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July 2018Volume 49Number 1

Perfect timing: The right time to release legal holds

Many litigants (or potential litigants) are familiar with the process of implementing litigation holds: the duty to preserve documents, electronically stored information, or tangible evidence arises when an organization or individual reasonably anticipates litigation.1

What parties aren’t as familiar with or as experienced in, however, is the process of releasing a litigation hold. Organizations and individuals that are unsure when to release their legal holds—or how to do so—may incur significant costs without reaping any comparable benefit. Maintaining a litigation hold can be inefficient and expensive, especially if the hold applies to a large quantity of documents and lasts for an indefinite period of time. Compounding these concerns is that entities that prematurely release litigation holds may face spoliation sanctions, such as adverse inferences. The key to navigating between this rock and hard place is understanding the guidelines that govern when to release legal holds.

Has the Reasonable Anticipation of Litigation Ceased?

Generally, federal courts apply the same standard to assess whether a party’s obligation to preserve information has ceased: a party can cease preserving information when it is no longer “reasonably foreseeable” that litigation will occur. In other words, courts considering this question examine whether the party who stopped preserving evidence could have reasonably concluded that it no longer anticipated litigation.

Illinois courts have not yet addressed the question of when the obligation to preserve information has ceased. The Supreme Court of Illinois has recognized that “a potential litigant owes a duty to take reasonable measures to preserve the integrity of relevant and material evidence.”2 Illinois trial courts may impose Rule 219(c)3 sanctions upon a party who unreasonably fails to comply with the court’s discovery rules—for example, by “fail[ing] to produce relevant evidence because it was destroyed prior to the filing of a lawsuit.”4 Illinois also allows litigants to bring negligent spoliation claims where a “reasonable person in the defendant’s position should have foreseen that the evidence was material to a potential civil action.”5 There is a large body of federal case law on the obligation to preserve evidence,6 and an emerging body on ceasing to preserve, as discussed below.

So, when can a party safely conclude that it no longer anticipates litigation?

Dismissal with Prejudice

First, federal courts have indicated that a company is in the safety zone when the litigation has been dismissed with prejudice.7 For example, in Edwards v. Hearst Communications, Inc.,8 the parties discovered that the plaintiff had never subscribed to the magazine that formed the basis of his complaint. Accordingly, the parties jointly moved for dismissal with prejudice, which the court granted, and Hearst released its litigation hold. Three months later, a different plaintiff sued Hearst under the same allegations and requested sanctions against Hearst for failing to maintain its litigation hold. The Hearst court acknowledged that “[i]n certain circumstances, threats of litigation or prior litigation may put a party on notice of future litigation and thus give rise to a duty to preserve.” Still, the court refused to sanction the defendants and concluded, “given that [the first lawsuit] was dismissed with prejudice on a joint motion, the lack of other suits brought against Hearst under the [applicable statute], the absence of threats or other specific information indicating that suit might follow, and the nature of injury caused by the alleged action, it was reasonable for Hearst to believe that no future litigation was forthcoming.”9

Hearst and other similar cases illustrate that when a lawsuit has been dismissed with prejudice, a company may safely release its litigation hold.10 However, note that the Hearst court pointed out that Hearst’s belief was reasonable because there were no other similar suits brought under that statute, and Hearst had no reason to expect another suit of the same type. In the same way, before releasing a hold, counsel should investigate and consider the existence of “parallel lawsuits, either ongoing or contemplated, that impose a continuing obligation upon the party to preserve evidence.”11 Thus, serial litigants should be wary of releasing a litigation hold simply because one case has been dismissed with prejudice.

Settlement of Underlying Litigation

Second, federal courts have also indicated that a company may safely release a hold when the underlying litigation has been settled.

For example, in In re Pradaxa Products Liability Litigation,12 the court refused to sanction a defendant for destroying documents after the case settled. The court explained that the defendant “had no reason to anticipate litigation—imminent or otherwise.”13 In reaching this conclusion, the court specifically rejected the plaintiff’s arguments that the defendant should have been on notice of possible litigation based on “FDA adverse event reports and other safety announcements” or “internet chatter” (a blog post published on the website of a plaintiffs’ firm), stating that “if this were the standard, pharmaceutical companies would be in a perpetual litigation hold.”14

Similarly, in Cacace v. Meyer Marketing,15 the court held that litigation was not reasonably foreseeable after the parties entered into a licensing agreement. In Cacace, the defendant had issued a litigation hold after receiving notice of a potential patent violation. The parties entered into a licensing agreement instead, however, and the defendant released the litigation hold. Eventually, the parties came into conflict again, and the plaintiff sued alleging a patent violation. The court held that the defendant had no obligation to preserve documents between the date of the licensing agreement and the filing of the lawsuit, as it was “entirely reasonable for defendant to believe that any lingering concern regarding potential infringement was addressed by, and resolved within, the licensing agreement.”16 The court also recognized that requiring the defendant to maintain its litigation hold after the parties had come to an agreement would be counterintuitive: “Indeed, it is hard to imagine that defendants would have moved forward with the business arrangement had they believed litigation was forthcoming.”17

Government Fails to Prosecute Within Reasonable Time

Third, federal courts have also indicated that a company can safely release a hold when the government fails to prosecute within a reasonable amount of time.

In In re Delta/AirTran Baggage Fee Antitrust Litigation,18 the plaintiffs brought a spoliation claim against the defendant for failing to preserve information and documents relating to a prior Department of Justice investigation. The court rejected the plaintiffs’ claim, holding, “[t]o be sure, upon receipt of the CID, Delta had a duty to the DOJ to preserve and produce all relevant documents. However, the Court has difficulty accepting the notion that at the time, as a matter of law [Defendant] immediately owed the same duty to Plaintiffs.19 In reaching this conclusion, the court found persuasive that the DOJ had initially conducted a great deal of discovery, then stopped investigating the defendant for a five-month period leading up to the filing of the plaintiffs’ complaint.20 The court also observed that the defendant had instituted a litigation hold in response to the DOJ investigation, and it did not lift that hold until the cessation of the investigation.

Similarly, in Point Blank Sols, Inc. v. Toyoba Am., Inc.,21 the plaintiff requested sanctions against the defendant for failing to preserve evidence collected and preserved for a prior DOJ investigation that never resulted in prosecution. In denying the plaintiff’s motion, the court held, “a subpoena issued by the government do[es] not necessarily mean that [Defendant] should have at that time anticipated litigation with [Plaintiff] or that [Plaintiff] can take advantage of an evidence-preservation duty owed by [Defendant] to . . . different government agencies.”

Practice Pointers

As an added safety measure, parties can address preservation (and the absence thereof) affirmatively in order to ensure no surprises on this point. For example, litigants can include a clause in a settlement agreement that specifically provides the parties are not under any continuing preservation obligation. Similarly, when negotiating consent decrees, a party can specifically address the absence of a need to continue preservation. Parties can also insert a provision regarding the lack of an ongoing preservation obligation into dismissal orders entered with the court. 22

Ultimately, parties can safely consider the need for preservation resolved and release litigation holds under the following circumstances:

  • Relevant statute of limitations has expired;
  • Judgment entered;
  • Summary judgment granted;
  • Action dismissed with prejudice;
  • Government declines prosecution;
  • Settlement reached.

Currently, no federal or Illinois rule of civil procedure governs the issuance and release of litigation holds. However, armed with an understanding of when litigation holds may be safely released, organizations and individuals can confidently release such holds at the right time to minimize costs and risks.

1. The Sedona Conference, The Sedona Conference Commentary on Legal Holds: The Trigger and the Process, 11 Sedona Conf. J 266, 267 (2010).

2. Shimanovsky v. General Motors Corp., 692 N.E.2d 286, 290 (Ill. 1998) (affirming discovery sanctions where one party had altered a key piece of evidence prior to trial).

3. ILCS S. Ct. Rule 219(c).

4. Id.; e.g., Shelbyville Mutual Insurance Co. v. Sunbeam Leisure Products Co., 634 N.E.2d 1319, 1323-24 (Ill. App. Ct. 5th Dist. 1994) (sanctioning party under Rule 219(c) for failing to preserve allegedly defective product in product liability case); America Family Insurance Co. v. Village Pontiac-GMC, Inc., 585 N.E.2d 1115, 1118 (Ill. App. Ct. 2d Dist. 1992) (same).

5. Boyd v. Travelers Insurnce Co., 652 N.E.2d 267, 270-71 (Ill. 1995). Illinois does not recognize the independent tort of intentional spoliation; instead, it only recognizes negligent spoliation claims, which are to “be stated under existing negligence law.” To state a claim for negligent spoliation, a party must show that the defendant owed a duty to preserve evidence, a breach of that duty, an injury proximately caused by the breach, and damages. Id. Moreover, there is no general duty to preserve evidence, so the plaintiff must show that a duty arose through agreement, contract, statute, or another “special circumstance.” Id.

6. Norman-Nunnery v. Madison Area Technical College, 625 F.3d 422, 428 (7th Cir. 2010) (evaluating whether party “knew or should have known, that litigation was imminent” to decide whether party had a duty to preserve evidence); Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681-82 (7th Cir. 2008) (“Motel 6 had no reason to anticipate litigation, and thus no duty to preserve anything, until May 2005”); Yahnke v. County of Kane, 2013 WL 4537865, at *6 (N.D. Ill. Aug. 27, 2013) (“[O]nce a party reasonably anticipates litigation, counsel has a duty to institute a litigation hold to preserve relevant information.”); In re Kmart Corp., 371 B.R. 823, 842 (Bankr. N.D. Ill. 2007) ([T]he obligation to preserve evidence may arise prior to the filing of a complaint where a party is on notice that litigation is likely to commence.”) (internal quotations omitted).

7. If a case has been dismissed without prejudice, the court may order the defendant to maintain its litigation hold until the applicable statutes of limitations have passed. E.g., Delram Transportation, Inc. v. Lexmark Intern., Inc., 2007 WL 1557114, at *2 (W.D. Tex. May 23, 2007) (granting dismissal without prejudice and ordering defendant to continue preserving evidence until the statutes of limitations applicable to plaintiff’s claims have expired). Similarly, if a litigation is merely stayed—for example, pending the outcome of an inter partes review of the outcome of a sister case in a different jurisdiction—the litigation hold must be maintained. E.g., Pi-Net International, Inc. v. Hertz Corp., 2013 WL 7158011 (C.D. Cal. June 5, 2013); iCore Global LLC v. Millennium Commercial Advisors LLC, 2015 WL 179401, at *7 (N.D. Cal. Jan. 14, 2015).

8. 2017 WL 6458612, at *3 (S.D.N.Y. Dec. 18, 2017) (affirmed in part, reversed on other grounds).

9. Id. at *3 (emphasis added).

10. See also Joostberns v. United Parcel Service, Inc., 166 Fed. Appx. 783, 797 (6th Cir. 2006) (refusing to sanction a defendant for destroying documents at the conclusion of Union grievance procedures, the event for which the documents were originally held and preserved); Henry v. Abbott Laboratories, 2015 WL 5729344, at *1 (S.D. Ohio Sept. 30, 2015) (declining to sanction a defendant for releasing its litigation hold after the case was dismissed with prejudice, even though the same case was later reinstated).

11. Timothy M. O’Shea et al., Using Legal Holds for Electronic Discovery, 40 Wm. Mitchell L. Rev. 462 (2014).

12. MDL No. 2385, 2013 WL 5377164, at *10-14 (S.D. Ill. Sept. 25, 2013).

13. Id. at *10.

14. Id. at *14.

15. 2011 WL 1833338, at *2 (S.D.N.Y. May 12, 2011).

16. Id.

17. Id.

18. 770 F. Supp. 2d 1299, 1307 (N.D. Ga. 2011).

19. Id. at 1308 (emphasis in original).

20. Id. at 1304-05. The DOJ’s extensive discovery efforts included document requests, telephone conferences about the defendant’s e-mail system and deletion procedures, copying of various employees’ hard drives, and the depositions of employees.

21. No. 09-61166-CIV, 2011 WL 1456029, at *26 (S.D. Fla. April 5, 2011).

22. E.g.U.S. v. Town of Colorado City, Arizona, 2017 WL 1384353, at *1 (D. Ariz. 18, 2017) (approving of injunction agreement which stated, “The parties agree that, as of the date of the entry of this injunction, litigation is not reasonably foreseeable concerning the matters described herein. To the extent that any party previously implemented a litigation hold to preserve documents, electronically stored information (ESI), or things related to the matters described in this injunction, the party is no longer required to maintain such litigation hold”); Consent Decree Between the United States of America and the City of Jacksonville, Florida, 2016 WL 9406458 (M.D. Fla. Dec. 27, 2016) (“The parties agree that, as of the date of the entry of this Consent Decree, litigation is not ‘reasonably foreseeable’ concerning the matters described above. To the extent that either party previously implemented a litigation hold to preserve documents, electronically stored information (ESI), or things related to the matters described above, the party is no longer required to maintain such litigation hold.”); U.S. v. Nistler, 2016 WL 64262189, at *13 (D. Mon. Oct. 28, 2016) (same); Consumer Financial Protetction Bureau v. National City Bank, 2014 WL 12774769, at *5 (W.D. Penn. Jan. 9, 2014) (same); U.S. v. Mortgage Guaranty Insurance Corp., 2012 WL 1606235, at *9 (W.D. Penn. April 30, 2012) (same).

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