November 18, 2015 | Tips and Tools
A Quick Guide to Legal Holds
Litigation in federal courts across the country is governed by the Federal Rules of Civil Procedure. Amendments to those Rules will take effect on December 1, 2015 absent action from Congress. While most of the amendments impact discovery and other procedures routinely handled by outside counsel, the changes to Rule 37(e) should be understood by inside counsel and business executives alike because they affect document preservation duties which are often handled in-house.
The amended Rule 37(e) highlights the importance of swift action to preserve electronically stored information when a dispute arises. Put simply, the Rules previously gave companies a safe harbor from sanctions if they accidentally lost information relevant to litigation because of the routine operation of their data systems—for example, because the data was automatically overwritten. Not so after December 1.
Under the amended Rule 37(e), if a company fails to preserve information that should have been kept, and the other side is prejudiced, the company can face various sanctions, which can be very costly both in terms of money and litigation strategy. Robust “legal holds” are essential to protecting your company from sanctions and ensuring compliance with your discovery obligations. Here are the basics:
What is a legal hold? A legal hold is simply a memo that provides a brief explanation of the key facts and issues of a potential dispute, describes the scope and type of documents and data that should be preserved, and instructs your employees how to save them.
When should I send a legal hold? The duty to preserve information arises when a dispute is reasonably anticipated, and not simply when a lawsuit is filed. For example, the duty to send a legal hold would be triggered by receipt of a demand notice or the decision to file a lawsuit.
Who gets the legal hold? Every person in your company who is likely to have access to or control over information relevant to the dispute should receive the legal hold.
Who sends the legal hold? The best practice is for outside counsel or in-house attorneys to issue the legal hold so that its contents are privileged and the hold satisfies the requirements of the amended Rules and needs of the litigation.
Should IT be involved? Yes! The IT Department is essential to preserving data and avoiding destruction of information, and they should be notified as soon as litigation is reasonably foreseeable. Complying with amended Rule 37(e) requires suspending the document retention policy, automatic deletion of email and data, and automatic maintenance of hard drives and servers (such as wiping, defragmenting, and formatting) for relevant data. Because of the technicalities of these tasks, Cheng Cohen’s form of legal hold includes specific instructions for IT.
What should be preserved? Amended Rule 37(e) requires that “reasonable steps” be taken, but does not require perfection. The goal is to be proactive and show the court that you took immediate and appropriate steps to preserve data. Notably, amended Rule 37(e)’s “reasonable steps” requirement is ambiguous, and we expect judicial action to clarify what steps are “reasonable.” However, there is no doubt that issuance of a legal hold is a baseline requirement. The Rules are also designed to discourage over-preservation and instead focus on proportionality of the cost of preservation (and recovery) to the value of the litigation and the importance of the issues at stake.
Do I really need to send a legal hold for every dispute? Yes. Aside from the amendments to the Rules, we are seeing an increase in claims that one party destroyed evidence, and those claims are costly to defend, distract from the merits, and can have serious consequences. Case-appropriate, but complete, legal holds are critical to limiting your exposure to such claims.
For questions or more information regarding this Alert, please contact us.