Federal Court Offers Clues in How the Newly Amended Rule 37(e) Will Be Applied When Electronically Stored Information Is Not Preserved
Among the most significant changes to the Federal Rules of Civil Procedure that went into effect in December 2015 were amendments to Rule 37(e), which defines spoliation in the context of electronically stored information (ESI) and sets forth corresponding sanctions.1 In CAT3 v. Black Lineage, 2016 WL 154116 (S.D.N.Y. Jan. 12, 2016), the Southern District of New York became one of the first courts to apply the newly amended Rule 37(e). The CAT3 court’s application of amended Rule 37(e) is notable for (1) broadly applying the definition of "lost" to ESI where supported by clear and convincing evidence; and (2) declining to apply the severe sanctions authorized by Rule 37(e)(2) where they do not fit the wrong and more lenient sanctions will address the prejudice.
In CAT3 v. Lack Lineage, Plaintiffs, the operators of a website that sells clothing under the trademark "SLAMXHYPE" and the domain name www.SLAMXHYPE.com, alleged trademark infringement and related claims. The primary issue in the case was whether Defendants "developed their FLASHXHYPE mark independently or, instead, sought to trade on the plaintiffs' reputation after learning of their use of the SLAMXHYPE mark."
In the course of discovery, Defendants learned that Plaintiffs had produced emails between employees of Plaintiffs and Defendants that differed from the same emails in Defendants' possession in one key respect – in Plaintiffs' version, the email addresses of some of Plaintiffs' employees reflected domain names of @slamxhype.com, whereas in Defendants' version, none of the email addresses of Plaintiffs' employees had domain names of @slamxhype.com. Defendants moved for sanctions, including a dismissal of the complaint, an adverse inference, an order of preclusion and the assessment of attorneys' fees and costs.
At an evidentiary hearing, Defendants' forensic analyst testified that Plaintiffs had intentionally manipulated their email production so that the domain names in the emails in question were altered to @slamxhype.com. In contrast, Plaintiffs' expert testified that the discrepancy in domain names resulted from mere technical issues. Finding the opinion of Defendants' expert to be "well-supported” and that of Plaintiffs' expert to be "less than compelling," the court concluded that "there is clear and convincing evidence" "that the plaintiffs manipulated the emails here in order to gain an advantage in the litigation."
In reaching this conclusion, the court applied a broad definition of whether ESI is "lost" for purposes of Rule 37(e). Under the Rule, ESI is "lost" when "it cannot be restored or replaced through additional discovery." Plaintiffs argued that the emails in question were not lost because the content of the emails had not been destroyed or even altered. The court disagreed, finding that the emails were indeed lost because "the fact that there are near-duplicate emails showing different addresses casts doubt on the authenticity of both." In so ruling, the court appeared to equate loss under Rule 37(e) with prejudice.
The court then turned its attention to fashioning a remedy under Rule 37(e). The court stated that the severe sanctions of dismissal and the imposition of an adverse inference under Rule 37(e)(2) of the Rule were available to it because Plaintiffs had "acted with the intent to deprive another party of the information’s use in the litigation." The court, however, rejected these sanctions, citing instructions from the Advisory Committee that sanctions under Rule 37(e) "should fit the wrong, and the severe measures authorized by [subsection (e)(2)] should not be used when the information was relatively unimportant or lesser measures . . . would be sufficient to redress the loss." Noting that "an order of dismissal, an adverse inference or a broader preclusion order would unnecessarily hamper the plaintiffs in advancing what might, in fact, be legitimate claims," the court precluded Plaintiffs from relying on their versions of the emails in question and also imposed costs and attorneys' fees.
CAT3 v. Black Lineage suggests that where it is well-supported that ESI was manipulated the court will find such ESI is "lost" for purposes of the amended Rule 37(e), but the court will decline to apply the severe sanctions authorized by Rule 37(e)(2) unless they both fit the wrong and more lenient sanctions fail to address the prejudice.
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1Amended Rule 37(e) provides:
FAILURE TO PRESERVE ELECTRONICALLY STORED INFORMATION. If 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, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.