The Duty to Preserve and the Legal Hold Process
This course provides a general overview of the common law duty to preserve evidence and the process of developing and implementing a legal hold. The discussion will focus on essential practice information for both new and experienced litigators and will provide tips for recognizing and complying with the duty. This seminar will also be useful to transactional attorneys and business advisors whose clients may become obligated to preserve documents and information.
- My name is Brandi Doniere, and I'm an attorney with Brouse McDowel, An Ohio based law firm. I am co-presenting today with my partner, Marguerite Zinz. Our practices focus on litigation and discovery management and information management. I'm gonna start by discussing the duty to preserve and the common law and statutes that define that duty and then Margarite will discuss the legal hold process and exfoliation claims. The duty to preserve is a common law legal duty to preserve evidence that arises upon the reasonable anticipation of litigation, which often occurs before a lawsuit is filed. The duty to preserve applies to all parties. However, it is a simpler concept for individuals. For organizations, especially those that typically have a lot of electronic and digital information, complying with the duty to preserve, can be a much more complicated process. The quote on this slide is from the fourth published opinion in Zubulake versus UBS Warburg LLC, out of the Southern District of New York. The duty to preserve existed long before this opinion was issued but the series of discovery opinions that came out of the Zubulake case were the first to deal in depth with the discovery of electronic information. In today's technology driven world, electronic and digital information are often relevant to disputes and litigation. However, the duty to preserve applies not only to electronic information, but also to physical evidence, such as paper documents or other objects relevant to the dispute. For example, when a worker is injured while using a machine, his employer is obligated to preserve the machine in its condition at the time of the injury or in a dispute stemming from a car collision, the parties are obligated to retain the vehicles that were involved if litigation is reasonably anticipated. More than one injured plaintiff has lost a product liability lawsuit because he or she neglected to preserve the very product that caused his or her injury. The duty to preserve can be broken down into related concepts. First, when does the duty arise? And second, what does the duty encompass? What should be preserved? Third, is how should the information be preserved? And that's the part that margarita is gonna talk about. I will talk about the first two concepts, when the duty arises and what should be preserved. When a party first anticipates litigation when the duty to preserve arises is not always clear cut. The next slide lists events that may trigger the duty to preserve. The duty to preserve undeniably exists once you are served with a complaint. However, the duty may rise earlier, when you receive notice of a claim against you. In some situations, it can arise at the time of the actionable event, such as when an airplane or helicopter crashes, the passengers are seriously injured or killed. In most situations, the airline would be immediately aware of the tragic event and would anticipate not only eventual litigation but also on FAA investigation. If indeed the airline is aware of the event immediately after it occurs, the airlines duty to preserve evidence for the government investigation as well as information for the anticipated civil lawsuits arises practically simultaneously with the occurrence of the crash. Now, this is an extreme and rare example. In some situations, the preservation obligation is not so easy to recognize. The decision to file a lawsuit does not happen in an instant. The realization that a lawsuit may be filed may even occur gradually over time. For example, a patient's surgery may appear to have been successful but complications gradually develop. The patient confers with a different surgeon about his treatment options and learns that his doctor did not follow the standard of care when treating his condition. Over the next several months, he talks about his experience with his therapist, a member of his support group, both who encourage him to file a lawsuit. He discusses the process of filing a medical malpractice action with a friend who once worked for the local court clerk's office. He eventually asks his neighbor, a tax lawyer for advice and is referred to a medical malpractice attorney. He thinks about his legal options for a few more months before finally making an appointment with the medical malpractice attorney. The attorney explains the litigation process and warns him when the statute of limitations will run. He weighs the pros and cons of taking legal action for a few more weeks before finally retaining the attorney to file a lawsuit. When did this patient's duty to preserve arise? Most likely it did not rise until he hired the medical malpractice attorney but there's a lot of room for argument. Why does this matter? Because relevant information, especially in digital or electronic information is sometimes lost before it can be requested and produced in discovery and the requesting party may be prejudiced by a loss of information that could have helped his case. Imagine that the surgeon had presented the patient with two surgical options and despite the surgeon's advice, the patient had insisted on the non-standard option because the recovery time was expected to be shorter. The patient insists that the surgeon did not warn him about the risks associated with the nonstandard surgery that he selected and that the surgeon presented it as an equal option with a quicker recovery time. In discovery, the surgeon requests emails, text messages and written correspondence wherein the plaintiff discussed his medical condition, treatment options, surgery, and recovery. The patient admits that he discussed his illness and his surgery with his friends via emails both before and after the operation took place but that he can not produce the emails because he deleted them. If the emails cannot be recovered when the duty to preserve arose and when those emails were deleted, will become a very important question. The surgeon's attorney will argue that the duty to preserve arose as soon as the patient suffered his first complication or any other time before the emails were deleted and if the court agrees, it can issue sanctions that ultimately determine the winner of the lawsuit. I purposely selected this example because it is one of an individual litigant. But it can be equally difficult to recognize when the duty arises when an organization is the party. A product manufacturer may notice an increase in complaints from consumers and begin investigating internally whether a change in the product's designed is contributing to the complaints. A business purchases equipment that works well at first but soon begins to break down at an increasing rate in these kinda situations, when does the business expect to have to file a litigation or expect an investigation or to have to defend itself in court? For companies in these situations, determining when exactly the duty begins can be an impossible task. Some have advocated for a bright line rule for when the duty to preserve arises such as upon the filing of the complaint or service of a complaint upon the defendant. In fact, a bright line rule was apparently considered by the committee that drafted the 2015 amendments to the federal rules of civil procedure but the drafters ultimately decided that a bright line rule was just not workable. There were simply too many situations and factual possibilities to make a standardized rule. So the duty to preserve remains a common law rule, subject to the circumstances surrounding each dispute and the judge's deference. Now, how do courts dealing with discovery disputes determine when the duty to preserve arose? Courts basically hold parties to the standard of reasonableness. Parties are expected to make a good faith and reasonable evaluation of relevant facts and circumstances and courts generally decide when a reasonable litigant in the party's shoes, given the facts available would have anticipated litigation. Sometimes it's just not worth it to take the time and effort to identify and preserve relevant information such as when a claim has little or no value. So no reasonable company would expend the resources required to issue a legal hold or to gather relevant information. Another example is when a reasonable person would conduct a good faith evaluation in the facts and decide that there's no way the party could be liable. For example, when a company is served with a lawsuit, the claims are barred by the statute of limitations or a statute of repost, the company would not have reasonably expected the lawsuit and the claims will probably be dismissed in short order unless there exist other basis for liability, a reasonable company would not suspend its record disposition practices to preserve information relevant to the dispute. A manufacturer who was named as the defendant in a product liability lawsuit did not actually produce the product at issue. Again, the manufacturers defenses are going to prevail. The claim will be dismissed and there's no sense in the manufacturer making any kind of legal hold attempts. A third example is that a preservation demand is received, but it is vague and demands preservation of a very broad scope of information but does not identify or describe the nature of the claims. This is something that occasionally does happen and it really kind of binds the manufacturer's hands to try to make any kind of preservation steps. Normally, however, parties are properly identified. Claims are legitimate and disputes are adequately described in preservation demands and when an exfoliation claim is asserted, the court has to determine whether a reasonable person would've anticipated litigation at the time the evidence was destroyed. There are a number of factors that courts may consider when determining whether a party should have anticipated litigation. We've already touched on the nature and specificity of a potential claim or threat. Consider an unhappy customer who complains the service provider did a poor job but provides no details. Under most circumstances, a reasonable business person would not expect the person, a the customer, to file a lawsuit. The relationship between the parties is especially pertinent in business disputes but can also be a factor in other types of disputes, such as family disputes and employment disputes, that the parties have had a good relationship for a long time, they are naturally less likely to anticipate litigation. Businesses that benefit from their association will likely look for alternative ways to resolve a disagreement or recoup their losses before resorting to the legal system. The third factor, the strength or value of the claim is a pretty simple concept to grasp, a car accident resulting in numerous deaths, that will surely be looked at differently than one resulting in no personal injuries and only minor damage to the vehicles. One would expect a lawsuit in the first instance, but not the second. Knowledge about other similar claims, alleged both specifically against you or your client or against other similarly situated. If you know that your client's last two secretaries complained that they were sexually harassed by the office manager, the newest secretaries complained of harassment would probably cause your client to anticipate litigation and to provoke a review of HR policies I hope, but in the product liability context, the fact that a party has defended against similar lawsuits in the past may not evoke a duty to preserve for a current claim. For example, in one case, Barnett versus Deere & Company, out of the Southern district of Mississippi, back in 2016, this case was a product liability lawsuit against a manufacturer of a riding lawn mower. The mower had rolled over while it was being used and the driver died. The lawn mower manufacturer had received notice of four similar incidents involving the same model of mower during the two years proceeding the accident at issue. The plaintiff argued that notice of the four rollover incidents triggered the duty to preserve and that that duty should encompass relevant information about the design and testing of that particular lawnmower. The court disagreed and held that the manufacturer's duty to preserve for this lawsuit did not arise until it was served with the complaint which was the first notice that it had received of the actual incident. Others experiences with similar claims can be pertinent to manufacturers, financial institutions, retailers, restaurants and a host of other industries. Take pharmaceutical companies as an example. If one pharmaceutical company faces lawsuits for marketing and selling a drug that has undisclosed side effects, should another pharmaceutical company that sells a similar drug expect to be sued as well? Perhaps one that makes the generic version of the drug. There are numerous claims being lodged against Johnson and Johnson for harm allegedly caused by consumer's use of talcum powder. Did the early success of lawsuits against Johnson and Johnson provide notice of future litigation to other producers of talcum powder? The company used talc in its products for its operations, should it expect to eventually be sued by employees or contractors who had prolonged exposure to talc while on the job or by customers who develop cancer after using the talc containing products? I wish I could answer these questions, but they actually depend on the facts and circumstances of each case, the strength of the legal argument and somewhat by the judge or the court. More than a few recent opinions have held that the duty to preserve is tied to the specific claim at issue, meaning that a defendant's duty to preserve does not arise until it learns that the specific plaintiff has a claim against it. In Abilify products liability litigation under the Northern district of Florida, the court in that case issued an opinion back in 2018, this was a product liability lawsuit against the pharmaceutical company for failing to warn that the Abilify drug could contribute to compulsive gambling. The plaintiff argued that the duty to preserve relevant information arose for the pharmaceutical company years before the action was filed, for two reasons, one, because scientific literature had been published linking a certain ingredient in Abilify to pathological gambling. And two, because similar claims have been filed against another drug company involving a similar product that contained the suspect ingredient. Obviously, the plaintiff wanted the duty to preserve to arise as early as possible so that any documents that were destroyed after it that were relevant to the claims could be subject to an spoliation claim in possible sanctions but the court disagreed with the plaintiff and stated that such an overly broad view of preservation would oppose on every drug manufacturer a duty to preserve all its documents without regard to subject matter or timeframe, reasonable anticipation means something more than a mere possibility of litigation. So this case makes it appear as if just general industry actions or claims against competitors would not serve as notice for future litigation and even past litigation against a company would not be notice of a future claim and would not invoke the duty to preserve but be aware that there are opinions out there that appear to support a more universal duty to preserve for some repeat litigants. The last two factors are automatic indications that the duty to preserve evidence has been triggered. When a party hires a litigation attorney, that party obviously anticipates litigation and if a work product privilege is being claimed for intercompany communications relevant in a dispute, then litigation was probably anticipated when the communications occurred. Because it is usually impossible to determine precisely when a party anticipates litigation, courts will instead make a general assessment of the facts before it and the lawyer's arguments. Courts nearly always hold that the duty to preserve began by the date that the party first learned of the claim without identifying an actual date or a sold event. For example, the court may say that the plaintiff should have anticipated litigation by the time she retained an attorney or that the defendant should have anticipated litigation by the time it received a preservation demand. Before we move on to the scope of the duty to preserve, I want to mention that when the duty to preserve arises, prompt action should be taken to ensure that relevant information is preserved. Marguerite will talk more about this but it cannot be stressed enough. Once a party learns a litigation against it or believes that a lawsuit will be filed, the party should waste no time before consulting with an attorney and if the party is a company, this may be an in-house legal department or an outside lawyer, but that party should be begin the process by identifying what needs to be preserved, where those records are kept and who should be notified of the duty to preserve. In addition, any automatic disposition mechanisms, whether electronic or manual that could lead to the destruction of potentially relevant information should be suspended. The promptness of a party's preservation efforts will be scrutinized if that party is unable to respond to a discovery request because the requested information no longer exists. Now, what should be preserved? The legal standard in simplified form is that a party has a duty to preserve what it knows or reasonably should know is relevant in the action. Simple, but not straightforward. Application of this standard can be complicated. If the duty to preserve arises before a lawsuit is filed, the defendant has to determine what claims are likely to be asserted against it and what types of information are relevant to the claims and likely to be sought in discovery. Likewise, a plaintiff must anticipate the defenses that will be asserted and what types of information would be pertinent to them. An attorney should not make this determination without input from the client, nor should a client decide what will be preserved without advice from his or her attorney. Attorneys should also be mindful that the scope of the preservation obligation can evolve as the lawsuit progresses and information is exchanged and discovered, new theories of liability or defenses may involve additional categories of information, thereby broadening the initial scope of what is preserved or what needs to be preserved. So here are two fairly recent examples both occurring within the last six to seven years, EEOC versus GMRI Inc, from the Southern district of Florida. This was a lawsuit brought by the EEOC alleging discriminatory hiring practice based on age against a company that operated multiple restaurants in several states. The EEOC's investigation originally focused on one specific location in Florida, at the time, the company's duty to preserve included relevant information from only that one location, the company issued a legal hold so that relevant information pertaining to that location would not be destroyed. Eventually the EEOC notified the restaurant chain that the investigation was being expanded to include 10 more locations. The company's preservation obligation then expanded to include information pertaining to the additional locations. However, the company did not expand the scope of its legal hold or take any other steps to locate and preserve relevant information for the 10 additional sites. Eight months later, the EEOC filed suit against the company and another three years passed before the company realized that it had not taken steps to preserve all of the information that it should have. The second example is out of the district of Kansas and in this case was called Martin Transport Limited versus Platform Advertising Inc and here, this case was a breach of contract dispute between a trucking company and a recruiter and the trucking company accused the recruiter of continuing to recruit drivers after its contract had been terminated and at the initiation of the lawsuit, the trucking company's duty to preserve was limited to scope to information about the contract, its termination and its recruitment activities. During discovery, it was uncovered that an employee of the trucking company had continued to engage the recruiter for a period of time after the contract was terminated, the trucking company's duty to preserve then expanded to include communications between the employee and the recruiter. In the meantime, the employee had received a new computer. His old computer had been decommissioned. Thus, his browser history for the relevant time period no longer existed. Of course, the recruiter's attorney argued that the trucking company had violated the duty to preserve by destroying relevant information but the court disagreed because the significance of the employee and his browser history was not known until after the computer was decommissioned. Attorneys need to be mindful of evolving claims and defenses as well as new facts and new witnesses that are identified as a lawsuit progresses. When these things happen, attorneys should evaluate whether all information is being preserved or whether the scope of the party's legal hold should be expanded. The attorney may also find that the legal hold is too broad and information initially thought to be relevant, isn't. And in that case, it's fine to release that information from the hold and return it to the party's normal record retention practices. The next slide discusses the factors to consider when determining what to preserve. There's several resources that can help. First, you look at, obviously, the claims and defenses raised or anticipated in the pleadings and determine what evidence is required to prove those claims and defenses. Consider the applicable discovery rules in any applicable statutes because the scope of preservation mirrors the scope of discovery as set forth in the court rules and statutes. Rule 26B-1, out of the federal rules of civil procedure provides the scope of discovery for actions filed in federal court and most, but not all states have revised their own rules to mirror federal rule 26B1. I am going to skip over the proportionality factors, 'cause we'll talk about them in more depth in the next slide, but experience in prior similar litigation, if any, that can be helpful. What information was relevant in prior lawsuits that involved similar claims and what information was requested during discovery or entered into evidence in prior similar lawsuits, either against you or against someone similarly situated if you have access to that information. Local courts, court rules and practices can also be very useful, particularly how the judges in your jurisdiction have interpreted the civil rules of discovery. Discovery orders previously issued in similar lawsuits by the same judge, even under different circumstances and completely different facts can still be informative. Give you a general flavor of how the judge likes to rule on disputes and what his expectations are, and preservation demand from your opponent, if you're lucky enough to have received one. There's sometimes a tendency to limit the scope of preservation to what has been indicated in a prior discovery order or listed in the preservation demand letter. Although those are pertinent to the inquiry, the scope of a defendant's or any parties duty to preserve is usually broader than what an order or a preservation demand letter indicates and remember, the information that must be preserved can change as the lawsuit evolves. The next slide breaks down the scope of discovery and federal lawsuits as defined by rule 26B1 of the federal rules of civil procedure. This rule includes the factors that courts use to determine whether discovery sought is proportional to the needs of a given case. To be discoverable in subject to the duty to preserve, information must be relevant to any claim or defense and proportional to the needs of the case. The version of federal rule 26B1 that is reflected on this slide took effect in December, 2015. Previously, the proportionality requirement appeared in section B2C3 and the proportionality requirement was easily overlooked. By moving it to section B1, the drafters hoped that it would eventually reign in overly broad and very expensive discovery and preservation efforts that parties were dealing with while still ensuring fairness to all parties. Not all of these factors will apply in every case and some may have a bigger impact than others. For example, monetary damages may be low in some civil rights lawsuits but the outcome will affect many non litigants. A court will give a low amount in controversy, little weight in its proportionality and analysis. In a straightforward slip and fall lawsuit with nominal damages, the low amount in controversy will certainly factor in favor of limiting discovery. There are quite a few published discovery opinions applying these factors and different types of cases with various fact patterns. Generally, courts have used a sliding scale when determining whether discovery and consequently preservation is proportional in a case, the more important the information is to proving the claim or defense, the more likely the court will order its disclosure, even when the process of locating, processing and introducing the information and producing the information will be costly. However, when damages are minimal or the discovery sought is relatively unimportant, proving the claims or defenses, then a party should not be required to incur huge expenses to locate and preserve that information. Take legacy information residing in old dormant computer systems. If damages are significant, the legacy information is, and the legacy information is directly pertinent to a party's claims and there's no other way to obtain the information. A court may very well order that the legacy system be restored and relevant information from it be produced. A last note on this topic, most states have revised or are in the process of revising their own civil discovery rules to be more in line with federal civil rule 26, but some states civil discovery rules still appear to support a broader scope of discovery in preservation, particularly those that still contain the phrase reasonably calculated to lead to the discovery of admissible evidence and changes to rule 26 have not obliterated the impact of decades of discovery opinions. In fact, some recent court opinions, quote the old rule 26 language and rely on opinions that were decided by applying old versions of the civil rules and old common law standards. The bottom line is that litigation council must be aware of the applicable discovery rules and preservation obligation and if a discovery or preservation dispute rises, be prepared to argue why the scope is broader or narrower than opposing counsel believes it to be. That is when the proportionality factors will come into play. As I mentioned, the increased emphasis on proportionality has resulted in a multitude of discovery opinions issued since 2015 that apply the factors to determine whether the discovery at issue is proportional, given the issues, facts and circumstances in each particular case. A few of those opinions are listed on this slide. Before I discuss these cases, I do want to warn that any party who makes a unilateral proportionality determination of what to preserve for a pending lawsuit is taking a big risk. Judges prefer that parties share their proportionality concerns with each other and try to reach an agreement on the scope of preservation and discovery and if an agreement cannot be reached, the only way to avoid the risk of sanctions is to submit the issue to the court, ask the court for permission. Okay, now the first case listed is versus GM and this is a product liability lawsuit after a vehicle had rolled over causing injuries. Plaintiff in this case sought all finite element models depicting the roof and pillar structures of the subject vehicle and plaintiff articulated that he thought such information might be helpful to his claims. GM argued that its finite element models were trade secrets and their discovery was neither reasonable nor necessary, especially given that GM had already produced over 150,000 pages of information to plaintiffs, including CAD design files and other documents that discuss finite element modeling results. The court weighed the proportionality factors and determined that discovery of finite element models was not proportional in this case, given the amount of information that GM had already produced, the trade secret nature of the models and the ability of plaintiff's expert to conduct his own modeling of the vehicle at issue. The court held that it cannot conclude at this juncture that access to the FEA models themselves are so central to the claims and dispute that their discovery must be compelled. This is different from the result in Wood versus Pickar Inc which is another product liability lawsuit rising from a collision between a passenger vehicle in a Peterbilt model 579 semi truck which was designed and manufactured by the defendant. Plaintiff sought finite element analysis models and Packar produced some responsive information, but otherwise objected that the discovery request was overly broad and unduly burdensome. The court overruled Packar's objections and found that, and stated that Packar has only made conclusory statements regarding the burden that might be imposed upon it in producing the requested discovery, more specifically, although defendant notes that proportionality takes the six factors into account, the car has provided almost no evidence or argument regarding any of these considerations in assessing the proportionality. So two different cases, somewhat similar fact patterns, very similar discovery request and two completely different outcomes but a lot of that likely had something to do with the facts, the arguments that were asserted by counsel and the evidence that was offered to the court to establish the burden of producing the FEA information. The last two cases that are listed are both pharmaceutical devices cases. The first one is multi-district litigation against the medical device manufacturer who made IVC filters. Plaintiff's sought discovery of ESI that had been generated by the defendant's foreign subsidiaries that sell this particular medical device overseas. Plaintiff's claimed that they needed this information to determine whether defendant's communications with American regulators were consistent with the communications it had with foreign regulators. The court found that the discovery was only marginally relevant to the plaintiff's claims and that the proportionality factors weighed against the discovery. However, in the last case that's listed there, which involved product liability for hernia mesh devices, the Southern district of Ohio court found the opposite. Here, plaintiffs again, sought communications between defendant and certain foreign regulatory authorities regarding safety and labeling of the product at issue. The court held that the proportionality factors in this case weighed in favor of an order compelling discovery of the requested information. The court contrasted this result from that in the barred IVC filters case as in this case, the defendants had not presented the court with any evidence with regard to the burden of production. Instead, they merely assert that the requested discovery would be burdensome and costly but offered no evidence to establish the amount of time or money that would be required to produce the requested information. So these cases collectively illustrate how difficult it is to make a preservation decision and why a good faith discussion with opposing counsel, if possible, is usually the preferred way to handle disagreements or uncertainty about the scope of preservation and or discovery obligations, Marguerite will now take over to discuss legal holds.
- Now that we know what the duty to preserve is, when the duty is triggered and the scope of the duty, we need to discuss how a party meets its obligations. So the primary way a party satisfies the duty to preserve is by issuing a legal hold. Sometimes that's also called a litigation hold, a legal hold suspends the ordinary disposal of records and information relevant to the subject of the hold for an indefinite time period until the hold is lifted. Now, instead of, or in addition to the legal hold, counsel may also elect to collect or copy potentially relevant records. The far more common practice though is to issue an actual legal hold. A legal hold should be issued when the duty to preserve arises as a result of pending or reasonably anticipated litigation which Brandi covered earlier, it also should be issued in other circumstances that may require retention of information beyond its normal retention period. So a couple examples of that are in different business transactions, like a merger, a divestiture or an acquisition. You also can have those circumstances though if it's required by a settlement or a court order in litigation. Before we get into the details of the legal hold process, I wanted to point you to one helpful resource which is the Sedona Conference Commentary on legal holds. So the commentary provides some really useful guidelines that I'll be referencing throughout the next few slides, specifically guidelines two, three, eight, nine and 10 are really helpful. The guidelines are also reflected in the legal hold handout that was distributed with the course materials and the full commentary can be found on the Sedona Conference website. Okay, so how do we implement a legal hold? Generally, a legal hold is implemented through issuance of a legal hold notice. Now, as I kind of referenced before, that might be done in conjunction with other actions such as going out and gathering potentially relevant information, but not necessarily. So a couple things about that notice or a few things about that notice, the notice should be provided to key custodians most likely to have discoverable information. Now this may require interviews with various employees, both to identify people with knowledge of potentially relevant information and to identify storage locations and also technology capabilities or limitations that might impact how that hold gets implemented. So that's very important. You're not only identifying people in systems where the information is but any sort of things that might make the implementation difficult technology wise. Now the notice should also include clear instructions on what must be preserved and how to preserve it. These clear instructions really remove the need for employees to make judgment calls which judgment calls may be right, they may be wrong. So clear instructions are super important. Now, along with that, the notice should also identify an individual who can answer questions about the hold. So no matter how clear you make it, you're going to have people that have questions about it and it's important to have a point person to answer those questions consistently. The entity should also require acknowledgement that the notice has been received, read and understood. So this isn't something that people can just kind of file away and not think about. They need to acknowledge that they understand the hold, they understand their obligations under the hold. So after that legal hold notice is drafted and implemented, it shouldn't just be set aside and forgotten for a lot of reasons, but the entity should periodically review and amend the hold, as the litigation progresses, the issues in the case may develop and change in ways that make the initial hold insufficient or incomplete, either in the content. So what is required to be preserved but also in the custodians, you know, as the litigation progresses, there may be new custodians that need to be added to that hold. The entity should also send periodic reminders so that the hold isn't forgotten about and so custodians are reminded of the scope of the information that must be preserved. Litigation can go on, you know, for years. So you don't want this hold issued, you know, at the beginning of litigation and two, three years later, it's still going on and people have forgotten about it. So it's important to send those reminders. Now I reference those Sedona Conference Guidelines, guideline eight goes through the content and the process for the legal hold notice and then guideline 10 kind of reflects that notion that compliance with the legal hold notice should be periodically monitored. So a few other considerations to think about, the best practice is really to have a documented process for issuing a legal hold by adopting and consistently following a policy governing its preservation obligations, an organization demonstrates that it takes this duty seriously and that it acts reasonably and in good faith when the duty to preserve arises and that notion's really reflected again in Sedona guideline number two. So a legal hold policy may be part of a record retention policy or it can be a completely separate policy from that policy, either way, it should include a clear definition of what a hold is and outline how a hold will be implemented. Clear definitions and instructions in the policy and hold notice will help an entity defend its preservation actions by bolstering the reasonableness of its efforts if the entity loses information that should have been retained. So having those documents if something goes wrong, are good things to point to to show reasonableness. Now there's really no requirement that a legal hold notice be in writing. A small company with only a few employees may choose to verbally notify staff of the legal hold and that could be sufficient, you know, depending on the circumstance. However, the best practice really is generally to document that legal hold. Issuance of the legal hold is more than just sending out a form letter. So you need to kind of anticipate what questions might come up and consider that legal hold process as an ongoing dialogue with the custodians and with everyone that's part of issuing that legal hold notice. Compliance should be monitored. You need to stay alert, make sure, you know, if you see clues that personnel are not fully complying with their obligations as identified in the hold notice, then you might need to dig a little deeper and make sure that things are being done properly. You also need to release the hold when you no longer have a duty to preserve. I mentioned before how that duty to preserve could change and you had to kind of update the legal hold notice. Well, the scope of the hold may narrow over time, allowing certain information to be released. So it's not just broadening, but it could also narrow. If you do decide to release some information that was previously under the hold, you probably should document that decision again so you kind of know what the reasoning and rationale is and it's clear, you know, why you did it if that decision is someday challenged. Sedona Guideline nine advises that an organization should consider documenting the procedure of implementing the legal hold in a specific case when appropriate. This also includes the decision to issue or not issue the legal hold and there are a number of considerations in deciding whether or not to issue a legal hold. It's really a balancing act of the risks of not issuing the hold versus the potential cost of the hold. Those costs can include lost productivity and disruption of business as well as IT expenses and diversion of human resources from other important tasks. So if they're focusing on implementing legal hold, it's taking away from something else. So that is a potential cost. Another consideration is that employees who receive a lot of legal hold notifications might just start to ignore them. So they may see them as white noise and then the legal hold really doesn't become effective anymore. If the rationale supporting the decision to issue or not issue a legal hold is documented, it can become evidence that a good faith and reasonable evaluation was conducted. So again, if there's an issue, you have that documentation to help support your reasonableness. Some other things that you might wanna consider documenting, the decision of what or who to include. So the scope of what's being held, the decisions around that, as well as who those custodians are, any modifications of those decisions. So if there's a change again to the scope of the hold or there's a change to the custodians, you might wanna document those decisions, any decisions to release records from the hold. I mentioned that earlier, your rationale and your reasoning for why you're releasing those records from the hold. Also any follow activities or reminders that go out, those are also things that you might wanna consider documenting. So what is the role of counsel in the legal hold process? The traditional role of counsel is that they're to provide advice regarding the client's duty to preserve discoverable information, its possession, custody and control. They're also to provide advice regarding the possible consequences, if information is not preserved but there's this new emerging role that's reflected in a growing body of federal cases, with this new role, attorneys have an independent duty to monitor, supervise and or participate in a client's efforts to comply with the duty to preserve. So it's not just advising but it's more of an active participation. Failure to satisfy The independent duty may result in sanctions on either the client or the council, or it could also result in a malpractice claim. This new role was contemplated by the advisory committee in its notes to the 2015 amendments in its statements regarding the importance of counsel becoming familiar with their client's information systems and data, just a couple of quotes to kind of illustrate the changing role. From a 2010 case, the Orbit-1 one case out of the Southern district of New York. In that case, they said the duty to preserve runs first to counsel, who has a duty to advise his client of the type of information potentially relevant to the lawsuit and of the necessity of preventing its destruction. So again, you have that advising role. Go to 2016, a case, again out of New York, but the Eastern district of New York, Sunderland versus Suffolk City. In that case, they said, counsel is obligated to supervise and oversee the search for and production of electronically stored information and documents. So not just advising, but supervising and overseeing that process. Another case out of New Mexico or New Mexico district court, again in 2016, broader versus the city of Albuquerque, council must go beyond mere notification and take affirmative steps to monitor compliance. So again, a much more active role. The danger of not adequately fulfilling this role is illustrated in the Lokai Holdings case, which is also out of the Southern district of New York in 2018. In that case, the defendant improperly handled the lawsuit. So after receiving a cease and desist letter, they failed to seek the advice of counsel or issue a legal hold notice until the lawsuit was filed. So that cease and desist letter gave rise to the duty to preserve, but they failed to do anything about it at that time. When they finally did issue the legal hold, they did not implement it properly. Defense counsel also made some mistakes there. They failed to explain the types of information that should be preserved. They failed to oversee compliance with the legal hold and they failed to monitor their client's preservation efforts. So they really didn't take any sort of role in making sure that this was done properly. Plaintiffs ended up filing a motion for sanctions after discovering that relevant information had indeed been lost and the court granted that motion and sanctioned the defendant with an order to pay plaintiff's attorney's fees and an evidence preclusion order. Although defense counsel was not sanctioned, they were called out in the opinion. So the court said that defense counsel's perfunctory reminders to their clients of their obligation to preserve relevant documents weren't adequate. The court also noted that defense counsel did not understand the limitations of their client's email system which contributed to the loss of the relevant emails. Next I wanna talk about the legal consequence of not adequately preserving records once litigation is reasonably anticipated. Everyone really should understand what potentially could be at stake. So, failure to meet the duty to preserve may result in a claim of spoliation and spoliation is the destruction or failure to preserve evidence potentially relevant to pending or reasonably foreseeable litigation. Now, evidence in this context, it can include paper, documents or electronically stored information, as well as physical objects depending on the case, spoliation may be alleged when a party is unable to provide information that its opponent requests during discovery. So if the information doesn't exist and they cannot provide it, a party's gonna raise this spoliation claim. If the court agrees that spoliation has occurred, it can impose sanctions and those sanctions can take a lot of different forms depending on what the conduct was and I'm gonna discuss some more specific examples later but a sanction could be an adverse inference. So an instruction to the jury to infer the worst from the missing information, attorney's fees, striking of certain defenses or even a finding of liability or default judgment, which would be the worst sanction. So generally, a party seeking exfoliation sanctions must show three factors. First, that the party having control over the evidence had an obligation to preserve it at the time it was destroyed. Second, that the records were destroyed with a culpable state of mind and third, that the destroyed evidence was likely relevant to the party's claims or defenses. So that's what they have to show to get a claim of spoliation to be successful. So this is a pretty scary concept for an organization that has a lot of digital or electronic data, but fortunately, federal civil rule 37E limits sanctions for loss of relevant electronically stored information, ESI, to situations where the information is actually lost. So if it's difficult or costly to access, it's not lost. So the information has to be completely gone, where the information should have been preserved, where the party failed to take reasonable steps to preserve it and the lost information cannot be restored or replaced through additional discovery. So if you can get the information through other discovery methods, such as depositions or subpoenas to third parties, then that wouldn't qualify and then finally, where the requesting party is actually prejudiced by the loss of the information. Rule 37E also states that if these elements are met, the court may order measures no greater than necessary to cure the prejudice and that case termination sanctions and presumptive jury instructions, again, that the information would've been favorable to the requesting party may only be issued if the lost ESI was destroyed with the intent to deprive another party of its use. So it limits kind of when the court can go to those most extreme sanctions. Regardless, sanctions should not be an issue if you follow a lot of what we said today, if relevant information is promptly preserved by issuing a legal hold notice adhering to the guidelines that we've discussed today when litigation is first anticipated. Okay, so next I wanna walk you through just a few spoliation examples, the first case, Stevenson versus Union Pacific Railroad out of the eighth circuit in 2003. So this case involved a train and car collision that killed one person and left another severely injured. So it was a pretty tragic case. Before the litigation was started, the railroad destroyed voice recordings of communications between the train crew and the dispatchers on the date of the collision pursuant to its routine document retention policy. So these were the communications that happened at the time of the collision, destroyed under their policy. They also destroyed some track maintenance records, both before the litigation started and after the litigation started, again, following their document retention policy. The court found that the document retention policy was not unreasonable or instituted in bad faith but it also found that it was unreasonable and bad faith for the railroad to adhere to the policy in light of the collision and the clear relevance of those tapes to any potential litigation. So there was a lot of prejudice to plaintiffs as a result of the destruction of those tapes which the railroad should have known would've been very relevant to any future case, and given the commencement of the litigation, plaintiff's request for production and the relevance of those maintenance records that they destroyed after the litigation was commenced, so that was unreasonable and bad faith for them to follow their policy in those circumstances. Now, with regard to the maintenance records that were destroyed pre-litigation, the court found that those were from two years prior to the date of the collision and did not show the condition of the track at the time of the collision. So there was really no prejudice there. So with the destruction of those records, there was no exfoliation issue there, but the court did in regards to the other two, the tapes and the maintenance records that were destroyed after the litigation was pending and they had pending requests for that information, the court did order sanctions in the form of an adverse inference jury instruction. So this case really does illustrate, you know, the point of you can't just follow your record retention policy. You do need to consider the duty to preserve what, you know, cases are reasonably anticipated and you can't just follow your record retention policy and depend on that because there could be other reasons that you need to retain the information. Okay, so the next case is the Alabama Aircraft versus Boeing case, which is a Northern District of Alabama case in 2017. So this case involved a dispute over a military contractor bid. The unsuccessful bidder, which was Alabama Aircraft sued the contractor who won the bid, Boeing, alleging misuse of Alabama Aircraft's proprietary information. So some cost information, pricing information and bid methodology to secure the bid. Alabama Aircraft and Boeing originally had an agreement to submit a joint bid. So Alabama aircraft said, "Hey, we had that joint bid, you had our proprietary information and then you went and you used that to actually secure the individual bid." So there were two spoliation issues in this case, one that resulted in sanctions and one that did not result in sanctions. So the first spoliation issue that did result in sanctions involved the ESI of the CFO of Boeing support systems division. After the agreement to submit the joint bid had terminated, Boeing instituted a firewall regarding Alabama aircraft's ESI that was still in Boeing's possession. So all the ESI was to be delivered to Boeing's legal department and put behind this firewall. Two employees, who had both removed and preserved ESI from their own computers, helped the CFO with his information. However, instead of preserving it, they ended up deleting it and did not save it. So the court there looked at that and said, "Well, Boeing had a duty to preserve the ESI and the ESI cannot be restored or replaced." And even though it wasn't a hundred percent clear why the employees deleted it rather than saving it, the court said that they intentionally destroyed it in violation of the firewall plan and that was in bad faith because the employees had already removed and preserved their own ESI, there was really no explanation for why they deleted the CFO's ESI instead of saving it. So the court saw that as bad faith. Given that bad faith, Boeing did not show lack of prejudice, did not have to show lack of prejudice, the prejudice is inferred. So in that case, the court ordered an adverse inference jury instruction that the jury may presume that the lost information contained in the CFO's ESI was unfavorable to Boeing. The second spoliation issue that did not result in sanctions involved the ESI of an analyst who assisted in writing Alabama Aircraft out of the joint bid to convert it into a Boeing bid. So this is the analyst who was writing the conversion from the joint bid with Alabama Aircraft and Boeing to just the Boeing bid. The analyst complied with the firewall and got any of its ESI behind that firewall in the legal department. But what happened there is the in-house Boeing attorney who set up the firewall and was designated as the custodian for the Alabama Aircraft ESI, he removed two CDs which included the analysts ESI. He didn't recall why he had removed them and then they were subsequently misplaced. So they could not find these CDs that included the analysts ESI. So in that situation, the court said, "Well, Boeing did have a duty to preserve the information and the ESI cannot be restored or replaced." But the court really couldn't say that the loss was deliberate or in bad faith because they didn't know what happened. No one knew where the CDs were and there was really no explanation whatsoever. So in that situation, there was no real prejudice too because the analyst really wasn't involved in pricing or cost and Alabama Aircraft didn't even depose him regarding the missing information. So you couldn't say that they were prejudiced by not having that analysts ESI. So again, in that situation, there was no sanction. So that case is a good example of really, you know, two different situations, one resulting in a sanction and one not resulting in a sanction, even though in both situations, I think there could be an argument that it really was just a mistake, but one, because of the fact that, well, these employees knew what they should have done 'cause they did it with their own. There was kind of like no explanation that made sense other than bad faith. Whereas the second one, you know, there was really no explanation whatsoever. So they couldn't say, and there was no prejudice to Alabama Aircraft 'cause they never even deposed the analyst regarding the information. The last spoliation case I wanted to go over was the Lokai Holdings versus Twin Tiger case, which is a Southern District of New York case from 2018. This case was a trade infringement case related to the manufacturer of some silicone bracelets. So the defendant in this case failed to take steps to preserve emails both before and throughout the entire litigation. The defendant had a contract with an email service provider where it had some limited storage that resulted in emails being deleted from the system by the users on a regular basis so they wouldn't hit up against those storage limits. The result there was about a month worth of emails were kept without running up against the storage limit. So the defendant attempted multiple times to upgrade the storage and archiving capabilities with the service provider but it never actually confirmed that it was happening and of course it wasn't. So the users continued to delete their emails thinking, you know, that they were covered by the upgraded system, but they weren't. So the result in that case was that the emails were not properly archived until over two years. It was 25 months after the defendant had a duty to preserve that information and it was 19 months after the complaint was filed. So the complaint, the clear duty to preserve at that point, the emails weren't preserved until 19 months after that. In that case, the plaintiff sought default judgment. So the most severe form of sanctions and dismissal of the defendant's counterclaim. So the case was basically gonna be over if that was granted but instead, the court ordered that the defendant had to pay plaintiff's attorney's fees associated with raising the issue of the ESI not produced and then also seeking to substitute discovery via third party subpoenas. So they had to pay all of those fees and the fees in bringing the motion for sanctions. So they had to pay quite a bit of the plaintiff's attorney's fees which were all resulting from this loss of information. The defendant was also precluded from offering testimony regarding the content of any unpreserved emails, including testimony that the emails would've supported any elements of their defenses. So even though they didn't get the most severe form of sanctions, they were sanctioned pretty significantly in terms of the monetary, you know, having to pay the plaintiff's attorney's fees and then also in not being able to provide any testimony regarding those missing emails. So those are three examples of just what could happen, different circumstances and different situations and why it's really important to make sure that you're meeting your duty to preserve, you're implementing your legal holds properly and taking all of those steps necessary and you know, not just, you know, sending out a notice and forgetting about it, but making sure you're following up on it, making sure that people are doing what they're supposed to do and hopefully you can avoid being the subject of one of these decisions. If you have any questions regarding anything we covered today, please feel free to reach out to either Brandy or I and we will do our best to answer your questions. Thank you.