Why Do US Legal Hold Requirements Matter for International Companies?

In the face of an increasingly interconnected global economy, international enterprises based in Europe and across the world must consider the data risks they are exposed to more broadly than ever before. While the GDPR remains the central regulation governing how they manage data, other international standards can and do frequently apply. One such set of requirements are those governing the discovery process as part of civil litigation in the United States.

International companies based in Europe may fall under the jurisdiction of US civil courts if they:

• Operate under their own banner in the US 
• Own, partner, or have affiliations with companies in the US
• Enter contracts with firms in the US

In the US, and to a lesser extent in other countries with Anglo-American legal procedures, pre-trial discovery is a critical component of the civil litigation process. In it, both parties to the litigation exchange any information that has evidentiary value to the matter in dispute under the supervision of the court. While this whitepaper does not delve deeply into the Federal Rules of Civil Procedure (the rules governing civil litigation in the US), the rules prevent parties from:

• Hiding or obscuring relevant data
• Deleting or destroying incriminating data
• Altering electronic metadata (which may have probative value)

While these obligations may be complicated by GDPR regulations governing the retention or transfer of personal data, civil courts in the US will nonetheless expect compliance with their standards, and failure to do so may have negative consequences. And in fact, legal considerations aside, the ability to retain data for other reasons—such as internal investigations or investigations under the EU General Directorate of Competition—can be a sound business practice.

What Is a Legal Hold?

A legal hold (also known as a litigation hold) is a notification sent from an organization's legal team to employees instructing them not to delete electronically stored information (ESI) or discard paper documents that may be relevant to a new or imminent legal case.

The Role of Legal Holds in US Civil Litigation

Legal holds have been around for a long time, but they really came to forefront in the US in 2003 following Judge Shira Scheindlin's groundbreaking rulings in Zubulake v. UBS Warburg. In one of her five influential rulings, Judge Scheindlin wrote, "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." 

Since Zubulake, legal holds have become a standard practice among litigants to fulfill their preservation duties, and failure to do so is a common cause of e-discovery sanctions. Given the explosion of data volumes and data sources most enterprise-level organizations maintain, legal holds are critical to ensure the preservation of relevant evidence for pending litigation in the US court system.

What Triggers the Need for a Legal Hold? 

The US court system considers litigants responsible for preserving relevant data as soon as there is a “reasonable anticipation of litigation.” Given that this is not a strictly defined standard, most organizations do not wait until they receive formal notice that a civil lawsuit has been filed; rather, they start preserving data once certain events signal that an ongoing dispute may eventually result in litigation. 

Triggers for a legal hold can include:

• A dispute arising from an employee separation 
• Product liability or safety issues 
• Disputes over intellectual property 
• Receipt of notice of a pending civil suit 
• An angry or threatening phone call, letter, or email from an employee or business partner

Why Issue a Legal Hold?

There are potential consequences for the failure to preserve data. First of all, your organization may not be able to assert or defend a claim effectively. Failure to preserve exculpatory evidence could mean that the opposing party in litigation has the ability to more effectively present their arguments. In addition, US courts will not look favorably upon organizations that fail to preserve relevant data. While the most severe sanctions are reserved for those that willfully destroy (or “spoliate”) evidence and act with an “intent to deprive,” negligence can have results such as:

• Delays in the litigation process
• Increased legal costs
• Having to pay the opposing party’s legal costs 

If an organization is exposed to potential civil litigation in the US, it is important that it has a process and legal hold software in place to issue and enforce legal holds. An effective legal hold sets the foundation for the remainder of the e-discovery process and, as a result, the outcome of the litigation itself. As a baseline, internal legal teams must understand the following:

What’s inside a legal hold notification:

An effective legal hold notification will clearly and succinctly establish the specific data that need to be preserved, using things like names, dates, and the underlying issues of the matter. It should also make clear the legal necessity of preservation and include an easy way for the custodian to get in touch with the legal team if they have any questions. 

Who sends a legal hold:

In smaller legal departments,  most legal hold administration is handled by a single individual, often a junior attorney or paralegal. For larger departments, the process is often managed by paralegals or litigation support, who specialize in the nuances of day-to-day legal hold management.

Who to send a legal hold to:

The legal hold should go to anyone who might possess potentially relevant data. As legal teams uncover more of the underlying facts of the matter, the list of custodians (legal hold recipients) will evolve. In some cases, new people will be added to or released from the hold.

When to send a legal hold:

A legal hold email should go out immediately once litigation commences or can be reasonably anticipated. For example, an acrimonious employee dismissal or product defect will almost surely prompt litigation, and require legal teams to issue legal holds promptly.

How to ensure custodians comply with a legal hold:

A key factor in creating a defensible legal hold process is ensuring custodians have read and will comply with the legal hold instructions called acknowledgements. Track employee acknowledgements of the hold, remind custodians of their hold obligations, and have a plan for dealing with unresponsive custodians in order to ensure data is not accidentally deleted by employees.

What to do when the matter closes:

Legal teams often forget to release employees from a legal hold, but releasing holds when appropriate is a critical step in the process. If an employee is left on legal hold, their data will not get deleted. When a matter resolves and the ESI is no longer needed, send an email to all legal hold recipients notifying them they can delete data held for the legal hold.  

Is sending just a legal hold defensible?

In most instances, courts will deem a strong legal hold process reasonable. However, should a key custodian ignore the hold and delete responsive data, a judge could very easily determine that stronger preservation measures – such as data collection – should have been taken. For highly relevant custodians, it may be best to collect right away since you know you'll need the data at some point no matter what.

To learn more about legal holds, including common challenges and how to overcome them, download our recent whitepaper.