The implementation and oversight of a legal hold are crucial to preserve relevant information and avoid sanctions. Not only must counsel determine the appropriate scope of reasonable preservation of relevant evidence as tempered by proportionality to the needs of each case, they must effectively communicate that obligation and monitor their client's compliance. Failure to do so risks sanctions and even claims of legal malpractice. Analysis of recent cases addressing legal holds yields the following best practices:

• Provide clear, written instructions to clients describing the information to be preserved, the reason why, and the potential consequences of failing to do so, as well as a contact for questions.
• Make a full investigation of clients' data sources and custodians, and document that effort.
• Determine which relevant data sources are subject to automatic deletion, and direct that deletion be stopped. Document these efforts.
• Require acknowledgement of the legal hold by each recipient.
• Monitor clients' compliance and document those efforts.

Counsel Must Provide Clear Preservation Directions

Failure to effectively communicate a legal hold can have disastrous results.The plaintiff in Franklin v. Howard Brown Health Center, No. 17-cv-8376 (N.D. Ill. Oct. 4, 2018), sought emails and text messages concerning alleged harassment. The defendant produced only a handful and asserted that it issued a legal hold, but acknowledged that no in-house or outside counsel oversaw the process, leaving employees to decide responsiveness. Further, when one of the accused harassers left the company, his computer was wiped seven days later, despite the legal hold. Finally, while the defendant's general counsel directed that the plaintiff's computer be sequestered when she threatened litigation, the general counsel did not provide any storage instructions, and two years later, it could not be located. Counsel also misunderstood how instant messages were retained and failed to stop their automatic deletion.

The district court found that the defendant had “bollixed its litigation hold … to a staggering degree and at every turn,” and the court stated there was “little question that sanctions are warranted, if for no other reason than such irresponsibility with regard to discovery cannot be countenanced.” The court, however found no evidence of intent to deprive the plaintiff of the material, only finding gross negligence, and considered sanctions pursuant to Rule 37(e)(1), which empowers courts to impose sanctions no greater than those necessary to cure the prejudice caused. The magistrate judge recommended that the parties be allowed to present evidence and argument to the jury about the defendant's failure to preserve, and that the jury be instructed as the trial judge deemed appropriate.

Effectively Communicated

A legal hold also must be effectively communicated. In EPAC Technologies v. Harpercollins Christian Publishing, No. 3:12-cv-00463 (M.D. Tenn. Mar. 29, 2018), the plaintiff printing company complained that the defendant publisher had not produced evidence about their disputed contract. The special master found that, while the defendant's general counsel issued a broad, detailed legal hold directive to employees to disable automatic email deletion, cease rotation of back-up tapes and create images of personal hard drives, it was a “boilerplate form deployed without guidance, follow-up or expectation that those to whom it was directed would or could carry out the tasks required” and was “ignored by all recipients.” In particular, the manager of the warehouse management system failed to preserve anything for several years. More than 750,000 emails were purged because the network administrator assumed, but did not verify, that the retention period was 10 years when it was one year.

The court found that the defendant “failed to take its preservation obligations seriously” and that its “halfhearted attempts” to “impose a litigation hold that was not implemented with sufficient guidance or monitored by counsel” allowed evidence to be lost. While the court did not find evidence of intent to deprive, which is necessary for sanctions under amended Rule 37(e)(2), the court held that it did “not mean that the defendant's conduct was harmless. Its expansive negligence and reluctance to admit fault once lost evidence was discovered must be addressed by corresponding remedial measures.” Accordingly, the court decided to instruct the jury that the defendant failed to preserve its warehouse data; permit the plaintiff to re-depose the defendant's witnesses at the defendant's expense; and assess to the defendants 75 percent of the special master's fees and 50 percent of the plaintiff's costs and fees incurred in the special master proceedings.

Compliance With Legal Holds

The plaintiffs in Experience Hendrix v. Pitsicalis, No. 17-cv-1927 (S.D.N.Y. Nov. 27, 2018) brought trademark and copyright claims, and sought sanctions for what the court called “defendants' persistent noncompliance with basic discovery obligations.” The court found that the defendants repeatedly breached their duty to preserve by using cleaning software on covered computing devices, failing to disclose the existence of a seventh computing device containing potentially relevant documents, and deleting relevant text messages.

While the defendants had utilized two different cleaning software applications, one application violated the defendants' duty to preserve because it affirmatively gave the user the option to delete files permanently. With respect to the seventh computer, the court acknowledged that no one knew the computer's contents. The plaintiffs, however, established through a Facebook photo that the computer had been in the president's office, “where the president engaged in the very business conduct at issue in this litigation.” The court therefore found that the computer that was given away “without review or imaging likely contained relevant evidence.” Finally, the court found that deletion of relevant text messages, including the day after the court issued an order requiring defendants to produce forensic images of every device containing relevant files, was a “willful and blatant violation of the duty to preserve relevant evidence.”

The defendants' counsel testified that he thought the seventh computer was only a monitor, that he did not have personal knowledge of its location, and that he had not reviewed the files to determine responsiveness or contacted the new owner about the computers' contents. Finding the spoliation was intentional, the court imposed an adverse inference instruction to the jury pursuant to Rule 37(e)(2) and awarded the plaintiff costs and attorney fees up through the spoliation hearing.

Malpractice Claims

Failing to implement or enforce a legal hold may not only subject an attorney's client to sanctions, it may expose counsel to malpractice claims. The plaintiffs in Industrial Quick Search v. Miller, Rosado & Algois, No. 13-cv-5589 (S.D.N.Y. Jan. 2, 2018), alleged that the defendant law firm (Miller) failed to properly advise them on the law governing document preservation, to adequately supervise document production, or to offer an adequate defense at a spoliation hearing in the underlying action. In the underlying litigation, Industrial Quick Search (IQS) and its principal and investor, Meiresonne, were sued by Thomas Publishing for copyright violations.

During discovery, former IQS employees reported that, prior to production, relevant documents were removed from the files. IQS and Meiresonne admitted to removing only files that they believed were not responsive to the discovery requests. Thomas Publishing moved to strike IQS's answer, claims and counterclaims on the basis that it intentionally destroyed relevant discovery. After a spoliation hearing, the court found that IQS and Meiresonne destroyed documents that would have assisted in determining the scope of IQS's copyright infringement and misappropriation of confidential material. The court granted Thomas Publishing's motion and entered default judgment on liability.

In the malpractice action, the plaintiffs contended that Miller failed to issue a legal hold, inform them that destroying relevant documents was improper, or monitor IQS's compliance with discovery requests. The plaintiffs contended that the failures constituted attorney negligence. The plaintiffs testified that, before destroying the removed files, they had several calls with Miller, requesting guidance on whether the documents should be removed.

Miller argued that the firm had no duty to advise the plaintiffs of their preservation obligation because the firm was retained after the plaintiffs were served with a cease-and-desist letter and that, once a client has been made aware of potential litigation, attorneys have no duty to institute a hold or oversee compliance. The court rejected that argument, holding that, once a legal hold is in place, a party and its counsel “must make certain that all sources of potentially relevant information are identified and placed 'on hold.”' Counsel must “take reasonable steps to ensure the preservation of relevant information.” An attorney's failure to fulfill that obligation falls below the ordinary and reasonable skill required of members of the legal bar.

Miller also argued that that the firm had issued a verbal legal hold, and cited testimony by Meiresonne that he had not advised his counsel of his intent to destroy documents. Given the disputed issue of material fact, the court denied both parties' motion for summary judgment and set the case for trial.

In each of these cases, if counsel employed the best practices set forth above, they likely would have avoided sanctions, leaving the cases to be resolved on their merits.

Matthew J. Hamilton is a partner in the health sciences department of Pepper Hamilton, resident in the Philadelphia office. He advises clients on issues relating to electronic discovery and litigates those issues where required. 

Donna L. Fisher is a partner in the health sciences department of the firm, resident in the Harrisburg office. She has managed and directed large-scale hard copy and electronic discovery in complex, multistate litigation, including technology-assisted review or predictive coding and related large volume privilege reviews.