Litigation Hold

Under U.S. law, a duty to preserve relevant records, in any existing form, is triggered once a party is aware that litigation, or a government investigation is pending against it, “reasonably anticipates” such litigation, or is put on notice of an imminent suit or prosecution. Once the duty to preserve has been triggered, a party must take affirmative steps immediately to preserve information that they know or reasonably should know to be relevant to the action; reasonably calculated to lead to the discovery of admissible evidence; reasonably likely to be requested during discovery; or is the subject of a pending discovery request.

It was its conviction for breach of this duty by shredding huge numbers of documents related to Enron that caused the collapse of the accounting firm Arthur Andersen (even though the conviction was later overturned); breaches may also be sanctioned by fines or even by prohibiting the breaching party from mounting defenses to which the destroyed records may have been relevant as well as penalties for counsel. The judge may also advise jurors that they can draw an adverse inference from the destruction of records, i.e., that they were destroyed to conceal something—usually as bad as possible.

To avoid these consequences a ‘litigation hold’ should be placed in effect suspending the destruction of potentially relevant records including e-mails and computer files that otherwise would be routinely disposed of in the ordinary course of business under whatever document and record-retention policy is in force, and all employees who might have potentially relevant records should be formally advised not to delete, destroy, or otherwise dispose of them.

For companies that are regularly in litigation, especially patent litigation, the concatenation can lead to a situation where an effective litigation hold is present for years, creating an every greater pile of old but non-destrutible records.

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