In December of 2015, the Federal Rules of Civil Procedure were amended. Many of the changes had implications for eDiscovery and electronically stored information (“ESI”). Of particular significance, Rule 37(e) was amended to address sanctions in the event that “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…”
Prior to the 2015 amendments, Rule 37(e) provided that “[a]bsent exceptional circumstances, a court may not impose sanctions 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.” According to the Rules Committee, this previous rule failed to adequately address the issues surrounding the “continued exponential growth” of ESI and its impact on litigation, and permitted the federal circuits to establish “significantly different standards” when it came to sanctions for parties who failed to preserve ESI. Negligent failure to preserve ESI in one jurisdiction would result in a slap on the wrist while the same conduct in another jurisdiction might go so far as to result in case-terminating sanctions.
A recent case in Southern District of New York, Cat3, LLC v. Black Lineage, Inc., 164 F. Supp. 3d 488 (S.D.N.Y. 2016), explores just one of the issues that’s come up with regards to the new preservation requirements under Rule 37(e).
Plaintiffs Cat3, LLC and Suchman, LLC were companies asserting their rights in the trademark “SLAMXHYPE” and the domain name www.SLAMHYPE.com, both of which they used in connection with the sale of clothing and the operation of a website and online magazine. They alleged that defendants Black Lineage, Inc. and Vahe Estepanian’s use of “FLASHXHYPE” and the domain name www.FLASHXHYPE.com interfered with their trademark rights.
Of crucial importance was the issue of when the defendants first became aware of Plaintiff’s use of the SLAMXHYPE mark. During the deposition of Black Lineage’s president, defendant Vahe Estepanian, he was shown a document marked as Exhibit 10 which appeared to be an email sent by a Black Lineage employee to both Estepanian and one of Plaintiff’s employees, Jeremiah Myers, at the email address jeremiah@slamxhype.com. During cross-examination however, it became apparent that there was more than one version of the document marked as Exhibit 10. Mr. Estepanian testified that the email he had received, a copy of which the defendants produced in discovery, was identical to Exhibit 10 except that the domain name for Jeremiah Myer’s email address appeared as @ecko.com.
Defendants’ counsel subsequently used a forensic analyst to explore the discrepancy. The investigation quickly revealed that behind each email produced in discovery was a near-duplicate copy of the message, with the same substantive message and even marked with the same date and time. The only pieces of information that were altered from the top version of the email message to the near-duplicate version beneath were certain email domains that appeared for a number of the senders and recipients of the emails.
The issue the court faced was whether the amended Rule 37(e) applied in a case where ESI was not “lost,” but merely manipulated. Interestingly, the court not only held that Rule 37(e) still applied, but went one step further, holding that even if Rule 37(e) did not apply, the court still had inherent authority to sanction the plaintiffs for their misconduct. In doing so, the court relied on Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991), a 1991 Supreme Court case which provides that “‘[c]ertain implied powers must necessarily result to our Courts of justice from the nature of their institution,’ powers ‘which cannot be dispensed with in a Court, because they are necessary to the exercise of all others.”‘
Such a holding seemingly ran in the face of the Advisory Committee’s statements that Rule 37(e) “forecloses reliance on inherent authority” for spoliation of ESI. Again, part of the original purpose of the amended rules was to foreclose the extensive use of different standards across different jurisdictions – “inherent authority” was a clear culprit of such inconsistencies. The Cat3 v. Black Lineage court however, interpreted the Advisory Committees guidance as only precluding the imposition of case terminating sanctions “for merely negligent destruction of evidence, as would have been the case [under prior law.]” In other words, as long as the court followed the rubric of Rule 37(e) it can still use its inherent authority to impose sanctions in cases where Rule 37(e) does not apply.
Cat3 v. Black Lineage is just one of the many federal cases attempting to tackle the amended rules when it comes to sanctions relating to eDiscovery. Until a Circuit Court of Appeals weighs in, we are unlikely to know for certain how much “inherent authority” will undermine the intended effects of the amended Rule 37(e) in situations where ESI that should have been preserved is lost. Perhaps a Supreme Court case may not be too far in the future.