First appeared in Law360 on Oct 1, 2010

Courts are taking destruction of evidence seriously. Recently, in Victor Stanley Inc. v. Creative Pipe Inc., No. MJG-06-2662, 2010 WL 3530097 (D. Md. Sept. 9, 2010), Judge Paul Grimm found the defendant in contempt of court for spoliation and sentenced him to up to two years in jail, unless he pays plaintiff's costs.

In view of Victor Stanley and other opinions foreshadowing a trend toward harsher sanctions, litigants are well-advised to follow the guidance set forth earlier in 2010 in Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of America Sec. LLC, 685 F. Supp. 2d 456 (S.D.N.Y. 2010), and Rimkus Consulting Group Inc. v. Cammarata, 688 F. Supp. 2d 598 (S.D. Tex. 2010).

Pension Committee and Rimkus

In 2004, Judge Shira Scheindlin issued her fifth opinion in the Zubulake case, stating plainly that the failure to issue a written legal hold "constitutes gross negligence." Pension Comm., 685 F. Supp. 2d at 465 (citing Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. July 2004)). But her warning was too often ignored by litigants. Apparently deciding that a wake-up call was necessary, she subtitled her Pension Committee opinion, "Zubulake Revisited: Six Years Later."

In Pension Committee, plaintiffs filed their securities law action in 2004, but waited for a stay to expire before issuing a legal hold in 2007. Plaintiffs then proceeded to commit numerous missteps throughout the discovery process, including "careless and indifferent" document collections. Id. at 463.

Compounding their discovery miscues, plaintiffs attempted to conceal their actions, submitting declarations that "at best — lacked attention to detail, or — at worst — [were] intentionally vague in an attempt to mislead." Id. at 477. Judge Scheindlin concluded that plaintiffs' failure to issue a legal hold was grossly negligent and warranted an adverse inference instruction. Id. at 470.

In Rimkus, defendants never issued a legal hold and made "no effort to preserve relevant documents." Rimkus, 688 F. Supp. 2d at 642. Judge Lee H. Rosenthal found that defendants acted in bad faith by "intentionally delet[ing] e-mails after a duty to preserve had clearly arisen" and concluded, as Judge Scheindlin did in Pension Committee, that the spoliation of evidence warranted an adverse inference instruction at trial. Id. at 653.

Implement Legal Holds Early

The duty to preserve evidence attaches as soon as litigation reasonably can be anticipated. For plaintiffs, this duty typically attaches before the filing of the complaint. Id. at 612-13; Pension Comm., 685 F. Supp. 2d at 466, 471. Defendants may not always anticipate litigation before receiving a complaint. But often an ongoing dispute escalates to a point where a defendant can reasonably anticipate that litigation may occur and that a complaint may be forthcoming.

Preservation triggers may include receipt of a written request or notice to preserve; receipt or actual knowledge of a complaint or other pleading, notice of claim or a subpoena or similar instrument; or steps taken in anticipation of asserting or defending a potential claim (e.g., preparation of an incident report, hiring an expert, drafting or filing a claim with a regulator, drafting or sending a prelitigation notice, drafting a complaint, hiring counsel, or destructive testing).

Given the consequences of failing to preserve documents once the duty to preserve is triggered, parties should err on the side of caution and implement legal holds early.

Subject Matter of a Legal Hold

Determining the subject matter of a legal hold may create a quandary for parties that do not yet know what claims and defenses might be raised in litigation. Consequently, the hold should be broad enough to encompass all potentially relevant evidence. Rimkus, 688 F. Supp. 2d at 642. It is better to have it and not need it, than to need it and not have it.

The hold memorandum should provide a detailed description of the subject matter and potential claims in the lawsuit, written in language that a businessperson can easily understand. The description might include a statement of the name, venue, and basic elements of the litigation and identify the parties involved. The hold should be revisited from time to time to ensure that it remains broad enough to cover all potentially relevant documents.

Recipients of a Legal Hold

A legal hold should be sent to all employees who were involved in the events at issue in the litigation. Judge Scheindlin emphasized in Pension Committee that failing to send the hold to key players constitutes gross negligence, while failing to send the hold to other custodians who have relevant information constitutes ordinary negligence. Pension Comm., 685 F. Supp. 2d at 463-64, 492-94, 496

Counsel sometimes get caught up in the process of trying to identify the businesspeople who have relevant information and forget more obvious custodians, such as file room clerks, record retention managers, and information technology staff. These individuals may not have worked on the subject matter of the lawsuit, but they will almost always have custody of relevant records. Counsel should also consider whether the hold should be sent to individuals in branch offices or in the field.

The legal hold must cover files of former employees that remain in the party's possession, custody or control. When an employee leaves, their files are often boxed up, wiped clean or otherwise forgotten, yet they may contain potentially relevant evidence and failing to preserve that evidence may constitute gross negligence. Id. at 465, 471, 482.

Employees may also leave or be reassigned while the case is pending. To ensure that their files are preserved, counsel may need to review employee exit procedures with the IT and human resources departments. Counsel must confirm that IT does not reimage departing employees' computers and that HR maintains relevant paper documents.

Counsel should also consider whether to distribute the hold to third parties that may be in possession of documents, such as consultants, accounting firms, outside counsel, advertising agencies, and companies that store electronic or paper records offsite. This decision may turn on the contractual or legal relationship with the third party and whether the litigant has retained control over the information in the third party's possession.

Scope of Preservation

The hold should clearly define the relevant time period for preservation. It should specify that the obligation to preserve documents is ongoing until the recipient receives explicit written instructions that the hold has been lifted. The hold should also make clear, when appropriate, that it applies to historical data as well as to newly generated data.

Sources Subject to a Legal Hold

A legal hold should be broad enough to encompass all potential repositories of relevant data. See, e.g., Pension Comm., 685 F. Supp. 2d at 492 (failure to search Palm Pilot and employees' home computers used for work was grossly negligent). A legal hold should also include all storage locations within a particular source. Id. at 484 (gross negligence where only one network drive was searched and no search was done of known backup tapes); Id. at 491 (requiring searches and production of all relevant materials from backup tapes).

The hold should provide examples of the types of documents and data to be preserved and should identify likely sources. It should explain that the recipient is obligated to preserve all documents and data in his possession, custody, or control, regardless of its physical or virtual location.

Today, there are many sources of electronically stored information. Examples include network- and server-based data, including e-mail (sent, received, cc and bcc); shared drives and databases; computers, including desktops, laptops and tablets, and any home computers used for work; portable devices, such as PDAs, BlackBerrys and iPhones; loose media such as USB and flash drives, CDs, DVDs, and videotapes; voicemail, instant messages, text messages and chat logs; and in today's world of social networking, public and private social media networks, content management systems and blogs.

Similarly, there are many sources of paper documents beyond custodians' office files. There may also be paper documents in the files of secretaries and assistants, in departmental or HR files, at the custodian's home, in file rooms and archives, and in offsite storage.

Practical Considerations

Routine deletion of data must be suspended.

A legal hold should affirmatively prevent the destruction or deletion of relevant data and information, even if such deletion otherwise would occur under a routine document retention policy. This is particularly important with respect to ESI, which may be deleted or altered through an automated machine-based process. Rimkus, 688 F. Supp. 2d at 612.

Failing to affirmatively preserve ESI by suspending its routine deletion is "surely negligent, and, depending on the circumstances, may be grossly negligent or willful." Pension Comm., 685 F. Supp. 2d at 464; see also id. at 481-82, 488 (failing to direct employees to "cease deleting e-mails" and to stop practice of overwriting data is grossly negligent); Rimkus, 688 F. Supp. 2d at 642-44 (defendants intentionally and in bad faith deleted e-mails even after suit was filed).

A legal hold should explain that every reasonable step must be taken to preserve ESI subject to the hold.

Specific affirmative steps to suspend regular destruction policies of both paper and ESI might include suspending e-mail autodelete functions, preventing databases from being overwritten, monitoring policies relating to the sale/ gift/ destruction/ recycling of computer systems and mobile devices, and revisiting retention policies for paper documents.

Backup data may need to be preserved.

A legal hold may need to assure preservation of backup data. In Pension Committee, Judge Scheindlin explained that backup tapes and other repositories used for disaster recovery must be preserved "when they are the sole source of relevant information or when they relate to key players, if the relevant information maintained by those players is not obtainable from readily accessible sources." Pension Comm., 685 F. Supp. 2d at 471.

Judge Scheindlin further explained, "When accessible data satisfies the requirement to search for and produce relevant information, there is no need to save or search backup tapes." Id. at 480 n. 99.

Intentional deletion or modification of data is prohibited.

Because of its format, ESI may be easily deleted, modified or corrupted. The legal hold should clearly state that the intentional destruction of data and documents subject to the hold is prohibited and that this includes altering or modifying the data, as well as deleting it. Id. at 482 (manual deletion of e-mails after duty to preserve arose was "inexcusable," and amounted to "gross negligence"); Rimkus, 688 F. Supp. 2d at 642 (intentional "[d]estruction or deletion of information subject to a preservation obligation" can warrant "severe sanction[s]").

Monitoring Compliance

Counsel should monitor custodians' compliance with the legal hold by periodically reissuing the hold and meeting with custodians to confirm their understanding of the hold. Custodians may be asked to affirm their compliance with the directive. Recipients of a legal hold must be reminded that their compliance is mandatory.

Conclusion

We leave the last words to Judge Scheindlin: "[P]arties need to anticipate and undertake document preservation with the most serious and thorough care, if for no other reason than to avoid the detour of sanctions." Pension Comm., 685 F. Supp. 2d at 472.

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.