Why Your Business Needs A Systematic Process For Executing Legal Holds

Tuesday, August 19, 2014 - 11:12

Legal holds are an increasingly common occurrence for businesses today, as the threat of litigation from competitors, customers, employees and others is ever-present. Even in corporations that don’t see a lot of litigation, it’s critical to be well prepared for legal holds and have a sound and well-documented process in place. If a legal hold situation were to arise and be handled incorrectly, a judge is unlikely to accept ignorance of the legal requirements as a defense. Failure to properly prepare can potentially place the entire organization at risk.

Recent amendments to the United States Federal Rules of Civil Procedure (FRCP) specifically address the use of legal holds for preserving electronically stored information (ESI).  When facing legal action – either pending or reasonably anticipated – companies must demonstrate that they have exercised proper care in handling documents and ESI. The relevant custodians and recipients of the information must be identified and notified. The information must then be preserved, collected and produced for use in discovery, if needed.

Current Situation

Many organizations still use manually generated e-mails to notify document custodians and spreadsheets to track notifications, responses and progress within legal holds. Relying on these methods is tedious, time-consuming and costly. More importantly, such processes are risky because they lack automated functions such as reminders, tracking, reporting and auditing.

Sanctions And Other Penalties

According to the Duke Law Journal, court sanctions for spoliation of evidence have increased 271 percent in the last decade. Sanctions can include “an adverse inference” against the sanctioned party, meaning the judge can instruct the jury to assume that any unaccounted-for evidence would have been unfavorable in nature. Simply put, entire cases can be lost if a legal hold is not properly executed.

In In re Pradaxa Products Liability Litigation, the defendants were fined nearly one million dollars for failure to properly execute a legal hold. In Apple Inc.v. Samsung Electronics Co., Ltd., various delays in implementing legal holds nearly resulted in the jury receiving adverse inference instructions against both companies.

Requirements For An Effective Legal Hold Process

It is more important than ever to have an established, defensible and efficient legal hold process. Such a process should:

  • Reduce risk and increase defensibility
  • Guarantee that holds are issued in a timely fashion and contain all necessary information
  • Create an efficient method for identifying and notifying custodians and other key personnel
  • Ensure that all relevant data is properly collected and preserved
Why A Systematic Process For Legal Holds Is Essential

Defensible. The legal hold process must be defensible to the judge if it is called into question, and must demonstrate that an exhaustive, good faith effort was carried out to identify and preserve all relevant information. It must conform to the current FRCP amendments as well as ever-evolving case law on electronic discovery.

Repeatable. A legal hold process that is clearly defined, yet flexible and easily executable through repeatable workflows, allows legal holds to be executed quickly and effectively.

Systematic process. A legal hold involves multiple steps, each of which must be properly executed in an appropriate sequence. Here’s one example of such a sequence:

  1. Triggers for a legal hold
  2. A legal hold is required to be put in place when an organization receives notice of pending litigation or government investigation. In addition, a legal hold is required when there is “reasonable anticipation” of legal action. Courts evaluate that standard on a case-by-case basis depending on the circumstances.
  3. Notifications
  4. The office of the general counsel assigns a response team and executes a plan to administer the legal hold, including properly identifying and notifying document custodians, tracking responses, administering questionnaires, protecting against document spoliation and more. 
  5. Preservation and Collection

A data preservation and collection plan is implemented. IT architectures are mapped to identify relevant data repositories. Data collection efforts are tracked to ensure collection is completed within deadlines.

Benefits Of An Automated Legal Hold Process

By employing an automated legal hold process, companies can take much of the pain out of the aforementioned steps. More specifically, they can significantly improve execution speed, repeatability and defensibility. This reduces costs associated with managing legal holds and helps reduce risks of sanctions or adverse outcomes in cases. 

The Importance Of Being Prepared

In many ways, it’s best to plan as if litigation is inevitable at some point. And assume that point is nearer than you think. Waiting until the onset of legal action to develop a defensible, repeatable, efficient legal hold process is a bit like waiting to buy fire insurance until after the house has burned down.

Courts have made it clear that legal holds must be executed even if there is only a “reasonable anticipation” of legal action. Legal holds must often be executed with very little advance notice. Even a slight delay can result in spoliation of evidence and the possibility of sanctions.

Preparation, planning and having the right processes in place are key to successfully managing legal holds.

Samuel Toward, JD, is a product manager for Concourse at Thomson Reuters. He can be reached at sam.toward@thomsonreuters.com.  Additional information on legal holds and automated solutions, including a free CLE, videos and additional white papers, can be found at: http://legalsolutions.com/legal-hold