Records Management: Litigation Holds
Below are examples of when the duty to preserve relevant materials is triggered.
Generally, When Litigation or an Investigation is "Reasonably Anticipated"
The duty to preserve materials arises when a party acquires notice or should know that the materials are relevant to an existing litigation or investigation, or to reasonably anticipated future litigation or investigation. "Reasonably anticipated" is the consensus standard that is emerging from the case law and commentary. There is no bright-line rule indicating when a party should reasonably anticipate a lawsuit or investigation. Therefore, determining whether a party should reasonably anticipate litigation is a fact-intensive inquiry, and involves application of the factors discussed below.
When Known Facts Suggest That Litigation Will Likely Arise
In some circumstances a litigation hold notice should issue before the initiation of a formal proceeding.
A pre-litigation dispute where legal proceedings are reasonably anticipated will trigger the obligation to preserve materials. Examples found in the cases include a former employee claiming employment discrimination, and a rejected job applicant who filed a complaint with a human rights commission.
Specific or repeated inquires or complaints about an issue may also trigger the need to consider whether a litigation hold should be issued.
When a contract was terminated by one party during a dispute (the facts of which suggested that litigation was probable), one court held that an adverse-inference instruction might issue because the defendant erased files relevant to the work done under the contract.
In another contractual dispute, the court held that the defendant was on notice after prelitigation meetings that failed to resolve a dispute over a software licensing agreement.
Another case held that once a terminated employee's threat to file a class action gender-discrimination suit filtered up through management, the company was on notice that litigation was likely and should have retained documents.
Receipt of a Written Claim or Consumer Letter That Expressly and Credibly Threatens Suit
Receipt of a written claim or consumer letter that expressly and credibly threatens suit can be the trigger. Not all consumer complaints will, however, require the issuance of a preservation notice. For example, a letter that only vaguely references a possible lawsuit or simply brings a matter to the company's attention may not require a notice. Similarly, a mere demand or request for a refund, with no specific or contextual allegation of an ongoing injury or wrong, does not need to be treated as a demand letter. The determining factor is whether or not the allegations expressed in the correspondence are credible and suggest that litigation is reasonably anticipated. Receipt of an attorney letter expressly and credibly threatening suit will also trigger the duty.
When a Plaintiff Decides to File Suit
Courts have held it to be improper for a plaintiff to destroy materials in the period after it makes the decision to file suit but before the complaint is actually filed. When determining whether to apply sanctions, the courts evaluate whether the party in question "knew or should have known" at the time of destruction that litigation was a "distinct possibility."
When a Summons and Complaint is Received
In many instances, a summons and complaint is received with no warning whatsoever. In such cases, service of the summons and complaint will constitute the first notice to the company. The institution of a "proceeding" with any administrative or judicial body such as the Equal Employment Opportunity Commission or similar tribunals likewise triggers the requirement to issue a litigation hold notice, although the scope of the preservation requirement may be narrower than if suit is ultimately filed.
When a Company is First on Notice
The duty to preserve attaches immediately once the company is on notice. Once an investigation or lawsuit is reasonably anticipated or a complaint is received, the requirement to preserve materials attaches, and preservation efforts need to be undertaken as soon as possible. There are no cases that provide definitive guidance as to how quickly litigation hold notices must be sent once the duty is triggered, but any such case will be evaluated in hindsight, i.e., after relevant materials have been destroyed, and very little if any delay is likely to be tolerated by the courts.
When Representatives Know of the Possibility of a Lawsuit
A company is generally deemed to know when its representatives know. Individuals within an organization may learn of the possibility of a lawsuit at different times. A company will be deemed to know that litigation is likely when more than one or two relevant individuals within the company know. When litigation is anticipated by individuals who eventually might be "key people" to that litigation, a litigation hold notice may need to be issued. Regular communication between the business leaders and legal personnel should be encouraged, in order to determine whether in fact a notice needs to be issued and to ensure that relevant materials are preserved.
Anticipation by Legal Counsel of a Lawsuit or Investigation
Legal counsel may learn through various sources, including the media, consultants, and employees, of facts that suggest litigation or an investigation is a reasonable possibility. Consider indicating to outside counsel in advance not to send courtesy copies of claims (or claims specific to certain subject matter). Receipt of such may require preservation before preparations to take the necessary steps have been made.
- Fulbright and Jaworksi L.L.P., Records Management and Best Practices in E-discovery.
- Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 436 (2d Cir. 2001). See also Convolve, Inc. v. Compaq Computer Corp., 223 F.R.D. 162, 175 (S.D.N.Y. 2004) ("The obligation to preserve evidence arises when the party has notice that the evidence is relevant to the litigation or when a party should have known that the evidence may be relevant to future litigation.")
- Capellupo v. FMC Corporation, 126 F.R.D. 545 (D.Minn. 1989).
- See Metropolitan Opera v. Local 100, 212 F.R.D. 178, 230 (S.D.N.Y. 2003), denying reconsideration and adhering to previous rulings 00 civ. 3613, 2004 U.S. Dist. LEXIS 17093 (August 27, 2004); Wm. T. Thompson v. General Nutrition Corp., 593 F. Supp. 1443 (C.D. Cal. 1984) (entering default judgment where company destroyed electronic and hard copy documents).
- Blinzler v. Marriott Int'l Inc., 81 F.3d 1148 (1st Cir. 1996) (finding that the plaintiff's repeated questions regarding the timing of an emergency call should have put a hotel on notice that litigation was likely regarding the call); Computer Assoc. Int'l v. American Fundware, Inc., 133 F.R.D. 166, 168-69 (D. Colo. 1990) (finding that where one software company made it explicitly clear to another in a pre-litigation meeting that it believed the second company was copying its source code, the second company was put on notice that litigation regarding the source code was reasonably foreseeable and it therefore had a duty to preserve the code).
- See ABC Home Health Servs. v. IBM Corp., 158 F.R.D. 180 (S.D. Ga. 1994) (IBM destroyed computer files that it should have known might be relevant to a possible litigation, where its employees had consulted with in-house attorneys regarding communications it received from the plaintiff. The court did, however, refuse to enter a default judgment against IBM who acknowledged destroying the relevant project files.).
- Computer Assoc. Int'l, Inc. v. Am. Fundware, Inc., 133 F.R.D. 166, 168 (D. Colo. 1990).
- See Fujitsu Ltd. v. FedEx I, 247 F.3d 423 (2d Cir. 2001).
- See Struthers Patent Corporation v. Nestle Co., 558 F. Supp. 747, 758-59, 765 (D.N.J. 1981).
- Id. at 756.
- Zubulake IV, at *9-10 (stating that defendant should have known that documents were relevant to future litigation when a former employee filed a complaint with the Equal Employment Opportunity Commission); Byrnie v. Town of Cromwell Bd. of Educ., 243 F.3d 93, 108 (2d Cir. 2001) (indicating that defendant should have anticipated suit when a rejected job applicant filed a complaint with the Connecticut Commission on Human Rights and Opportunities). See Mosaid Tech. Inc. v. Samsung Electronics Co., 348 F. Supp. 2d 332 (D.N.J 2004) (court granting sanctions in the form of an adverse inference and monetary sanctions: "the duty to preserve exists as of the time the party knows or reasonably should have known that litigation is foreseeable... At the latest, in this case, that time was...when Mosaid filed and served the complaint.").
- Zubulake IV at *11 (stating that "merely because one or two employees contemplate the possibility that a fellow employee might sue does not generally impose a firm-wide duty to preserve. But in this case, it appears that almost everyone associated with Zubulake recognized the possibility that she might sue.").
- Zubulake IV at 11-12 (noting that e-mail traffic between current employees regarding the former-employee plaintiff were labeled attorney-client privilege, but not copied to an attorney, indicated that those employees anticipated litigation); Byrnie v. Town of Cromwell Bd. of Educ., 243 F.3d 93, 108 (2d Cir. 2001) (finding fault with defendant where in its response to a complaint filed with a state agency it offered the same information that was requested in a subsequently filed lawsuit, but had been destroyed.) There are some exceptions to this immediate attachment rule. For instance, in Computer Assocs. Int'l v. American Fundware, 133 F.R.D. 166, 169 (D. Colo. 1990), the court stated that the defendant had a duty to preserve the relevant computer source code at least 20 days after the Complaint was served. This was because the defendant would have had to file some sort of answer to the Complaint within 20 days after its receipt.
- See generally Zubulake IV, 2004 U.S. Dist. LEXIS 13574 (S.D.N.Y. Jul. 20, 2004); Capellupo v. FMC Corp., 126 F.R.D. 545 (D.Minn. 1989).