Formal Legal Hold policies and process are not optional – even for “informal” information

“Here, a fine against [the company] serves the dual purposes of deterrence and punishment . . . Because [those responsible for spoliation] are the sole principals of [the company], a fine directed at [the company] will affect them directly.”

Passlogix, Inc. v. 2FA Tech[i]

What Happened?

A partnership between two businesses failed, and litigation ensued. As the relationship unwound, a number of email messages, text messages, Skype® messages, and log files were created that became relevant to the case. However, the defendants failed to take any formal action to ensure that this evidence was properly preserved, and in fact attempted to hide evidence that they felt was unfairly damaging. As a result, the court fined them $10,000 – a fine large enough, in the courts’ judgment, to ensure that the two founders of the small company felt its sting.[ii]

What went wrong?

The defendants in this case apparently did not have a formal process to ensure that email messages and other information responsive to litigation was properly identified, preserved, and produced. This process, called a “Legal Hold,” is essential to ensure that legal obligations are met.

In addition, the defendants specifically failed to preserve email messages that they thought made them look bad – something the courts have specifically addressed, stating “[t]he duty to preserve documents is meant to prevent these sorts of ‘judgment calls’ by litigants and, instead, requires parties to preserve all documents that may reasonably lead to the discovery of relevant evidence.”[iii]

Finally, it appears as if the defendants believed that preservation obligations did not apply equally to information less formal or traditional than a paper document, and as a result did not preserve email messages, text messages, instant messages, or computer log files. The law is clear that the duty to preserve applies to all responsive information, regardless of its format.

What can we learn?

The requirement for formal Legal Hold policies and processes is well established. As the court notes, failing to issue a written legal hold notice is, on its face, gross negligence.[iv] In addition, the courts do not expect us to take our preservation obligation any less seriously just because the evidence is in a form we might think of as informal – such as email and text messages.

Other lessons we can learn from this case include:

  • Use intelligent tools. Look for tools that can help you identify and preserve responsive email messages. Does your email management solution enable to you to easily find, flag, and preserve responsive messages? If not, you may fall short.
  • Get smart about Legal Holds. Ensure that Legal Hold policies are up-to-date and consistently followed, and that you routinely create and keep records of who received Legal Hold notices, their acknowledgement of receipt, and other key details of the Legal Hold process. Also, ensure that employees have the tools and education they need to comply with Legal Hold notices in your email environment.
  • Treat “informal” content the same. Treat email messages with the same formality as any other type of information when it comes to litigation. Email is always a target and as a result, must be treated with the utmost care.


[i] Passlogix, Inc. v. 2FA Tech., LLC, 2010 WL 1702216 (S.D.N.Y. Apr. 27, 2010). Note that this case addresses many other issues, including a lengthy investigation into how the genuine authorship of an anonymous email message may be ascertained – it is a fascinating read.

[ii] “The Court holds that a monetary fine of $10,000 against 2FA best suits “the facts and evidentiary posture of [this] case.” . . . 2FA is a small company founded only in 2006, and [the founders] -who the Court both finds responsible for the spoliation of evidence in this case-are 2FA’s sole principals and co-founders. Here, a fine against 2FA serves the dual purposes of deterrence and punishment . . . . a fine directed at 2FA will affect them directly. In concluding that a fine of $10,000 is the most appropriate sanction, the Court balances 2FA’s litigation conduct with its status as a small corporation.”

[iii] Passlogix, Inc. v. 2FA Tech., LLC, 2010 WL 1702216 (S.D.N.Y. Apr. 27, 2010), citing, Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, (S.D.N.Y. Jan. 15, 2010).

[iv] “Once on notice of litigation, “the failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.” Passlogix, Inc. v. 2FA Tech., LLC, 2010 WL 1702216 (S.D.N.Y. Apr. 27, 2010), once again citing, Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC,F.Supp.2d, 2010 WL 184312,(S.D.N.Y. Jan. 15, 2010).

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