Federal District Court Applies Newly Amended Rule 37(e)

by Katherine M. O'Brien

Magistrate Judge James C. Francis IV of the Southern District of New York recently granted, in part, a motion for sanctions that raised “significant issues concerning the reach of newly amended Rule 37(e) of the Federal Rules of Civil Procedure, the standard of proof governing spoliation, and the relief appropriate for destruction of electronically stored information.” 

In CAT3, LLC v. Black Lineage, Inc., 14 Civ. 5511, 2016 WL 154116 (Jan. 12, 2016 S.D.N.Y.), plaintiffs asserted trademark infringement and other related claims.  In the motion for sanctions before the court, defendants argued that plaintiffs altered e-mails, which were relevant to the key issue of when defendants became aware of plaintiffs’ mark, before producing them in discovery.

The court first determined that the new version of Rule 37(e), which became effective December 1, 2015, applied. The court explained that the governing statute (28 U.S.C. § 2074(a)) and the Supreme Court order transmitting the proposed amendments to Congress “create a presumption that a new rule governs pending proceedings unless its application would be unjust.”  There was no inequity in applying the amended Rule because it “is in some respects more lenient as to the sanctions that can be imposed for violation of the preservation obligation.”  The court also noted that even if amended Rule 37 was not applicable, relief was warranted under the court’s inherent power.

The court next addressed which standard of proof to apply to the spoliation claim, an issue on which courts are divided. Here, the court applied the clear and convincing standard to disputed issues because defendants sought dismissal as a sanction and because plaintiffs’ state of mind was at issue. 

Finding clear and convincing evidence that plaintiffs “manipulated” the e-mails “to gain an advantage in the litigation,” the court concluded that relief under Rule 37 was appropriate. 

The threshold requirements of Rule 37(e) were met. The e-mails are electronically stored information, plaintiffs were obligated to preserve them, information was lost and could not be restored or replaced, and plaintiffs’ manipulation of the e-mails was not consistent with taking reasonable steps to preserve evidence.

Remedies under both subsections (e)(1) and (e)(2) of Rule 37 were available.  The court, however, concluded that the drastic remedy of dismissal was not mandatory and issued a lesser, two-fold remedy instead.  First, plaintiffs are precluded from relying on the e-mails to demonstrate defendants had notice of the use of the relevant mark. Second, plaintiffs must pay defendants’ attorney fees and costs for establishing plaintiffs’ misconduct and in securing relief.  This relief “satisfies the dictates of Rule 37(e)(2) and of principles of inherent authority not to impose unnecessarily drastic sanctions.”

This case should be helpful when considering the questions that courts and litigants will continue to face in light of the newly amended Federal Rules for Civil Procedure.