Proportionality and Cost-Shifting Provisions In The New Federal Rules of Civil Procedure

Written by: Sean Cox, Esq.

On December 1, 2015, significant changes to the Federal Rules of Civil Procedure went into effect, including two that deal with proportionality and cost-shifting. Typically, there is asymmetry between the amount of discoverable information in the possession of individual plaintiffs and business entity defendants. This, combined with the rule that the producing party should bear the cost of production, has led to disproportionate discovery costs between the parties. Two recent changes address this by modifying the scope of discovery.

The scope of discovery now explicitly includes a proportionality limitation. While a proportionality limitation has been part of the federal rules, the Advisory Committee recognized that most judges were reluctant to limit discovery. Therefore, proportionality language was moved front and center in part “to encourage judges to be more aggressive in identifying and discouraging discovery overuse.” Fed. R. Civ. P. 26 (2015 Advisory Notes).

(b) Discovery Scope and Limits.

(1)Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering 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. Information within this scope of discovery need not be admissible in evidence to be discoverable.

Fed. R. Civ. P. 26.

The factors to determine proportionality are: 1) the importance of the issues being litigated 2) the amount in controversy; 3) the requesting parties’ ability to independently access the information; 4) the importance of the information; and 5) the burden or expense weighed against the expected benefit. The crux of the analysis is comparing the burden of production versus the value of the case and the importance of the evidence.

The Advisory Committee also recognized that the ubiquity of electronically stored information called for additional consideration.

 (2) Limitations on Frequency and Extent.…

(B) Specific Limitations on Electronically Stored Information. A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.

Fed. R. Civ. P. 26(b).

In applying this provision, a court should apply the same proportionality factors discussed above. Second, in the event the court does permit the discovery, Rule 26(b)(2)(B) also gives the court authority for conditioning production, and Rule 26(c)(1)(B) has been changed to add explicit authority for the court to reallocate costs of production. Rule 26(b)(2)(b) and Rule 26(c)(1)(B) should be considered in combination.

Spoliation of Electronically Stored Information

With the spread of computers, smart phones, PDAs, email, electronic monitoring systems, etc. the sheer amount of information a defendant may have that could potentially have some relevance is staggering. The loss of any potentially relevant information could subject a party to sanctions or at least paint them in a poor light. This loss of relevant evidence is generally referred to as spoliation. Changes to Rule 37(e) are extremely important for any federal practitioner, general counsel, and claims representatives.

(e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:

(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or

(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:

(A) presume that the lost information was unfavorable to the party;

(B) instruct the jury that it may or must presume the information was unfavorable to the party; or

(C) dismiss the action or enter a default judgment.

Fed. R. Civ. P. 37

According to the Advisory Committee, this change both creates and limits the scope of spoliation sanctions related to electronically stored information (“ESI”). FRCP 37(e) only applies to “electronically stored information.” That term, while  undefined, is considered to have the broadest possible definition. The term includes emails, texts, and documents, but would also apply to less obvious materials such as instrumentation measurements such as those found on modern automobiles, vehicle movement logs, or employee information.

First, the rule applies only if ESI is lost after it “should have been preserved in anticipation of litigation.” This does not necessarily mean actual knowledge of pending litigation. The duty to preserve may arise if it was reasonable to anticipate the possibility of litigation. Second, the loss must be due to a failure to take reasonable steps to preserve. This rule would not apply to loss due to uncontrollable events, such as servers or devices destroyed by an act of god. Third, the court must find the non-custodial party is prejudiced by the loss of the information. If these three criteria are met, the court may impose measures to remedy the prejudice, but only as much as is required to remedy the prejudice. This gives the court great discretion, and could include prohibiting related evidence or witnesses. However, before a court may impose more significant sanctions such as an adverse inference, jury instruction, or striking pleadings, it must find the “intent to deprive.” This codifies a bad-faith or intent requirement into the analysis. Previously, there was a split of circuits, with some permitting sanctions for even negligently lost evidence. [i]

[i] In Matter of Complaint of Boston Boat III, L.L.C., No. 13-62116-CIV, 2015 WL 5156561, at *3 (S.D. Fla. Sept. 2, 2015) (bad faith is a prerequisite to an adverse inference). But see, Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993) (“finding of ‘bad faith’ is not a prerequisite to this corrective procedure.”); Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002) (negligence or gross negligence sufficient for negative inference).