Many companies have procedures and policies in place that assist in the determination of when a legal hold on documents, data, and communications is necessary and how to implement the hold. Despite over a decade of case law addressing the need for electronic communications and data to be included in legal holds, litigants still periodically find themselves on the wrong end of a sanctions motion for spoliation. This article examines legal holds, recent court decisions addressing their need and the ramifications of their absence, and best practices to safeguard information.

Many corporate legal and compliance departments are well-versed in the mechanics of setting up a legal hold and have procedures to flag when one should be implemented. Yet the steady stream of judicial decisions addressing the need for legal holds or the ramifications of their absence suggests that legal holds are still not always top of mind or that their need is not always immediately obvious.

Law departments must remain vigilant as to when a hold becomes necessary-which may predate a more formal and obvious trigger such as a complaint or demand letter. Law departments should also be thoughtful and proactive about what information may be responsive or relevant to a pending or future litigation. This analysis is increasingly more complex as the sources of information and means of communications proliferate with each new mobile phone application, communication platform, and social media channel.

What Does a Legal Hold Include?

Legal holds typically take the form of written instructions to employees that a lawsuit or investigation has commenced or that one is anticipated. The legal hold instructs the employees-referred to as "custodians" in this context-to preserve relevant or responsive information. A legal hold typically includes the following information:

  • A brief description of the dispute, investigation, litigation, subpoena, document request, or anticipated litigation
  • A list or description of the types of data, communications, information, and documents relevant and responsive to the legal hold (responsive information)
  • The locations or sources of potential responsive information
  • Instructions on how to turn off auto-delete features on personal devices and accounts, where applicable
  • Instructions on how to migrate off-system and off-network responsive information back to the company network or systems or forensically sound alternatives such as a formal collection
  • Ramifications for failing to preserve responsive information, which may include financial or other judicial sanctions against the company
  • Contact information of the individual overseeing or responsible for the legal hold if a custodian has questions concerning preservation

Depending on the nature of the dispute or investigation, the hold may also be distributed beyond company employees, such as to directors, board members, contractors, or third-party vendors, if they have responsive information that could be deemed to be in the company's "possession, custody, or control." Legal holds should also be shared with the company's information technology professionals or vendors so that automatic delete features on relevant data sources-such as emails or shared files-are suspended in order to preserve the responsive information.

When to Implement a Legal Hold

The Federal Rules of Civil Procedure have codified the timing for the implementation of a legal hold. Rule 37(e) states: "If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it" sanctions may be available. Put differently, a party "has a duty to preserve evidence during litigation and at any time 'before the litigation when a party reasonably should know that evidence may be relevant to anticipated litigation.'" Hopper v. Air & Liquid Sys. Corp., C/A No. 2019-CP-40-00076, 9 (S.C. Common Pleas Ct. Oct. 30, 2019). See Crown Battery Mfg. Co. v. Club Car, Inc., 185 F. Supp. 3d 987, 998 (N.D. Ohio 2016).

In Hopper, the court further explained that the duty to preserve could arise from "pre-litigation discussions or requests to inspect." Likewise, similar obligations often arise when a company is subject to a regulatory investigation.

Receipt of a summons and notice, a complaint, or a demand letter are obvious triggers for a legal hold. A subpoena or third-party document request may also trigger the need to implement one. But pinpointing the moment a party "reasonably anticipated" a litigation or investigation may be harder. See Gamma Lending Omega LLC v. Kaminski, 2020 BL 332683 (Sup. Ct. N.Y. Cty. Aug. 28, 2020) (motion for sanctions denied because there was "no evidence of ... failure to preserve relevant evidence" and because the moving party had failed to establish "when litigation should have been reasonably anticipated").

Some examples of when "reasonable anticipation" may arise include:

Industry-Wide Litigation. If the industry or a product in which the company specializes, manufactures, or distributes is embroiled in litigation, it could be prudent-or necessary-to implement a hold on the likelihood that the company will face similar claims or actions. In Hopper, the court noted that the asbestos litigation had been "raging for more than a decade" and thus companies that manufactured the at-issue product could reasonably anticipate their involvement in pending or future litigations and should have implemented holds. The company's obligation to preserve sales records of "asbestos containing rods"-deemed a "critical piece of evidence" by the court-were triggered years before the litigation.

Likewise, in Phillip M. Adams & Associates, L.L.C. v. Dell, Inc., 621 F. Supp. 2d 1173 (D. Utah 2009), the court held that defendant's duty to preserve arose years earlier when it became aware of similar litigations against other industry actors.

Litigation-Triggering Event. Triggering events can take many forms-an agreement gone awry, an internal complaint or whistleblower claim, a disruptive termination or resignation, an injury, an accident, or a cyber-breach, to name only a few. In Federated IT, Inc. v. Anthony, No. 1:18cv1484 (LMB/JFA), 3 (E.D. Va. May 12, 2020), the plaintiff-employer put a legal hold in place upon the defendant-employee's resignation, an action that resulted in the recovery of numerous emails that were deleted by the defendant prior to her resignation. The plaintiff "later recovered the emails in the purged folder that remained because of the litigation hold placed on all email accounts."

In Stedeford v. Wal-Mart Stores, Inc., In Stedeford v. Wal-Mart Stores, Inc., 2016 BL 205448 (D. Nev. June 24, 2016), the court held that the reasonable anticipation of litigation arose when a customer reported an in-store injury and stated an intention to seek medical assistance.

Company Considers Claims or an Action. Where the company itself may be a plaintiff in an action, the need for a legal hold will likely trigger when serious discussions concerning a potential action or claims begin. In Cohn v. Guaranteed Rate, Inc., 318 F.R.D. 350 (N.D. Ill. 2016), the court held that the duty to preserve arose when the plaintiff met with counsel to discuss pursuing a litigation.

Informal Written Communications Threatening Litigation. While not every email and text threatening a law suit gives rise to the reasonable anticipation that the threat will result in a legal action, some text messages threatening litigation, in context, have resulted in judicial determinations that the threat was enough to trigger the duty to preserve. See Clear-View Techs., Inc. v. Rasnick, No. 5:13-cv-02744-BLF, (N.D. Cal. May 13, 2015) (text message threatening litigation two years before actual litigation commenced triggered duty to preserve).

Additionally, if your company's retention policy or a regulation to which the organization is subject requires that responsive records or documents be retained, a court may deem the failure to retain them in the normal course of business to be at best improper and at worst spoliation in a subsequent litigation. For example, in Golden Door Properties, LLC v. The Superior Court of San Diego County, 52 Cal. App. 5th 837 (Jul. 30, 2020), the court held that the county was obligated by statute to retain certain communications, regardless of whether they were under a legal hold and their failure to do so was improper).

Safeguards for Proper Retention

In many instances, responsive information may reside entirely in the company's network and systems and be easily "locked" or forensically imaged and stored for eventual review and production. Companies should have procedures in place for the implementation of a legal hold-such as locking down systems and networks with responsive information or suspending auto-delete programs on email and instant messaging systems-so that responsive information cannot be deleted or overridden.

For existing legal holds, and where the responsive information has not yet been collected forensically, there may be increased dangers of inadvertent spoliation where custodians are operating remotely or using personal devices under a "bring your own device" or BYOD program. Devices on which responsive information resides may inadvertently be damaged or lost, or, where devices are shared among household members, responsive information may be inadvertently deleted, comingled, or moved.

Legal departments might consider some of the following safeguards to help ensure proper retention of responsive information subject to a legal hold.

Communication to Custodians Is Key. Regular reminders to custodians subject to legal holds of the existence and contours of the hold are important, particularly if the potentially relevant information has not yet been forensically collected and retention is reliant on custodian observance of the hold. Likewise, regular training and internal publications or reminders concerning legal hold policies will further good practices in custodians when preservation of responsive materials is under their purview.

Migrating Responsive Information Back to Company Network and Environment in a Forensically Sound Way. It is also important when a hold is implemented that the company be able to control and assure the preservation of responsive information-something difficult to do if the responsive information is on the custodian's personal device or printed out on their home-office desk. Custodians should be encouraged to limit the extent to which they communicate or generate work product on personal devices or accounts-such as text messages, social media applications, or third-party, personal email- when subject to a legal hold.

They should be encouraged instead to instead keep all relevant communications and work product in the company's authorized email and system networks. Where that is not possible, the custodians should migrate their documents back to the company's systems as soon as possible with the assistance of information technology so that the data is not forensically compromised. Storage of responsive information that is subject to a legal hold on personal devices should be discouraged and mitigated against when a hold is implemented.

Execute an Early Collection of Responsive Information. Although not necessary in every instance, where there is risk that responsive information outside the company's network could be lost or destroyed, even inadvertently, consider a remote collection from mobile devices, applications, or third-party email accounts. This may result in counsel taking material into their custody earlier than expected in the discovery timeline.

For example, in response to concerns of possible spoliation, Great Mill Rock LLC v. Stellex Capital Management LP, No. 1:20-cv-03056-CM (S.D.N.Y. Sept. 4, 2020) (McMahon, C.J.), the court flagged the importance of certain emails to an ongoing trademark infringement and unfair competition litigation, and instructed the plaintiff's counsel to "take immediate custody" of responsive emails and attachments and to hold them "in trust for benefit of their clients and the court." The court instructed that nothing was "to be erased from the [plaintiff's] email accounts" and "if it turns out that anything has been erased from them since the beginning of this lawsuit," she assured the parties that "a spoliation motion will be entertained."

As with many analyses, the risks and costs of preservation may be weighed against the need. Federal Civil Procedure Rule 37(e) has been interpreted to have a proportionality component, just as was written into Rule 26 concerning discovery generally. This means that parties are allowed to consider the proportionality of their preservation. The test for proportionality is set out in Rule 26(b) and includes "the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit."

If balancing these factors leads a company to curtail or restrict the scope of preservation, the analysis should be memorialized in detail and the risks assessed, including the risks of a potential sanctions motion and an award of sanctions, which can be monetary; adverse inference or instruction; or even case disposition, such as dismissal or judgment in favor of the non-spoliating party. The analysis may be needed later if responsive information is no longer available when sought in the action or investigation to build a credible defense against a motion to compel or for spoliation, or in support of a motion to quash disproportionate discovery.

Data Sources Outside of Files and Emails

While a legal hold may call for the retention of more common data sources, such as emails, hard-copy documents, or system files, it might also require the retention of data like text messages, social media posts or communications, Internet of Things data, geolocation or biometric data, or any other data source or medium that could be relevant to prosecuting or defending the litigation or investigation. Part of the proportionality analysis may include how accessible the data is and whether it can be used outside of its specific environment and, if so, in what form and format. As technology advances, so have e-discovery tools for collecting and producing obscure or uncommon data sources in usable formats, such as excel files or reports.

Is a Legal Hold Discoverable?

Typically, legal holds are protected from disclosure both by the attorney-client privilege as well as the attorney work product doctrine. See Radiation Oncology Servs. of Cent. N.Y., P.C. v. Our Lady of Lourdes Mem'l Hosp., 126 N.Y.S.3d 873 (Sup. Ct. Cortland Cty. 2020); Tracy v. NVR, Inc., 2012 BL 448752, at *6 (W.D.N.Y. Mar. 26, 2012)

However, where there has been a preliminary showing of spoliation, a court may order the production-or conduct an in camera review-of the legal hold and/or related communications. See id. at 875 ("a litigation hold must be produced upon a preliminary showing of spoliation to provide a proper record for consideration of whether spoliation sanctions are warranted, unless the party that had been in control of the destroyed evidence can establish, as a matter of law, that spoliation sanctions are unwarranted regardless of the adequacy of the litigation hold").

See also Major Tours, Inc. v. Colorel, 2009 BL 165385, at *2, *3 (D.N.J. Aug. 4, 2009); VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., 93 A.D.3d 33 (1st Dep't 2012); Keir v. UnumProvident Corp., 2003 BL 2462 (S.D.N.Y. Aug. 22, 2003) (emails pertaining to defendant's preservation efforts reviewed, based on a determination that electronic records which had been ordered preserved had been erased).

To that end, while it is always important to be candid and thorough in a legal hold, it is possible that in the face of colorable spoliation allegations, the document may lose the protections it otherwise enjoys and become subject to review by the court and adversaries.

Without being too tongue in cheek, the best defense to that outcome is to follow all appropriate steps as outlined above, including recognizing when the need for a hold arises, having appropriate policies and procedures in place to set up an effective legal hold, assuring the hold reaches all relevant custodians and preserves all applicable data and document sources, and having safeguards in place so that custodians do not-and cannot-spoliate responsive materials, intentionally or inadvertently.

Is A Legal Hold Stagnant?

The short answer is no. Throughout the life of a litigation or investigation, new claims may be added, defenses may be developed, or relevant issues, even if peripheral, may be identified. When periodically reminding custodians of the ongoing existence and applicability of the legal hold, it is be prudent to review the categories of responsive information subject to the hold. It may be necessary periodically to expand the issues addressed in the hold, to add custodians or data sources, and to provide additional information throughout the life of the hold.

It is equally important once the reason for the hold resolves-e.g., the litigation settles or goes to judgment and appeal times have run, the investigation concludes, the subpoena is responded to-that the legal hold is terminated and the responsive information once again flows through the company's routine retention program.

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.