eDiscovery and Information Governance – Tip of the Month: Sanctions of Despoilment for Electronic and Non-Electronic Evidence – Lawsuits, Appeals and Compensation

Script

An automaker is suing a chain of car dealerships in federal district court. The automaker alleges that the dealership intentionally damaged hundreds of engines purchased from the automaker as part of a scheme to fraudulently collect warranty funds.

The dealership reports that many of the damaged engines sought in discovery were either dumped on site or sent to a scrap yard and are no longer salvageable. Additionally, many electronically stored reports showing detailed faults in the engines have been deleted. There are no paper versions of the reports. The manufacturer is asking for sanctions for the theft of the engines and the digital reports.

Background

Federal courts impose penalties under their inherent authority or under FRCP 37(e), the rule governing penalties for spoliation of electronically stored information (ESI). The 2015 amendment to FRCP 37(e) provides a uniform standard for courts to follow when assessing penalties for ESI spoliation after various standards developed throughout the circuits.

FRCP 37(e) does not apply to the spoliation of non-ESI evidence, i.e. hard evidence. Sanctions for spoliation of hard evidence are imposed under the inherent authority of a court.

Prior to the 2015 amendment, courts generally used the same standard to assess penalties for spoliation of CSE and hard evidence. Now, courts assess spoliation of ESI under FRCP 37(e) and spoliation of hard evidence under the standard that existed in the circuit prior to the 2015 amendment.

Different standards are applied in different circuits

As a general rule, the courts require a culpability threshold before any spoliation sanction is imposed. Whether a specific sanction can be awarded depends on the facts surrounding the destruction of evidence. Currently, very variable standards are used in the circuits for the spoliation of tangible proofs.

For example, in the Fourth Circuit, courts require the despoiling party to intentionally engage in the conduct that resulted in the destruction of evidence. In other words, the destruction must not have been an accident. In such a circumstance, an adverse inference sanction is appropriate.

For a determinative sanction, such as a dismissal or a default judgment, the Fourth Circuit generally requires the party to destroy evidence of bad faith. However, a dismissal may be granted without any manifestation of bad faith if the spoliation has resulted in extreme prejudice, the non-spoliating party being unable to adequately pursue its cause or defend itself without proof.

The Seventh Circuit, on the other hand, requires a demonstration of bad faith to any penalties to be imposed. However, it applies this standard only in cases of federal matters or where the spoliation occurred after the initiation of the legal action.

In diversity jurisdiction cases, if the spoliation of evidence occurred before the formal commencement of litigation, a state law standard is applied. District courts in Illinois, Wisconsin, and Indiana generally do not require evidence of bad faith for penalties in pre-suit spoliation scenarios.

In other circuits, the thresholds required to impose sanctions are not fully fixed. Most Eighth Circuit district courts, for example, require evidence of prejudice and bad faith, a significant hurdle for the moving party. Others simply require the intentional destruction of evidence and harm.

For severe penalties, such as an adverse inference, dismissal, or default judgment, all courts agree that there must be a finding of bad faith and prejudice.

Conclusion

While the penalty assessment standard remains consistent for ESI spoliation, a diverse set of standards exist across the circuits for hard evidence spoliation. The Seventh Circuit sets the bar high that even when seeking modest penalties, the requesting party must show that the evidence was destroyed in bad faith. Other circuits allow penalties if the destruction was only intentional but, even then, generally reserve the most severe penalties for cases of bad faith.

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This article by Mayer Brown provides information and commentary on interesting legal issues and developments. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.

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