Home / Expert Opinion / White Collar Corner: The importance of litigation hold instructions

White Collar Corner: The importance of litigation hold instructions

Alan J. Bozer

A litigation hold is the suspension of a “routine document and retention/destruction policy,” which includes the preservation of emails and other electronically stored information (ESI), Tracy v. NVR, Inc., No. 04-cv-6541L, 2012 WL 1067889 (WDNY Mar. 26, 2012). Most practitioners are familiar with the concept of a litigation hold, but it is important to be aware of when the duty to preserve ESI arises, how the duty to preserve should be addressed, and the consequences of failure.

Litigation hold and duty to preserve — threat of litigation versus actual litigation

A party’s duty to preserve attaches at the commencement of an action, see Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998), but also when a party “reasonably anticipates litigation,” VOOM HD Holdings, LLC v. EchoStar Satellite, LLC, 93 A.D.3d 33, 45 (1st Dept. 2012); see also, Tracy, 2012 WL 1067889 at *5 (duty to preserve when a 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.”); The Sedona Conference®, Commentary on Legal Holds: The Trigger and The Process, 11 Sedona Conf. J. 265, 267 (Sept. 2010) (“[The] duty [to preserve] arises at the point in time when litigation is reasonably anticipated whether the organization is the initiator or the target of litigation.”).

Amanda L. Lowe

Attorney advice about litigation hold

Once the duty to preserve attaches, a party should employ a litigation hold and cease its usual and routing document destruction policy, with special attention to preserve ESI. While the duty to preserve does not extend to “every shred of paper, every e-mail or electronic document, and every backup tape,” Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 217 (SDNY 2003), the duty does extend to documents and information from relevant sources — the “key players” in the case, Id. at 218. Failure to institute a litigation hold is not gross negligence per se, Chin v. Port Auth. of New York and New Jersey, 685 F.3d 135, 162 (2d Cir. 2012), but it can result in sanctions or other spoliation costs as discussed below.

A litigation hold should be in writing and be specific in its requirements:

“Regardless of its nature, a hold must direct appropriate employees to preserve all relevant records, electronic or otherwise, and create a mechanism for collecting the preserved records so they might be searched by someone other than the employee. The hold should, with as much specificity as possible, describe the electronically stored information at issue, direct that routine destruction policies such as auto-delete functions and rewriting over e-mails cease, and describe the consequences for failure to so preserve electronically stored evidence. In certain circumstances, where a party is a large company, it is insufficient, in implementing such a litigation hold, to vest total discretion in the employee to search and select what the employee deems relevant without the guidance and supervision of counsel,” VOOM HD Holdings, 93 A.D.3d at 41-42 (internal citations omitted).

Counsel’s responsibilities do not end with the litigation hold notice. Counsel should confirm the steps being taken to preserve evidence. Counsel should also assist the client in speaking with and directing information technology personnel, outside IT vendors, and other employees regarding the litigation hold, discuss efforts to hold any established retention/destruction policy as well as discuss what information should be preserved and in what form the information and data will be maintained.

Offensive use of a litigation hold

Litigation holds may also be sent to prospective defendants and witnesses. It may direct the receiver to forward the notice to other persons and entities (including outside service providers) with custodial responsibilities, including information technology departments, human resources, finance, accounting and management personnel. The notice should include that failure to abide by the directives could result in penalties and could form the basis of spoliation claims. It is recommended that the notice contain a contact person who can be reached for questions about the notice, and, if no response is received, that it is assumed the recipient will comply with the preservation request and will not delete or destroy relevant information.

Although third-party (non-party) negligent spoliation of evidence is not cognizable in New York, see Ortega v. City of New York, 9 N.Y.3d 69 (N.Y. 2007), a non-party witness may be subject to other claims for failure to preserve evidence, see IDT Corp. v. Morgan Stanley Dean Witter & Co., 63 A.D.3d 583 (1st Dep t 2009) (possible fraud and fraudulent concealment); Alegria v. Metro Metal Prod., Inc., 29 Misc.3d 591 (Sup. Ct. Kings Cnty. 2010) (employer/employee).

Criminal litigation holds and possible use

Prosecutors have also been known to initiate litigation holds against potential targets of government investigations. In one of our law firm’s recent cases, a grand jury subpoena included detailed instructions to preserve ESI, such as all “electronic information about emails (message contents, header information, and logs of email system usage) with attachments” or “all logs of user activity on computer systems used to process or store electronic data,” from the date of the subpoena forward. Many of these subpoenas state that they remain in effect until the recipient is granted leave by the court or an officer acting on behalf of the court. Counsel should contact the issuing agency to discuss the terms of the subpoena and any objections that may apply.

After notifying the client regarding the extent and requirements to comply with the government subpoena, the client and its employees should be directed to refrain from substantive discussions, and emails, with anyone. Advice may be given that subsequent subpoenas may seek to capture client reactions in ESI concerning the first subpoena. The issuing agency may also be counted on to require a witness to describe to the grand jury how the litigation hold was accomplished and how thoroughly.

Civil compliance with litigation hold: discovery of litigation hold letters and advice

While communications between a client and an attorney are subject to attorney-client privilege, an attorney’s litigation hold to her client, and the attorney’s subsequent directives, may be discoverable by the opposing party. For instance, in the case of Tracy, 2012 WL 1067889 at * 2, the court noted the defendant’s objections to the plaintiffs’ motion to compel their litigation hold notices as protected from discovery under the attorney-client privilege. The court ultimately denied the request, but identified that the notices may not be protected from disclosure upon a preliminary showing of spoliation, a burden the plaintiffs in the case failed to meet, Id. at *6 (citing Major Tours, Inc. v. Colorel, No. 05-cv-30912009 WL 2413631 [D.N.J. Aug. 4, 2009]).

Litigation hold notices and communications between an attorney and her client may also be relevant to the request for sanctions for destruction of ESI. Federal Rule of Civil Procedure 37(e) prohibits the imposition of sanctions for non-intentional, “good-faith” destruction of ESI done in connection with a routine destruction process, see Moore’s Federal Practice § 37.121A (3d ed. 2012). However, as the Advisory Committee to Federal Rule of Civil Procedure 37(e) notes, an analysis of “good-faith” includes consideration of what steps were taken by the party to preserve the ESI, see Advisory Committee Civil Rules, Norman, OK, April 11-12, 2013, Reporter’s Memorandum Regarding Rule 37(e), pp. 143-51, www.uscourts.gov/uscourts/RulesAndPolicies/rules/Agenda%20Books/Civil/CV2013-04.pdf (retrieved June 13, 2013); see also, Keir v. Unumprovident Corp., 2003 WL 21997747, at *6 (SDNY Aug. 22, 2003) (analyzing the defendants’  emails regarding preservation efforts after finding that electronic records which had been ordered preserved had been erased).

Attorney liability for failure to advise

Although the burden of preservation is usually reserved for the party itself, see, e.g., Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 436 (2d Cir. 2001), courts have been known to review counsel’s actions: Zubulake v. UBS Warburg, LLC, 229 F.R.D. 422, 432 (SDNY 2004) (“counsel must oversee compliance with the litigation hold, monitoring the party’s efforts to retain and produce the relevant documents” and “must become fully familiar with her client’s document retention policies, as well as the client’s data retention architecture.”); Telecom Int l Am., Ltd. v. AT&T Corp., 189 F.R.D. 76, 81 (SDNY 1999) (“Once on notice, the obligation to preserve runs first to counsel, who then has a duty to advise and explain to the client its obligations to retain pertinent documents that may be relevant to the litigation.”).

A failure to adhere to litigation hold procedures, as well as follow up procedures, may open the client, and possibly even the attorney, to potential liability, possible sanctions, adverse inferences, or in the extreme, default judgments, Phoenix Four, Inc. v. Strategic Res. Corp., No. 05-cv-4837, 2006 WL 1409413 (SDNY May 23, 2006).

Alan J. Bozer and Amanda L. Lowe are attorneys with Phillips Lytle LLP. Alan J. Bozer is a partner and is co-chair of the firm’s White Collar Criminal Defense and Government Investigations Practice Team. He is active in trying criminal and civil cases, and handles appellate and arbitration work as well. Lowe concentrates her practice on civil litigation matters in federal and state courts, including complex corporate disputes, employment discrimination, breach of contract, collection, construction, personal injury and wrongful death claims, business torts, commercial disputes, and appellate advocacy. She is also a member of the firm’s Government Operations and Education Teams. Bozer can be reached at abozer@phillipslytle.com or (716) 504-5700; Lowe can be reached at alowe@phillipslytle.com or (716) 504-5747.

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