A. When does the legal duty to preserve relevant information arise? Courts have considered with increasing frequency the question of when a company’s legal obligation to preserve information relevant to a dispute arises. Courts agree that absent a “triggering event” imposing the duty to preserve relevant documents and electronic information, no such duty exists. The reason for such a rule is obvious. Requiring companies to indefinitely preserve all of the vast amounts of electronic information and documents generated in the ordinary course of business would cripple companies, particularly large ones. Thus, when does the duty to preserve arise?
“Triggering events”, which may impose the duty to preserve, may take many forms. They may be known or unknown, and they can obvious or subtle. Courts impose the duty to preserve records when litigation is reasonably foreseeable. Thus, a demand letter threatening litigation is an obvious triggering event. Similarly, if a company is served with a lawsuit, the duty arises, and the company’s duty to preserve records may have been unknown until service of the lawsuit.
Other triggering events can be more subtle. Discussion among management about a potential claim, for example a discrimination claim arising out of the termination of an employee, could be a triggering event, even if there has been no demand letter, EEOC charge, or lawsuit. Further, a triggering event need not “surface” at the management level. It is, therefore, important that owners and management have procedures in place to ensure that lower-level employees report all possible triggering events to their supervisors. These events can then be analyzed by management and in-house counsel to determine whether the company’s duty to preserve has arisen.
B. How should a company react to a “triggering event”? When a “triggering event” occurs, a company must assess whether the event gives rise to the duty to preserve relevant records. At this juncture, a company must analyze all of the information it has obtained regarding the potential dispute and assess whether it should issue a “litigation hold”. A “litigation hold” is the suspension or alteration of the company’s data retention policies to preserve documents and data which may be relevant to a dispute.
As discussed above, the question a company must answer is whether litigation is reasonably anticipated. If so, the company has a duty to preserve relevant records. This inquiry may be fact-intensive, requiring careful assessment of the facts surrounding the dispute and the possible opposing party. If a company elects not to issue a litigation hold at this juncture, it should document its analysis for concluding that a hold is unnecessary.
Such documentation can be extremely important. If the triggering event does result in litigation, the opposing party may claim that evidence has been “spoliated” as a result of the company’s failure to implement a litigation hold. In such a situation, the Court will assess the reasonableness of the company’s decision not to issue a litigation hold when determining whether to issue spoliation sanctions.
If a company does decide to issue a written litigation hold, that decision alone does not ensure the company’s conduct will survive a Court’s scrutiny if an opposing party is ever claiming that the company failed to preserve relevant evidence. Rather, the written litigation hold itself, as well as the implementation, enforcement, and monitoring of the hold, may be scrutinized.
Thus, a litigation hold should specifically articulate the categories of documents and records which are relevant to the dispute at issue. The litigation hold should also address the various locations in which relevant data may exist. In today’s world, the sources of such data are vast, and a litigation hold must ensure that relevant information contained in these sources is not lost. The litigation hold should, therefore, identify the particular sources of electronic data on which relevant electronic information may exist, such as computers, computer networks, computer servers, voicemail systems, BlackBerrys, mobile telephones, and other portable devices.
C. What else should a company do besides issue a written “litigation hold”? The process of ensuring that relevant evidence is preserved does not stop with simply sending a litigation hold notice to employees who have relevant records and data. Other practices are essential to ensuring a litigation hold will survive scrutiny by a Court.
As a threshold matter, companies are strongly advised to document their implementation of a litigation hold. Such documentation should be as thorough as possible. The date when the hold was issued and the identity of all recipients of the litigation hold notice should be recorded. Companies are also advised to obtain confirmation of their employees’ receipt of the litigation hold notices. Any interviews with employees following the issuance of the notices (as well as any interviews during the company’s analysis of the triggering event) should also be documented. It goes without saying that data collected as a result of the notices should also be documented. These efforts will hopefully ensure that a company can demonstrate to a Court that its efforts to preserve relevant data were reasonable, if an opposing party later seeks spoliation sanctions.
Companies must also assess whether it becomes necessary to modify a previously issued litigation hold. Circumstances surrounding a dispute often change, and new facts may come to light which expand the scope of data which needs to be preserved. Such facts may necessitate an additional litigation hold notice. If a new notice is issued, the company should undertake the same documentation efforts it undertook for the initial notice.
D. Why are these practices important? In the electronic age, business disputes inevitably involve the production and exchange of electronic data. Business owners and managers must be aware of and knowledgeable regarding their companies’ legal obligations with respect to these issues. Having proper procedures in place will help minimize the likelihood that an opposing party or a Court will ever question whether sufficient efforts were undertaken to preserve information relevant to a dispute. A good data retention policy for the ordinary course of business will make it much more manageable for a company to implement the litigation hold process described in this article. A keen understanding of the litigation hold process will then make it significantly easier for a business owner or manager to put a litigation hold into action when a company determines that litigation concerning a business dispute is reasonably foreseeable.
Like it or not, these practices are now an essential part of good business management. The risks of ignoring a company’s preservation obligations cannot be understated. Courts, particularly the federal courts, are demonstrating a “zero-tolerance” attitude toward companies who fail to undertake proper efforts to preserve relevant information. Such courts have no reservations about sanctioning parties for failing to fulfill their legal obligations to preserve relevant data. These sanctions can be severe. They may take the form of substantial monetary fines. Courts will also consider striking a complaint or an answer. Thus, failing to take the appropriate steps to preserve relevant evidence can result in sanctions which may be dispositive of claims or defenses.
These issues are by no means easy or straightforward. However, what is most important is that they are not simply ignored. If you are a business owner or manager with questions regarding your company’s data retention policies or your company’s obligations to preserve data relevant to a dispute, it is highly recommended that you promptly consult with your in-house or outside counsel concerning these issues.