The duty to preserve evidence may seem obvious once a lawsuit is filed or you receive a subpoena or notice of a government investigation.(3)  The duty to preserve may arise before that point, however.  Courts have ruled that the duty to preserve arises when you can "reasonably anticipate" litigation or the request for information.  What does that mean? 
 
Unfortunately, determining when the duty to preserve is triggered cannot be reduced to an objective checklist that will apply under all circumstances.  The question will depend on the facts of each situation.  This article will outline some guidelines to assist in that fact-intensive determination.

I.   Are you anticipating initiating litigation, or are you aware of a credible threat that your company will become involved in litigation?  If you are anticipating initiating litigation, you should have a good sense of when you have reached a point at which the litigation is "reasonably anticipated."  If you have decided, for example, to send a demand letter or a "cease and desist" letter, you have probably reached a point at which you have a duty to preserve information relevant to the dispute.

On the defense side, determining when a threat of litigation is "credible" may be more difficult.  A mere possibility of litigation does not necessarily make litigation likely.  Even if a "threat" has been made, it may not be credible, because of:

• The nature of the threat;
• Your organization’s past experience regarding that type of threat;
• Your knowledge of the person who made the threat, or;
• Other factors.

For example, if your company has received threats in the past from a particular individual who has never followed through with actual litigation, you could reasonably conclude that there is no credible threat of litigation.  In that situation, you have no duty to preserve relevant evidence at that point. 

Your response to a demand letter may also impact the duty to preserve.  For example, if your company receives a letter demanding that you stop using a trademarked slogan in your advertising, and you comply with the demand, you may not anticipate litigation. 

The same reasoning applies to potential government investigations.  For example, suppose you learn from a reputable news report of a likely government investigation of a particular issue involving your company.  At that point, the duty to preserve has probably arisen, because a government investigation, and perhaps litigation, can reasonably be anticipated. 

II.   What is the likelihood that data relating to the claim or investigation will be lost or destroyed?

The reasonableness of your conduct in taking steps to preserve evidence may depend in part on factors relating to the relevant data.  The factors courts may consider include:

• The likelihood that relevant data will be lost or destroyed
• Whether relevant data is being retained for some other reason
• The burden of preserving data

For example, if it would not take much effort to preserve information relevant to a dispute possibly leading to litigation, courts will be more inclined to find that you had a duty to preserve that information.  On the other hand, if a vague threat of litigation would require an extensive and expensive search and preservation effort, the court would more likely rule that the duty to preserve does not arise until the threat is more credible or the litigation is more clearly anticipated. 

III.   Do you have a process for reporting and evaluating threats of potential litigation?

In organizations, particularly large organizations, the individuals who will ultimately make decisions about litigation may not know about threats of litigation in time to evaluate the threat and decide whether to preserve evidence.  A process for notifying the decision makers about disputes that may lead to litigation will help you demonstrate to the court that you have taken reasonable steps to preserve evidence when necessary.  The procedure should be simple and practical, so that individuals within the organization will follow it.  The procedures will vary, depending on the size and nature of the organization and what practices work best for that group.

For example, a small company with a dozen employees may have routine staff meetings.  The staff meeting could include as a regular agenda item any threats of litigation against the company.  The CEO or some other designated individual could then follow up to evaluate the threat and determine if the duty to preserve evidence has been triggered.  On the other hand, in a large organization with a legal department, there could be a procedure for reporting disputes and potential lawsuits to the legal department or to certain individuals in that department to determine whether and when to preserve evidence. 

These factors are not exhaustive.  Again, the duty will be evaluated based on circumstances of each situation.  A good rule of thumb to follow is to err on the side of preserving evidence, unless it would be unreasonably burdensome to do so.

3 Tips for how to preserve evidence effectively are outlined in "Litigation Holds" in this issue of Liability Alert.