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November 18, 2015

Best Practices: The Duty To Preserve Potentially Relevant Information In The Face Of Possible Litigation

by Norman E. Greenspan

About the last thing a business wants or needs is an unresolved dispute that erupts into litigation. Litigation is time-consuming, expensive and fraught with risks. One of those risks is the failure to take appropriate steps to preserve and maintain evidence in your company’s possession or control that is potentially relevant to the dispute. Lost or destroyed relevant evidence can result in a finding by the court that the lost evidence is unfavorable to you, or the court can even go so far as to grant judgment to the other side.

It is prudent business practice for a company to have a comprehensive “document retention” policy. Generally, these policies require the destruction of information at the point in time when it no longer has any practical utility ( i.e., beyond the time the IRS requires financial records to be maintained). Many of these programs automatically destroy certain documents after a defined period of time. However, as some litigants have learned at great expense, the uninterrupted, continued operation of a document retention program after the party knew or had a reason to believe that there would be litigation can result in draconian sanctions against the party whose relevant evidence was routinely destroyed by the document retention program.

The law imposes a duty to preserve potentially relevant evidence over which a party has control. This duty applies to both the party making the claim, and the party against whom the claim is made. The destruction or alteration of potential evidence, or the failure to preserve evidence for another’s use in pending or reasonably foreseeable litigation, is known as “spoliation.” Most courts employ the spoliation inference rule which assumes that the evidence would have been adverse to the party who lost it. The court wants to make sure that no benefit is gained by the loss of evidence that should have been preserved.

The duty to preserve evidence arises “. . . when a party should have known that the evidence may be relevant to future litigation.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003). For the claimant, the duty to preserve arises as soon as it is reasonably likely that a claim will be made. With regard to the putative defendant, the duty clearly arises after a lawsuit has been served, but also arises upon the receipt of a letter threatening litigation or other information that puts the party on notice that litigation is likely. Effective December 1, 2015, the Federal Rules of Civil Procedure are being amended to clarify the use in federal court of various measures if electronic information that should have been preserved has been lost. See, new Rule 37(e), Fed.R.Civ.P. If electronic information that should have been preserved has been lost, the court will likely make fact findings that put the prejudiced party in the same position it would have been in had the evidence been preserved. If the court finds that a party acted to deprive another party of the information’s use, the court may go so far as to enter judgment against the party that lost the evidence. The failure to take affirmative steps to preserve potentially relevant evidence once a party knows that litigation is reasonably likely risks a court viewing this conduct as willful ignorance and therefore the party acted to deprive the other party of evidence.

Consequently, the best practice is to take all steps necessary to preserve evidence that may be potentially relevant once a party knows it is reasonably likely that there will be litigation. This has been informally referred to as a “litigation hold.” The first step should be to suspend the document retention policy. An evaluation of the claim should be undertaken to determine what information is potentially relevant, irrespective of the merits of the claim. Those individuals likely to have relevant information are to be identified and informed of the litigation hold. These persons should be tasked with reviewing all their files for potentially relevant information. All sources of data should be reviewed, including text messages, voice mail messages, e-mail servers and files, calendar entries, hard-drives, back-up tapes, thumb drives, lap tops, social networking sites, home office computers that access the office network, etc. There should be follow-up to assure compliance with the litigation hold and the identification and preservation of potentially relevant information. There should be a written record of all instructions given, and all efforts made to preserve evidence.

By faithfully employing these proactive measures, litigants can likely avoid the adverse inference that will arise from the loss of relevant evidence, and the negative impact that will have on the outcome of the matter.

For more information regarding document retention policies and steps to take in the face of a possible litigation, please contact Norman at ngreenspan@starfieldsmith.com or at at (215) 390-1025.