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Issuing and Managing Litigation-Hold Notices What
is the scope of the duty to preserve? In perhaps the leading case
on the issue, the U.S. District Court for the Southern District of
New York posed and answered the question as follows: “Must a corporation,
upon recognizing the threat of litigation, preserve every shred of
paper, every e-mail or electronic document, and every back-up tape?
The answer is clearly ‘no.’ Such a rule would cripple large corporations
… that are almost always involved in litigation.”6 Another court has
explained, “While a litigant is under no duty to keep or retain every
document in its possession once a complaint is filed, 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.”7 This
article discusses the issues relevant to deciding when, how, to whom,
and for how long an entity should issue a litigation-hold notice suspending
its normal records retention and management policies. It also considers
what a litigation-hold notice should contain and who should be responsible
for ensuring compliance with the litigation hold. It is intended to
provide guidance to inhouse counsel as well as outside counsel in
navigating these waters, made even more treacherous by the recent
amendments to the Federal Rules of Civil Procedure that pertain to
electronic discovery.8 Litigation Response Plans Preparation
is essential. Before litigation or a government investigation is threatened
or is reasonably anticipated, a company should consider implementing
a litigation response plan that provides a road map for the company
to identify quickly the types and location of records, paper and electronic,
in the company’s possession, custody or control that are potentially
relevant to the litigation or investigation. The
company’s record-retention policy will intersect with its obligation
to preserve relevant records once litigation or a regulatory investigation
is pending or reasonably anticipated. As part of the litigation-response
plan, the company should have a process under which it can quickly
evaluate whether it needs to suspend, in whole or in part, the document-destruction
component of its retention policy, and by which it can distribute
a notice to all employees who are likely to have relevant records
in their possession, custody or control.9 When to Issue the Hold The
duty to preserve materials arises when a party acquires notice or
should know that the materials are relevant to an existing litigation
or investigation, or to reasonably anticipated future litigation or
investigation.10 “Reasonably anticipated” is the consensus standard
that is emerging from the case law and commentary. There
is no bright-line rule indicating when a party should reasonably anticipate
a lawsuit or investigation. Given the scarcity of guiding case law,
it is important to look to other credible sources for guidance, such
as the Sedona Principles.11 Sedona Principle 5 provides that: “[I]t
is unreasonable to expect parties to take every conceivable step to
preserve all potentially relevant data.” Comment 5(a) further suggests
that: “[a] reasonable balance must be struck between: (1) an organization’s
duty to preserve relevant evidence; and (2) an organization’s need,
in good faith, to continue operations.” In making decisions concerning
the scope of a litigation-hold notice, counsel should act reasonably,
competently and in good faith to meet the legal obligations without
incurring unnecessary expense by going beyond those obligations. Not
every record, document and tangible object (such as a specimen or
slide) needs to be retained in every case. To date, even when judges
have disagreed with specific judgment calls made by persons acting
reasonably, competently, and in good faith, they have not ordered
harsh sanctions. Where the law does not provide sufficient guidance
on the scope of the duty to preserve, companies should make reasonable
decisions rather than simply ordering the preservation of all materials. Thus,
determining whether litigation is reasonably anticipated is a fact-intensive
inquiry. It involves consideration of at least the following situations.
When litigation will likely
arise.
In some circumstances a litigation-hold notice should issue before
the initiation of a formal proceeding. A prelitigation dispute where
legal proceedings are reasonably anticipated will trigger the obligation
to preserve materials.12 Specific or repeated inquires or complaints
about an issue may also trigger the need to consider whether a litigation
hold should be issued.13 In one contractual dispute, for example,
the court held that the defendant was on notice after prelitigation
meetings failed to resolve a dispute over a software-licensing agreement.14
When a plaintiff decides to
file suit.
Courts have held it to be improper for a plaintiff to destroy materials
in the period after it makes the decision to file suit but before
the complaint is actually filed.15 When determining whether to apply
sanctions the courts evaluate whether the party in question “knew
or should have known” at the time of destruction that litigation was
a “distinct possibility.”16 When a summons and complaint
is received.
In many instances, a summons and complaint is received with no warning
whatsoever. In such cases, service of the summons and complaint will
constitute the first notice to the company. The institution of a “proceeding”
with any administrative or judicial body such as the Equal Employment
Opportunity Commission or similar tribunals likewise triggers the
requirement to issue a litigation-hold notice, although the scope
of the preservation requirement may be narrower than if the suit is
ultimately filed.17 When a company is first on
notice.
The duty to preserve attaches immediately once the company is on notice
and preservation efforts need to be undertaken as soon as possible.18
There are no cases that provide definitive guidance as to how quickly
litigation-hold notices must be sent once the duty is triggered, but
any such case will be evaluated in hindsight, i.e.,
after relevant materials have been destroyed, and very little if any
delay is likely to be tolerated by the courts. When the possibility of a lawsuit
is known. A company is generally deemed to know when its representatives know.
Individuals within an organization may learn of the possibility of
a lawsuit at different times. A company will be deemed to know that
litigation is likely when more than one or two relevant individuals
within the company know.19 When litigation is anticipated by individuals
who eventually might be “key people” to that litigation, a litigation-hold
notice may need to be issued.20 Regular communication between the
business leaders and legal personnel should be encouraged, to determine
whether in fact a notice needs to be issued and to ensure that relevant
materials are preserved. When a new lawsuit/investigation
arises. A new litigation-hold notice should be issued for
each complaint or incident giving rise to the duty to preserve. Generally,
it will not suffice to rely on the fact that a previous notice was
issued under which similar documents are simultaneously being preserved.
Each instance giving rise to the duty to preserve should be treated
separately except in special circumstances such as mass tort litigation. Who Should Issue the Hold While
the job of issuing a litigation-hold notice has not been placed on
the shoulders of any one person, courts place great responsibility
and blame on a company’s senior management. Courts have found companies
at fault when senior management failed to communicate litigation-hold
notices, or failed to take an “active role” in establishing the organization’s
records retention policy.21 For
example, in one federal securities law class action, the complaint
named as defendants the corporate issuer, its CEO, and its board of
directors. On the day the complaint was filed, the board of directors
met and discussed the necessity of preserving documents for the case.
The CEO was ordered to promptly take steps to preserve documents.
The CEO delegated all responsibility to an inhouse attorney with no
litigation experience. The attorney did nothing to ensure that the
directives were followed and some documents were destroyed in accordance
with prelitigation practices. The court placed the blame for the failure
on the corporate executive team, stating that “when senior management
fails to establish and distribute a comprehensive document-retention
policy, it cannot shield itself from responsibility because of field
office actions.”22 Moreover,
counsel appear to have an affirmative duty to ensure that corporate
senior management does its job. As noted by one court, “[a] party
cannot reasonably be trusted to receive the ‘litigation hold’ instruction
once and to fully comply with it without the active supervision of
counsel.”23 To ensure compliance, counsel should:
Senior
management should stress the importance of complying with litigation-hold
notices, and encourage employees to share questions and concerns with
the legal department. A process should be in place to provide timely
and accurate responses. Litigation-hold
notices generally are not discoverable. “[T]hese instructions are
often, if not always, drafted by counsel, involve their work product,
are often overly inclusive, and the documents they list do not necessarily
bear a reasonable relationship to the issues in litigation.”24 Furthermore,
the compelled production of such notices could dissuade other businesses
from issuing similar directions aimed at insuring the availability
of information during litigation.25 Who Should Receive the Hold Companies
are not required to send a litigation-hold notice to individuals with
no connection to the relevant events, or no contact with the people
or materials that may reasonably be at issue.26 Companies are charged
with preserving materials reasonably calculated to lead to the discovery
of admissible evidence, and persons with no connection to the dispute
are not likely to possess such materials. Counsel
should make reasonable efforts to reach all individuals likely to
have relevant materials. Sanctions have been imposed for failure to
communicate the hold to the proper employees.27 At the outset, litigation-hold
notices should be sent directly to all employees considered “key players”
in the litigation or investigation.28 Careful consideration should
be given to who these “key players” might be. Beyond that core group,
reasonable investigation/research will help identify who else is likely
to have relevant materials and should therefore receive the notice.
It is also important to send litigation-hold notices to relevant IT
personnel, so that they may assist in meeting the duty to preserve
relevant electronic documents while continuing to allow the proper
routine destruction of back-up tapes and emails. Companies
should also request that recipients who believe that relevant materials
might be held by others (such as predecessors in the recipient’s position)
inform the designated contact person or “cascade” the litigation-hold
notice to others in the company who may have relevant materials. The
“cascade” approach is not the preferred method and should be used
only when distribution by counsel is impractical and when there are
effective mechanisms for tracking to whom the litigation-hold notice
was cascaded. The original issuer of the notice must be copied on
any notice forwarded to others. Including Third Parties Fed.
R. Civ. P. 34 and relevant case law are both ambiguous and underdeveloped
concerning the scope of a company’s duty to issue litigation-hold
notices to third parties. Parties are obviously responsible for preserving
materials within their possession, custody, or control but some third
parties (such as independent contractors, suppliers, vendors, litigants
in a related lawsuit) and affiliates29 may also be deemed to be within
the “control” of a company for purposes of preserving relevant materials. Although
the law interpreting Rule 34 “control” is conflicting, materials are
generally considered to be within the “possession, custody, or control”
of a party if the party has the legal right to obtain them on demand.30
Cases decided to date have not fully developed the principle that
a “legal right to obtain materials” is the equivalent of Rule 34’s
“control.” Courts have recognized, however, that when they evaluate
a party’s “control” of materials, that control “must be firmly placed
in reality.”31 The courts also have yet to decide clearly the additional
issue of whether Rule 34 control carries with it an obligation, upon
receipt of a subpoena or complaint, to notify third parties with potentially
relevant materials to preserve those materials, although it appears
that the courts are moving in that direction.32 What
Should Be Included A
litigation hold must inform the receiving parties of the need to preserve
relevant materials. It must include enough factual information to
enable the recipients to determine whether or not they possess potentially
relevant materials, and should briefly alert them to the possible
negative ramifications (spoliation, sanctions, negative inferences,
etc.) if the litigation hold is not followed. A
litigation-hold notice should: 1)
include a clear and conspicuous statement of its purpose; 2)
include a description of the lawsuit or investigation; 3)
set forth the issues involved in it; 4)
contain guidelines regarding what kinds of materials should be maintained.33
Unless a court order, government enforcement subpoena, or other unique
circumstances mandate it, back-up tapes should not be preserved and
recycling should continue; 5)
set forth the importance of preserving materials, and the potential
ramifications of not following the litigation-hold notice;34 6)
describe the actual steps that a recipient must take to verify preservation
of materials;35 7)
contain the name and contact details of the person overseeing the
litigation or investigation in connection with which the litigation-hold
notice is being issued;36 and 8)
request that the recipient inform the designated contact person if
he or she is aware of any other person who may have materials covered
by the litigation-hold notice. Distributing
the Hold Notice In
the event that any relevant materials are inadvertently destroyed,
it will be difficult to prove to the court that a good-faith effort
was made to retain all relevant materials unless written notices were
distributed. Thus, while it may be useful to reinforce a litigation
hold through oral communications, emails, or meetings, the litigation
hold should not be issued in the first instance this way. The
litigation-hold notice should be disseminated using whatever means
will most likely be effective. If email is used to disseminate the
litigation-hold notice, then counsel must ensure that all of the intended
recipients of the litigation-hold notice have email accounts. Recipients
of hold notices via email should be advised to file the notice so
that it is protected from automatic deletion in their inbox. Regardless
of the method used to distribute the litigation-hold notice, it should
be clearly and conspicuously labeled and dated. Counsel
must track receipt of the litigation-hold notice. If possible, counsel
should implement a method to record that notices actually are read.37
It is also important to verify that the notice has been sent to all
necessary individuals.38 The Sedona Principles discuss the advisability
of documenting document collection: In
developing data-collection procedures for electronically stored information,
organizations should consider the appropriate scope of the collection,
the cost of the collection, the burden on and disruption of normal
business activities, and the defensibility of the process itself.
All collection processes should be accompanied by documentation and
validation appropriate to the needs of the particular case. Well-documented
data collection and production procedures enable an organization to
respond to challenges – even those made years later — to the collection
process, to avoid overlooking electronically stored information that
should be collected, and to avoid collecting electronically stored
information that is neither relevant nor responsive to the matter
at issue. The documentation of the collection process should describe
what is being collected, the procedures employed, and steps taken
to ensure the integrity of the information collected. Finally, this
documentation should be revised as the organization introduces new
or different technology.39 After
litigation-hold notices have been distributed, reminder notices should
be issued periodically to ensure that employees are continually mindful
of their compliance obligations. A new notice should be distributed
if the issues in an investigation or litigation change such that materials
later determined to be relevant are not likely to have been covered
under the original notice. Courts are requiring increased diligence
in this effort and are becoming less forgiving of poorly conceived
and implemented litigation-hold-notice policies.40 Terminating Litigation-Hold Notices Litigation-hold
notices should remain in effect until a matter is ultimately concluded.
A matter is ultimately concluded when: 1) a final settlement agreement
and release has been signed by all parties; 2) a dismissal with prejudice
has been entered as to all parties; or 3) the deadline for any further
appeals has run and the entered judgment has become final. The
termination notice will notify employees that they can resume routine
document destruction in accordance with the company’s normal record-retention
schedules. Employees should be made aware of the critical responsibility
of adhering to termination notices as well as litigation-hold notices.
Disregarding a termination notice and retaining documents for indefinite
amounts of time can expend unreasonable, unnecessary or even exorbitant
resources. Responsibility for Document Collection While
it may not be counsel’s responsibility to physically sift through
each employee’s computer and files to locate responsive documents,
one court has held that it is not enough for lawyers merely to instruct
a client to preserve email and other relevant evidence once litigation
is reasonably anticipated. The court found fault with counsel’s failure
to “request retained information from one key employee” and “safeguard
back-up tapes that might have contained some of the deleted e-mails,
and which would have mitigated the damage done by [the client’s] destruction
of those e-mails.”41 The court further found that counsel’s duty extended
to supplementary responses under Federal Rule of Civil Procedure 26.
Citing the advisory committee notes to Rule 26, the court held that
“[a]lthough the Rule 26 duty to supplement is nominally the party’s,
it really falls on counsel … the lawyer … must periodically recheck
all interrogatories and canvass all new information.”42 While recognizing
that “[a] lawyer cannot be obliged to monitor her client like a parent
watching a child,”43 counsel must at least locate relevant information
and preserve and timely produce that information.44 Conclusion Until
the lines are more clearly drawn by rule or precedent, there will
continue to be uncertainty on the part of many organizations about
issuing and managing litigation-hold notices. This uncertainty, the
attendant fear of possible sanctions, and the compounding of such
fears by Sarbanes-Oxley and recent criminal prosecutions, can deter
some organizations from undertaking reasonable and good faith efforts
to manage their electronic data effectively. Such a reaction is entirely
wrong. Companies and their counsel must proactively prepare for issuing
and managing litigation-hold notices and must act reasonably and with
the utmost good faith to ensure that relevant documents and other
materials are preserved whenever litigation or an investigation is
reasonably anticipated.
2
Danis v. USN Commc’ns, Inc., No. 98 C 7482,
2000 WL 1694325 (N.D. Ill. 10/23/00). 3
Zubulake v. UBS Warburg LLC, 220 F.R.D.
212, 217 (S.D.N.Y. 2003) (“Zubulake IV”); Zubulake
v. UBS Warburg LLC, 229 F.R.D. 422, 431 (S.D.N.Y. 2004) (“Zubulake
V”); see also Rambus, Inc. v. Infineon Techs. AG,
220 F.R.D. 264, 287 n.31 (E.D. Va. 2004). 4
See 18 U.S.C. §1519 (2002). 5
See, e.g., Silvestri v. General Motors Corp.,
271 F.3d 583, 591 (4th Cir. 2001); Kronisch
v. United States, 150 F. 3d 112, 126 (2d Cir. 1998). 6
Zubulake IV, 220 F.R.D. at 217. 7
Wm. T. Thompson Co. v. Gen. Nutrition Corp.,
593 F. Supp. 1443, 1455 (C.D. Cal. 1984). 8
See Fed. R. Civ. P. 26(f)(3) and 34(a)
and Advisory Committee Notes, 2006 Amendments. 9
Courts have not been clear about what actions must be taken to suspend
recycling of disaster recovery back-up tapes, either on a temporary
or ongoing basis, pending further litigation developments. Compare Zubulake IV, 220 F.R.D. at 218 with Keir v. UnumProvident Corp., No. 02 CIV. 8781 (DLC), 2003 U.S. Dist.
Lexis 14522, at *7-8 (S.D.N.Y. 08/26/03). 10
Fujitsu Ltd. v. Fed. Express Corp., 247
F.3d 423, 436 (2d Cir. 2001). See
also Convolve, Inc. v. Compaq Computer Corp., 223 F.R.D. 162,
175 (S.D.N.Y. 2004). 11
The Sedona Conference, a nonprofit research and educational institute
located in Sedona, Arizona, drafted and disseminated the Sedona Principles,
which are intended to complement the Federal Rules of Civil Procedure.
Although the Sedona Principles have been cited and recognized by some
courts, they have not yet been widely accepted. A Second Edition was
published in late June 2007. See Zubulake V, 229 F.R.D. at 440. 12
Capellupo v. FMC Corp., 126 F.R.D. 545
(D. Minn. 1989). See Metro.
Opera Assoc. v. Local 100, Hotel Employees, 212 F.R.D. 178, 230
(S.D.N.Y. 2003). 13
Blinzler v. Marriott Int’l, Inc., 81 F.3d
1148, 1159 (1st Cir. 1996); ABC
Home Health Servs., Inc. v. IBM Corp., 158 F.R.D. 180, 183 (S.D.
Ga. 1994); Computer Assocs. Int’l, Inc. v. Am. Fundware,
Inc., 133 F.R.D. 166, 168-69 (D. Colo. 1990). 14
Computer Assocs. Int’l, supra at 168. 15
See Struthers Patent Corp.
v. Nestle Co., 558 F. Supp. 747, 758-59, 765 (D.N.J. 1981). 16
Id. at 756. 17
Byrnie v. Town of Cromwell Bd. of Educ.,
243 F.3d 93, 108 (2d Cir. 2001); Zubulake
IV, 220 F.R.D. at 216-17. See
MOSAID Tech. Inc. v. Samsung Elecs. Co., 348 F. Supp. 2d 332,
336 (D.N.J. 2004). But cf. Computer
Assocs. Int’l, Inc. v. Am. Fundware, Inc., 133 F.R.D. at 169. 19
Zubulake IV, 220 F.R.D. at 217. 20
Id. 21
In re Prudential Ins. Co. of Am. Sales Practices
Litig., 169 F.R.D. 598, 604, 612, 614 (D.N.J. 1997); Zubulake V, 229 F.R.D. at 432. 22
Danis v. USN Commc’ns, Inc., 2000 WL 1694325,
at *32. 23
Zubulake V, 229 F.R.D. at 433. 24
Gibson v. Ford Motor Co., No. 1:06-cv-1237-WSD,
2007 WL 41954, at *6 (N.D. Ga. 01/04/07). 25
Id. 26
Szymanska v. Abbott Labs., No. 93 C 3033,
1994 U.S. Dist. LEXIS 3830, at *32 (N.D. Ill. 03/26/94). 27
In re Prudential, supra at 604. 28
Zubulake IV, 220 F.R.D. at 220 n.47; Zubulake V, 229 F.R.D. at 427 n.32 29
See Super Film of Am., Inc. v. UCB Films, Inc.,
219 F.R.D. 649 (D. Kan. 2004). 30
See, e.g., In re Bankers Trust Co., 61
F.3d 465, 469 (6th Cir. 1995); Chaveriat
v. Williams Pipe Line Co., 11 F.3d 1420, 1426-27 (7th Cir. 1993);
Bank of N.Y. v. Meridien BIAO Bank Tanzania
Ltd., 171 F.R.D. 135, 146-47 (S.D.N.Y. 1997). See also In re NTL, Inc. Sec. Litig., Nos. 02 Civ. 3013(LAK)(AJP),
7377(LAK)(AJP), 2007 WL 241344, at *17 (S.D.N.Y. 01/30/07); Tantivy Commc’ns, Inc. v. Lucent Techs., Inc.,
No. 2:04-CV-79 (TJW), 2005 U.S. LEXIS 29981, at *11 (E.D. Tex. 11/01/05);
Kamatani v. Benq Corp.,
No. Civ. A. 2:03-CV-437, 2005 WL 2455825, at *5 (E.D. Tex. 11/04/05);
In re ATM Fee Antitrust Litig., 233 F.R.D.
542, 545 (N.D. Cal. 2005). 31
United States v. Int’l Union of Petroleum &
Indus. Workers, 870 F.2d 1450, 1453 (9th Cir. 1989). 32
See E*Trade Sec. LLC v. Deutsche Bank AG,
230 F.R.D. 582, 589 (D. Minn. 2005). 33
See Wiginton v. CB Richard Ellis, Inc.,
No. 02-C-6832, 2003 U.S. Dist. LEXIS 15722, at *5 (N.D. Ill. 10/27/03);
Telectron, Inc. v. Overhead Door Corp.,
116 F.R.D. 107, 124 (S.D. Fla. 1987). 34
See In re Prudential, supra at 604. 35
Id. at 613. 36
Id. at 612. 37
See, e.g., In re Prudential, supra
at 613, 617. 38
Keir v. UnumProvident
Corp., 2003 U.S. Dist. LEXIS 14522, at *16-17. 39
The Sedona Principles: Best Practices Recommendations
& Principles for Addressing Electronic Document Discovery, 2d
Ed. (The Sedona Conference® Working Group Series, June 2007),
“Documentation and Validation of Collection Procedures for Electronically
Stored Information,” Comment 6.e. 40
See, e.g., Zubulake IV, 220 F.R.D. at 218-19,
222; In re Prudential, 169
F.R.D. at 616-17; Telectron,
Inc. v. Overhead Door Corp., 116 F.R.D. at 116. 41
Zubulake V, 229 F.R.D. at 424. 42
Id. at 433. 43
Id. 44
Id. at 435. ALAN M. ANDERSON is a partner in the Minneapolis office of Fulbright & Jaworski, L.L.P. and head of the office’s litigation practice group. He is certified as a civil trial specialist by the MSBA and as a civil trial advocate by the National Board of Trial Advocacy. He concentrates his practice in complex commercial litigation, especially intellectual property litigation, as well as international commercial arbitration. |
