Chapter 4 Seeking and Preparing Litigation Holds

The search for truth is at the heart of the justice system.¹ Preserving information to sustain that search is a fundamental part of the civil discovery regime. To that end, the law obligates litigants to take reasonable efforts to preserve relevant and discoverable information whenever litigation is reasonably anticipated, threatened, or pending against them.²

This chapter explores the concept of litigation holds, the consequences of failing to use them, the process of preparing and implementing litigation holds and associated practical and legal considerations. Although written with corporate/ organizational clients in mind, much of this chapter's content is applicable to litigation hold issues that individuals often confront (albeit usually on a smaller scale in the individual's case). Likewise, this chapter deals with litigation holds in the context of federal practice and procedure, but the principles are relevant in state court proceedings as well, given the existence of preservation duties there. The first section defines the litigation hold and the reasons clients should issue them. The second section addresses when the duty to preserve attaches and the best practices for communicating the litigation hold request. The third section describes how to acquire the information needed to communicate and implement the litigation hold. It focuses on determining who to notify of the obligation to preserve, setting limits on the scope of preservation, and gaining knowledge of the scope of existing information to effectuate the litigation hold in a defensible manner. The fourth section provides an overview of the key elements of a written litigation hold, and the fifth section examines the responsibilities of clients and counsel to monitor compliance with the litigation hold following transmission of the initial hold notice.

The Purpose of the Litigation Hold

A litigation hold is a mechanism for initiating, directing, and maintaining a client's efforts to satisfy its duty to preserve relevant information and tangible evidence when the client reasonably anticipates litigation.⁴ Often written—but not necessarily so—the hold alerts recipients to this duty and advises as to the actions they must take, or refrain from taking.

Depending on the client and the available documents and information infrastructure, the steps for compliance can become very complicated quickly. This is because the preservation duty requires litigants to "identify, locate, and maintain" information that is "relevant to the claims or defenses of any party" or "relevant to the subject matter involved in the action."⁵ The duty extends to documents or tangible things made by persons likely to have discoverable information, as well as "documents prepared for those individuals, to the extent those documents can be readily identified."⁶ Moreover, if a document retention policy calls for the destruction or disposal of any such relevant matter, the litigant must "immediately suspend" such policy once the duty to preserve arises.⁷

Although this does not mean that the litigant must "keep every shred of paper, every e-mail or electronic document, and every backup tape," the preservation duty remains quite broad.⁸ Responsibility for complying, moreover, falls not just on litigants.⁹ Rather, counsel must oversee the preservation efforts, monitoring their clients' "efforts to retain and produce relevant documents."¹⁰ Failure to do so can result in sanctions against counsel directly.¹¹

Why Do a Litigation Hold? Because Bad Things Can Happen Otherwise

Taking preservation obligations seriously cannot be overemphasized. Spoliation can ruin a client's case and even expose it to civil liability in some jurisdictions. "Spoliation is the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation."¹² In persuading clients of the seriousness of the duty to preserve and why substantial (and expensive) preservation efforts may be needed, counsel should not hesitate to describe the various penalties the client may incur for failing to preserve relevant evidence. The consequences run the gamut from discovery sanctions and causes of action for spoliation to loss of evidence helpful to the spoliator. All, however, represent painful self-inflicted wounds. And there should be no mistake—opposing counsel will press these issues aggressively. There is a growing body of caselaw addressing sanctions for failure to preserve data.¹³

Discovery Sanctions for Spoliation

Among the most common and obvious consequences of spoliation are discovery sanctions. These can range from "awards of attorneys' fees, to more serious sanctions, such as dismissal of claims or [an instruction to] the jury that it may draw an adverse inference."¹⁴ Federal courts draw authority to issue discovery sanctions from their inherent powers to manage their own affairs and from Rule 37¹⁵ of the Federal Rules of Civil Procedure.¹⁶

Inherent Power Spoliation Sanctions

"Federal courts possess inherent powers necessary to manage their own affairs so as to achieve the orderly and expeditious disposition of cases."¹⁷ Such powers include "the ability to levy appropriate sanctions against a party who prejudices its opponent through the spoliation of evidence that the spoliating party had reason to know was relevant to litigation."¹⁸ Historically, courts relied primarily on inherent power to address spoliation of all manner of documents and electronically stored information (ESI) because Rule 37 only authorized sanctions for violations of court orders.¹⁹ Their discretion was broad.²⁰ This changed with the 2015 amendments to Rule 37, which put ESI beyond the reach of the federal courts' "inherent power" sanctions and set new rules for ESI spoliation sanctions.²¹ Except in limited cases, therefore, inherent power spoliation sanctions now only address failures to preserve paper documents and other tangible evidence.²²

But where inherent powers still govern, courts retain wide discretion to craft an appropriate sanction to remedy prejudice to the non-spoliating party. The full panoply of sanctions includes harsh penalties, such as dismissal of claims, exclusion of evidence, and adverse inference instructions.²³ The standard for "inherent power" sanctions, moreover, varies across the federal circuits, with some jurisdictions making available the harshest penalties even in cases of careless, non-intentional destruction of evidence.²⁴ Before the 2015 amendments to the Federal Rules of Civil Procedure, ESI also was subject to this malleable "inherent power" standard.

Amended Rule 37(e)

As discovery of ESI grew exponentially in amount and relevance to federal litigation throughout the early twenty-first century, the ease with which it could be lost or rendered inaccessible increased the risk that major, case-changing sanctions would issue for the unintentional loss of ESI. The 2015 amendments to the Federal Rules were designed to foreclose this possibility by completely rewriting Rule 37(e) and putting ESI spoliation beyond the courts' "inherent authority."²⁵ As amended, Rule 37(e) provides:

If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:

(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation may: (A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment.

The amended rule "specifies [the] measures a court may employ if [electronic] information that should have been preserved is lost, and specifies the findings necessary to justify these measures."²⁶ It forbids the issuance of sanctions except "upon finding prejudice to another party from loss of the information."²⁷ Moreover, the amended rule restricts courts' authority to use the "very severe measures" described at subdivision (e)(2) to only where "the party that lost information acted with the intent to deprive another party of the information's use in the litigation."²⁸

Although amended Rule 37(e) cabins and controls courts' use of sanctions for spoliation of ESI, it does nothing to remove the threat of painful consequences from spoliation.²⁹ The harshest sanctions may be reserved for destruction of information with an intent to deprive another party from using it, but that does not mean that all case-changing sanctions are so restricted.³⁰ Courts are still empowered to remedy negligent ESI spoliation that prejudices another party and "it may be that serious measures are necessary to cure that prejudice."³¹ Such sanctions include "forbidding the party that failed to preserve information from putting on certain evidence, permitting the parties to present evidence and argument to the jury regarding the loss of information, or giving the jury instructions to assist in its evaluation of such evidence or argument," provided there is no instruction that the jury "may draw an adverse inference from the loss."³² Regardless of any interpretation of the amendment, sanctions remain as a serious reminder of the importance of preservation.

Spoliation Causes of Action

Beyond discovery sanctions, a minority of state high courts have held that spoliators may be civilly liable for a failure to preserve...