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Corporate Counsel Connect collection

March 2014 edition

Why your business needs a systematic process for executing legal holds

Sam Toward

"...compliance with the Court's orders is not an optional part of litigation strategy."

– In the case of In re Pradaxa Products Liability Litigation (2013 WL 6486921 (S.D.Ill.)), the defendants were fined nearly one million dollars for failure to properly execute a legal hold.

Situations like this arise all too frequently – it can happen to anyone.

Legal holds are an increasingly common situation for businesses today, as the threat of litigation from competitors, customers, employees and others is ever-present. Electronically stored information (ESI) – computer files, multimedia, emails and other communications, and more – are critical components to today's legal actions and courts are requiring that companies conclusively demonstrate that they have exercised proper care and handling in preserving and collecting digital evidence.

Even in corporations that don't see a lot of litigation, it's critical to be well-prepared and have a well-documented and sound methodology for managing legal holds. Failure to do so can potentially place the entire organization at risk.

What is a legal hold?

A legal hold is a process that a company uses to preserve all forms of relevant information when facing legal action – either pending or reasonably anticipated. Normal processing and disposal of data is suspended to ensure that the data will be available for the discovery process prior to litigation. The relevant custodians and recipients of the information must be identified and properly notified. The information must then be preserved and collected for use in discovery, if needed.

Recent amendments to the United States Federal Rules of Civil Procedure (FRCP) specifically address the use of legal holds for electronically stored information (ESI).

Current situation

Electronically stored information exists in numerous forms (computer files, emails, voice mails, video, images, etc.) and in multiple locations (servers, desktops, laptops, mobile, data centers, etc.). Identifying, notifying and tracking all the relevant document custodians and locations can be a daunting task.

Many organizations use manually generated emails to notify document custodians, and spreadsheets to track notifications, responses and progress within legal holds. Needless to say, relying on these methods is tedious, time-consuming, and most importantly, risky.

Sanctions & other penalties

The consequences for improperly handling a legal hold can be severe. According to the Duke Law Journal, court sanctions for spoliation of evidence have increased 271 percent in the last decade. Sanctions can include "an adverse inference" against the sanctioned party, meaning the judge can instruct the jury to assume that any unaccounted-for evidence would have been unfavorable in nature. Such harsh sanctions can easily have a major and detrimental impact on the verdict in a lawsuit as well as the amount of damages awarded.

Simply put, entire cases can be lost if a legal hold is not properly executed, exposing the organization to significant risk.

Even delays in implementing a legal hold can bring serious consequences. In Apple Inc. v. Samsung Electronics Co., Ltd., both Apple and Samsung were admonished by the court for delayed issuance of litigation hold notices to several key document custodians (Apple) and failure to prevent destruction of documents in a timely manner (Samsung). These failures nearly resulted in the jury receiving adverse inference instructions against both companies.

Requirements for an effective legal hold process

To protect a business, it is more important than ever to have an established, defensible and efficient legal hold policy. Such a policy should:

  • Reduce risk and increase defensibility
  • Guarantee that holds are issued in a timely fashion and contain all necessary information
  • Create an efficient method for identifying and notifying custodians and other key personnel
  • Ensure that all relevant data is properly collected and preserved

Why a systematic process for legal holds is essential

The legal hold process must be defensible to the judge if called into question. It must conform to the current FRCP amendments as well as ever-evolving case law on electronic discovery. And it needs to provide the basis for demonstrating that an exhaustive, good faith effort was carried out to identify and preserve all relevant information.

It's important that even companies that don't face a lot of litigation protect themselves by implementing a legal hold process. If a legal hold situation were to arise and be handled incorrectly, a judge is unlikely to accept ignorance of the legal requirements as a defense.

A legal hold process that is clearly defined and easily executable allows an organization to carry out a legal hold quickly and effectively. Repeatable workflows are key to being prepared to execute a legal hold, as well as providing flexibility to properly manage the process.

Systematic process
A legal hold involves multiple steps, each of which much be properly executed in the following sequence.

  1. Triggers for a legal hold
    A legal hold is required to be put in place when an organization receives notice of pending litigation or government investigation. In addition, a legal hold is required when there is "reasonable anticipation" of litigation. Courts will evaluate the standard on a case-by-case basis depending on the circumstances.

    Employees must notify their supervisors of any pending or potential litigation as soon as is reasonably possible. Supervisors must then report the notice to the organization's chief executive officer and office of general counsel. All of this must take place on the same day notice is received. The office of the general counsel will then determine within one day of receiving the notice whether to initiate a legal hold.

  2. Notifications
    The office of the general counsel then notifies the chief executive officer that it intends to initiate a legal hold.

    A response team is formed and executes a plan to administer the legal hold. Among its duties, the team identifies all persons who came into contact with relevant documents and ESI. Those individuals are notified, and their responses are tracked. Document custodians are provided with detailed instructions and interviewed using questionnaires. It is critical that acknowledgement responses are tracked, so that the company can prove that a solid process was in place and that any lost files were not destroyed in an act of spoliation.

  3. Preservation & Collection
    A data preservation and collection plan is implemented. IT architectures are mapped to identify relevant data repositories. The plan is reviewed to determine if any adjustments are necessary. The response team monitors and tracks ongoing data collection efforts by the data custodians to ensure collection is completed within deadlines. Some companies outsource the information preservation step to a law firm.

Benefits of an automated legal hold process

By employing an automated legal hold process, companies can take much of the pain out of the aforementioned steps. Additionally, they can significantly improve execution speed, repeatability and defensibility, and reduce costs associated with managing legal holds.

Execution speed
An automated legal hold process can be implemented as soon as the need is identified. Notifications are sent instantly to document custodians, helping ensure proper and timely preservation of data.

Increased efficiency, fewer errors
Tracking responses, interviews and data collection from all custodians can be a highly labor-intensive, time-consuming task. Automated tracking can reduce errors from manually handling and tracking responses, data, etc.

An automated process can be consistently executed multiple times.

Providing documentation to a court on how a legal hold was executed becomes considerably easier.

Automating the legal hold process can reduce costs through faster execution and fewer manpower requirements.

The importance of being prepared

In many ways, it's best to plan as if litigation is inevitable at some point. And assume that point is nearer than you think. Waiting until the onset of legal action to develop a defensible, repeatable, efficient legal hold process is a bit like waiting to buy fire insurance until after the house has burned down.

Courts have made it clear that legal holds must be executed even if there is only a "reasonable anticipation" of legal action. Legal holds must often be executed with very little advance notice. Even a slight delay can result in spoliation of evidence and the possibility of sanctions.

About the author

Sam Toward is a Product Manager responsible for the development of software solutions for corporate legal departments at Thomson Reuters. Previously, Sam was a Senior Sales Consultant, providing consultative solutions to hundreds of corporate legal departments in the areas of matter management, e-billing, legal hold and legal research. Sam has a J.D. from Hamline University School of Law and a B.S. from the University of Minnesota.