Litigation Holds

18 Pages·2014·0.19 MB·English

by  Karen Van Essen

Litigation Holds: Are They a Choke-Hold
for Cities?

Thursday, May 8, 2014 General Session; 2:15 – 4:15 p.m.

Stephen G. Larson, Arent Fox
League of California Cities® 2014 Spring Conference
Renaissance Esmeralda, Indian Wells
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League of California Cities® 2014 Spring Conference
Renaissance Esmeralda, Indian Wells
Arent Fox LLP / Attorneys at Law
Los Angeles, CA / New York, NY / San Francisco, CA / Washington, DC
www.arentfox.com

Litigation Holds: Are They a Choke-Hold for Cities?

Hon. Stephen G. Larson (Ret.)
Former United States District Judge

Presented to League of California Cities
2014 Spring City Attorneys’ Conference

May 8, 2014

555 West Fifth Street, 48th Floor 1675 Broadway 55 Second Street, 21st Floor 1717 K Street, NW
Los Angeles, CA 90013-1065 New York, NY 10019-5820 San Francisco, CA 94105-3470 Washington, DC 20036-5342
T 213.629.7400 F 213.629.7401 T 212.484.3900 F 212.484.3990 T 415.757.5500 F 415.757.5501 T 202.857.6000 F 202.857.6395
I. INTRODUCTION
A litigation hold notice (also known as a document preservation notice) is a
communication from the City Attorney’s office, or retained outside counsel, to current City
employees instructing them to retain relevant hard copy and electronic documents. The purpose
of the notice is to prevent employees from destroying or altering such information within the
employees’ control and to stop any routine destruction of relevant documents and data.
Proper preservation of evidence is important. The City, and its in-house and outside
attorneys, may be subject to sanctions—which may include monetary penalties, adverse
inference jury instructions, and default judgment or dismissal—in certain circumstances when
evidence is destroyed.
The following paper reviews federal and California law governing the duty to preserve
evidence, and outlines the implementation of a litigation hold process. This process includes
identifying the scope of the relevant evidence, understanding the locations and types of data
storage, identifying the relevant custodians who need to preserve the data, and issuing a litigation
hold notice. By implementing an appropriate litigation hold to preserve evidence, a City can
ensure that it will not be subject to sanctions for spoliation while at the same time not incurring
unnecessary costs by retaining overly broad data for longer than necessary.
II. FEDERAL AND STATE LAW REGARDING THE DUTY TO PRESERVE
EVIDENCE
A. Federal Law1
1. Duty to Preserve
Under federal law, “a litigant is under a duty to preserve evidence which it knows or
reasonably should know is relevant to the action.” In re Napster, Inc. Copyright Litig., 462 F.
Supp. 2d 1060, 1067 (N.D. Cal. 2006). The duty attaches “from the moment that litigation is
reasonably anticipated.” Apple Inc. v. Samsung Electronics Co., Ltd., 881 F. Supp. 2d 1132,
1136 (N.D. Cal. 2012). Generally, a City will have a reasonable anticipation of litigation when it
is on notice of a credible probability that it will become involved in litigation. For example, the
duty to issue a litigation notice may be triggered when a City:2
• Receives a demand letter, summons, complaint, or subpoena
• Sends or receives a cease and desist letter
• Receives notice of a government investigation
• Becomes aware of an accident or incident involving an employee
• Has a discrimination charge by a former or current employee
• Receives a claim for money or damages filed under the California Government
Claims Act (Gov’t Code Section 810 et seq.)
“Once a party reasonably anticipates litigation, it must suspend its routine document
retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of
relevant documents.” Zubulake v. UBS Warburg, 220 FRD 212, 218 (S.D.N.Y. 2003).

1 Federal law governs the duty to preserve evidence and sanctions for spoliation in cases litigated in federal court,
including diversity of citizenship cases. See Sherman v. Rinchem Co., Inc., 687 F.3d 996, 1006 (8th Cir. 2012).
2 Practical Law Litigation, “Litigation Hold Notice,” at p. 18 (November 2013) available at http://practicallaw.com.
2. Sanctions for Spoliation
Where a party has violated its duty to preserve evidence and engaged in spoliation,
federal courts have the inherent power to impose sanctions. See Sherman v. Rinchem Co., Inc.,
687 F.3d 996, 1006 (8th Cir. 2012) (citations omitted). Sanctions may include the following:
monetary sanctions, an adverse inference jury instruction, striking claims or defenses, exclusion
of evidence, and default or dismissal.3
B. California Law
California law is not as clear as federal law regarding when the duty to preserve evidence
attaches. In particular, California’s Discovery Act does not specifically prohibit the intentional
destruction of relevant evidence before a lawsuit has been filed or before a discovery request.
See, e.g., Dodge, Warren & Peters Ins. Services, Inc. v. Riley, 105 Cal. App. 4th 1414, 1419
(2003).
Additionally, case law is mixed as to whether certain sanctions are properly authorized
under the Discovery Act where a party has engaged in spoliation prior to the commencement of
litigation or a discovery request. See Cedars-Sinai Med. Ctr. v. Superior Court, 18 Cal. 4th 1,
12, 954 P.2d 511 (1998) (dicta) (“Destroying evidence in response to a discovery request after
litigation has commenced would surely be a misuse of discovery within the meaning of section
2023, as would such destruction in anticipation of a discovery request.”); cf. New Albertsons,
Inc. v. Superior Court, 168 Cal. App. 4th 1403, 1430 (2008) (explaining that Cedars–Sinai, 18
Cal.4th 1, did not hold that a court may impose an evidence or issue sanction for the intentional

3 Revisions to the Federal Rule of Civil Procedure 37(e) have been proposed in order to “to ensure that potential
litigants who make reasonable efforts to satisfy their preservation responsibilities may do so with confidence that
they will not be subjected to serious sanctions should information be lost despite those efforts.” See
http://www.uscourts.gov/uscourts/rules/preliminary-draft-proposed-amendments.pdf at 318.
spoliation of evidence absent the failure to obey an order compelling discovery).
However, even if certain sanctions are not available under California’s Discovery Act for
pre-litigation destruction of evidence, the court may still order evidence preservation or give an
adverse jury instruction where evidence is destroyed. See, e.g., Judicial Council of California
Civil Jury Instruction 204. Accordingly, the most prudent course of action is to follow the
federal standard for determining when the duty to preserve attaches.
Once the duty to preserve attaches, California’s Discovery Act, as with federal law,
provides a number of sanctions where there is intentional destruction of evidence. See Cedars–
Sinai, 18 Cal.4th at 12 (“The sanctions under Code of Civil Procedure section 2023[.030] are
potent.”). Court ordered sanctions may include the following: (1) monetary sanctions; (2)
contempt sanctions; (3) issue sanctions ordering that designated facts be taken as established or
precluding the offending party from supporting or opposing designated claims or defenses; (4)
evidence sanctions prohibiting the offending party from introducing designated matters into
evidence; and (5) terminating sanctions that include striking part or all of the pleadings,
dismissing part or all of the action, or granting a default judgment against the offending party.
Cal. Civ. P. Code § 2023.030.
III. COSTS ASSOCIATED WITH LITIGATION HOLDS
“[M]any lawyers, as well as institutional, organizational, or governmental litigants, view
preservation obligations as one of the greatest contributors to the cost of litigation being
disproportionately expensive in cases where ESI [Electronically Stored Information] will play an
evidentiary role.” Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 516 (D. Md. 2010).
In particular, litigants are inclined to preserve vast amounts of electronic information in order to
avoid any possible charges of spoliation and the associated risk of sanctions. As explained by
one district court:
Spoliation of evidence—particularly of electronically stored information—has
assumed a level of importance in litigation that raises grave concerns. Spoliation
allegations and sanctions motions distract from the merits of a case, add costs to
discovery, and delay resolution. The frequency of spoliation allegations may lead
to decisions about preservation based more on fear of potential future sanctions
than on reasonable need for information.
Rimkus Consulting Grp., Inc. v. Cammarata, 688 F. Supp. 2d 598, 607 (S.D. Tex. 2010).
Nonetheless, retaining and storing this electronic data for litigation or investigations can
be a costly. Charges for data storage are often linked to the amount of the data. For example,
one estimate is that it costs approximately $10 to $20 per year to store a gigabyte of data per
year.4 The costs quickly begin to add up when thousands of gigabytes of storage are needed for
several years while a matter works its way through the court system, including any appellate
process. See id. (“Once preserved, relevant data must be retained in federal civil litigation until
there is a final, unappealable order disposing of the matter”). Moreover, many California Cities
continue to face significant budgetary constraints and competing financial priorities.
Accordingly, it is important to carefully craft a litigation hold that ensures that any applicable
preservation obligations are met, while balancing the cost of preserving data.
IV. IMPLEMENTING A LITIGATION HOLD PROCESS
In order for a City to meet its preservation obligation when it arises, the City and/or
outside counsel must implement and monitor the litigation hold process. Zubulake, 229 F.R.D.
at 424; see also Cedars-Sinai, 18 Cal. 4th at 12-13 (“As a practical matter, modern civil

4 Mark Michels, “When Can You Lift a Litigation Hold (Part One),” Law Technology News (November 25, 2011),
available at http://www.lawtechnologynews.com/id=1385415558412/When-Can-You-Lift-a-Litigation-Hold?-Part-
One-&slreturn=20140222020548.
discovery statutes encourage a lawyer to marshal and take charge of the client’s evidence, most
often at an early stage of the litigation. In doing so, a lawyer customarily instructs the client to
preserve and maintain any potentially relevant evidence . . .”).
There are several parts to this process, including identifying the scope of relevant data,
understanding where and how documents are retained, indentifying the custodians who retain
control over the evidence, and issuing and updating as appropriate a litigation hold notice. These
steps are discussed below.
A. Identify the Scope of the Relevant Data
At the outset, it is important to identify the scope of relevant data that needs to be
preserved. Identification of relevant data is not only important for avoiding sanctions, however.
It is also important to ensure that data is not over-preserved, therefore leading to expensive and
unnecessary storage costs.5 A carefully considered and drafted litigation hold notice can help
eliminate either of these potential costs.
The litigation hold notice must provide recipients with enough information that they can
comply with the notice. This includes a description of the subject matter of the dispute, in detail
sufficient that individuals will be able to identify relevant information. Where appropriate,
specifically identify all relevant document and types of documents. Importantly, the notice must
instruct the recipients that the relevant evidence must be retained without any modification.
Additionally, the litigation hold notice should identify the relevant time period for which
documents and data should be retained. It also often important to inform recipients of the hold
notice that the information is confidential.

5 See Michels, “When Can You Lift a Litigation Hold (Part One).”
B. Understand the Records Management System and Practices
In implementing the litigation hold, it is important to identify and understand all ways in
which relevant data may have been recorded and stored. Hard copy documents may include, but
are not limited to, correspondence, notes, telephone logs, calendars, and business records.
Electronic documents may include correspondence, telephone logs, calendars, e-mails, word
processing documents, spreadsheets, and databases.
Relevant evidence is often stored on multiple devices, which may include the following:
desktop computers, laptops, smartphones, tablets, (removable hard drives, dvds, cds, flash
drives). Additionally, data can be saved to hard drives on individual devices, on servers, in cloud
storage, on work and personal e-mail accounts,6 and on social media. Employees may also store
electronic records in ways that are contrary to a retention policy.
An additional component is to understand records retention policies to determine whether
relevant data is available for the time period at issue. Further, it is important to work with the
information technology (“IT”) department, and any other relevant department, to stop any
routine destruction of data. In addition, the IT department likely is familiar with sources of
archived data that can be retrieved, and a City’s IT infrastructure, including servers, data storage,
and archive sources and policies and procedures. Moreover, the IT department can advise as to
the costs of retrieving and storing data relevant to the litigation hold.

6 The scope of the duty to preserve electronic information pursuant to a litigation hold may extend beyond the
definition of “public records” under the California Public Records Act, Gov’t Code Section 6250 et seq. See City of
San Jose v. Superior Court (Smith), H039498, 2014 WL 1254821, ____ Cal. App. 4th ___ (Mar. 27, 2014) (holding
that the definition of “public records” contained in Government Code Section 6252 does not extend to information
from private cell phones or e-mail accounts of public officials and employees).