Written By Joshua W. Carden

“Josh, I never get used to being sued.”  Clyde [1] heaved a sigh, tipped his chair back, and continued, “you try to run a business and keep customers, employees and suppliers happy and content and someone still gets upset.”   I looked sadly at the matching heel-shaped divots worn into my wooden desktop by Clyde’s frequent visits and offered a bit of consolation “I think Abraham Lincoln said ‘you can please some of the people all of the time, you can please all of the people some of the time, but you’ll eventually end up in your favorite lawyer’s office.’”  I watched Clyde’s reaction with my best poker face.   Clyde looked at me suspiciously, “that’s not how that goes.”  I grinned, and he did too.  With the air now slightly less gloomy, he pulled out the complaint and tossed it to me.  I glanced through it – a typical breach of contract suit. Clyde’s furniture store was being accused of underpaying a supplier and the supplier was making all the usual claims, plus attorney’s fees, etc. 

“It looks straight forward enough,” I announced.  Clyde stood up to leave and said, “Great! Well it’s in your hands now, Josh – take care of me.”  “Just a minute, Clyde,” I responded quickly, “your part in this isn’t over yet.”  “It’s not?” He looked puzzled, “what do you mean?”  I rubbed my hands together, “it’s time to talk about the legal hold.”  “What’s that?” he asked.  “You better put your feet back up,” I warned, “this is important.”

So what is a “legal hold”?  Technically, the term “legal hold” does not appear in the rules of evidence or procedure.  However, it is an often-over looked part of litigation that, if mishandled, can result in disaster for your lawsuit – whether you are plaintiff or defendant.  Back in the TBE (Time Before E-Mail) days, the number of documents that might be potential evidence in the case could usually be counted without a gaggle of calculators.  Each side would put all the documents in a box or two, make copies, and exchange them during the discovery phase of a lawsuit.  However thanks to the rise of Electronically Stored Information (frequently termed “ESI” by the courts), the document management side of litigation has grown exponentially larger.  As a result, any “smoking gun” evidence will quite often be contained in a computer file rather than a manila file folder.  Courts have now interpreted the procedure and evidence rules as imposing a duty on lawyers and their clients on both sides to preserve potentially relevant information in all of its forms (paper or electronic) beginning with the earliest triggering event indicating litigation is “reasonably anticipated.”  For example, a demand letter from a potential claimant or a notice of claim filing with the EEOC or other agency would likely be considered “triggering events” requiring that a legal hold be initiated on both sides of the case.  Certainly, at a minimum, the filing of a lawsuit is such an event.  At the moment when litigation is “reasonably anticipated,” it becomes the duty of each party and its lawyer to institute a legal hold.  This often begins with a letter from the attorney to the client instructing the client to preserve e-mail, hard drives, backup tapes, voicemails, and paper files that could be related to the legal issues in question. But regardless of who initiates it, a legal hold is a process of notifying all potential holders of your relevant data, instructing them to immediately preserve what they have, and then gathering and storing it in such a way that it can be saved for the case.  As you might imagine, a cottage industry has sprung up to assist lawyers and clients with this process – an industry that is measured now in the billions of dollars.  That’s a big cottage, and it’s easy to see why: stop and think of all the places where you might have relevant electronic data: computer emails, laptop emails, PDA or iPhone emails, text messages, voice mails, hard drives, word documents, spreadsheets, thumb drives, back-up drives – the list is long.

Now you may be asking yourself, “what happens if I don’t institute a legal hold?”  Good question.  In a recent case, the judge sanctioned a civil defendant’s attorneys for failing to institute a legal hold, saying that their failure to do so was “gross negligence.” But it’s not just on the lawyers.  In another case, the court found that the defendant company had actively avoided discovery requests by destroying electronic data (called “spoliation”).  That judge imposed a $250,000.00 fine and required the defendant company to file a copy of the sanctions order in every lawsuit in which it appeared (in any capacity) for the next five years.  Basically, the courts will usually ask three questions before issuing sanctions:

1. Whether the party had an obligation to preserve the evidence at the time it was destroyed;

2.  Whether the evidence was destroyed with a “culpable state of mind”; and

3.  Whether the destroyed evidence was “relevant” to the party’s claim or defense. 

If the answer to each question is “yes,” buckle up for some sanctions – which can include fines, exclusion of evidence, dismissal of pleadings, and adverse instructions to the jury! 

The good news is that this is not something you have to wait for a lawsuit to figure out.  You can do two simple things to prepare for electronic discovery.  First, find out where your ESI is and make a plan to get it when you need it.  If you’re not tech savvy, hire some temporary help.  Oh, and ask your lawyer for help too!  If we know where your stuff is, we can help advise you in the process.  And just like in math class, if you do get sued be prepared to “show your work” to the judge on where and how you searched for ESI. 

Second, institute a company-wide standardized document retention/destruction policy and enforce it – how long do you really need to keep those emails?  If there is no litigation pending or reasonably anticipated, you don’t have a duty to keep stuff.  Of course, some businesses have legal duties to preserve records for certain time frames – however, beyond those time frames, you might not need them anymore.  These two simple steps can eliminate most of the scary in dealing with litigation discovery.  Now, let’s see if Clyde is getting nervous yet.

As I finished explaining the legal hold process to Clyde, he sighed.  “Fortunately, I think we’re okay.  I happened to tell my purchaser and my payables department before I came here to save all the emails to and from this supplier.”  “Good,” I enthused, “now we just need to offload those emails somewhere safe and start collecting the rest of the potential data.”  Clyde’s phone beeped.  He scanned a text and smiled.  “Looks like, this will be easier than I thought – my purchaser just found the email where the supplier agreed to the lower price.”   “That’s great,” I said, “and, by the way, hold on to that text!  I’ll call the other lawyer and see if we can stop the litigation train before it picks up momentum.  But we still have to do the legal hold in the meantime until it’s over.”  Clydenodded, put his feet down and stood up.  He looked at me slyly, “Josh, I think I just fulfilled my favorite Lincoln quote: ‘Be sure you put your feet in the right place, then stand firm.’”  I laughed, “Touché!”  Then he was gone.   I began drafting our detailed client legal hold instructions to send to Clyde’s office, along with an invitation to consider adopting a document-retention policy – though he was already on the right track, it is my job to help keep all of our clients there.

Joshua Carden is a partner with Davis Miles McGuire Gardner, PLLC and handles commercial litigation (trials and appeals), including, business disputes, employment issues, and real estate, among others.  This article is intended to provide general information about the law designed to help users safely cope with their own legal needs. But legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult Davis Miles McGuire Gardner, PLLC (or the law firm of your choice) if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. 

[1]Clyde comes to see me a lot.  Since Clyde is actually a composite of many current and former clients (and therefore not real), I let him put his feet on my desk.