In-house counsel must ensure compliance with the litigation hold

Over the last decade, the explosion of electronic communication and the corresponding developments in the law have significantly increased the burdens on counsel to ensure their client is meeting the new expectations of discovery.
In 2003, in Zubulake v. UBS Warburg (Zubulake IV), federal judge Shira Scheindlin ruled that once a company reasonably anticipates litigation, “it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.”
In 2004, in Zubulake V, Judge Scheindlin expanded on the “litigation hold” by observing that “[a] party’s discovery obligations do not end with the implementation of a ‘litigation hold’ – to the contrary, that’s only the beginning. Counsel must oversee compliance with the litigation hold, monitoring the party’s efforts to retain and produce the relevant documents.”
The decision is significant for a number of reasons, not the least of which is that it implicitly, if not explicitly, acknowledges that in-house counsel must play an important role in ensuring their client complies with the “litigation hold.”
In the wake of that seminal decision, the Federal Rules of Civil Procedure were amended and now specifically direct the parties to discuss any issues regarding preservation of discoverable information during the Rule 26 Conference.
Indeed, in addressing the revisions to Rule 26(f), the Advisory Committee Notes specifically state that: “The volume and dynamic nature of electronically stored information may complicate preservation obligations. The ordinary operation of computers involves both the automatic creation and the automatic deletion or overwriting of certain information. Failure to address preservation issues early in the litigation increases uncertainty and raises a risk of disputes.”
Thus, both Zubulake V and the amended Federal Rules of Civil Procedure make it imperative that both in-house and outside counsel initiate and monitor a “litigation hold.”
However, what remains unclear are the parameters of counsel’s duty in complying with the hold. What steps must counsel take to ensure compliance with the “litigation hold?” Compliance is all the more important given that failing to properly initiate and monitor a “litigation hold” can result in severe sanctions, including an adverse inference instruction.
Fortunately, the growing body of case law on this subject since the rules were amended in December 2006 offers some meaningful guidance.
The rulings discussed below reveal that, at a minimum, counsel must periodically follow up with “key employees” to ensure they are complying with a litigation hold. Additionally, counsel must consult both third-parties and former employees in an effort to satisfy their discovery obligations.

Litigation hold alone is not sufficient
Counsel must do more than issue the “litigation hold” in order to satisfy its duty. For instance, U.S. Magistrate Judge Andrew J. Peck ruled (In re NTL, Inc. Securities Litigation, January 2007) that the defendants by failing to implement a litigation hold did not comply with their discovery obligations. Judge Peck (who is based in New York) found that although the defendants issued hold memos, they were subsequently ignored.
Judge Peck also criticized the defendants because not all the “key employees” received the “hold memos” and defendants never reminded employees to continue to preserve relevant documents and electronic information.
It is essential that counsel follow up with all key employees and make certain they are complying with the hold order.
In Padgett v. City of Moreno (March 2007), the defendant city was sanctioned for permitting the hard drive of a recognized “key player” to be destroyed after it was acknowledged the employee’s computer should be preserved. Although the computer was destroyed by a third-party, the court concluded the defendants “failed to take adequate precautions to preserve” the computer equipment, which warranted sanctions.
Counsel was also faulted for not following up on the steps that were being taken to comply with the order.
Similarly, in AAB Joint Venture v. United States (February 2007), the Federal Claims Court held that the defendant failed to satisfy its duty by permitting e-mails of “key players” to be transferred to backup tapes that are costly to restore.

Oversight of employees
It is also apparent that relying on a company’s employees to meet their obligations is insufficient without independent action by counsel.
In Cache La Poudre Feeds, LLC v. Land O’Lakes, Inc. (March 2007), the defendant instituted a litigation hold within a matter of days after the lawsuit was filed. However, this proved insufficient.
According to general counsel, employees understood they were to save any document that currently existed electronically or in hard files. In responding to document requests, the general counsel acknowledged that he and outside counsel relied on the employees’ ability to locate documents responsive to the plaintiff’s requests, and that he gave each employee the discretion to identify documents related to the litigation.
The federal trial court judge in Colorado concluded that both in-house counsel and retained counsel failed to discharge their obligations to coordinate and oversee discovery. One area of fault was counsel’s failure to take any independent action to confirm the materials being produced by the current employees were exhaustive.
Specifically, general counsel assumed that current employees’ productions would include e-mails from former employees. The court criticized the general counsel for not taking any steps to verify that assumption. The court concluded by noting, “[c]ounsel retains an ongoing responsibility to take appropriate measures to ensure that the client has provided all the available information and documents which are responsive to discovery requests.”

Former employees
The Land O’Lakes case is also significant because it highlights the need for counsel to contact former employees in an effort to preserve documents and respond to document requests. Pursuant to the hold issued in that case, the defendants looked for electronic documents in the possession of current employees, and printed versions of electronic documents generated by employees who left after the litigation hold was implemented.
The defendants did not make any effort to find electronic versions of documents prepared by departed employees because the attorneys believed departed employees’ computers had been expunged. Similarly, the general counsel acknowledged that defendants did not make any effort to contact former employees in order to respond to the discovery requests.
The court concluded that it was an error to both continue expunging former employees’ computers once the hold was in place, and to not contact former employees who may have knowledge as to the whereabouts of electronic information.
The court concluded, “[d]efendants were less than thorough in discharging their duty to implement adequate steps to insure that discoverable information would be preserved.”

Third parties
Not surprisingly, counsel’s obligations extend to any party the party may have “control” over. For example, in In Re NTL, Inc. Securities Litigation, the court faulted defendants for not informing a non-party of the need to preserve evidence when it and its counsel should have known the third party would be in possession of such evidence.
On April 16, the federal court in the Northern District of California granted the plaintiff’s motion for sanctions for spoliation because the defendant’s husband destroyed the hard drive on the defendant’s personal computer. The court based its decision on the fact the defendant “had access to or maintained indirect control over the hard drive, and as a result had a duty to preserve it.”
Likewise, in University of Pittsburgh v. Townsend, the federal court in the Eastern District of Tennessee implied that if a document request was clear, counsel would need to take steps to preserve communications between an expert and counsel because that information may be discoverable.
David M. Cogliano is an associate in the employment law and litigation groups at Davis Malm & D’Agostine, P.C. in Boston. He advises employers on labor and employment issues, with a focus on wage and hour compliance, defending claims of discrimination, drafting and implementing employment related policies, FMLA, and ADA compliance and litigating non-compete agreements.