By Sara J. Ackermann
November 4, 2011
Recently, courts have awarded monetary sanctions ranging from $25,000 to $1,000,000 against companies that failed to prevent the destruction of electronic evidence. These sanction amounts reveal that the failure to implement a litigation hold and preserve evidence when required can have serious consequences for your business.
Many business owners, managers, and human resources professionals believe that a company’s duty to preserve information related to a potential litigation matter only arises once a lawsuit has been filed. This is not the case. Rather, a party’s duty to preserve relevant documents and information begins when there is a reasonable likelihood of litigation.
When Your Duty to Preserve Information Arises
The duty to preserve material evidence arises when litigation is reasonably anticipated. This standard is easily understood and applied in the context of being served with a complaint or commencing an action yourself. However, it is more valuable to consider scenarios in which the duty to preserve evidence is triggered because litigation could be reasonably anticipated. Examples that could give rise to a reasonable anticipation of litigation include, without limitation:
an ongoing supplier dispute,
an employee complaint or employee termination, or
a landlord/tenant conflict.
The Use of Litigation Hold Notices to Preserve Information
Once the duty to preserve information arises, it is imperative to take appropriate action. An effective tool many companies utilize to preserve information in a potential litigation situation is a litigation hold notice. A litigation hold notice is a means to quickly suspend the current document destruction policies of your company and inform potential custodians that they must preserve relevant information. Such a notice is also helpful in describing the information to be preserved and identifying possible evidence locations.
Implications for Failing to Preserve Information
It is important to preserve evidence once the duty attaches. If you fail to meet your duty, a claim for spoliation of evidence may be brought against you. Potential consequences of a finding of spoliation include monetary sanctions, awards of attorney fees and costs for litigating document destruction, and adverse litigation results such as default judgments, dismissals, or detrimental jury instructions regarding the destroyed evidence. These negative consequences underscore the importance of preserving relevant evidence.
It can be difficult to know whether it is necessary to preserve information or, once the duty applies, whether you are meeting that duty. There are also costs and effort associated with implementing a litigation hold that must be weighed. Your Ruder Ware advisor can assist you in determining the appropriate approach the next time you face a potential litigation scenario and the need to preserve relevant information.
If you have questions regarding the above, please contact Sara Ackermann, the author of this article, or any of the attorneys in the Litigation & Dispute Resolution Practice Group of Ruder Ware.
This document provides information of a general nature regarding legislative or other legal developments, and is based on the state of the law at the time of the original publication of this article. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed. You should not act upon the information in this document without discussing your specific situation with legal counsel.
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