United States: Litigation Holds And Spoliation Issues

When the need arises, a litigation hold should be implemented quickly and effectively to avoid the inadvertent destruction or overwriting of potentially responsive data. The time to implement a litigation hold may be when it can be reasonably anticipated that the company may be sued or receive a subpoena in a case where such data may be relevant. Failure to implement a litigation hold may lead to spoliation issues and sanctions for the failure to preserve evidence.

When the company is a party to the litigation, spoliation sanctions can undermine claims and/or defenses. For example, the court may instruct the jury that they can infer that destroyed evidence could possibly have supported the opposing party's arguments. Sanctions can also come in the form of significant financial penalties. Financial penalties could include the cost of the opposing party's legal fees for bringing the sanctions motion. Dealing with spoliation issues is likely to compound legal fees and distract the company and its lawyers from proceeding with the merits of the case.

Federal court rules and judicial decisions provide critical guidance with respect to spoliation and sanctions. In December 2015, the Federal Rules of Civil Procedure were amended. Rule 37(e) was modified to address sanctions for the failure to preserve electronic documents. The purpose of this amendment was to create a clear set of guidelines for determining when sanctions can be applied, specifically, "upon finding that the party acted with the intent to deprive another party of the information's use in the litigation."Thus, intent is now a significant factor for determining whether sanctions are appropriate.

The amendments to the rules reflect the courts' understanding that the volume of ESI is often very large and there is a significant financial burden associated with its preservation. Previously, federal courts varied in the manner in which they analyzed sanctions issues. Amended Rule 37(e) provides a more consistent framework and generally protects organizations from sanctions that act in good faith to implement a legal hold, even if there is an inadvertent loss of relevant information. Since the rule went into effect in December, many judges have interpreted it in a way that provides additional helpful guidance.

Below are several practical considerations (many of which we have already discussed in prior posts) that will help you develop a defensible litigation hold process and avoid potential sanctions.

Practical Considerations

  1. Litigation Response Team – Determine those within your organization who can help identify a triggering event and can participate in the implementation of a litigation hold.
  2. Litigation Response Plan – By developing a plan, you can better understand your company's retention requirements and implement a response that allows for any necessary suspension of routine policies and practices to ensure information is being preserved as required. See our post on implementing a litigation hold plan.
  3. Litigation Hold Notice – Having a base template from which you can customize to fit each specific situation will enable you to communicate quickly and notify key employees of the need to preserve information.
  4. Data Map – Create a "map" for the locations of paper and electronic documents in advance of a litigation hold event so you can understand the complexity of preservation, determine the associated costs, and allow you to proceed faster to implement a plan. See our previous post on data maps and litigation hold plans.
  5. Outside Counsel – Work with outside counsel to better understand the scope of the litigation hold.
  6. Opposing Counsel – Consider, with the assistance of outside counsel, the benefits of discussing with opposing counsel the scope and limitations of your preservation efforts. It may be beneficial to reach an agreement to avoid disputes later.
  7. Employees –Understanding how employees or departments generally work, store, or transmit data in the context of the company's various systems. This is an important factor to help ensure that relevant information is identified and not inadvertently destroyed.
  8. Third parties – If you store data with third parties, you need make sure that they understand that the preservation obligation extends to them.
  9. Departed Employees - Determine if there any key departed employees and what information from that employee's files still exists and remains in the company's possession.
  10. Document – Document the efforts undertaken to preserve information such as to reflect a good faith, well-intentioned plan to preserve evidence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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