Legal Hold Notice Defined
A legal hold notice (also a litigation hold notice, hold notice, or litigation hold) is a communication that a party to a legal proceeding sends to a custodian of documents or electronically stored information (ESI) to notify the custodian to preserve their records. The custodian may be an employee of the party or a third party. The notice is typically sent by an attorney to advise the custodian that they may be a witness to facts in litigation, or the custodian may have documents or ESI that will be at issue in litigation. In the latter situation, the party’s duty to preserve may begin when anticipated litigation is reasonably foreseeable to the party .
The duty to preserve is an ongoing obligation of both parties to a litigation and may begin before a lawsuit is actually filed if it is objectively foreseeable that litigation will soon be filed. It is well established that a party to litigation has an affirmative obligation to suspend its routine document retention policy when there is a reasonable anticipation of litigation. A legal hold notice is a formal notification to a custodian of their obligation to preserve potentially relevant information in anticipation of litigation. A custodian’s failure to preserve records in compliance with a legal hold notice may result in legal sanctions.
Factors that Drive Non-Compliance with a Legal Hold Notice
While the majority of those served with a legal hold notice comply with the notice and the instructions contained therein, there are circumstances in which such compliance is lacking. It is important for all legal professionals to be mindful of such circumstances so that relevant questions can be directed to the appropriate individuals in a timely manner. In this case, the questions should be directed to the General Counsel and/or the Chief Compliance Officer. The failure of the individuals to whom the hold is directed to take steps in compliance with the notice is an issue for the Board or a Board committee. As demonstrated by the aggressive fines imposed to date, the failure by a company to respond to a governmental complaint regarding a "hold" is a situation that will affect the bottom line.
Common reasons for non-compliance include: Once it is determined the notice has not been followed, the initial question is whether the holder of the information had the intent to destroy the information being held. Generally, the subjective intent of the individual is not relevant. Rather, the focus is on whether the spoliator had reason to believe that the litigation was more than remote. While corporations typically should receive some sort of notice from opposing counsel at the beginning of the litigation process (or should hear the rumor mill), the fact that the corporation has not received any notice is usually not substantial support for a finding of a lack of intent.
Non-Compliance Consequences
The legal implications are serious. Courts can issue sanctions if they determine that counsel or a party has failed to preserve or produce ESI. The types of sanctions the court may impose include the issuance of an order that the "lost information is presumed to be prejudicial," an instruction to the jury to presume that the lost information was unfavorable to the opposing party, or a default judgment or dismissal.
The financial consequences can be equally severe. Firms can be ordered to pay attorneys’ fees or monetary penalties for failing to preserve and produce relevant ESI. Parties may also be responsible to the other side for all expenses relating to the issue, including the costs of determining what ESI was not preserved and the implementation of curative measures. Costs can easily top six figures, depending upon the scope of the data that was not preserved.
There are also non-monetary effects. If sanctions are issued against a firm based upon the actions of a lawyer or staff member, reputation as a competent and prepared advocate may suffer.
Dismissing a lawsuit can have far-reaching repercussions beyond those of the case itself. A company’s negative comments during the course of a litigation matter may give rise to a future counterclaim against the company, based upon statements that were made by a lawyer or staff member that was unprepared for the matter in question.
It is important to send the company-wide message about the perils of non-compliance. Rather than implying that your staff members lack the competence to preserve ESI, it is best to take the opportunity to educate them on the importance of compliance.
Examples of Non-Compliance
The Walgreens decision, 101 F.3d 3, was an egregious failure to preserve that led to a significant sanctions award. A pharmacy manager received a phone call from a corporate attorney advising that litigation was underway and requesting that she suspend any destruction of documents. The manager did not communicate the message to the store manager, so various documents went into the trash in the usual manner. Foreign objects appeared in bags of trash, which generated the issue. The appellate court upheld the defense verdict in favor of the drug manufacturer on the plaintiff’s claim of contamination by a mouse in the trash.
An Olin Corp. court decision, 837 F.Supp. 2d 292 (S.D.N Y 2011), involved a request for sanctions by defendant Olin when it was advised by the Boshak brothers’ attorney about upcoming litigation, oral and in writing. In this litigation, the Brothers alleged that Olin’s precursor chemicals were unstable and caused contamination to groundwater that forced Boshak to install treatment systems on their property. Although defendant preserved documents at its corporate office, the owner of Olin, along with its parent company and a joint venture partner, did not preserve documents at their facilities. Ultimately the case settled. Based on testimony leading up to the settlement, the magistrate issued sanctions, and the district court upheld the award of attorneys’ fees and costs as well as adverse inference instructions and an adverse jury instruction.
Turner v. Hudson Transit Line, 142 F.R.D. 68, 1991 WL 104649 (S.D.N.Y. 1991), involved a truck accident on a foggy morning when a Walmart truck rear-ended the decedent’s vehicle. A witness told the decedent’s family they should obtain all evidence about the case. The decedent’s brother located out-of-town and/or non-English speaking witnesses, obtained employment records, photographs, notes from an accident reconstruction expert who had gone to the scene immediately after the accident, and employment records and tax documents. The two corporate defendants, Walmart and Hudson Transit Line, issued emergency stop orders on their trucks shortly after the notice went out. Nevertheless, Hudson delivered a truck to the area office breaking the order to inspect the vehicle, to police supervision rather than to the control center. It ordered its drivers to take their "road side logs" home with them and to throw them away. The magistrate’s recommendation for sanctions included an attorney fee award and a jury instruction about spoliation of evidence.
The Federal Trade Commission challenged Legg Mason’s acquisition of 17 Western Asset Management Company subsidiaries. 131 F.Supp. 3d 59 (D.C.C. 2015). In the course of its investigation of the merger, the FTC’s staff experienced discovery problems. One staff member found that one of the witnesses had deleted millions of emails, which she claimed were "archived." The FTC also identified records being withheld or not being produced, but the issue isn’t clear from the decision. Debevoise & Plimpton was the law firm that represented Legg and Western. The firm wrote a letter to the FTC in which it stated that Legg Mason had "retained" documents that were responsive, but his clients could not "locate at this time," "or are not in a form that allows them to be searched." FTC also alleged that Legg Mason is withholding 15 percent of its email, and that Legg and Western had failed to search for "dumped" documents from foreign departments and subsidiaries.
Harris v. Key Intern. Inn., 2013 U.S. Dist. LEXIS 178272 (S.D.Fla. 2013). This case involved a pro se plaintiff who was allegedly injured at a Comfort Inn hotel. She retained her own investigator after retaining a lawyer. The investigator took photographs of the premises, a copy of the guest register, and a claim form. According to the plaintiff’s documents, she later met with the general manager of the hotel. When the case was in danger of being dismissed on a motion for summary judgment, plaintiff’s counsel obtained an affidavit from the general manager of Comfort Inn stating that he hadn’t investigated the incident, hadn’t taken photographs or videos later obtained by the plaintiff’s investigator, handed over the guest register and gave the plaintiff a copy of a "customer comment card" with the general manager’s comments on it. The defendants further contended that plaintiff had destroyed 911 tapes. The court granted the defendants’ motion to dismiss but did not specify the reason.
Leaf, Inc. v. Cartwright, 963 F.Supp.2d 1045 (C.D.CA. 2013), was a case about commercial doors and hardware with a list of defendants, distributors and a third-party manufacturer. The federal district judge denied plaintiff’s motion for sanctions for spoliation of evidence against the manufacturer. The judge observed that the record supported the manufacturer’s assertion that it timely implemented a litigation hold. The manufacturer’s witness testified that he had asked all of its employees to preserve all emails, including compelling its CEO to do so. The manufacturer also surveyed its electronically stored information, identified relevant databases and accounts, and requested that its computer services department conduct a forensic search of its files. In addition, the act of voicing an intent to sue while continuing to represent the customer, who prevailed at trial, demonstrates the customer’s agent’s reasonable effort to preserve materials.
Best Practices to Promote Compliance
Given the potential ramifications of non-compliance, it is critical to have a plan in place to prevent any deletions of evidence. Best practices for ensuring additional compliance include: (1) training, (2) technology, and (3) policies. First, training of employees is vital to compliance with a legal hold notice. After a litigation trigger is identified, the business enterprise can mitigate its risk by ensuring that all employees receive periodic trainings on the importance of legal holds and the consequences of deleting or modifying information. Second , the use of technology should be implemented to help safeguard against non-compliance. Businesses can help ensure compliance with archiving protocols and other retention policies by utilizing available technological solutions. Finally, businesses should have a clear record retention policy. It is important to have written policies to ensure that archived data is accessible and can be identified by the IT department when needed. It is important for these policies to also allow for immediate implementation when litigation is anticipated. The key to any successful legal hold notice is compliance, and having a plan to enforce compliance will go a long way.
Litigation’s In-House Legal Team Role on Legal Holds
The role of legal teams in the management, execution, and issuance of legal hold notices cannot be overstated. Legal resource will need to manage the dockets for formal and informal demands for information from regulatory agencies. In some cases, aggressive requests for additional information will come from regulators based on figures and estimates contained in the quarterly filings. However, left unchecked, these requests by regulators could pose a risk to the organization, since the requests for expanded information obligation may enable regulators with access to information which could be used to infer wrongdoing by the organization. Therefore, it will be imperative that legal teams closely monitor and communicate among themselves on documents that are identified, including any determined need to remove documents from the legal hold requirements and timeline. This may require additional review of certain documents that may contain trade secrets or confidential information. The organization as a whole may choose to adopt a systematic approach to identifying which relevant documents need to be preserved, which permits a streamlined collection process to preserve and identify only that information that is necessary to be preserved based on business needs.
Leveraging Technology for Improved Compliance
Ensuring compliance with legal hold obligations is essential in order to mitigate risk. Numerous software solutions exist to support compliance with legal holds. Software programs and cloud-based technology can be used to achieve the following:
A software solution can not only digitally track the progress of communications, but can also produce reports to show the number of custodians who have been notified, the date, and if any have acknowledged receipt or by a certain date. The software can often produce reports to show you the status of sending out legal holds, tracking the producing of work product, and other reporting that will help you make informed decisions in the early stages of a matter. These reports can be turned into visual representations and provide an easier means of understanding the current state of your case .
Now that legal holds are becoming increasingly implemented and expediting the process of identifying, collecting, and reviewing information, the software supporting them has become one of the most important linkages in the litigation chain. Some solutions are externally hosted, and others are easily installed. Most solutions can generate notices to custodians, and some offer cloud-based portals for this purpose. At the same time, these portals track your communications throughout the case, can generate reports on custodian acknowledgment (or lack thereof), and prompt follow-up to custodian non-responsiveness and assist with escalation of the custodian levels. All of this helps take the burden off of the individual project manager for legal hold compliance.
There is no longer any need to maintain a spreadsheet comprised of non-automated communication efforts when there are so many technological solutions available. Having robust electronic software and communication platforms can make a legal hold workstream more efficient and effective.