The End of Sanctions - Chapter 3.

The Outsized Impact of Spoliation Sanctions

Summary: An Approach to Discovery Shaped by Fear

Since the emergence of eDiscovery as a practice area, the adoption of best practices has largely been motivated by fear of sanctions. But that seems to be changing.

  • Headline cases, massive sanctions, and even malpractice suits initially motivated lawyers to take the most conservative (and expensive) approach to discovery available.
  • Corporations, too, sought to insulate themselves, by leaving commodifiable discovery work to outside parties.
  • For years, those fears were justified, as sanctions rates increased rapidly between 2007 and 2014.
  • As a result of the changing rules regime, opportunities to explore new approaches have emerged.

The Beginnings of eDiscovery and the Outsized Impact of Spoliation Sanctions

How did we get here and why are spoliation sanctions, in particular, so important to the history and practice of eDiscovery?

Since the emergence of eDiscovery as a significant practice area and an inextricable part of litigation in the early 2000s, adoption of discovery best practices has been motivated by both the carrot of evidentiary insights and the stick of sanctions.

In many practitioners’ minds, the stick has loomed much larger than the carrot. That is likely the result of severe and highly publicized judgements like those Zubulake v. UBS, Coleman v. Morgan Stanley, and Qualcomm v. Broadcom in which offending parties suffered heavy monetary and evidentiary sanctions.

“In Qualcomm, not only was the plaintiff company faced with an $8.6 million sanction, six of their attorneys were referred to the California State Bar Association’s disciplinary board.”

Such high-profile cases undoubtedly provoked anxiety—and not just due to the fear of potentially case-dispositive sanctions. In Qualcomm, not only was the plaintiff company faced with an $8.6 million sanction, six of their attorneys were referred to the California State Bar Association’s disciplinary board. The threat of client malpractice suits, occasionally accompanying failures of eDiscovery competence such as these, also loomed large—no more so than following the emergence of cases like J-M Manufacturing Company Inc v. McDermott Will and Emery, widely believed to be the first ever lawsuit for so-called “eDiscovery malpractice,” and against a widely respected international law firm, no less.

As a result, fear of sanctions motivated many lawyers to take the most conservative possible approach. The perception that a mistake with electronically stored information (ESI) could be case- and career-ending gave rise to an entire industry of eDiscovery experts and specialized vendors.

Corporations, too, sought to distance themselves from eDiscovery sanctions risks, through over preservation and outsourcing all eDiscovery work to well-heeled law firms, firms whose deep pockets could satisfy whatever penalty a judge imposed for wrongdoing—whether via a malpractice suit, disgorgement of fees, or other means.

"The broad fear such cases engendered wasn’t always justified—or even rational."

Despite eDiscovery’s notorious reputation, spoliation sanctions were not as common, nor as horrific, as they seemed. In 2011, for example, the Federal Judicial Center released a study surveying civil cases filed in 19 federal district courts from 2007 to 2008, the results of which showed that the number of cases involving eDiscovery sanctions was small.

The study found only 209 spoliation-related motions, or 1.5 in every thousand civil cases. Only 53 percent of those motions concerned ESI. And only 23 percent of motions involving sanctions for the spoliation of ESI were granted, resulting in fewer than 30 actual sanctions rulings issued. And not a single case involved a dismissal or default judgement for the spoliation of ESI.

2014 Marks an Inflection Point in eDiscovery Sanctions

In the years that followed the FJC study, the discovery landscape shifted noticeably. Starting in the late 2000s, spoliation sanctions which were previously infrequent began to become more commonplace, as ESI became ubiquitous in even the most routine disputes.

The reality was catching up to the fear. According to Gibson Dunn’s year-end electronic discovery updates, one of the most authoritative sources on the topic, the number of federal cases where parties sought sanctions for spoliation of ESI rose steadily, if marginally, from 2009 to 2012. Cases dealing with sanctions motions increased from 89 in 2009 to 100 in 2010 before reaching a high point in 2011, with 150 cases. More significantly, the percentage of sanctions granted increased, as well. Over the three-year period spanning 2010 through 2012, nearly 60% of spoliation motions resulted in sanctions—a 37 percentage-point increase over the FJC number. That rate remained steady until 2014, when it peaked at 63 percent and began to decline.

While still representing a sliver of overall federal civil cases at peak levels, the near doubling of spoliation sanctions motions, combined with the judiciary’s rising inclination to grant them, had an outsized impact17 on practitioners’ mentality and approach toward electronic discovery. Among the consequences was a palpable chilling effect on parties faced with the prospect of eDiscovery, which resulted, in the most extreme instances, in agreements to forego the exchange of ESI altogether for fear of its risks and high costs.

Far more routinely, parties facing complex discovery issues sought to unload both the highly technical work itself and the associated risks to third parties—law firms or vendors—to whom they could pass off liability in the event of a sanctionable offense or otherwise case-dispositive calamity. This forced-sharing of responsibility went hand-in-hand with the widely adopted practice of outsourcing eDiscovery, a long-running approach that has only recently begun to reverse.

increase in the likelihood of sanctions issued, 2007 vs. 2014
likelihood of spoliation sanctions being granted in 2018

7. Though the first federal court opinion to deal with sanctions for the spoliation of ESI dates to the early 1980s, William T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443 (C.D. Cal. 1984), federal cases dealing with eDiscovery sanctions of any type “did not reach an annual total in the double digits until 2004.” Dan H. Willoughby et al., Sanctions for E-Discovery Violations: By the Numbers, 60 Duke L.J. 789-864 (2010).

8. Zubulake v. UBS Warburg, LLC, 229 F.R.D. 422 (S.D.N.Y. 2004); Morgan Stanley & Co. v. Coleman (Parent) Holdings, Inc., 955 So. 2d 1124 (Fla. 4th DCA 2007); Qualcomm, Inc. v. Broadcom Corp., 539 F. Supp. 2d 214 (S.D. Cal. 2008).

9. See, e.g., J-M Manufacturing Co. Inc., v. McDermott Will & Emery, 2:11-cv-06666 (C.D. Cal. 2018)

10. Reliance on vendors, however, did not always provide the protection sought. See id. (accusing former law firm of malpractice for failure to supervise vendors).

11. See Emery G. Lee, Motions for Sanctions Based Upon Spoliation of Evidence in Civil Cases: Report to the Judicial Conference Advisory Committee on Civil Rules.

in 2007
in 2010
in 2014
in 2018

The fact that much of the case law at the time followed no one precedent as to the degree of culpability required to impose sanctions did nothing to assuage practitioners’ misgivings. Indeed, the version of Rule 37(e) in effect from 2006 to the enactment of the 2015 amendments—the so-called “safe harbor” provision—fell well short of its writers’ intent to protect parties from sanctions over ESI lost due to “routine, good-faith operation of… electronic information system(s)” by providing neither guidance for when sanctions could be imposed nor when they were required.

As the Rules Advisory Committee noted of the old regime:

"Federal circuits have established significantly different standards for imposing sanctions or curative measures on parties who fail to preserve electronically stored information. These developments have caused litigants to expend excessive effort and money on preservation in order to avoid the risk of severe sanctions if a court finds they did not do enough."

Rule 37 (e) Citation Trends

How Changing Incentives Are Opening Up Opportunities to Bring eDiscovery In-House

The 2015 amendments sought to address this uncertainty by creating a nationwide spoliation standard that, in theory, limits application of sanctions to instances in which a finding of prejudice against the requesting party has been made, and reserved the most severe penalties only for spoliation where there is a showing that a party acted with the intent to deprive another of ESI.

As the above research shows, these changes have prompted courts to apply Rule 37’s protective utility to an unprecedented degree.

New barriers to sanctions, it appears, culminate in a true “de-risking” of discovery. In conjunction with easier-to-use discovery tools and a significant growth in the bar’s technology expertise overall, the decline in sanctions is driving the broad adoption of “do it yourself” discovery practices, where incurring liability through the handling of traditionally risky discovery processes is far less likely and where more practitioners, whether lawyers in private practice or in corporate legal departments, are willing to bring their discovery process in house—and to reap the significant cost benefits that come with in-housing eDiscovery.

“New barriers to sanctions, it appears, culminate in a true ‘de-risking’ of discovery.”

Chapter 4

Part II: Rule 37(e) in Practice

12. This is an important distinction that, respected authorities have bemoaned, essentially countenances run-of-the-mill incompetence. Speaking to Logikcull in 2017, U.S. District Judge Shira Scheindlin (Ret.), author of the Zubulake rulings, described the effect of the amendment bluntly: “You can’t be sanctioned with a heavy sanction without being negligent, grossly negligent, and maybe even being reckless. So, having that comfort may mean that some parties aren’t as careful as we would like.” See Casey C. Sullivan, Judge Scheindlin on Proportionality, Technology, and the Future of Discovery, Closing the Loop (2017).

13. Notably, the new rule also formalizes two thresholds that must be met prior to the consideration of sanctions: first, that the lost ESI should have been preserved in the first place and, second, that the lost ESI cannot be “restored or replaced” through additional discovery—a remedial measure that, it can be argued, is far easier to meet in an age where most ESI exists in multiples in the cloud or is otherwise easily restorable.

14. See, e.g., American Bar Association, Vol. V: Litigation Technology and E-Discovery, Legal Technology Survey Report (2018). See also the commentary to Rule 1.1 of the Model Rules of Professional Conduct (2012), defining “competent representation” to include keeping abreast of “the benefits and risks associated with relevant technology.”

15. See supra notes 1 and 2.

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