Rule 37(e) and a Court’s Inherent Authority to Sanction Parties for Spoliation of ESI; The District of Arizona Reminds Litigants that When Rule 37(e) is Up to the Task, It is the Controlling Source of Sanctions

The United States District Court for the District of Arizona recently addressed the issue of whether the court’s inherent authority can be used to analyze the failure to preserve ESI after amended Rule 37(e) became effective on December 6, 2015. Following the well-publicized amendments to Rule 37(e), the question of whether the court’s “inherent authority” to sanction a party for the spoliation of ESI survived the amendments has received disparate treatment from courts despite what many opine to be unambiguous language in the amended rule. In Alsadi v. Intel Corporation, District Judge David Campbell, who chaired the Advisory Committee on the Federal Rules of Civil Procedure from 2011 to 2015, weighed in on this controversy, in pronouncing that a court cannot impose negative (adverse) inference sanctions pursuant to inherent authority when Rule 37(e) is up to the task of addressing ESI spoliation and the intent requirement of that rule is not satisfied.

In this case involving claims for negligence and loss of consortium related to the emission of hazardous gases from an industrial wastewater system, plaintiffs (a plant employee and his wife) alleged that defendant’s negligence caused the plant employee to become permanently disabled after being exposed to hydrogen sulfide and possibly other toxic gases.

Plaintiffs sought data from defendant regarding measurements of ambient gas levels, including hydrogen sulfide, over numerous points of time and in locations where the plant employee was working. The discovery sought by plaintiffs included hydrogen sulfide readings from the “Altair detector,” a digital gas detector utilized in the response to the underlying chemical release. In their motion for sanctions, plaintiffs asserted that defendant failed to produce data as to the measurements of ambient gas levels because it failed to preserve data recorded by the Altair detector and did not collect other data of hydrogen sulfide levels.

In doing so, plaintiffs attempted to evade one of the key gating parameters of Rule 37(e) by arguing that data recorded on the Altair detector was not “ESI within the meaning of Rule 37(e) because it was not stored on a computer system[.]” The District Court rejected this interpretation of Rule 37 as too restrictive. Citing the 2006 advisory committee note to Rule 34, the Court explained that ESI “is expansive and includes any type of information that is stored electronically.” Ultimately, the District Court concluded that data recorded electronically by the Altair detector is clearly ESI within the meaning of Rule 37(e).

As noted above, the District Court concluded that plaintiffs’ “reliance on the Court’s inherent authority to sanction a party for spoliating evidence is not persuasive.” Judge Campbell cited the Advisory Committee comments to Rule 37(e) noting that the rule “forecloses reliance on inherent authority to determine whether and what sanctions are appropriate for a party’s loss of discoverable ESI.” Judge Campbell further explained that Rule 37(e) is “the controlling authority for sanctions that can be imposed for the loss of ESI,” and thus preempts any state law or inherent power doctrine arguments that deal with the loss of ESI. The issue remains controversial, as other influential courts have held that, in situations where Rule 37(e) is not “up to the task” of addressing the misconduct at issue, even where electronic evidence is involved, the court may look to its inherent authority to sanction the wrongdoer. We have addressed this issue previously.

Judge Campbell also addressed plaintiff’s argument that defendant’s lack of various meter readings constituted spoliation, but rejected this argument in the absence of any evidence as to defendant’s alleged intent to deprive plaintiffs of the data at issue. The Court articulated the Rule 37(e)(2) standard as permitting “a court to impose more severe sanctions — including a negative inference — only if it finds that the spoliating party acted with the intent to deprive another party of the information’s use in the litigation.” Plaintiffs’ allegation that the Altair detector used to check the gas levels had “the ability to store data readings, but for whatever reason Intel did not preserve the data collected that night” was not sufficient to support a negative inference because there was no evidence that “Intel’s reason was to deprive Plaintiffs of the collected data.”

This case should serve as a cautionary tale for litigants who attempt to side-step the requirements of Rule 37(e) by arguing for sanctions pursuant to the court’s inherent authority when Rule 37(e) is up to the task of addressing the spoliation at issue. We anticipate that district courts will continue to apply Rule 37(e) with varying degrees of consistency, but the Alsadi decision provides at least one court’s clear pronouncement as to the status of “inherent authority” following the amendment to Rule 37(e).