June 2014 edition

Best practices for executing legal holds

Sam Toward

In the case of Sekisui America et al v. Hart et al, the plaintiff failed to both implement a legal hold in a timely manner and notify a key document custodian. The judge granted an "adverse inference" instructing the jury that missing electronic documents should be considered negatively prejudicial to the plaintiff. The plaintiff's case was subsequently dismissed and the company was ordered to pay their opponents' legal fees.

Our previous white paper1 examined the importance of having a systematic process for executing legal holds. Using such a process improves execution of legal holds, thereby reducing the chances for legal sanctions and adverse outcomes, minimizing risk to the business.

Any dispute – whether involving employees, customers, suppliers, competitors, or government regulators – carries the potential to turn into legal action. Failure to prepare for a legal hold is like not buying insurance – if you don't have it when you need it, it's too late, and the consequences can be very serious.

Properly executing a legal hold need not be an overly complicated or intimidating process. What it does require, however, is thoughtful planning and preparation in order to protect the business.

Here are a number of best practices for creating a systematic process for executing legal holds:

1. Outline specific notification criteria

A legal hold plan should contain specific, detailed criteria for what events will trigger a legal hold. Being served with a lawsuit or notice of a government investigation is not the only triggering event. A legal hold is required when there is "reasonable anticipation" of litigation. Courts have not established a standard for interpreting that phrase; instead, each case is evaluated on its circumstances.

2. Identify custodians

Be able to quickly identify custodians of relevant documents. Do not forget third parties, such as outside counsel, IT vendors, consultants, former employees, etc.

3. Provide clear, detailed notifications to custodians

Notifications should include the following:

• Clear description of the subject matter of the litigation or investigation
• Guidelines including:
• types of documents to be preserved
• examples of the records that should be preserved
• applicable date ranges
• Explanation of the duty to preserve
• Explicit instructions not to destroy or modify records
• Warnings of the consequences of non-compliance
• Explanation that compliance covers not only intentional or willful destruction of documents, but also passive destruction of documents including regularly scheduled deletions and erasures
• Explanation of ongoing duty to preserve; hold does not end until further notice
• Contact information for corporate counsel in charge of issuing and enforcing the legal hold

4. Create and use templates

Creating notification templates can ensure that all necessary information and instructions are included, and that notifications can be issued in a timely manner.

5. Ask questions of custodians

• What relevant documents do you possess?
• Where are the relevant documents located?
• Do you know anyone else who possesses relevant documents?

6. Communicate regularly with custodians

Establish clear, open channels of communication that make it easy for custodians to ask questions. If a hold is in place for an extended period, reissuing the hold request and requiring custodians to re-acknowledge the hold is prudent.

7. Document, document, document

Assume that the courts will ask for documentation of any and every step of the legal hold to demonstrate that proper procedures were carried out in a timely manner and to provide proof that a good faith effort was undertaken to preserve documents.

Key events should be tracked for each custodian, including:

• Issuance of notification
• Acknowledgment of receipt
• Responses/non-responses
• Reminders to non-responsive custodians
• Release of legal hold

8. Automate the process

Managing a legal hold can be time-consuming. Some organizations track custodian notifications and responses manually using spreadsheets and other methods, which can be labor-intensive and error-prone.

Automated solutions not only simplify and speed up execution of legal holds, they provide tracking, auditing and other tools that help ensure compliance and minimize risk to the organization at every stage of the legal hold:

• Create new holds
• Draft and distribute notice
• Upload files for custodians to review
• Create surveys to collect additional information from custodians
• Collect response data
• Record custodian acknowledgments
• Record custodian survey responses
• Send reminders to non-responsive custodians
• Tracking and reporting
• Track progress of the hold
• Maintain audit trails
• Document released holds
• After the hold – preserving records
• Retain notices
• Maintain custodian data
• Preserve trail of responses/non-responses

9. Select a solution that meets your needs

• Easy-to-use
  Being in the midst of a legal hold is no time to learn how to use a solution – it should be user-friendly with intuitive dashboards that present useful, at-a-glance summaries and other vital information.
• Real-time updates
  Status should be monitored in real-time for every step. Delays, bottlenecks, and non-responsive custodians must be immediately identified and addressed.
• Mobile
  Events that trigger a legal hold can occur at any time. The ability to quickly initiate and manage a legal hold at any time from any where can be critical.
• Secure
  Security is paramount, and should include not only data-level security, but permission-based and role-based access controls for each user.
• High-quality provider
  Solution providers should be able to demonstrate an established track record of legal and technical expertise, and long-term commitment to the legal industry.

10. Be prepared

Courts have repeatedly made it clear that sheer negligence is not an acceptable excuse. Failure to properly execute a legal hold can result in severe consequences that could potentially place the entire organization at risk.

The solution is to have a legal hold process in place before trouble strikes. Preparation is key. An ounce of prevention can prevent a ton of pain.

Having a systematic, repeatable and defensible legal hold process is critical. It also is easily achievable by taking the proper steps in advance of legal action.

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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.

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