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Litigation Hold: When is Litigation Reasonably Anticipated?

The discovery process is defined as the stage of litigation where the parties request and exchange information from one another relevant to the underlying dispute.  Failure to provide information that has been requested in discovery has the potential to result in negative consequences for the party failing to produce.  The duty to produce information not only covers relevant information requested by the adverse party, but also covers relevant information that may not have been explicitly requested. In order for a party to fulfill its obligation to produce evidence, the party must first have fulfilled its obligation to preserve evidence.  

The duty to preserve evidence requires a party to locate, identify and preserve relevant electronic information and paper documents for trial. This often requires coordination of multiple departments and employees, as well as suspension of routine document destruction policies.  This process is referred to as a litigation hold and has the potential of becoming very costly and time consuming. Failure to preserve can, however, result in negative consequences for a party, most commonly seen in the form of imposed sanctions. By the time parties have entered into the discovery phase litigation is well under way.  The duty to produce is triggered at discovery, but when is a party’s duty to preserve triggered?

The duty to preserve is triggered when litigation is reasonably anticipated. The standard sounds simple enough but the application to practice is more than ambiguous. The answer lies within the meaning of the term “reasonably anticipated,” and the meaning can vary from case to case. Common sense might indicate that the duty to preserve evidence is triggered when a lawsuit is filed.  The fact of the matter is that the duty can arise even before a lawsuit is filed if a party is on notice that future ligation is likely.  Cache La Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614, 621 (D. Colo. 2007).

When litigation is reasonably anticipated for a defendant will differ in timing than when litigation is reasonably anticipated for a plaintiff. The Sedona Conference®, a leader in the advanced study of law and policy, notably with respect to electronic discovery, has issued a commentary on legal holds.  In the commentary, The Sedona Conference® outlines specific guidelines that are intended to aid those who are implementing and carrying out litigation holds. Guideline 1 states that “reasonable anticipation of litigation arises when an organization is on notice of a credible probability  that it will become involved in litigation, seriously contemplates initiating litigation, or when it takes specific actions to commence litigation.” class="MsoEndnoteReference"  The Sedona Conference Commentary on Litigation Holds: The Trigger & The Process, The Sedona Conference®, Vol XI, page 269 (2010).

For a plaintiff, contemplation of initiating a lawsuit or taking actions to commence litigation can arise well before the actual complaint is filed with the court.  Due to the fact that the plaintiff controls the timing of litigation, the plaintiff's duty is more often triggered before litigation commences than the defendant’s duty.  Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., 685 F. Supp. 2d 456, 466 (S.D.N.Y. 2010) abrogated on other grounds by Chin v. Port Auth. of New York & New Jersey, 685 F.3d 135 (2d Cir. 2012).  Seeking advice of counsel or even discussing a plan to initiate litigation can trigger the duty to preserve electronically stored information and documents relevant to the impending litigation. class="MsoEndnoteReference"  Rimkus Consulting Group, Inc. v. Cammarata, 688 F. Supp. 2d 598, 641 (S.D. Tex. 2010).

Defendants may not always have notice of a credible threat of litigation until served with a lawsuit. On the other hand, there are times when a defendant will be considered on notice of likely impending litigation. Receipt of a demand letter or cease and desist letter, for example, may be the triggering event.  This doesn’t mean that each time a demand letter is received, the duty is automatically triggered. A rumor or threat of litigation generally will not trigger the duty to preserve.  The Sedona Conference Commentary on Litigation Holds: The Trigger & The Process, The Sedona Conference®, Vol XI, page 272 (2010).  Ultimately, a party's duty to preserve evidence prior to litigation must be founded on more than just “an equivocal statement of discontent.”  Cache La Poudre Feeds, LLC v. Land O'Lakes, Inc., 244 F.R.D. 614, 622 (D. Colo. 2007).

Whether you are a plaintiff or a defendant, the triggering event for preservation of evidence may vary on a case to case basis. If the litigation hold is implemented too early, a lot of excess time and money could be unnecessarily spent.  If the litigation hold is implemented too late, relevant evidence may be destroyed. Careful and continued analysis by each party of the facts and circumstances surrounding the dispute play an important role in determining when a litigation hold should be instituted. 

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