Legal Holds for Smart People: Part 2 – When Does the Legal Hold Duty Arise?

In a series of four blog posts, I am providing a primer on the duties surrounding legal holds and offering tips on how to fulfill your responsibilities as a legal hold administrator. In this, the second in the series, I will talk about when the legal hold duty arises. In the first post, I introduced the concept of a legal hold and how it is executed. Next in this series, I’ll review what must be preserved and then, in the fourth post, discuss the benefits of using legal hold technology.

The duty to issue and monitor a legal hold can arise long before a lawsuit is filed. As mentioned earlier, the duty commences or is “triggered” when litigation is reasonably anticipated. At that point, a party must take reasonable steps to preserve potentially discoverable information.

When do you reasonably anticipate litigation? In some cases, the answer is obvious, such as when you receive a summons or complaint, or notice of a government investigation. Likewise, receiving a letter threatening litigation can trigger the duty if the threat is credible and likely to be acted upon. Conversely, if you start the process to initiate litigation against others, that will also trigger the legal hold duty.

In many situations, the answer is not so obvious. For example, not all insurance claims lead to litigation. Similarly, firing an employee does not mean you will be facing a claim for wrongful termination. Nor do all accidents result in legal claims.

Here are some of the key points to consider in determining whether there is a duty to issue a legal hold and preservation request.

  1.  What is reasonable anticipation?

The key word here is “reasonable.” While it is tempting to phrase the question in terms of what you as the litigation manager actually believe, that is not the standard. Rather, the standard is objective: “asking not whether the party in fact reasonably foresaw litigation, but whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation.” Micron Technology v. Rambus, 645 F.3d 1311 (Fed. Cir. 2011).

Determining reasonable anticipation, and specifically whether a duty to preserve has arisen, will depend on the facts and circumstances of each inquiry. There is no magic checklist to guide a litigation manager, or any safe harbor for protection. Suffice it to say that if you have received a specific and identifiable threat of litigation or you have taken steps to prepare to bring litigation, the hold duty has arisen.

Put another way, determinations on whether litigation is reasonably anticipated should be based on a good faith and reasonable evaluation of the facts and circumstances as they are known at the time.

  1. What factors should I consider?

In general, you should consider a number of factors in determining whether the duty to preserve has arisen. Several worth considering are:

  • Has a specific incident arisen that is likely to lead to a claim against my organization?
  • Has an individual, or group of individuals, made a credible threat to bring suit against my organization?
  • Have we discovered internal wrongdoing or a problem that is likely to lead to a lawsuit?
  • What is the risk to the organization posed by the claim?
  • Is my organization preparing to bring a claim against another?

If you are on the plaintiff side, the act of seeking advice of counsel, sending a cease and desist letter or taking specific steps to commence litigation is likely to trigger the duty to preserve. The test articulated by several courts suggests that the trigger is often based on when you determined that legal action was appropriate.

In its Commentary on Legal Holds, the Sedona Conference suggests:

A reasonable anticipation of litigation arises when an organization is on notice of a credible probability that it will become involved in litigation, when it seriously contemplates initiating litigation, or when it takes specific actions to commence litigation.

In sum, the duty to initiate a legal hold and preserve evidence arises only when you conclude (or should conclude) based on credible facts and circumstances, that a legal proceeding (litigation or government investigation) is probable.

  1. What if one of our employees knows of a threat but doesn’t report it to the legal department?

A key question for larger corporations is what constitutes notice of potential litigation.  Just because one of your employees hears of a threat (which they may or may not take seriously), is the company on notice such that it should trigger a legal hold?

As a general rule, most courts hold that a corporation knows what its employees know. At the same time, the answer will often depend on the nature of the knowledge, the potential litigation, and the employee’s position. The duty arises from reasonableness. If the threat is not made in a reasonably public way, the company likely will not be held responsible to initiate a legal hold.

It is smart practice to ask employees to refer all serious complaints and litigation threats to the legal department. It is better for counsel to consider the threat against the company and decide whether a hold is warranted.

  1. Good faith and reasonableness at the time are central to this determination.

Ultimately, if the legal department and the organization act in good faith and are reasonable in making a hold determination, they should be safe. The determination must be based on the facts and circumstances known at the time the decision was made. The test here is based on the good faith and reasonableness at the time the hold was implemented. Hindsight is not allowed, nor can one judge a hold decision using later-developed information.


About John Tredennick

A nationally known trial lawyer and longtime litigation partner at Holland & Hart, John founded Catalyst in 2000. Over the past four decades he has written or edited eight books and countless articles on legal technology topics, including two American Bar Association best sellers on using computers in litigation technology, a book (supplemented annually) on deposition techniques and several other widely-read books on legal analytics and technology. He served as Chair of the ABA’s Law Practice Section and edited its flagship magazine for six years. John’s legal and technology acumen has earned him numerous awards including being named by the American Lawyer as one of the top six “E-Discovery Trailblazers,” named to the FastCase 50 as a legal visionary and named him one of the “Top 100 Global Technology Leaders” by London Citytech magazine. He has also been named the Ernst & Young Entrepreneur of the Year for Technology in the Rocky Mountain Region, and Top Technology Entrepreneur by the Colorado Software and Internet Association. John regularly speaks on legal technology to audiences across the globe. In his spare time, you will find him competing on the national equestrian show jumping circuit or playing drums and singing in a classic rock jam band.