December 02, 2013
The U.S. Judicial Conference's Committee on Rules of Practice and Procedure has recently published for public comment proposed amendments to the Federal Rules of Civil Procedure. For several years now, courts and litigants have recognized the ever escalating cost of discovery in federal civil litigation. In May 2010, a conference was held at Duke Law School, referred to aptly as the Duke Conference, to discuss ideas and proposals to reduce the cost and delay in civil litigation. While the Duke Conference considered numerous ideas, the main themes to emerge were proportionality in discovery, cooperation among lawyers, and early and active judicial case management.
To advance these goals, the Rules Committee approved for publication, among other things, proposed changes to Fed. R. Civ. P. 1, 4, 16, 26, 30, 31, 33, 34, 36 and 37. The published proposals are accompanied by a memorandum from the Advisory Committee on Civil Rules, which explains the rationale for each change. Several of these amendments, if adopted, could have a meaningful impact on civil litigation. This article focuses on the proposed changes to Fed. R. Civ. P. 26(b)(1) and 37(e), which could have a significant impact on discovery, but also leave several unanswered issues that may keep their true impact from being felt until interpreted by the courts.
Revisions to Rule 26(b)(1)
As federal court practitioners are well aware, Rule 26(b)(1) provides the general scope of civil discovery. The rule currently provides that unless the court orders otherwise, a party may obtain discovery "regarding any nonprivileged matter that is relevant to any party's claim or defense—including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter." Additionally, this rule contains the now well-known language that relevant information does not have to be admissible at trial, so long as "the discovery appears reasonably calculated to lead to the discovery of admissible evidence."
The proposed amendment largely rewrites this rule, and makes two particularly significant changes. First, the amendment expressly requires that discovery must be "proportional to the needs of the case, considering the amount in controversy, the importance of the issues at stake in the action, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit." These considerations are currently found in Rule 26(b)(2)(C)(iii), which addresses instances where the court must limit discovery.
As the committee note to the proposed amendment makes clear, however, the change is intended to limit the scope of discovery that must be observed without a court order. In other words, the new rule would affirmatively limit the scope of discovery, while putting the burden on the requesting party to show that the sought discovery is proportional.
Additionally, and perhaps more importantly in limiting the scope of discovery, the proposed amendment removes the language allowing discovery of relevant but inadmissible information so long as it appears reasonably calculated to lead to the discovery of admissible evidence. This language was first introduced in 1946 to clarify that inadmissible information, such as hearsay, was not necessarily excluded from discovery. Courts and litigants, however, have continually cited this language as support for an extremely broad scope for discovery.
The proposal clarifies the scope of discovery—"[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense" and otherwise proportional. While the proposal also states that "[i]nformation within this scope of discovery need not be admissible in evidence to be discoverable," the committee note explains that discovery should not extend beyond its permissible scope simply because it is reasonably calculated to lead to the discovery of admissible evidence.
New Rule 37(e)
Rule 37(e) was added in 2006 to protect litigants against sanctions for failure to preserve electronically stored information. As the Advisory Committee's memorandum points out, however, this rule was rarely used, and many have argued that it provided little, if any, relief. Additionally, federal courts across the country often imposed differing preservation requirements, and parties therefore have to preserve huge amounts of information at significant cost to avoid the risk of spoliation. The Rules Committee therefore decided to replace Rule 37(e) in its entirety, and the proposed amendment contains potentially significant changes.
First, the proposed rule adopts a uniform set of guidelines, which apply nationwide to all discovery and not just to electronically stored information. Unlike the current rule, the proposal is not limited just to information lost due to "the routine, good faith operation of an electronic information system." According to the committee note, the proposal "is designed to ensure that potential litigants who make reasonable efforts to satisfy their preservation responsibilities may do so with confidence that they will not be subjected to serious sanctions should information be lost despite those efforts." Further, because the proposal does not apply only to sanctions imposed "under these rules," it is intended to provide a broader scope of protection and to "foreclose reliance on inherent authority or state law to impose litigation sanctions in the absence of the findings" that the proposal requires to impose sanctions.
Second, while the proposal allows the court to impose a curative measure or sanctions if information is lost, the standard for each is much different. The court can adopt a variety of measures short of sanctions, such as additional discovery, if a party fails to preserve discovery information. The scope of this provision, however, is unclear.
The rule specifies that in addition to ordering additional discovery and awarding reasonable expenses to the party seeking the information, the court can also order "curative measures." The proposal does not define these curative measures, and the committee note states that they could include requiring the party that failed to preserve to restore or obtain the lost information, to develop a substitute for the information, to introduce evidence at trial about the loss of information, or to allow argument to the jury about the possible significance of the lost information. Since the proposal does not limit the curative measures, it is unclear whether a court could, for example, disallow cross-examination as a curative measure or prevent a party from contesting a particular issue at trial.
The court, however, can only award sanctions or give an adverse inference instruction in certain limited circumstances. This is particularly important for practitioners in the Second Circuit because the committee note expressly rejects the negligence standard articulated by the Court of Appeals in Residential Funding v. DeGeorge Finance, 306 F.3d 99 (2d Cir. 2002).
Under the proposal, sanctions may be imposed if the failure to preserve was willful or in bad faith and it caused substantial prejudice in the litigation. Though the proposal does not define either "willful" or "bad faith," it does identify factors to consider in assessing a party's conduct, including the extent to which the party was on notice that litigation was likely and that the lost information would be discoverable; the reasonableness of the party's efforts to preserve the information; whether the party received a clear and reasonable request to preserve the information; the proportionality of the preservation efforts to any anticipated or ongoing litigation; and whether the party timely sought the court's guidance on any unresolved disputes about preservation.
The proposal also does not define "substantial prejudice," but recognizes that adequate substitutions may exist for the lost information that should have been preserved. For example, digital data may be duplicative of other data already produced.
If the failure was not willful or in bad faith, a court may only impose sanctions in the limited situation where a party is irreparably deprived of any meaningful opportunity to present or defend against the claims in litigation. Again, these terms are not defined in the rules, although the committee note explains that "irreparably deprived" is more demanding than "substantial prejudice." Additionally, the committee note explains that losing even the only evidence of a critically important event may not irreparably deprive another party if remaining evidence and the opportunity to challenge the adversary's evidence provides a meaningful opportunity to litigate.
The proposed amendments to Rules 26(b)(1) and 37(e) may be helpful in reducing the scope of discovery, and protecting litigants who make good-faith efforts to preserve information. Their true impact, however, is uncertain at this time. With respect to Rule 26(b)(1), broad discovery may be so deeply entrenched in high stakes, complex commercial litigation practice that this mind-set may carry over in interpreting the new language. This is especially true given that the new standard in Rule 26(b)(1) is a balancing test that allows for substantial leeway in determining the scope of discovery. It is by its very nature subjective and fact-sensitive. The shift in the new rule, placing the burden on the parties to implement proportionality, recognizes that discovery is generally party-controlled. It will be interesting to see whether parties will actually change the scope of their discovery or whether disputes will immediately arise and parties will race to the courts to obtain decisions interpreting the new rule.
New Rule 37(e) also contains several ambiguities. Although the advisory committee explained that it expects courts to apply sanctions with more uniformity as a result of new Rule 37(e) (by adopting a "single standard"), the standard imposed by the rule still seems vague and open to interpretation. What is the scope of the curative measures that a court could order? What is meant by "willfulness" or "bad faith"? What is "substantial prejudice"? It is also interesting to think about what evidence will be necessary to prove that a party is irreparably deprived of a meaningful opportunity to litigate.
Litigants may not have concrete guidance on these terms until courts interpret them, and circuit courts may reach differing interpretations, thus creating one of the problems that the revisions were designed to avoid. Additionally, the proposal provides no direction at the "front end" of preservation, and companies wishing to limit the burden of preservation will only learn what is too much or too little preservation after the new rule has been interpreted. Perhaps recognizing the potential for this problem, the Advisory Committee's memorandum notes that public comment should be considered as to whether the rule should provide specific definitions or other guidance in interpreting these terms, or leave that process up to the courts. While this rule is a step in the right direction, until these issues are resolved, it is difficult to predict its true impact.
Kevin F. Meade is a senior associate and Arielle Gordon is an associate in the litigation department at Weil, Gotshal & Manges.
Reprinted with permission from the December 2, 2013 edition of the New York Law Journal © 2013 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.