Preserving Evidence In Anticipation Of Litigation: The Litigation Hold
The general counsel of an owner receives a letter from a contractor, accusing the owner of delaying construction on a project and threatening legal action if the appropriate extensions are not granted. Months after the project is finished, the general counsel gets more correspondence from the same contractor, this time in the form of a complaint for delay damages. When discovery in the case gets underway a year later, the general counsel finds himself unable to produce copies of email correspondence between the owner’s employees from almost two years prior, around the time the owner was first accused of delaying construction. The judge hearing the case is most upset at the inability of the owner to produce the emails and is contemplating imposing sanctions. Why the big fuss over emails that were automatically purged by the owner’s computer system eighteen months before? How was the computer’s deletion of the emails any different from a janitor’s emptying of a wastepaper basket?
The furor results from the fact that the law imposes on parties – and potential parties – to lawsuits a duty to preserve information that may become evidence in a suit. The preservation of would-be evidence has become increasingly difficult as more and more information is stored electronically. Failure to plan for, institute, and implement a “litigation” hold carries significant legal consequences. In the recent past, courts have imposed heavy sanctions on parties failing to find and produce documents that might have otherwise been preserved by a litigation hold, including substantial monetary penalties, payment of attorneys’ fees, and dismissal of a case, in whole or in part.
“The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.” Treppel v. Biovail Corp., 249 F.R.D. 111, 118 (S.D.N.Y. 2006) citing Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 436 (2d Cir. 2001). Courts today increasingly expect parties to begin meaningful efforts to preserve electronically stored information (“ESI”) when they reasonably suspect that they may be named in a suit, which is often long before a complaint is ever filed.
A party failing to meet its preservation obligation may find itself faced with court-imposed sanctions. A party may likewise be hit with sanctions where ESI is preserved but transferred to a less-accessible format, e.g., from readily accessible servers to backup tapes costing thousands to restore. Courts are increasingly mindful of the effort and expense required to recover data converted to non-native formats. When a litigant’s failure to fulfill its preservation obligation results in the loss or conversion of data, the litigant may be sanctioned, required to bear the cost of recovering the data, or find its case undermined by an adverse inference instruction.
A “litigation hold” is a tool whereby a party confronted by the possibility or reality of a lawsuit can help ensure compliance with preservation duties and, later, demonstrate to a court the thoroughness and good faith of its preservation efforts. It is “the processes by which information is identified, preserved, and maintained when it has been determined that a duty to preserve has arisen.” The Sedona Conference Commentary on Legal Holds: The Trigger & The Process at 1.
Courts tend to scrutinize the sufficiency of a litigation hold’s scope, the process by which it is implemented, and, increasingly, the process by which it is monitored and enforced. While the proper subject-matter scope of a litigation hold and timing of its implementation will vary depending on the facts of the specific litigation, the U.S. District Court for the Southern District of New York in its opinion in Zubulake IV noted the following:
The broad contours of the duty to preserve are relatively clear. The duty should certainly extend to any documents or tangible things . . . made by individuals “likely to have discoverable information that the disclosing party may use to support its claims or defenses.” The duty also includes documents prepared for those individuals, to the extent those documents can be readily identified (e.g., from the ‘to field in e-mails). The duty also extends to information that is relevant to the claims or defenses of any party, or which is relevant to the subject matter involved in the action.
Zubulake v. UBSWarburg LLC, 220 F.R.D. 212, 217-18 (S.D.N.Y. 2003) (“ ZubulakeIV”).
I. Identify Likely Data Custodians
While the scope of a litigation hold is dictated by the nature of the claim and likely defenses, there are generally applicable guidelines discernible from the case law to inform how and to whom a litigation hold should be communicated. As noted above, the successful implementation of a litigation hold relating to the preservation of ESI (an “ESI Hold”) begins with identification of the data needing preservation. Perhaps equally important is the effective communication of the hold to the proper “data custodians.”
Few if any ESI Holds will be found sufficient if they fail to “intervene in the routine operation of an information system,” i.e., fail to ensure that ESI relevant to the litigation is not automatically deleted by the system pursuant a standardized data retention policy. That being the case, the ESI Hold, best articulated in memorandum form, should be quickly and clearly communicated to IT personnel positioned to ensure relevant data is not purged from computers as a matter of course.
While IT department personnel are readily identifiable as data custodians, other employees are less obviously bound by the duty to preserve. The ZubulakeIV court noted that the duty extends to those identifiable as “key players” in the litigation. While the court specifically identified the “key players” as “the people identified in a party’s initial [discovery] disclosure and any subsequent supplementation thereto,” it is important to keep in mind that there may be literally hundreds of data custodians properly considered “key players,” as control over ESI can never be fully consolidated, even by the best equipped of IT departments. If reasonable inquiry would reveal an individual to have information likely relevant to the litigation, efforts should be made to preserve ESI in that individual’s possession regardless of the centrality of their role in the litigation.
II. Effectively Communicate the Litigation Hold
Communication is key to the development and implementation of a meaningful ESI Hold. Counsel will need assistance in identifying where and how data is stored and communicating clear instructions to custodians regarding what is to be preserved.
The effort to determine where and how data is stored may be considered by a court to be part of a litigant’s obligation to determine sources of discoverable information. While unending amounts of time and money cannot be invested in ESI preservation, courts expect that meaningful efforts will be made to identify potential sources of information and communicate the need for preservation to the appropriate parties. Zubulake IV, 229 F.R.D. at 432 (“[I]t is not sufficient to notify all employees of a litigation hold and expect that the party will then retain and produce all relevant information. . . . This is not to say that counsel will necessarily succeed in locating all such sources, or that the later discovery of new sources is evidence of a lack of effort. But counsel and client must take some reasonable steps to see that sources of relevant information are located.”)
At least on group of commentators has suggested that employees be required to certify that they have read the litigation hold notice and complete a checklist documenting their search of specific locations for responsive materials. The Sedona Conference Commentary on Legal Holds: The Trigger and the Process at Appendix B. By encouraging employees to follow a checklist approach to their search for responsive material, employees are less likely to overlook discoverable evidence in their possession, saving their employer potential future embarrassment before a judge.
The effort to identify data custodians is of little value if communications failures thereafter prevent the custodians from being made aware of their preservation duties. Courts have shown themselves to have limited patience with litigants who fail to either adequately identify data custodians or, perhaps worse, fail to communicate with identified custodians.
Information technology personnel should be at the top of the list of employees to whom ESI Holds are communicated. After the duty to preserve arises, the failure to intervene in the “routine operation” of data systems so as to prevent the deletion of discoverable data has the potential to prove costly. Overriding automatic-deletion features not only aids in sanction avoidance but has the potential to save thousands in litigation expenses.
The process of effectuating an ESI Hold should be a learning process whereby all involved – managers, counsel, and custodians – learn how the duty to preserve will be fulfilled. A custodian must have a clear understanding of what ESI to preserve, and counsel must understand how ESI is to be preserved.
III. Reiterate and Monitor the Litigation Hold
It needs to be kept in mind that the mere circulation of a litigation hold memorandum is not alone sufficient to fulfill a party’s data preservation duty. The litigation hold must be not only meaningfully implemented, but meaningfully monitored.
Effective implementation and monitoring of a litigation hold may ultimately require that managers confronted with lawsuits learn to speak in a language previously spoken almost exclusively by IT personnel. It is important that managers facilitate communication between IT departments and counsel, and ensure that IT personnel assist counsel in becoming conversant in the technical jargon that today is used to explain what is – and is not – being done to preserve ESI. It is important that counsel, like ESI custodians themselves, know both what needs to be preserved and how it will be.