Implementing a legal hold is one of the most important--and sometimes most difficult--phases in the e-discovery life cycle. A legal hold refers to an organization's affirmative acts to preserve electronically stored information ("ESI") and paper documents once a duty to preserve attaches. Much of what happens later in the e-discovery process is dependent upon first having ensured that information relevant to the dispute or investigation is neither altered nor destroyed.
Failing to properly implement a legal hold can have serious consequences. Spoliation--the destruction or alteration of relevant evidence--may lead to a range of evidentiary and monetary sanctions, some severe, including termination of a case in the opposing party's favor or loss of cooperation credit with an investigating agency. And satellite litigation over preservation shortcomings can be an expensive and burdensome distraction from the merits of the case.
The importance of implementing a legal hold has been well established for at least several years. Yet, a surprising number of companies lack policies and procedures providing repeatable and defensible processes for identifying when a duty to preserve has arisen, and for taking the necessary steps to ensure that relevant information is properly preserved. Such circumstances increase the risk that legal holds may be implemented in an untimely, haphazard and flawed manner, if at all. Companies can reduce those risks by taking the following steps.
Evaluate Trigger Events. The duty to preserve can arise earlier than one might expect. Some do not consider implementing a legal hold until litigation or an investigation is commenced. The duty to preserve may also arise, however, when a party should "reasonably anticipate" litigation or an investigation. In some cases, courts have found that a preservation duty was triggered months or even years before the commencement of litigation.
Implementing and consistently following a policy or procedure for identifying and evaluating such trigger events can be an important part of a company's fulfillment of its preservation obligations, and also can help demonstrate that it acted reasonably and in good faith.
Sometimes, identifying when the duty to preserve arises can be obvious--for example, upon receiving a complaint, or subpoena, or a formal notice that a company is a subject of a governmental investigation. More often than not, however, the analysis is highly fact specific and uncertain. Although fact-specific decisions abound, the case law provides little general guidance regarding the meaning of "reasonably anticipated."
The Sedona Conference®--a respected bench-bar organization that promotes e-discovery legal education and develops best practices--has provided guidelines in its Commentary on Legal Holds regarding what should, and should not, trigger the duty to preserve. It suggests that "a duty to preserve is triggered only when an organization concludes (or should have concluded), based on credible facts and circumstances, that litigation or a government inquiry is probable."
The Commentary recognizes that the mere hint of future litigation or an investigation does not necessarily make it "probable." It states, moreover, that "there are circumstances when the threat of litigation is not credible and it would be unreasonable to anticipate litigation based on that threat" (for example, a vague rumor or threat). While the Commentary provides useful analytical guideposts, and assists in distilling fact-specific judicial decisions, companies should bear in mind that courts may not necessarily adopt its recommendations.
Craft The Legal Hold Notice. Once the duty to preserve arises, reasonable steps should be taken to identify and preserve relevant information as soon as practicable. In most cases, it will be appropriate to issue a written legal hold notice to persons likely to possess or control potentially relevant information--e.g., document custodians (those who had some involvement in or knowledge of the underlying events) and data stewards (those responsible for managing ESI on the company's information systems). In some cases it may be appropriate to send a hold notice to third parties in possession of information under the company's control, such as outside storage providers.
A hold notice is most effective when it communicates the preservation obligation in a manner that ensures the recipients will receive actual, comprehensible and effective notice of the requirement to preserve information, and when it clearly defines what information is to be preserved and how the preservation is to be undertaken. Simply saying "preserve all relevant information" is generally not considered sufficient.
Currently, there is disagreement among the judiciary and practitioners regarding whether a written legal hold notice must be issued in every case. Judge Scheindlin, the author of the influential Zubulake opinions, recently held in her Pension Committee decision that failing to issue a written hold notice is gross negligence per se and gives rise to an inference that relevant information must have been lost or destroyed. Other judges and The Sedona Conference® have declared that, in some circumstances, it may not be necessary to issue a written hold notice to fulfill one's preservation duties. Any decision not to issue a written hold notice should be considered carefully, however, and should weigh the risk that one may end up before a judge who agrees with Judge Scheindlin that a written hold notice must always be issued.
Take Affirmative Preservation Measures. In addition to issuing a written litigation hold notice, counsel should ensure that the company is taking the necessary steps to protect relevant information from alteration or destruction. The organization should consider all sources of information within its possession, custody, and control that are likely to include relevant, unique information. In some circumstances, the duty to preserve may only require locating and preserving a limited number of documents. In others, the scope is much greater and determining the sources of relevant information to be preserved may require significant investigation.
Preservation typically begins with identifying the sources of potentially relevant ESI--for example, (1) "custodial sources," i.e., sources uniquely associated with each custodian, such as email folders and archives, network folders assigned to a specific custodian, folders and files on local hard drives, instant messages, chat and voice recordings; (2) "non-custodial sources," i.e., those not uniquely associated with particular custodians, such as shared drives, collaborative workspaces, and dynamic databases; and (3) "inaccessible information," such as certain backup systems and legacy systems.
Having identified the potential sources, those responsible for administering the legal hold can determine whether anything must be done to ensure that the ESI from those sources is preserved. Even if the recipients of a legal hold notice have carefully read and complied with the hold notice, for example, records management practices and automated processes can continue to cause ESI to be altered or destroyed. It may be necessary, therefore, to suspend auto-delete and purging functions. Moreover, as data in shared drives, collaborative workspaces and dynamic databases may be altered or deleted through ordinary use, it may be appropriate to take a "snapshot" of the data. And to ensure that unique data on backup tapes are not overwritten, it may be necessary to suspend their rotation.
Companies should also consider the risk that custodians may inadvertently--or intentionally--alter or destroy relevant ESI that they can access or control. It may be prudent, therefore, to copy and save certain data on a secure disk or server. Depending on the needs of a particular case, companies may also want to consider making forensic images of certain key custodians' hard drives.
Additionally, where the alleged wrongful conduct is ongoing, it may be necessary to preserve newly created ESI on a going-forward basis. Options for doing so include journaling or archiving communications, such as emails, or taking periodic "snapshots" of data from relevant sources. Whenever ESI is collected for preservation rather than preserved in place, companies should be careful to use forensically sound collection protocols that preserve metadata. With respect to legacy data--i.e., ESI created by software or hardware that is outmoded or has become obsolete--it may be necessary to preserve associated hardware or software to ensure that it can be reviewed in the future.
In case there is ever a need to defend the process, companies should document the steps they have taken and log the chain of custody for ESI that is collected, so they can demonstrate that they implemented the legal hold in a reasonable, consistent and good faith manner.
Release the Legal Hold. Finally, the legal hold should be lifted once the company no longer has a duty to preserve--e.g., when the judgment in litigation is final and all appeals have been exhausted, or when an agency confirms that an investigation is closed. In doing so, a cross-check of custodians and data should be conducted to determine whether the information to be released is subject to any other legal holds or ongoing preservation obligations.
A closing note about terminology: A legal hold is also commonly referred to as a "litigation hold." Likewise, a legal hold notice--the communication to custodians and data stewards that sets forth legal hold obligations--may be referred to in a variety of ways, including a "litigation hold notice," a "preservation notice" or a "document retention notice." Regardless of the terminology utilized, the same principles of preservation apply.
The next two installments of E-Discovery Basics will discuss preservation of ESI in greater detail.