Recent Court Rulings Reaffirm the Need for Litigation Holds to be in Written Form

Special Guest Post

by Brad Harris, Vice President, Legal Products, Zapproved

This year could accurately be called “The Year of the Legal Hold.” Since the beginning of 2010, four notable cases have been issued in U.S. District Courts that have featured litigation holds prominently. The definitive conclusion is that the courts are putting an unprecedented level of scrutiny on the legal hold procedures of litigants and are issuing strong sanctions when not done properly.

Any company involved in litigation, whether as a plaintiff or defendant (in half of these four cases the plaintiff was sanctioned), should review its processes immediately to ensure that it is meeting the contemporary standard for legal holds. Due to consistently weak preservation processes, courts expect litigation hold notices to be issued in written form; anything short of that standard may be deemed grossly negligent.

Pension Committee Sets Stage for Three Subsequent Opinions

On January 11, 2010, Judge Shira Scheindlin (SDNY) issued a landmark opinion in The Pension Committee v. Banc of America Securities that reiterated many of the Court’s concerns from her Zubulake opinions six years ago. The 89-page opinion, about a $550 million securities litigation, centered on poor legal hold implementations by the plaintiffs that seriously jeopardizes their case. She states that, “The failure to issue a writtenlitigation hold constitutes gross negligence.”

Shortly thereafter on February 19, 2010, Judge Lee Rosenthal (SDTX) also called into question legal hold practices in Rimkus Consulting v. Nickie Cammarata. The opinion singled out the need for better preservation practices as necessary to preserve the integrity of the judicial process. “Spoliation allegations and sanctions motions distract from the merits of a case, add costs to discovery, and delay resolution,” wrote the judge in her opinion. Judge Rosenthal chose not to impose sanctions based on the facts of the case, but rather chose to present the facts as they are, including details of the willful destruction of evidence, and allow the jury to determine the implications of the defendants’ misconduct.

The two most recent cases reaffirm Judge Scheindlin’s position as deeming the lack of written legal holds as grossly negligent. In Crown Castle v. Nudd Corp. out of the Western District of New York, the plaintiff failed to issue a legal hold resulting in the “wholesale destruction” of responsive electronically stored information (ESI). The behavior was deemed grossly negligent forcing the plaintiff to attempt to pursue efforts to recover the data which were sufficient to avoid harsh sanctions.

Finally, on April 20, 2010, U.S. District Judge Richard Sullivan (SDNY) issued severe sanctions for failing to issue a written litigation hold, including a $25,000 sanction. Making frequent references to Judge Schiendlin’s Pension Committee opinion, Judge Sullivan declared in Merck Eprova v. Gnosis that “there is no doubt that Defendants failed to issue a legal hold” and deemed “this failure…a clear case of gross negligence.” The Court also found the defendants’ claim unpersuasive that even though Gnosis is a small company that it was no excuse not to issue a written legal hold and ensure proper preservation. In addition to defendants paying costs, including attorneys’ fees, the Court fined the defendants $25,000 “both to deter future misconduct… and to instill in Defendants some modicum of respect for the judicial process.”

Contemporary Standard for Legal Holds

The following list aggregates the duties articulated by Judge Scheindlin and other recent cases that serves as a checklist for litigants to include in legal hold:

• Issue hold in written form;

• Send legal hold in a timely manner;

• Put a priority on key players who “are likely to have relevant information”;

• Include affirmative custodial responses as part of process;

• Clearly articulate preservation instructions in hold notice;

• Review hold and issue routine reminders;

• Have counsel supervise preservation process;

• Institute a repeatable collection process; and

• Suspend automatic deletion.

TERIS’s experts can provide specific preservation processes to ensure that litigation holds stand up to the expectations of the courts.

Implications and Sanctions

The courts are becoming less tolerant and clearly are expressing higher expectations when it comes to preserving ESI. At best, poor preservation practices result in undue leverage for one’s opponent. When good faith is called into question, one’s ability to negotiate a fair and reasonable scope of discovery during meet and confer may be limited. This leads to increased time, cost and, most importantly, risk. The courts are imposing sanctions ranging from compelling further discovery, cost shifting, fines, special jury instructions, preclusion and even default judgments.

TERIS can help you avoid sanctions due to poor preservation practices by establishing sound business processes and following them diligently. Tools like Legal Hold Pro offer a cost-effective solutions for automating the legal hold notification process and establishing a defensible audit trail.