Legal Hold Triggers: When Should You Document Your Reasonable Anticipation of Litigation?

When our corporate clients ask us to help with litigation response planning or legal hold protocols, one of the questions we ask is whether for any particular dispute they document their expectation of litigation. Here are some typical responses:

• “There is not always consensus that we have a reasonable expectation of litigation, but when we issue a litigation hold, we always document it.”
• “When we get a demand or ultimatum letter, we will trigger a hold.”
• “When I tell people to implement a hold, the instruction becomes the documentation.”
• “We know it when we see it, then we tell our folks to put out a litigation hold.”
• “Our test is when we would want to start labeling things ‘Attorney Work Product’.”

Do any of these responses sound familiar?

Each of these responses avoids answering the question. The fact is that the instruction to implement a litigation hold is the result of a decision that there is a reasonable anticipation of litigation. Some attorneys tell us that they would rather not document their opinion that there is an expectation of litigation. Their reasoning is that the decision becomes documented by the fact that they issue a legal hold.

Difference Between Documenting Anticipation of Litigation vs. Documenting Imposition of Legal Hold

You may ask, “What’s the difference between documenting my expectation of litigation versus documenting the imposition of a legal hold?” The answer is that documenting the start of the legal hold is documenting the threshold event. But suppose you don’t reach the threshold event? Consider these examples:

1. As an in-house attorney defending employment litigation, I know from my experience over time that a certain small percentage of departing employees will file suit against the company for one reason or another. There is a particular local firm that sends demand letters on behalf of some of these individuals, but they rarely file an action. Routinely, we ignore or settle them without litigation. I’d rather not issue a litigation hold unless the demand becomes a real litigation threat.
2. We have a contractor with whom we do a significant amount of business. Their people have ties to several of our business units, in design, manufacturing, marketing, and accounting. Over many years we have had several disputes with them over money and specifications, but only one of them had ever come to litigation, and we settled quickly and amicably.

In the first case, the potential opposing party send a demand letter or perhaps an ultimatum settlement offer. But the odds of it resulting in litigation are historically low. That decision may contradict general principles or even departmental policy or practice that a demand letter threatening litigation should result in a litigation hold. You have actually made a decision NOT to issue a hold, but without documenting it.

If you routinely document your decisions both to issue a hold and NOT to issue a hold, you can use that documentation to save your organization a fortune in legal hold costs and also to manage risks down the road.

In the second case, the actual threat of litigation is real, but the prospective opponent is a valuable business partner with many ties to the company. There are many disputes with them over the years. You count on mutual self-interest and goodwill not to litigate. You want to avoid destabilizing your business clients’ relationships with them, so, taking many factors into consideration, you decide not to issue a litigation hold.

Understand the Costs and Risks of Implementing a Legal Hold

Case law and rules indicate that if you have the reasonable anticipation of litigation, you must issue a litigation hold or you risk losing data that may become at issue in the litigation, and thereby risk sanctions on account of spoliation.

Spoliation

Inside and outside counsel have to be very sensitive to risks of spoliation, and to be quick and effective in issuing litigation holds when the situation warrants. But how do you manage these risks if the risk of litigation is low? Consider these other costs and risks:

Hard Cost

Every legal hold costs money. The law department mobilizes resources to identify potential custodians. The Information Technology people need to suspend certain deletion settings or restrictions on account sizes and incur overtime and storage costs.

A mechanism has to be put in place to protect the computing and records management resources for departing employees who may be on hold, so there are costs associated with storage or not being able to re-purpose computer equipment. Outside counsel is sometimes engaged at this point and there are costs associated with that. Multiple overlapping holds compound the costs.

Business Disruption

Each legal hold has an impact on internal staff. There are hard costs associated with the loss of productive time for business clients to be interviewed, to acknowledge their legal hold notices, to respond with summaries or questionnaires, and, inevitably, to feel the insecurity that the employer may be involved in litigation that will affect them individually.

Tactical Benefits of Documenting Each Decision

Scrutiny about litigation hold decisions takes place after something happened and opposing counsel wants to second-guess your decision-making. Let’s assume, for example, that an employee departed in January, you got a demand letter in March, you issued your hold in May, and suit was filed in August. Opposing counsel makes a big deal about your not issuing a hold in March. Compare this Q&A with the Court:

You: Your honor, we issued our hold in May, when we thought litigation was unavoidable.
Court: But you got a demand letter in March.
You: We get lots of demand letters that don’t result in litigation.
Court: So in March, you got this letter and didn’t think it was that important?
You: No, Your Honor, we specifically decided not to issue a hold at that time.
Court: Ok, do you have any evidence that you made that decision and didn’t just let it slide?

To this:

You: Your honor, we issued our hold in May, when we thought litigation was unavoidable.
Court: But you got a demand letter in March.
You: We had good reason at that time to believe this would not result in litigation.
Court: So in March, you got this letter and didn’t think it was that important?
You: No, Your Honor, we specifically decided not to issue a hold at that time. My note to file indicates that opposing counsel routinely sent demand letters with little substance, that the pattern matched the current case, and that we would not expect litigation. In May, we received another letter which outlined claims for relief and the names of witnesses whose documents or testimony may be relevant. We believed still the claim to be without merit, but since this appeared as a more serious litigation threat, we documented our anticipation of litigation then, and implemented our litigation hold.
Court: You just let it slide until it felt more urgent, then?
You: No, Your Honor, we document every decision the same, whether we expect litigation or we do not.

You have a much better case in the second set of facts. If you routinely document your decisions both to issue a hold and NOT to issue a hold, you can use that documentation to save your organization a fortune in legal hold costs and also to manage risks down the road.

In the context of a litigation, an opponent may second-guess when you should have implemented your legal hold. If you do not have a policy about documenting your decision, you may not have clear documentation about when you made the decision that you reasonably expect litigation. All you have are various emails, notes and calendar items that discuss a growing or possible conflict. If you have a policy to document your decision, and if you faithfully execute that policy, then you have an excellent defense to when you implemented your legal hold and why, and when you chose not to implement, and why.

Specific Cases that Highlight the Importance of Documentation

HR managers and employment litigation attorneys often face the dilemma that they have in an employment dispute but it doesn’t (yet) rise to the level of anticipated litigation. When to issue the hold becomes problematic, particularly when analyzed in hindsight.

Look at Viramontes v. U.S. Bancorp, 2011 WL 291077 (N.D. Ill. Jan. 27, 2011). In that case, Plaintiff filed her action ten months after sending her first complaint letter. Defendants had to characterize its content and thinking about that letter in defending a motion for sanctions. Think how much easier this decision would have been if the defense had a regularly-exercised policy of documenting anticipation of litigation.

Looking at it from the plaintiff’s side in, say, patent or commercial litigation, there is an obligation to implement a hold well before filing. Tactically, you may reasonably want to surprise your opponent with an ultimatum or an intent to sue. But practically, your reasonable expectation of litigation precedes that surprise by some time. It probably dates back to thinking, “We may need to litigate to protect our market share in this intellectual property” or “they failed to respond to our collection inquires and demands, so we’re probably going to have to sue.” At those points, if you routinely document your anticipation of litigation, you are protecting the date you picked to implement your litigation hold.

Otherwise the date could be questioned later on by an opposing counsel who is looking to make the case about your discovery instead of about your claim. 

These appear to be the circumstances in Zecotek Imaging Systems PTE Ltd. v. Sain-Gobain Ceramics & Plastics, Inc., Inc. No. 12-CV-1533 (N.D. Ohio Feb. 28, 2014) (plaintiff who filed the patent action did not appropriately preserve) and In Re: Ethicon, Inc. Pelvic Repair Systems Product Liability Litigation, 12-MD-2327 (S.D.W.V. Feb. 4, 2014), where the court found that defendant did in fact lose documents that should have been preserved, the culpability did not rise to the level of case-altering sanctions, but did award Plaintiffs some costs.

Cases under the new FRCP 37(e) provide respondents a little more room when it comes to sanctions, but not necessarily to litigation triggers. See

• Ades v. Omni Hotels Mgmt. Corp., No. 2:13-cv-02468-CAS(MANx), 2014 WL 4627271 (C.D. Cal. Sep. 8, 2014);
• Best Payphones, Inc. v. City of New York, No. 1-CV-3924 (JG) (VMS); 2016 WL 792396 (E.D.N.Y. Feb. 26, 2016);
• Barnett v. Deere & Co., No. 2:15-CV-2-KS-MTP, 2016 WL 4544052 (S.D. Miss. Aug. 31, 2016)

Think about “defensible, repeatable, repeated.” Take a look at “The Sedona Conference Commentary On Legal Holds“. If you always document your decision that you are expecting litigation, your absence of documentation probably gives you a good defense that at some other particular time, you probably did not reasonably expect litigation.