Litigation hold is an important aspect not only in U.S law but also in the global scenario. Simply put, litigation hold is an affirmative act by an organization to prevent the destruction of documents (either paper or digitally preserved documents; sometimes by scanning and indexing) relevant to a lawsuit or governmental investigation.
The necessity for an organization to preserve documents and to save it electronically rises whenever an audit, investigation or lawsuit is initiated against it. Recently, it was reported that many Korean companies involved in legal disputes with the U.S are likely to be caught flat-footed, as many of them have failed to preserve important documents, required for civil litigation in the U.S.
Cross-border commerce is the major reason for legal disputes between the U.S and Korean companies. Many smaller Korean companies are facing litigation in the U.S, along with other manufacturing giants such as Samsung Electronics or Hyundai Motors. Smaller companies unfamiliar with the legal norms of U.S-style litigation are facing difficulties in the lawsuit due to some legal obligations. The duty to preserve documents is one such obligation.
In 2009, Kolon Industries, Inc was sued in the United States District Court, for allegedly misappropriating the trade secret relating to Kevlar® textile of DuPont. The court had found that Kolon destroyed more than 17,000 relevant electronic documents. Spoliation of evidence severely affected the defense of Kolon in the court. They claimed that what they have destroyed is not relevant for litigation, and included personal emails or temporary computer files. The court however, instructed the jury to draw adverse inference from all destroyed documents. Kolon was defeated in the trial court (judgment of more than $900 million against Kolon), where adverse inference could have played a significant role in the defeat.
As per U.S. law, the obligation to preserve documents begins with a “triggering event”. Then what is this ‘trigger event’? Events that trigger the duty to preserve paper/digital documents are referred to as ‘trigger events’. The obligation to preserve evidence begins when a company knows that the evidence is relevant to current or future litigation. When the company realizes that there is a possibility for a lawsuit in future, it must take steps to prevent the destruction of any document that may become relevant to the litigation, by implementing some mechanism for data management.
When a triggering event occurs, the company usually issues a “litigation hold letter,” instructing the party to preserve relevant documents, useful for any lawsuit that may happen in future. Litigation hold, if not implemented properly, may result in the following.
- The court may prohibit the offending party by relying on data captured from destroyed evidence
- Strike pleadings in whole or in part
- Impose monetary fines on lawyers and/or clients
- Dismiss the action in whole or in part
- Give adverse jury instructions
Now, many of the Korean companies are working towards effective document management and preservation. They have started appreciating the value of engaging American law firms and litigation consulting companies early in the process.