Top 10 Issues to Consider When You Are Sued: Issue #1: Preserving Information with Litigation Holds

The law imposes a "duty to preserve evidence" when litigation is filed or as soon as a company reasonably anticipates that litigation will be filed. Although most people understand the basic obligation to preserve their paper documents during litigation, modern technology and the computerized workplace have created significant new challenges and risks in preserving electronic data and documents. More than 60 billion e-mails are sent worldwide daily, and trillions of electronic documents are created and circulated annually. After trailing the development of workplace technology, courts are finally catching up and imposing severe penalties on litigants who fail to capture and preserve the streams of electronic data in their possession. The mishandling of electronic evidence can have devastating legal and economic consequences on parties to litigation.

Complying with the Duty to Preserve

As soon as litigation is reasonably anticipated, a company must immediately suspend its routine document retention and destruction policies. The company must then create and implement a "litigation hold" or "freeze" to ensure that relevant data is preserved. A litigation hold is a process designed to preserve all documents and data that may be relevant to the litigation. This includes both (1) information reasonably calculated to lead to the discovery of admissible evidence, and (2) information reasonably likely to be requested during discovery. The company must educate its employees about the process and monitor their compliance. Although the company is primarily responsible for document preservation and production, the litigation hold process should be discussed and coordinated with outside counsel for maximum effectiveness.

Developing, Implementing, and Monitoring a Litigation Hold

The following steps are recommended:

1. Identify relevant documents and data. Interview "key players" at the company in order to identify relevant documents and data.

2. Identify employees who may possess relevant data. Interview key players for the purpose of identifying the employees who may possess relevant data.

3. Identify the sources and locations where relevant data may be stored. Determine from the company's IT department all possible sources and storage locations of electronic data.
   • Electronic data includes, without limitation: e-mail (including all attachments and metadata); instant messages; text messages sent with cell phones; word processing documents; spreadsheets; presentation documents; graphics; animations; images; audio, video, and audiovisual recordings; and voicemail.

   • Storage of electronic data includes the following platforms and media, without limitation: databases; networks; computer systems, including legacy systems; servers; archives; back-up or disaster recovery systems; tapes, discs, cartridges, CD ROM, DVD ROM, and other storage media; desktop and laptop computers; internet data; personal digital assistants and handheld wireless devices; cell phones and paging devices; and voicemail systems.

4. Identify relevant sources of newly-created documents and data. The relevant documents and data may include data that is continuously created as part of the company's ongoing business.

5. Draft the litigation hold memorandum. The litigation hold memorandum should describe in detail: (1) the claims, or potential claims, involved in the litigation; (2) the data requested (or likely to be requested) in discovery requests; and (3) the types of data that must be retained. The litigation hold should also explain the obligation of each employee to preserve and maintain relevant data.

6. Distribute the litigation hold. Distribute the litigation hold to all employees who may possess relevant data or have responsibility for storing and maintaining relevant data.

7. Discuss the company's duty to preserve. Create a forum to address employees' questions regarding both the company's obligation to preserve relevant information and the information to be preserved.

8. Develop a collection process. The litigation team, which may include outside counsel, should develop a process for collecting relevant information for use and production in the litigation.

9. Review, update, and re-issue the litigation hold. The duty to preserve is a continuing duty. Thus, the litigation hold must be regularly monitored, updated, and reissued as changes in the litigation occur, such as the addition of claims or defenses.

Consequences for Failing to Preserve Relevant Information

As a general matter, litigation (and the costs associated with electronic discovery) can be expensive. If a company fails to preserve relevant documents and data, the costs can be extraordinary and will likely far outweigh the costs associated with developing, implementing, and monitoring a litigation hold. In cases where a company fails to preserve relevant evidence, the court has inherent authority to:

• Exclude testimony;
• Issue adverse inferences in jury instructions;
• Dismiss claims or defenses; and
• Issue monetary sanctions and fines.

Ultimately, the severity of the sanctions will depend on the efforts taken to preserve relevant information. The court will review what steps a company took to implement a litigation hold and then monitor its employees' compliance. Thus, it is critical for a company, at the start of litigation, to spend the time and money necessary to develop, implement, and monitor a litigation hold process that is reasonable and defensible under the circumstances. The nature and scope of a particular litigation hold process will vary widely depending on the company and the litigation matter.