Breaking for Legal Holds: How to Read the Signals: Seven Scenarios Offer Examples of Events That Signal the Need to Stop Disposition of Records in Anticipation of Litigation

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Since the revised Federal Rules of Civil Procedure (FRCP) took effect on December 1, 2006, companies have been struggling to understand litigation, or legal, holds. As evidenced by the extensive downloading of ARMA International Educational Foundation's online research reports related to legal holds, most organizations don't know how to read the signals and slam the brakes on their information disposition.

Under the revised FRCP, organizations recognize that they must hold from destruction all relevant electronically stored information (ESI). Case law has shown that the consequences for untimely destruction of ESI can be dire for any organization, irrespective of size. Add to this already daunting task the responsibility to determine what is considered foreseeable, potential, or anticipated litigation, and it is no wonder that organizations are searching for clarification.

When does the duty to preserve attach for potential or anticipated litigation? The following scenarios provide salient examples of events that should inform the decision on when to pull the litigation hold trigger. From these scenarios, a company's own retention decisions can be derived on a case-by-case basis.

Triggering Events for Pending Litigation

With respect to pending litigation, legal holds come into play when the lawsuit has been served or discovery demands have begun. Specifically, this duty to preserve evidence is triggered by summonses, court orders, and discovery. Each of these events should be represented by a formal document, which is tangible and discernible. Thus, the triggering events for a pending litigation hold are, in general, more clear-cut than in cases of potential or anticipated litigation. The edict is dear: Once the lawsuit, discovery, or some court order or agency demand has been served, an organization must place a legal hold on relevant information, including ESI, that is related to the lawsuit.

According to Tulip Computers International B.V. v. Dell Computer Corp., "... once Dell had knowledge of the case, it had an affirmative obligation to preserve potentially responsive documents ...". Trigon Ins. Co. v. United States states that a party has a duty to preserve documents once the party "has notice (by a discovery request, by the provisions of a rule requiring disclosure or otherwise) that evidence is necessary to the opposing party's claim.

Triggering Events for Anticipated Litigation

Pre-litigation legal hold decisions are more complicated than those made when the lawsuit is already pending or in cases where counsel has sent a notice letter prior to filing the lawsuit. Where there is no such letter or notice, companies must make a judgment call for when the duty to preserve attaches. Although case law has not revealed a discernible pattern regarding when to issue litigation holds for potential or anticipated litigation, some general guidelines are apparent. An analysis of pre-litigation or anticipated litigation trigger issues includes several scenarios.

Scenario No. 1: Creation of List of Potential Opponents Before Filing Lawsuit

One instructive example on how unpredictable the doctrine of spoliation can be, especially in the pre-litigation scenario, arose in an intellectual property case. Courts in Virginia and California reached dramatically different conclusions about whether a technology development company had engaged in actionable destruction of documents under the same set of underlying facts.

In Hynix v. Rambus, as well as in Rarnbus v. Infineon and Samsung v. Rambus, Rambus had created and implemented a retention policy in conjunction with its intellectual property defense strategy. The defense strategy included the creation of a list of prospective opponents. Once the policy and defense strategy were in place, Rambus employees participated in office "shred days" for at least two years before filing its patent infringement claims. …