Imagine a CEO with an industrial-strength paper shredder at hand, frantically destroying volumes of documents when he is served with a lawsuit. It would not be a stretch of the imagination to think our fictional CEO may be attempting to hide something. Today, more information than our nefarious CEO could ever shred is stored electronically. Documents and data are largely stored on computers and servers, in the cloud and on smart devices. Of course, you would not destroy the company computer system at the whisper of litigation, but what duty do you have to preserve documents? When does that duty begin? And how much do you keep? What happens when documents are lost or destroyed despite that duty? The answer to each of these questions is embodied in the concept of a “Litigation Hold.”
WHAT IS A LITIGATION HOLD?
It is not a mysterious concept. Though a relatively new term, a “Litigation Hold” simply recognizes the legal duty to preserve evidence. Every company and individual has an obligation to preserve evidence once that person or company learns a lawsuit may reasonably result from some event. A Litigation Hold Notice is a written instruction to preserve that evidence. The costs of ignoring this obligation can be extreme, but the process of preserving evidence is not nearly as costly or burdensome.
It begins early. The duty to preserve evidence begins when litigation is reasonably anticipated from an event. Often, the beginning is long before the filing of a lawsuit. Such an event may be a heated contract dispute, an accident or injury, or an employee’s unwilling termination, among other examples. Such incidents are referred to as “triggering events.” Once a triggering event occurs, a company or organization is under a duty to preserve all information which may reasonably relate to that triggering event. The obligation to preserve materials extends far beyond paper documents, to include electronically stored information (ESI). ESI encompasses all documents, data and information embedded in existing or deleted electronic files.
Following a triggering event, a Litigation Hold Notice should be issued. The Litigation Hold Notice is simply an instruction to preserve the physical materials and ESI related to the triggering event or any potential litigation. Ideally, a notice is issued shortly after the triggering event to all individuals who have physical or electronic records related to the anticipated litigation. Similarly, automatic deletion and destruction of ESI and physical material should cease when the triggering event occurs. An effective litigation hold, though, begins far before the triggering event.
It requires a plan. Prior planning can ensure an effective litigation hold process and prove invaluable when the company’s actions are scrutinized by a judge or jury. An effectively written document retention policy is the starting point for any policy. A written litigation hold policy is the next step, assigning members of a company with the task of instituting and administering the litigation hold and confirming the company’s plan of action when the hold is eventually required. Following the triggering event, the actual Litigation Hold Notice is sent to all those with access or control over relevant evidence. Finally, the plan provides steps to streamline the production process when large amounts of documents or data are required to respond to discovery requests. An effective plan can prove invaluable when litigation commences and help avoid harsh penalties for failing to abide by the duty to preserve.
WHY GO TO THE TROUBLE OF A LITIGATION HOLD?
It can have harsh consequences. Failing to institute an effective litigation hold and, in some cases, simply failing to have an effective document retention policy can result in dire consequences. Those consequences, sometimes harsh and costly, may result from failing to appreciate your responsibilities when facing potential litigation or from failing to prevent employees from destroying evidence once litigation is reasonably certain. When documents are lost or destroyed, the court must decide the appropriate punishment in light of the company’s efforts.
In some cases, courts have imposed large monetary sanctions, required parties to pay an adversary’s attorney’s fees, and instructed juries to assume the destroyed documents were the smoking gun the opponent never found. In extreme cases, judges have held individuals in contempt of court, which could result in jail time. In other severe cases, courts have required individual employees to turn over their personal cell phones and laptops to their opponent for inspection and handed unrestricted access to companies’ servers to their adversary. These results, though, are extreme and extremely avoidable.
It mitigates harsh results. An effective litigation hold, coupled with well-drafted document retention and litigation hold policies, offers unparalleled benefits when litigation commences. Effective policies and holds can be used to defend against the accidental or inadvertent loss of documents. An effective policy and hold demonstrate recognition of the duty to preserve and a willingness to comply with that duty. Despite the loss or destruction of relevant evidence, courts have declined or lessened the harsh result of sanctions against a company when it employed effective policies and properly instituted its litigation hold.
It is expected. Requests for ESI and related corporate policies are becoming standard in civil discovery requests. Civil attorneys, prosecutors and government investigators all expect a litigation hold and related policies. Recently, a firm client’s document retention and litigation hold policies were requested in a grand jury subpoena. Similarly, requests for litigation hold and document retention policies, along with ESI, are becoming boilerplate in civil discovery. More importantly, it would not be difficult to create an inference that a company who fails to institute a litigation hold and maintain a written policy was not just shirking its legal duties, but hiding or destroying bad evidence.
It can save money. When faced with requests for large amounts of material, effective policies can lessen the burden of broad document requests. Effective policies identify where relevant material may be stored before the triggering event occurs. A good policy tasks specific people with the responsibility of identifying and preserving evidence, established written guidelines for when documents are destroyed and preserved, and instructs information technology staff on maintaining ESI. An effective policy expedites and streamlines the production process, saving time and money by reducing company resources dedicated to responding, reducing attorney’s fees and avoiding sanctions from a court angered by delays.
WHAT IS AN EFFECTIVE LITIGATION HOLD?
It is written. An effective policy and an effective Litigation Hold both are essential and both must be written. Written policies and notices carry more weight than word-of-mouth or emailed directives and serve as a constant reminder of the duties which they memorialize. Training on litigation holds and document preservation is essential, but that training must be accompanied by written material to enshrine those instructions. Ultimately, the written form of the policy is the exhibit which the judge or jury must hold in their hand if encountering an allegation of lost or destroyed evidence.
It is customized. Effectiveness is not possible unless the policy and process are tailored to the individual organization. Each company varies in size, structure and corporate culture. The policy should reflect each of these characteristics. Similarly, an effective policy is not static but should undergo constant evolution to insure it is streamlined, effective and integrated into the company.
It integrates I.T. An effective policy is useless unless ESI is preserved. Preserving ESI requires the expertise and skill of Information Technology professionals who understand how the data is created, stored and destroyed. The assistance of Information Technology professionals is necessary to ensure that protected material is effectively preserved against inadvertent destruction or intentional acts of rogue employees.
It integrates legal counsel. As its name implies, litigation is inherent in the litigation hold process. Effective policies and processes should be drafted with the discerning eye of a judge or jury in mind. Similarly, activating the litigation hold process requires the integration of counsel to determine the scope of what is within the duty to preserve following a triggering event. “Relevant” and “reasonable” are ordinary words which carry legal meaning and require legal interpretation to determine compliance in particular circumstances. When production of materials is required, an attorney’s expertise is necessary to comply with the request while safeguarding sensitive information.