Litigation holds: What in-house counsel needs to know

Unfortunately, litigation is inevitable for all companies. This means it is inevitable that all in-house lawyers will have to deal with litigation at some point in their careers. While that may sound like a perfectly awful time, and it is, having experience with managing litigation is vital to rounding out the skills necessary to ultimately succeed to the general counsel chair.

In other words, when litigation arises, run to the fire! Given the importance of the discovery process in the U.S. legal system and e-discovery in particular, one of the most important steps in defending or prosecuting litigation is a proper litigation hold, sometimes called a legal hold. If done correctly, many of the problems and costs that plague some participants can be avoided.

Done incorrectly, however, you may find that you have inflicted a fatal error on yourself — one that has nothing to do with the merits of the litigation. Below are the key things in-house lawyers need to know about the litigation hold process along with some best practices.

What is a litigation hold?

When litigation starts or is reasonably anticipated, the rules of civil procedure — federal and state — impose a burden on all of the parties to preserve potentially relevant records and information. The litigation hold process puts the organization and key custodians on notice that certain information must be preserved and, ultimately, gathered and produced to the other side.

In federal court, the obligation to preserve information arises from FCRP 37(e) under which participants in litigation have a duty to take “reasonable actions” to preserve information that is relevant to the dispute. Moreover, they must be able to show that they have taken “reasonable and good faith” steps to ensure that relevant information is not deleted after the obligation kicks in.

A well-thought-out litigation hold process allows a party to meet this burden. Failure to meet this burden may lead to claims of spoliation of evidence and the negative consequences that follow.

Identification of records, location, and custodians

The first step in the litigation hold process is identifying — based on the nature of the dispute and the specific claims — which company records are at issue. This typically involves email, presentations, word processing documents, spreadsheets, and other corporate documents — both hard and soft copies. However, it can also include collaboration software, voicemail, videos, calendars, photographs, text messages, and many other types of records that you may not think are relevant. This huge mass of electronic information is why e-discovery is so complex and expensive.

Second, once you have identified the type of records at issue, you need to think about all the places where this information may be located. The test is whether the information is in the possession, custody, or control of a party. Potential locations include email servers, smartphones, cloud storage, meeting software, collaboration software, network drives, social media accounts, flash drives, file cabinets, and more. It includes personal devices if an employee uses that personal device to conduct business for the company.

Third, once you have identified the what and the where, you must identify the “who”: that is, which individuals are most likely to have the information at issue. It can be a handful to hundreds — it just depends on the nature of the lawsuit.

The litigation hold notice

Now that you know your universe of records and custodians, it’s time to issue the litigation hold notice.  This is a written document or email that sets out:

• The nature of the dispute and the key issues.
• The types of records sought.
• The time frame at issue.
• The obligation on the individual to cease any further destruction of these records.
• How the collection process will work.
• The requirement that the individual acknowledges receipt of the litigation hold and, most importantly, that they have read and understood their obligations.
• How the individual can contact the legal department for help or with questions.

In addition to the notice going to potential custodians, the notice — or a version of it — should go to the IT department to stop any auto-destruction, human resources to ensure that the legal department is informed when any custodian is leaving the company, and any other organization that will have a role in ensuring records are maintained and not accidentally destroyed.

Litigation hold best practices

It is very easy to mess up the litigation hold process, either by not putting it in place correctly or in a timely fashion or, worse, learning that records were destroyed that should have been preserved. Any of which can lead to sanctions from the court, from monetary fines up to striking defenses or claims.

Here are some best practices to consider when it comes to litigation holds:

• Create a written litigation hold policy that sets out the process the company will follow when a litigation hold becomes necessary, including guidance on what constitutes a triggering event as to when a hold is needed. Develop employee training to ensure a solid understanding of the company’s obligations.
• Document everything about the litigation hold process for any particular case. The more you can document the steps the company took to comply with its obligations, the more likely that it can escape harsh sanctions in the event of an inadvertent screw-up. Perfection is not the test; reasonable and good faith is the standard.
• Do not let the custodians be responsible for gathering responsive records. First, they will do a terrible job. Second, most courts will find that making non-trained individuals responsible for record collection does not meet your company’s obligations of reasonableness and good faith. Hire professionals to gather the information in a forensically defensible manner — meaning, metadata is preserved.
• Work with outside counsel. Unless you are particularly sophisticated in this area, and some legal departments are, experienced outside litigation counsel can save you a lot of trouble and headaches when it comes to conducting a proper and defensible litigation hold process.
• Refresh the litigation hold regularly by sending regular reminders to all custodians about the ongoing hold and how they will be notified when the hold is over. Remove custodians when they are no longer needed — some of the folks you identified at first may no longer be the best custodians. Be sure you keep your IT department up to date on the status of the litigation hold so they do not allow auto-destruction to restart prematurely.
• Have a process in place with human resources so you are informed of any resignation or termination as soon as possible — this will help ensure that person’s records and laptop are preserved, if necessary. Human resources should also have a list of all individuals subject to a litigation hold to be aware of anyone that needs special attention, should that person depart the company.
• Stay on top of reluctant custodians. Everyone must respond to the litigation hold notice and anyone who does not should receive a phone call or a visit from the legal department to ensure they understand their obligations and that they sign the acknowledgment. Custodians like these should also go to the top of the list when it comes time to collect records, as they are the most likely to ignore their obligation to preserve records.
• Don’t forget to release the hold when the matter is over. If you forget to do this, documents that otherwise would be properly deleted may stack up and cause you more problems down the road.

While the name implies a simple process, there is little that is simple about putting a proper litigation hold process in place. All in-house lawyers should have a basic understanding of the rules in their jurisdiction and a plan on what to do when a litigation hold is triggered. Fortunately, for in-house lawyers with access to Practical Law, there is an entire tool kit dedicated to legal holds with templates, checklists, and more — and all just a click away.