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2016 Mitigating Risk: Key Litigation Developments

Commercial Litigation: Procedural Issues >> Best Practices for Legal Hold Notices

April 5, 2016

With a change in the Federal Rules of Civil Procedure concerning sanctions for destruction of electronically stored information (ESI), it is a good idea for companies to ensure that their form legal hold notices and protocols for distribution are in line with best practices.

A company should circulate a legal hold notice when an audit, investigation, claim, or litigation is reasonably foreseeable. It must be in writing and should be labeled PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT AND/OR ATTORNEY-CLIENT COMMUNICATION. It must state the reason for the legal hold and specify the types of documents, including ESI, that are relevant to the facts and circumstances that prompted the legal hold.

Because the notice may go to employees who usually are not involved in legal matters, the description of the action should be as general as it can be, while still ensuring that the proper documents are preserved. The notice should indicate that these documents must not be destroyed and must be preserved. In addition, the notice should advise a company’s information technology department to suspend automatic deletion procedures and to preserve back-up tapes.

Companies that issue legal hold notices should keep records showing when and to whom they were sent. Counsel should check in at least quarterly to ensure compliance with legal holds. This is particularly important if the nature of the action changes — for example, a claim becomes a litigation or a complaint is amended —or if it becomes obvious that additional people should receive the notice.

The consequences of not preserving documents could be serious as courts can impose sanctions when evidence is destroyed. Indeed, pursuant to new Federal Rule of Civil Procedure 37(e), if a party failed to take reasonable steps to preserve ESI that should have been preserved in the anticipation or conduct of litigation and the information cannot be restored or replaced, then, upon a finding of prejudice to another party from the loss of the information, the court “may order measures no greater than necessary to cure the prejudice.” If, however, a court finds that a party intentionally deprived another of use of ESI, it may presume, or it may instruct the jury that the jury may or must presume, that the lost information was unfavorable to the party that lost it. The court also can dismiss the action or enter a default judgment.

Takeaways

  • A company that becomes aware of a potential or existing audit, investigation, claim, or lawsuit should promptly prepare a written legal hold notice and distribute it to anyone who may have relevant documents and information, as well as to its IT department.
  • Companies should confirm that individuals are complying with the obligation in hold notices to preserve documents and other records.
  • Attorneys should follow up with amendments to the notice and periodic reminders about the notice.