Published on Jan 24, 2017 When Volkswagen pleaded guilty this month to obstruction of justice charges stemming from its use of emissions “defeat devices,” legal counsel for the automobile manufacturer probably started to take inventory on what it might have done differently to have avoided such a fate. While that list likely included any number of entries, somewhere near the top had to be an action item to revamp its process for supervising the preservation of electronic data from company executives and employees.
Breakdowns in that process resulted in the comprehensive destruction of key information by approximately 40 Volkswagen employees. This in turn led to the guilty plea, along with criminal indictments against several of those employees and $4.3 billion in criminal and civil fines.
Most organizations are unlikely to confront the staggering scenario facing Volkswagen, yet many have not taken the necessary steps to tune-up their litigation hold process. Indeed, some organizations would shrug off shortcomings or inconsistencies in their hold processes as being inconsequential and unlikely to affect the outcome of a lawsuit.
Such an attitude flies in the face of litigation requirements. It also runs contrary to many court decisions from the past year, which confirm that litigants suffer adverse consequences without a defensible hold process.
The Fundamentals of a Litigation Hold Process
Litigation holds are an obligatory aspect of every lawsuit. Once litigation is reasonably foreseeable, a party must take reasonable steps to preserve relevant information in its possession, custody, and control. For corporate litigants, that means developing a litigation hold process that includes the following:
All of these elements are essential. If even one of them is bypassed, a hold may not be properly implemented, leaving organizations vulnerable to data loss and court sanctions. This is apparent from various court decisions over the past few months that show the importance of these elements.
Case Examples of Litigation Hold Breakdowns
One such example is found in Security Alarm Financing Enterprises v. Alarm Protection Technology[1] where plaintiff failed to preserve relevant audio recordings. While plaintiff identified the existence of the recordings in its initial disclosures, its “general litigation hold” neglected to specify that the recordings be preserved. This breakdown, which resulted in the destruction of the recordings, led the court to issue a jury instruction providing that plaintiff “was under a duty to preserve its Alaska recordings but failed to do so.”
Another litigation hold breakdown – this time in GN Netcom v. Plantronics[2] – resulted in the destruction of thousands of relevant emails. In contrast to Security Alarm, defendant in GN Netcom undertook a fairly comprehensive effort to preserve vast stores of relevant information. Nevertheless, a senior executive disobeyed the hold instructions, destroying relevant emails and ordering subordinates to do the same. Holding that more decisive action could have prevented or mitigated the email destruction, the court issued an adverse inference instruction, along with a $3 million monetary sanction against defendant.
A final hold breakdown occurred in Browder v. City of Albuquerque,[3] where defendant failed to preserve relevant video footage. While the relevant footage was lost as a result of human error, the court found that error resulted from defendant’s ineffective litigation hold process: “The City clearly failed to have an effective system in place to ensure that relevant and correct evidence was preserved.” To address the loss of evidence, plaintiff would be allowed to present evidence and argument to the jury regarding the spoliation.
Getting a Litigation Hold Tune-Up
These cases and others demonstrate the folly of a laissez-faire approach to litigation holds. Organizations lacking a defensible hold process should address this vulnerability by tuning up their process to satisfy the above-referenced requirements. This may include engaging counsel, discovery consultants, or service providers with the legal and technical expertise to assist with the development of that process. They can also look to authoritative sources such as Driven’s newly published white paper that delineates best practices and other considerations for a defensible litigation hold process.
[1] Sec. Alarm Financing Enterprises, L.P. v. Alarm Protection Tech., LLC, No. 3:13-cv-00102-SLG, 2016 WL 7115911 (D. Alaska Dec. 6, 2016).
[2] GN Netcom, Inc. v. Plantronics, Inc., No. 12-1318-LPS, 2016 WL 3792833 (D. Del. July 12, 2016).
[3] Browder v. City of Albuquerque, — F. Supp. 3d —, 2016 WL 3946801 (D.N.M. July 20, 2016).
