions continue to be applicable in the ESI context in light of amended Rule 37(e).
For the time being—although not providing much meaningful analysis—the district courts appear split on the issue. In a comment with little accompanying analysis, the court in Air Products and Chemicals v. Wiesemann, No. 14-cv-1425, 2017 WL 758417 (D. Del. Feb. 27, 2017), alluded to the exclusive role of Rule 37(e) where electronic evidence is involved. Id. at *1 (“Sanctions for spoliation are determined under two different rubrics depending on the type of evidence. ESI is governed by the recently amended Fed. R. Civ. P. 37(e). Sanctions for all other types of evidence continue to be governed by the court’s inherent authority.”). Conversely, in DVComm v. Hotwire Communications, 14-cv-5543, 2016 WL 6246824, at *7 (E.D. Penn. Feb. 3, 2016), the court noted that “[w]ithout limitation, litigation misconduct may also be otherwise sanctioned by the inherent power of the court,” but ultimately held that Rule 37(e) was up to the task in that case.
Given the influence of its neighboring jurisdiction, it would not be surprising if the Third Circuit ultimately aligns with the Second in recognizing the continued validity of inherent authority-based sanctions, at least in circumstances where a technical application of Rule 37(e) might leave an aggrieved party without a remedy. Litigants should be prepared to understand and address this issue for circumstances including intended but unsuccessful spoliation and related misconduct, where remediation or punishment is warranted, but cannot be accomplished through Rule 37(e).
Sidoti is chair of the E-Discovery Task Force and a director in the Commercial & Criminal Litigation Department of Gibbons P.C. in Newark. Levy is an associate in the firm’s Commercial & Criminal Litigation Department.