The application of Rule 37(e) may limit spoliation litigation to issues relevant to underlying claims and defenses.

A key component in plaintiffs’ playbook when facing a corporate defendant is to attempt to try cases not on their merits, but instead on alleged spoliation of electronically stored information (ESI). The Actos multidistrict litigation (MDL) stands as a stark example, where the court allowed several days of trial testimony relating to the defendants’ handling of ESI and permitted the jury to draw adverse inferences from the alleged spoliation, leading to a $9 billion punitive damages award. See In re Actos (Pioglitazone) Prods. Liab. Litig., No. 6:11-md-2299, 2014 U.S. Dist. LEXIS 152066 (W.D. La. Oct. 27, 2014). Where similar Actos trials in Illinois and Nevada courts focused on the actual merits of the claims, rather than the plaintiffs’ allegations of spoliation, both juries found for the defendants. See Whitlatch v. Takeda Pharm. Am., Inc., No. 12-L-6087 (Cook County Ill. Cir. Ct. May 15, 2014); Cipriano v. Takeda Pharm. Am. Inc., No. A680922 (Clark County Nev. Ct. May 22, 2014).

Recent changes to the Federal Rules of Civil Procedure clarify and limit when a district court may sanction a party for its failure to preserve ESI. Effective December 1, 2015, Rule 37(e) as amended provides for sanctions only where ESI “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,” and then only under two specific circumstances. First, upon a finding that a party was prejudiced, the court may order measures “no greater than necessary to cure the prejudice.” Second, only upon a finding that “the party acted with the intent to deprive another party of the information’s use in the litigation,” may the court impose the most severe sanctions: an adverse inference or disposal of the entire case.

As courts come to terms with the amendments, recent cases offer hope that the Rules can serve to prevent the imposition of sanctions where a party alleges that ESI was lost or destroyed, but can establish neither prejudice nor the requisite intent to deprive. Better yet, application of Rule 37(e) may limit spoliation litigation to issues relevant to underlying claims and defenses.

Two recent district court cases give rise to optimism that the amended Rule 37(e) will preclude a recurrence of the Actos MDL experience. In both cases, the judges required a showing that ESI that should have been preserved was lost in the first place, before addressing allegations regarding the parties’ conduct in maintaining their ESI. Even where one of the courts found evidence of lost ESI, it refused to enter sanctions under Rule 37(e) because there was no actual showing of prejudice or intent to deprive. Although both of the alleged spoliators in these cases are individuals, the same principles should apply when the alleged spoliator is a corporate defendant.

In Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., No. 14-cv-62216, 2016 U.S. Dist. LEXIS 39113 (S.D. Fla. Mar. 22, 2016), a trademark infringement/unfair competition case, the plaintiff filed a motion for sanctions, alleging that one of the defendants deleted text messages between himself and other parties. The motion sought severe sanctions, including an adverse inference instruction or a default judgment. The parties initially briefed their spoliation dispute without addressing amended Rule 37(e). The court ordered the parties to file supplemental briefing addressing the rule, pointing out that the 2015 Advisory Committee notes explain that the newly amended rule forecloses reliance on inherent authority or state law to determine whether to impose severe sanctions for destruction of ESI. In its opinion, the court analyzed the elements of Rule 37(e) in detail. It found, based at least in part on some concessions by the defendant, that there was evidence that some text messages were lost and could not be replaced or restored. But the court found no prejudice, because the plaintiff had “not explained any direct nexus between the missing text messages and the allegations in its Complaint” and the missing messages appeared “to be unimportant.” The court also found no “intent to deprive,” as the defendant routinely deleted text messages and there was no evidence that he intentionally deleted the ones at issue in order to deprive the plaintiff of the information’s use in litigation. Compare DVComm, LLC v. Hotwire Commc’ns, LLC, No. 14-5543, 2016 U.S. Dist. LEXIS 19175 (E.D. Pa. Feb. 16, 2016) (finding that plaintiff had intentionally deleted relevant emails and ordering an adverse inference instruction pursuant to Rule 37(e)).

In Accurso v. Infra-Red Services, No. 13-7509, 2016 U.S. Dist. LEXIS 31406 (E.D. Pa. Mar. 11, 2016), an employment action, the defendants alleged that the plaintiff deleted emails that he had exchanged with the defendants’ competitors in an attempt to siphon away business. The court held that the defendants could not show there was actual suppression or destruction of evidence, let alone that the plaintiff was responsible or that he acted with the intent to deprive the defendants of information. Thus, the court found that the defendants had not shown that they were entitled to an adverse inference and denied their motion without prejudice to raising the argument again at trial in light of what is received into evidence. In so doing, the court moved any potential additional discussion of spoliation until closer to trial, when — following further substantive discovery and a narrowing of the issues of the case — it will be clearer whether any information was lost and, even if it was, whether that information has any bearing on the substance of the case.

In both Living Color and Accurso, a party attempted to capitalize on an alleged destruction of evidence, despite the fact that it lacked proof of any prejudice or intent to deprive. In Accurso, it lacked even the ability to show that anything was lost. Citing the amended Rule 37(e), both courts declined to impose sanctions. The Living Color court was able to carefully analyze the evidence that existed to date in discovery and determine there was no evidence of prejudice or intent to deprive and that the allegedly spoliated evidence was “unimportant.” The Accurso court noted that the defendants could raise their arguments about spoliation again at trial, depending on what is admitted as evidence. Although that court left the door open for further discussion, the practical effect of addressing such issues closer to trial should help ensure that any discussion of potential spoliation is focused on information actually relevant to the case. Amended Rule 37(e) offers hope that litigants can avoid the expensive and potentially disastrous spoliation sideshows that plagued complex litigation under the old regime and concentrate instead on the merits of the case.