Most businesses operate with a document retention plan in place to provide for the systematic review, retention, and destruction of documents that are created or received in the ordinary course of business. Document retention plans are valuable because they enable businesses to comply with their regulatory retention requirements and preserve necessary documents, while ensuring that they avoid retaining documents that have outlived their useful purpose.
There are times when businesses must stop the routine destruction of a document by implementing a “litigation hold.” A litigation hold is the mechanism businesses will use to suspend their document retention plan and notify their employees of the obligation to preserve records. Typically, a litigation hold must be issued when a business knows, or reasonably should know, that a suit is about to be filed against it, when it plans to file a lawsuit, when a suit is actually filed, when a discovery request has been made, or when a court issues a discovery order. It can also arise before a complaint is actually filed, such as when a demand letter is sent. If a business fails to issue a litigation hold, the consequences can be severe.
Spoliation occurs when documents are destroyed or not preserved in a pending or reasonably foreseeable action. The penalties can include: the cost of recreating the information, an instruction at trial that the missing information would have been beneficial to the adverse party, the exclusion of favorable expert testimony, a judgment against the party that spoliated the evidence, monetary sanctions, and even criminal sanctions
Recipients of a litigation hold notice will be those individuals who are likely to have relevant information. While this will typically result in the notice being distributed to employees of the business, a litigation hold notice can extend to third-party agents of a business, such as independent contractors, vendors, suppliers, and brokers. This is because Rule 34 of the Federal Rules of Civil Procedure requires that a party to litigation produce documents that are within that party’s “possession, custody, or control.” Fed.R. Civ.P. 34.
The term “control” has been interpreted by courts to extend to all of the documents that a business has the right, authority, or ability to obtain. Accordingly, a business may be required to extend its litigation hold to include those documents that are in the physical possession of a third-party agent. To determine whether a party to litigation has the ability to “control” documents that are in the possession of a third-party, courts will often look at the contract between the business and the third-party agent. In other words, if the contract between a business and its third-party agent allows for the business to obtain or inspect the documents upon demand, the business will likely be deemed to have “control” over the documents and may then issue its litigation hold notice to the third party.