July 13, 2011 Articles

Avoiding an Electronic Discovery Disaster with Litigation Holds

We must advise clients of the triggers for the common-law duty to preserve evidence and assist them in developing practices to ensure that the duty is met when it arises.

By Elizabeth S. Fenton, Diana Rabeh, and Jonathan M. Shapiro

The U.S. government estimates 206,000,000 barrels of oil flowed from the explosion of BP’s rig into the Gulf of Mexico. Dina Cappiello, “New BP Challenge to Spill Size Could Affect Fine,” Associated Press, Dec. 3, 2010. BP has confirmed that the cost of the Deepwater Horizon oil spill is $1.6 billion as of December 1, 2010. There are 1 trillion bytes of data in the form of documents, emails, voice mails, text messages, and instant messages expected to be retrieved from BP’s electronic discovery. William W. Belt Jr., Electronic Discovery Challenges in BP Oil Spill Cases [PDF], The e-Discovery 4-1-1, Aug. 2010. The sheer volume of electronic data will cause the Deepwater Horizon oil spill to become one of the largest electronic discovery events in history.

In the wake of events like an oil spill, natural disaster, or other catastrophic event, clients find themselves confronting urgent duties regarding the maintenance and preservation of electronic evidence, duties that may possibly burden their ability to conduct operations going forward. As litigators, especially as business torts litigators, it is imperative that we provide effective guidance to clients both before and during litigation to ensure that these duties are met and to minimize—to the degree possible—the burden on their business so that a disaster does not become an e-discovery disaster as well.

Although the explosion of electronic discovery over the years alone warrants heavy emphasis on having a proper system in place to respond to pending or anticipated litigation, a disaster such as the Deepwater Horizon oil spill reminds us that work done before a crisis will pay off when the inevitable crisis comes. In the face of an overwhelming amount of daily electronic communication and the relative ease of spoliation, we must advise our business clients of the triggers for the common-law duty to preserve evidence and assist them in developing policies and practices to ensure that the duty is met when it arises. We must also advise them that the high costs associated with electronic discovery coupled with the risks of sanctions in the event of data destruction, even inadvertent destruction, make ignoring such a duty perilous.

The Law Governing Litigation Holds
A litigation hold is simply a communication within a company that requires that all information—whether paper or electronic—relating to the subject of a current or an impending litigation be preserved for possible production in the litigation. The 2003 landmark case, Zubulake v. UBS Warburg, LLC, popularized the use of the litigation hold to satisfy preservation obligations imposed on parties. The court explained that “[o]nce a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’” to safeguard all relevant data. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003); see also ACORN (N.Y. Ass’n of Cmty. Org. for Reform Now) v. County of Nassau, No. 05-2301, 2009 WL 605859, at *2 (E.D.N.Y. Mar. 9, 2009) (explaining that once the duty to preserve arises, “a litigant is expected, at the very least, to suspend its routine document and retention/destruction and to put in place a litigation hold” (internal citation omitted)).

“[W]hile a litigant is under no duty to keep or retain every document in its possession, it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.” Wm. T. Thompson Co. v. General Nutrition Corp., 593 F. Supp. 1443, 1455 (C.D. Cal. 1984). The purpose of a litigation hold is to prevent the automatic destruction of potentially relevant or discoverable documents and information pursuant to a document retention policy.

Amendments to the Federal Rules of Civil Procedure that took effect on December 1, 2006, codified the evolving obligation for companies to preserve, collect, and produce “electrically stored information.” Except for a Note to Rule 37(f), which references the use of a “litigation hold” as a method of implementation, the Federal Rules do not define the scope of the preservation obligation under a litigation hold per se and do not expressly require litigants to adopt a “litigation hold.” Similarly, although the Delaware Court of Chancery recently issued guidelines regarding the preservation of electronically stored information, few other courts have done so. See Court of Chancery Guidelines for Preservation of Electronically Stored Information. Nonetheless, many district courts have determined that the “utter failure to establish any form of litigation hold at the outset of litigation is grossly negligent” and subject to sanctions. Heng Chan v. Triple 8 Palace, Inc., No. 03-CIV-6048, 2005 WL 1925579, at *7 (S.D.N.Y. Aug. 11, 2005). As one judge recently explained, “By now, it should be abundantly clear that the duty to preserve means what it says and that a failure to preserve records—paper or electronic—and to search in the right places for those records, will inevitably result in the spoliation of evidence.” Pension Comm. of Univ. of Montreal Pension Plan v. Bank of Am. Secs., LLC, 685 F. Supp. 2d 456, 462 (S.D.N.Y. 2010).

When Is the Duty to Preserve Triggered?
Because the duty to preserve is not necessarily triggered at the commencement of litigation, it is imperative that a company be aware of when the duty to preserve documents and issue a litigation hold arises. “The duty to preserve material evidence arises not only during litigation but also extends to the period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.” Silvestri v. General Motors Corp., 271 F.3d 583, 591 (4th Cir. 2001); see also Jacob v. City of New York, No. 07-cv-04141, 2009 WL 383752, at *1 (E.D.N.Y. Feb. 6, 2009) (“[The] obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.”). When the duty to preserve is triggered, a party must take reasonable steps to preserve relevant and/or discoverable information, which includes “what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.” See Wm. T. Thompson, 593 F. Supp. at 1455. A party who fails to preserve and produce information as required may be subject to a range of sanctions. Id.(“Sanctions may be imposed against a litigant who is on notice that documents and information in its possession are relevant to litigation, or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information.”).

Although this rule may appear straightforward, its application can be hard to pin down in some situations. For example, when an unexpected disaster strikes, many would argue that the duty to preserve arises almost immediately at the outset of the disaster. At least one commentator has speculated that the duty to preserve arguably arises before disaster strikes, particularly where the disaster is “man-made” or the result of ongoing negligence. Maribeth L. Minella, BP Oil Spill Demonstrates Why Litigation Hold Instructions Are Invaluable, Delaware Employment Blog, June 16, 2010. Suffice it to say that “[d]etermining whether a duty to preserve is triggered is fact-intensive and is not amenable to a one-size-fits all or a checklist approach.” The Sedona Conference, “The Sedona Conference Commentary on Legal Holds: The Trigger & the Process,” 11 Sedona Conf. J. 265, 271 (2010).

The Sedona Conference, recognizing that determining when the duty to preserve is triggered can be difficult, has provided a number of guidelines to practitioners. Id. First, the Sedona Conference defines “reasonable anticipation of litigation” as arising “when an organization is on notice of a credible probability that it will become involved in litigation, seriously contemplates initiating litigation, or when it takes specific action to commence litigation.” Id. at 269. This determination “should be based on a good faith and reasonable evaluation of relevant facts and circumstances.” Id. at 270. Important reasonable facts and circumstances for a company to consider include:


• The nature and specificity of the complaint or threat;

• The party making the claim;

• The business relationship between the accused and accusing parties;

• Whether the threat is direct, implied or inferred;

• Whether the party making the claim is known to be aggressive or litigious;

• Whether a party who could assert a claim is aware of the claim;

• The strength, scope, or value of the known or reasonably anticipated claim;

• Whether the company has learned of similar claims;

• The experience of the industry, and

• Reputable press and/or industry coverage of the issue either directly pertaining to the client or of complaints brought against someone similarly situated in the industry.

Id. at 276.

Accordingly, because the duty to preserve documents may arise well before a complaint has been filed or a subpoena is served, a company must be cognizant of the factors outlined above and must consider the necessity of a litigation hold whenever a claim or threat of a claim first comes to light.

Best Practices for Implementing Litigation Holds
Companies should not wait until disaster strikes or litigation is commenced to start thinking about how best to manage and protect their electronic data. The following practice tips are designed to assist companies in managing, storing, and protecting electronically stored information and implementing a proper litigation hold.

Be Prepared
Before drafting a litigation-hold policy, a company should set forth a “policy or practice setting forth a process for determining whether the duty to preserve information has attached.” Id. at 274. As the Sedona Conference explained, “[A]dopting and consistently following a policy or practice governing an organization’s preservation obligations is one fact that may demonstrate reasonableness and good faith.” Id. In addition, a company must know how its electronic data is stored, backed up, and archived so that it can draft a proper litigation-hold policy. Specifically, companies should be aware of potential “evidence destroyers” and problem areas such as the automatic deletion of email, the recycling of backup tapes, the upgrading and reformatting of systems, laptop computers, home computers, portable storage devices such as flash drives, and personal email accounts.

Be Proactive
Businesses should periodically review and monitor their document-retention policies before a situation necessitates the implementation of a litigation hold. By being proactive, a company can determine if there are any holes or deficiencies in the policy or its implementation and whether the policy needs to be updated. This step is also critical to a later showing of good faith, as Rule 37(e) provides that “[a]bsent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.” Fed. R. Civ. P. 37(e). The protection of this provision may be lost, however, if—after the duty to preserve is triggered—the retention policies are not suspended or modified.

Set Up an Electronic Discovery Team
For larger companies and/or legal departments, the time and resources dedicated to putting together an e-discovery team are well worth it. This team should consist of not only legal personnel but technology personnel as well. Technology personnel will be particularly important for ensuring the suspension of the automatic deletion of email, the recycling of backup tapes, and the upgrading and reformatting of systems. It is also important to designate and train a member of the electronic discovery team to handle inquiries from employees about claims or threats of litigation, the duty to preserve, and other questions regarding the litigation hold.

Identify Key Players
When litigation is reasonably anticipated, a business must quickly implement an effective litigation hold and make sure all sources of potentially relevant information are identified and placed on hold.To do so, a company must identify and interview the key players in the litigation as quickly as possible. It is important to note that it may be necessary to extend the litigation hold beyond the key players to “appropriate date stewards, records management personal, information technology (IT) and other potentially knowledgeable personnel.” Sedona Conference, supra p. 10, at 283.

Issue Effective Litigation-Hold Policy Promptly
When a company issues a hold notice, the company should disseminate it to its employees both electronically and via interoffice mail. The litigation hold should also include the following information:


• A description of the case in laymen’s terms;

• Instruction on which documents should be preserved and how such documents should be preserved;

• Instruction that any automatic deletion of email or other electronic media should be suspended;

• Instruction for recipients to search all information for anything relevant or potentially relevant to the claim and to err on the side of preserving;

• An explanation to recipients about the risk to the company and its employee for failing to heed the litigation-hold request; and

• Contact information for the designated person from the e-discovery team, or an in-house or outside lawyer.

The widespread use of electronic discovery makes it vital for litigants to employ litigation holds as soon as a claim or potential claim is reasonably anticipated. The failure to timely implement a litigation hold may not only result in spoliation but may also be costly to a party in the form of court-ordered sanctions, including the entry of a default judgment. One court even went so far as to suggest the imposition of jail time for spoliation. See Sean T. Carnathan, “Jail Time for Spoliation?” 36-2, Litigation News, Winter 2011, at 17. In VictorStanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497 (D. Md. 2010), Magistrate Judge Paul W. Grimm of the U.S. District Court for the District of Maryland determined that the defendant’s willful acts of spoliation warranted not only partial default judgment in favor of the plaintiff but also constituted civil contempt. Id. at 500. The court ordered the culpable individual defendant to be “imprisoned for a period not to exceed two years unless and until he pays to Plaintiff the attorney’s fees and costs” allocable to spoliation. Id. (internal citations omitted). In later proceedings, U.S. District Judge Marvin J. Garbis modified the sanctions to eliminate the potential for jail time, reasoning that it was not appropriate to order the individual “[d]efendant incarcerated for future possible failure to comply. . . .” See Victor Stanley, Inc. v. Creative Pipe, Inc., D.C. Md., C.A. No. MJG-06-2662, Garbis, J., at *3 (Nov. 1, 2010) (Memorandum and Order). Businesses cannot afford to take the requirement that they issue litigation holds lightly.

Be Over-Inclusive
It doesn’t hurt to be over-inclusive in determining which documents should be placed in the litigation hold, and employees should always err on the side of caution. Although preserving and collecting massive quantities of data can be expensive, this cost must be weighed against the very real threat of spoliation and the issuance of sanctions. Thus, until a company is aware of what discovery requests it will face in the future, it is recommended that companies preserve their data very broadly.

Be in Control
It is necessary not only to implement a litigation hold but also to continually take affirmative steps to monitor compliance. The monitoring and testing of a litigation-hold policy ensures that employees are following the policy and that its data has been safeguarded. In Zubulake, the court explained that litigation-hold responsibilities do not end with the issuance of the litigation hold: “Counsel must oversee compliance with the litigation hold, monitoring the party’s efforts to retain and produce the relevant documents.” Zubulake, 229 F.R.D. at 432. This is especially true where a company may face criminal charges and employees may be tempted to delete or alter information that might get them in trouble. Throughout the process, counsel should document the steps taken to both ensure compliance and prevent the destruction of potentially relevant electronically stored information.

Keep Communications Open
A company should communicate with its employees to ensure that the litigation hold has been effectively implemented, while counsel is, at the same time, having ongoing conversations with opposing counsel and the court on the status and progress of electronic data. This is especially true where discovery may involve particular areas of sensitivity.

No one can predict when disaster will strike, but a company can and should prepare itself for disasters that might arise and take steps to minimize the risk of secondary electronic discovery disaster. As litigators, we play an instrumental part in ensuring that our business clients are prepared if disaster strikes. To adequately prepare our clients and provide effective guidance, we must follow the best practices outlined above for implementing an effective litigation-hold policy. The high costs of electronic discovery, as well as the risk of sanctions in the event of spoliation, even inadvertent, make it imperative that we assist our clients in proactively implementing policies and practices to ensure that the common-law duty to preserve is met.

Keywords: litigation, business torts, technology, electronic discovery, litigation holds

Elizabeth S. Fenton, Diana Rabeh, and Jonathan M. Shapiro – July 13, 2011

Copyright © 2011, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).