Amended US Federal Rules of Civil Procedure narrow availability of civil discovery and sanctions

Important changes to the US Federal Rules of Civil Procedure (FRCP), which govern the conduct of civil proceedings in US federal district court, will take effect on 1 December 2015 (absent US Congressional action, which appears unlikely). While various amendments are slated, the most significant amendments will limit the scope of civil discovery while simultaneously reducing the potential for sanctions for the unintentional loss or destruction of e-mails and other electronically stored information. Joseph G Falcone, a partner in our New York office, and Julia Qi, an associate in New York, review the key amendments below.

Background

The background of the amended rules is set forth in a prior post (here). Briefly, FRCP amendments were initially proposed by the US Federal Judicial Conference's Advisory Committee on Civil Rules in August 2013, and were approved in May 2014 after public consultation. The final version of the proposed rule changes was approved by the US Supreme Court and sent to the US Congress on 29 April 2015. Assuming Congress does not defer, modify or reject the amendments (which, again, seems unlikely at this point), the amended rules will take effect on 1 December. The proposed amendments affect various aspects of civil cases and the discovery process, but the key changes to Rules 26(b)(1) and 37(e) serve to narrow the broad scope of US discovery and impose a higher threshold for sanctions for the loss of electronically stored information (ESI).

Proportional – and limited – discovery

The new rules significantly narrow the scope of discovery permitted under the FRCP, and specifically Rule 26(b)(1). Generally, the rule permitted discovery into any discoverable information "relevant to any party's claim or defense", while affording the federal court the discretion to allow further discovery into "any matter relevant to the subject matter involved in the action" provided such discovery "appear[ed] reasonably calculated" to lead to disclosure of admissible evidence.

The new rule replaces this broad standard with a requirement that discovery be "proportional to the needs of the case" (see Rule 26(b)(1)). Proportionality itself is determined by "the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, 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" (see Rule 26(b)(1)). The amended rule eliminates the court's discretion to allow discovery into matters that are often tangential to the parties' actual claims and defences by removing the expansive "subject matter" standard. In so doing, the amended rule no longer authorises discovery of material that is merely "reasonably calculated" to lead to admissible evidence.

While proportionality often has been an implicit part of the discovery analysis, the amended rule's explicit requirement of proportionate discovery limited to the unique circumstances of each case should result in a more efficient (and less expensive) discovery phase (see Joseph Falcone, "US Supreme Court weighing proposal to curtail scope, burden and uncertainty of discovery in US Federal Court", Financier Worldwide, February 2015 – available here).

Higher threshold for ESI spoliation sanctions

In 2006, the FRCP were amended to protect parties from sanctions for failure to produce ESI that was "lost as a result of the routine, good-faith operation of an electronic information system" (see Rule 37(e) (2006)). This provision was to provide a "safe harbour" for litigants whose ESI was destroyed under a good-faith information management policy, unless "exceptional circumstances" otherwise warranted. US courts, in practice, have taken widely divergent approaches in addressing ESI preservation and sanctions, with some courts imposing sanctions even for negligent or inadvertent failure to preserve ESI, whilst others required showing that spoliation was deliberate.

Amended Rule 37(e) provides the federal courts with a more nuanced approach, under which sanctions are authorised only as a last resort in the most egregious cases. Further analysis on the amended ESI sanctions regime can be found here. Briefly, per amended Rule 37(e), sanctions may issue only where a party failed to "take reasonable steps to preserve" discoverable ESI which "cannot be restored or replaced through additional discovery", and the adverse party was prejudiced from the loss of information. Where otherwise discoverable ESI is lost due to events beyond a party's control – including failures with a cloud service provider, a flood or fire in the server room, or a cyber attack – such loss by itself does not warrant sanctions provided the party instituted advance measures to protect against such risks.

Where a party's failure to take "reasonable steps" does result in ESI loss, amended Rule 37(e) directs the court to consider curative measures, such as restoration or replacement of information, before imposing sanctions. If such measures are not available, the amended rules limit sanctions to "measures no greater than necessary to cure the prejudice" (see Rule 37(e)(1)). Harsher sanctions, such as adverse jury instructions, dismissal of the case or the entry of judgment, are only available if "the party acted with the intent to deprive another party of the information's use in the litigation" (see Rule 37(e)(2)).

Case management, civil discovery and (mandatory) cooperation

Other rule changes should also help streamline discovery in federal court. In the US, civil discovery generally is, or at least, is intended to be, undertaken by the parties themselves, with judicial intervention the exception, not the rule. To emphasise this, the amended rules from the outset (that is, in Rule 1) expressly require both the court "and the parties" to seek the "just, speedy, and inexpensive determination of every action and proceeding". Indeed, per the Advisory Committee explanatory notes to Rule 1, parties are obliged to "share the [court's] responsibility" to make discovery more efficient.

This more express emphasis on cooperation is evidenced, as one example, by amendments authorising the court to require a conference before any party may file a formal motion to resolve a discovery dispute, thereby enhancing prospects for an agreed solution (and avoiding the time and expense of motion practice) (see Rule 16(b)(3)(B)(v)).

The amended rules also aim to reduce the potential for parties to assert unreasonable objections to requests for production of documents (including ESI). Thus, the new rules require that any objection to a production request must be stated with specificity (see Rule 34(b)(2)(B)). In a departure from current practice, parties objecting to producing materials must state whether any materials have been withheld pursuant to the objection (see Rule 34(b)(2)(C)). This amendment is designed to end the confusion that can arise when a party states objections to a request but still produces information, leaving the requesting party uncertain whether any other responsive information in fact has been withheld.

Conclusion

Even with the foregoing FRCP amendments, the scope of civil discovery in the US federal courts remains far broader than that permitted in civil law jurisdictions, and probably most other common law jurisdictions as well. That said, the amended rules should provide a healthy dose of reasonableness to discovery in federal court and enable civil proceedings to focus more on the merits of the action than on the discovery process. And, while the amended rules do not eliminate the possibility of sanctions for ESI spoliation (nor limit a party's obligation to preserve such information in pending or reasonably anticipated proceedings), the higher sanctions threshold nevertheless should ease the burden of ESI management and enable companies to draft ESI retention policies without an undue fear of sanctions, provided that such policies otherwise account for legal and regulatory requirements and are properly implemented (see here).