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Recent Judicial Findings Require Reminders About Company Litigation Hold Procedures

Tuesday, June 18, 2013

By Allison L. Kierman, DLA Piper LLP

It is now standard practice that every litigation should begin with the institution of a litigation hold. Companies have created their own procedures and forms to aid with the institution of such litigation holds. Although a company may be entirely correct about the underlying merits of a dispute, it could find that its position in litigation (and the judge's opinion of a company) has been compromised by the failure to take steps to preserve potentially discoverable information.

The obligation to issue a litigation hold is widely known and is the subject of significant judicial opinions, scholarly articles, and continuing legal education seminars, among other things. Nonetheless, parties are routinely found negligent, and sometimes grossly negligent, by failing to properly issue and implement a litigation hold. Indeed, litigation holds have been at issue in more than 100 cases since the beginning of 2012. These cases include important instructions and reminders on how to avoid sanctions for failure to properly implement litigation holds.

Ten Tips for Proper
Litigation Hold Policies

1. Pre-litigation optimism shouldn't impede hold. Sometimes companies and in-house counsel wait to issue a litigation hold until after pre-litigation settlement and dispute resolution fails or until the business people have reached an impasse. The hope and optimism that a dispute will not rise to the level of litigation is an insufficient basis to wait to issue a litigation hold. Litigation holds should be issued as soon as the business relationship sours. Courts are now finding that litigation holds should be issued from the first instance in which the company has notice that a dispute is brewing. This notice may occur years before any actual litigation is filed. Nonetheless, courts have been consistent in stating that waiting until a complaint has been filed to issue a litigation hold is too late. Companies are encouraged to be proactive in issuing litigation holds and preserving all potentially discoverable information.

2. Subpoenas, government investigations get holds.Traditionally, litigation holds were only issued at the onset of a filed complaint. Companies should consider taking a more conservative approach and should issue a litigation hold when they receive a third-party subpoena or when they are under investigation by a governmental entity. The theory behind such approach is that third-party subpoenas and governmental investigations are leading to actual litigation more now than ever. If a company produces a document in response to a third-party subpoena and is later joined to an action, the company is expected to have preserved all relevant documents as the company was on notice of the dispute at least as of the time of the subpoena.

3. Gauge employee compliance with holds. It is insufficient to simply issue a litigation hold and assume employees have and/or will comply. Courts are increasingly contemptuous of what they consider lackadaisical attitudes toward document preservation. A California judge in a 2012 case issued sanctions for defendants' spoliation of evidence in part because defendant failed to take “any steps to ensure its employees actually complied with the [litigation hold] notice.” Companies should undertake specific actions to measure and ensure employee compliance with the litigation hold. Such compliance actions could include: (a) conducting interviews before issuing the litigation hold to ensure all relevant data is captured and subject to the litigation hold; (b) conducting periodic interviews of those on the litigation hold to ensure the individuals are complying with the litigation hold and that relevant data is being preserved as required; (c) gathering and copying employees' files as they exist at the time of the litigation hold, including paper files, without waiting for written discovery to commence; (d) taking mirror images of employees' email and hard drives; (e) requiring employees to periodically acknowledge that they have received and are abiding by the litigation hold; and (f) monitoring and interviewing those subject to the litigation hold periodically to ensure all relevant data is preserved.

4. Send to all possible witnesses. Traditionally, litigation holds were sent to key custodians for preservation of those custodians' data. Many of these litigation holds ask the key custodians to forward the litigation hold on to other individuals that may have knowledge of the dispute. This passive form of gathering information regarding possible company witnesses and those with documents relevant to the dispute is insufficient. In Yelton v. PHI Inc., et al., 2012 BL 2070622012 WL 3441826 (E.D. La. Aug. 14, 2012), a court sanctioned one of the defendants for failure to issue a litigation hold for one of that defendant's key witnesses. As part of its sanctions award in one recent case, a California court found defendants' issuance of a litigation hold to only three employees insufficient. To ensure compliance with litigation hold requirements, companies should interview key custodians and compile a complete and thorough list of all knowledgeable employees and those employees who may be called as a witness at any deposition, hearing, or trial of the disputed matter. Each of these individuals should receive the litigation hold. In particular, each employee who would be listed on any disclosure or witness list should receive the litigation hold. As the litigation proceeds over time, companies should be vigilant in re-issuing litigation holds to new employees and newly-discovered employees with knowledge.

5. Include social media. Many companies prohibit employee use of social media while at work. Such policies may or may not be effective. Regardless, it is indisputable that use of social media has exploded in recent years. Many employees post to social media websites information regarding where they work, travel for work, and how they feel about their work, employer, and other employees, among other things. Employees also contact and message others through social media websites. Such information and messages may be relevant in litigation and should be encompassed in a litigation hold. Employment-related cases more frequently involve social media than other types of disputes. The U.S. District Court for the Eastern District of New York has stated that “there is no dispute that social media information may be a source of relevant information that is discoverable.” Reid v. Ingerman Smith LLP, CV 2012-0307 ILG MDG, 2012 BL 3397442012 WL 6720752 (E.D.N.Y. Dec. 27, 2012). Social media data is not generally privileged or protected by common law or civil law notions of privacy. Tompkins v. Detroit Metro. Airport, 278 F.R.D. 387, 388 (E.D. Mich. 2012). The Tompkins court did find, however, that “the Defendant does not have a generalized right to rummage at will through information that Plaintiff has limited from public view. Rather, … there must be a threshold showing that the requested information is reasonably calculated to lead to the discovery of admissible evidence.”

6. Don't forget paper documents. Litigation holds are most commonly used to halt routine electronic destruction of electronic data. It should not be forgotten that document preservation efforts began with paper documents. Litigation holds should encompass all types of paper documents and files and handwritten notes and companies must make efforts to gather all relevant paper documents. In a 2012 decision issued by the Eastern District of New York, one defendant was sanctioned because that defendant did not retain copies of handwritten notes on documents relevant to the litigation. Conducting witness interviews in conjunction with issuing a litigation hold will help companies collect relevant paper documents that may be missed in a collection of electronic data. As courts have noted, collection of a document electronically does not always excuse the collection of a paper document, especially where the paper document is similar but not duplicative of the electronic document.

7. Don't forget image files, proprietary software. Among the data to be preserved, litigation holds should encompass TIFF, PDF, JPEG, PNG, GIF, and other image files, as well as documents created and maintained using proprietary software. It is more common that companies are obligated to produce information in its native form. A necessary corollary to preserving data in its native form is preserving the software that allows access to information in its native form, including proprietary software. Companies may be obligated to allow the opposing party in litigation to run or access the proprietary software in order to view information in its native form. The privacy protections associated with such discovery will necessarily need to be taken into consideration during the course of litigation but failure to preserve will not be an adequate defense to avoid production of relevant information.

8. Consider employing a forensic specialist. Companies are obligated to preserve all forms of electronic and paper documents, in all types of media (e.g., USB drives, handheld devices, and cloud storage), and data kept by the company and by employees personally (e.g., at home and on personal mobile devices). This obligation on companies can be enormous and burdensome. To aid in corporate accountability, companies are now more often employing forensic specialists to assist in document preservation, collection, and review efforts. Such efforts are particularly helpful in uncovering “missing” data. Indeed, in a March 2013 decision issued by the Western District of New York, the court noted that according to a forensic expert's testimony “whenever a USB device is plugged into a computer, the computer's operating system records the connection.” As a result, defendants' forensic expert uncovered six missing USB devices from plaintiffs' document production. Plaintiffs' failure to disclose and produce such USB devices was considered willful spoliation by the Court.

9. Keep detailed records of holds. Generally, litigation holds are not discoverable. However, after a court has found spoliation has occurred, information regarding the implementation of litigation holds is discoverable. Additionally, courts are more frequently requiring parties to disclose information regarding litigation holds. Indeed, in Roberts v. Los Alamos Nat. Sec. LLC, 2012 BL 2023642012 WL 3262455 (W.D.N.Y. Aug. 8, 2012), the court ordered counsel to file an affidavit of a party employee with direct knowledge of the party's document and email retention system stating: (a) the document/email retention policy used; (b) the dates of emails “reasonably accessible” for production in the litigation; (c) the back up or legacy system, if any, used to preserve or archive emails that are no longer “reasonably accessible” and whether responsive documents or data may potentially be found on such back up or legacy systems; (d) whether accessing archived or back up emails would be unduly burdensome or costly and why; and (e) the date when a litigation hold or document preservation notice was put in place and either a copy of or a description of the preservation or litigation hold utilized. Companies should consider developing a template litigation hold form to catalogue information regarding the date(s) a litigation hold was issued, employees to whom the litigation hold was issued, and any action taken to gather the relevant employees' files, among similar related matters.

10. Be cautious. Companies should be cautious and conservative in issuing litigation holds and preserving documents. In Mangione v. Jacobs, 950 N.Y.S.2d 457 (N.Y. Sup. Ct. 2012), a New York court found that a plaintiff who had a pending personal injury action committed spoliation by undergoing non-emergency and non-life-threatening surgery before defendant had the opportunity to perform an independent medical examination. Efforts to thwart the discovery of relevant data are likely to be met with skepticism and hostility from the court (and the opposing party).

Conclusion

In 2003, the decision in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003), set the standard for obligations to preserve and produce electronic documents in litigation. In the 10 years since that landmark case, sanctions awards for failure to comply with Zubulake and its progeny have exploded and spoliation motions are now common in litigation.

The tips listed above are but a few important reminders of the litigation hold requirements and the current legal standards for preservation of documentary evidence. Companies should consider reviewing their current litigation hold policies and procedures. It may be necessary for companies to revise their litigation hold policies to stay abreast of the current legal landscape regarding document preservation requirements.

Allison Kierman is a litigation associate with the law firm of DLA Piper LLP (US). Ms. Kierman practices in the area of commercial litigation and routinely provides advice to clients on a variety of regulatory and compliance matters.

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