The Problem

Any experienced trial lawyer who is called upon to handle a complex business dispute or government investigation will agree that the timely issuance and the proper management of a "litigation hold" is critical. One very recent federal case, while not addressing directly the failure to issue a "hold," highlights the problem. In January 2008, a federal court in California fined the company Qualcomm more than $8 million and sanctioned six of its lawyers for failure to produce relevant emails on a timely basis. Qualcomm paid the full penalty in February, but on March 5, 2008, the same Court went further and held that Qualcomm's attorneys were not bound to honor the attorney client privilege. They are now allowed to defend their own conduct by testifying against Qualcomm. The Qualcomm decision is not an aberration. It is further evidence of a trend for courts to issue severe sanctions when corporate organizations don't take proper steps to identify, preserve, and produce relevant documents and electronically stored information in a timely manner.

Issuing a Hold is no Longer Optional

When litigation or government inquiry is reasonably anticipated, threatened or pending, a legal duty arises to identify, locate and preserve relevant information. It doesn't matter whether your company is the instigator of litigation, a target of a government inquiry or a potential defendant, the duty is the same. The most common events that ordinarily give rise to the duty to issue a "litigation hold" are:

  • Pre-litigation discussions with an opposing party or their counsel
  • The receipt of a demand letter
  • Subpoenas
  • Complaints
  • Inquiry from state or federal government
  • The receipt of a civil investigation demand
  • Contemplation of federal investigation or inquiry

Best Practices for Implementing the "Litigation Hold"

Be pro-active. Developing a defined written policy in advance for determining whether a duty to preserve has been triggered and establishing a process to implement the hold will save valuable time and money. More importantly, these steps allow the company to demonstrate that its decisions were made in a timely, reasoned and defensible manner.

Once the decision to issue the hold has been made, steps must be taken to identify and preserve relevant information, including both hard copy documents and electronically stored information, such as emails. It is important to remember that sources of such information may include not only your business, but also information within the possession or custody of third parties. There should be close communication and coordination between outside legal counsel and the company's IT personnel: trial counsel should be actively involved in the process early and often.

An effective "litigation hold" program must include the following components:

  1. Upon reasonable anticipation of litigation or government investigation, provisions for the issuance of the litigation hold and suspension of the ordinary destruction of relevant documents and electronically stored information
  2. The appointment of a reasonable decision maker who will consider the scope of the hold and analyze what must be preserved
  3. A clearly defined, written hold/preservation notice issued directly and periodically re-issued to those employees likely to have relevant information
  4. An acknowledgement procedure from affected employees and periodic monitoring of their compliance along with reminders that the duty is still in place
  5. A calendar for periodic follow up with affected employees and a procedure for notifying new employees who may be affected
  6. Mapping of the company's existing computer infrastructure, detailing where data is collected and stored
  7. A procedure for immediately suspending the disposition of hard copy documents and electronically stored information, especially email, that may be potentially related to litigation or government inquiry
  8. The appointment of a designated retention coordinator who can develop specific steps and assignments for preserving back-up tapes and archiving emails, notifying third-party storage vendors and monitoring compliance with the company's record retention program
  9. Documentation of the hold/collection/preservation process
  10. Identified steps for ending the litigation hold, including notifying third-party vendors and re-establishing the ordinary record retention schedule for destruction of records

Strategies for Managing the Cost

Adopting an effective record management program in advance to minimize the records required to be retained for your Company will result in a significant reduction in the burden and expense of responding to discovery. Careful planning and coordination among outside counsel and IT personnel can save valuable time and money. Once the duty to suspend the ordinary destruction of information arises, negotiating with opposing counsel or the government over the scope of a litigation hold or seeking early assistance from the Court can reduce the amount of information that must be preserved. There is also new software available to reduce the amount of information that must be preserved and ultimately collected, reviewed and produced.

Finally, Rest Well

While it is true today that a clean heart is not a safe harbor, by adopting a pro-active strategy, litigation holds need not be overly disruptive to your ongoing business operations. If lawyers and their clients work together early and often in the process, the costs can be managed and the nightmarish results of the Qualcomm case can be avoided. The bottom line: developing and implementing a reasonable and defensible document retention policy and then working with knowledgeable and experienced counsel when the threat of litigation arises will be the key to a good night's sleep.

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.