Litigation Holds – Triggers and Reasons to Comply

Almost everyone has seen a movie or TV show in which a lawyer dramatically produces a surprise witness or document at trial. But this never happens in real life.

The discovery rules in federal and Florida state courts require each party to produce evidence for the other parties to review. A business issues a “litigation hold” to its employees to preserve all evidence from intentional or accidental destruction.

Here are some of the most common triggers that might lead to a litigation hold, along with an overview of the penalties for noncompliance.

Litigation Is Reasonably Anticipated

If your business destroys evidence that is relevant to a lawsuit, the timing will determine whether a judge can and will penalize your business or not. If the destruction happened after litigation became “reasonably anticipated,” your business would be in violation of the discovery rules. This behavior can be sanctioned under Rule 37 of the Federal Rules of Civil Procedure or Rule 1.380 of the Florida Rules of Civil Procedure.

For something to be “reasonably anticipated” is an objective standard. Rather than measuring what you actually knew, a judge determines what a reasonable person should have known under the circumstances.

Actual Notice

If your business had actual notice of litigation, a judge will likely find that any destruction of documents after receipt of notice was a violation of the rules. Two triggers based on actual notice include:

Receipt of a Complaint

If a litigant serves your business with a complaint, litigation is not just “reasonably anticipated” — it has actually started. It is strongly advisable that your business issue a litigation hold when a business litigation dispute starts.

Receipt of a Subpoena

A subpoena is issued by an attorney representing a party in litigation that seeks evidence from non-parties.  Even though your business is not a party to the litigation, if your business is served with a subpoena a litigation hold should be issued internally to your employees for two reasons.

First, non-parties are covered by the discovery rules. A judge can punish your business for the destruction of evidence after receipt of a subpoena.  Second, the subpoena could give you a reasonable basis to anticipate that the company would be brought into the litigation.

Notice Based on the Circumstances

Your business may also need to issue a litigation hold depending on certain circumstances. Some examples include:

An Event

If something happens that could reasonably lead to a lawsuit – a data breach, an employee misappropriating funds, firing an employee that is a member of a protected class – your business must preserve evidence relating to that event.

Demand Letter

When your business receives a letter from a lawyer giving notice of claims against the company or threatening litigation, the company should issue a litigation hold.

Credible Threat

Suppose that your business has a dispute with a customer that ends with a threat to call a lawyer. The company must preserve evidence in anticipation that the customer will follow through on that threat.

Media Reports

Your business could reasonably anticipate litigation even if it receives notice secondhand. For example, media reports that another business may sue your business is sufficient notice that litigation may be reasonably expected, triggering issuance of a litigation hold.

Consequences of Violating Discovery Rules

If you fail to preserve evidence relating to litigation, your business could face sanctions, or other stiff consequences, including:

• Striking the defense or claim relating to the evidence
• Prohibiting the company from entering any other evidence on that defense or claim
• Dismissal of your company’s lawsuit
• Entry of default and/or default judgment against your business
• Holding your business in contempt and ordering monetary sanctions

In one egregious case involving intentional destruction of evidence, one company was hit with $3 million in sanctions when an executive deleted over 10,000 emails related to the lawsuit and instructed others to delete emails, as well.  A winnable case quickly turned into a nightmare based not on the merits of the parties’ arguments, but the failure to comply with document retention and evidentiary obligations.

Contact the Frazer Firm

If your business is faced with litigation and needs guidance on how to preserve evidence, contact the experienced business attorneys at The Frazer Firm to schedule a consultation.