We live in an era where litigation is an ever-present, and a sometimes overwhelmingly frequent, consequence of doing business. Businesses must be aware of their obligations under the law to prepare for potential litigation on an ongoing basis. The advent of email and other forms of electronic transmission and storage of information increases the need for a reliable electronic and paper document retention plan (that is communicated to all employees); having one can sometimes enhance the chances of efficient and successful litigation and avoid the imposition of court sanctions for failure to preserve records relevant to litigation. In addition, all businesses and their employees must know when, even with a document retention plan, the law triggers a further obligation to retain documents, also known as a "litigation hold."
A federal court in NY recently ruled on a business’s duty to retain documents. The court said, "[T]he duty to preserve evidence arises when a party reasonably anticipates litigation. 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." These "relevant documents" can include not only documents concerning the business's transactions and other external dealings, but also internal documents, including current and former employee files. The trigger for retention of documents can be even earlier if the business is the potential plaintiff, largely because the plaintiff controls the timing of litigation. In summary, every business should be sensitive to potential trigger events that suggest that litigation is reasonably likely.
Failure to institute a litigation hold and retain required documents can result in monetary sanctions, dismissal of the case (if the business is the plaintiff), or judgment against the business (if it is the defendant). The appropriate sanction is left to the "sound discretion" of the trial judge, depending on the level of culpability of the business – negligence, gross negligence, or willful conduct. While a court "should always impose the least harsh sanction that can provide an adequate remedy," prudent business owners should take steps to ensure that the required documents will be retained, and that a judge will not have to exercise discretion.
Business owners should understand and comply with their obligations to retain documents that are relevant to possible litigation. Businesses that fail to do so run the risk of monetary sanctions if litigation ensues or of forfeiting their right to sue, or to defend against claims by others. For more information on document retention plans, a business’s obligations to retain evidence relevant to litigation, and other topics related to litigation holds, please contact Lawrence Quinn at email@example.com, or by telephone at 410.752.9742.
Source: Pension Committee of University of Montreal Pension Plan v. Banc of America Securities, LLC,United States District Court for the Southern District of New York.