Using Ancient Chinese Martial Arts to Control Litigation Costs and Risks
Chin Na (pronounced chin nah) is a component of Chinese Martial Arts. “Chin” means to “seize or catch.” “Na” means to “hold and control.” Although Chin Na covers a wide range of defensive and offensive techniques, it can generally be broken down into grabbing techniques (controlling and locking an opponent’s joints, muscles, or tendons to prevent further movement) and pressing techniques (focusing on pressing and in some instances striking nerves, cavities, and blood vessels, to cause immobilization).
Despite the preceding description, a fundamental principle behind the use of Chi Na is that it is a way to control an opponent without injuring him through escalating a conflict, i.e., pounding an opponent’s face until it looks like ground hamburger. Instead, after executing a Chin Na, you are giving your opponent the choice of having, say an elbow snapped, or an intellectual discussion about the pros and cons of continued physical aggression (just make sure to maintain the Chin Na so you have the final word). In fact, this submission option is widely cited as one of the reasons that Mixed Martial Arts (MMA) Competitions are actually safer than boxing matches. See John Hopkins Study published in the 2006 Journal of Sports, Science and Medicine, Incidence of Injury in Professional Mixed Martial Arts Competitions.
While there are no foreseeable plans to substitute the U.S. litigation system with a Thunder Dome style Justice System, Chi Na is a great metaphor for companies to follow for subduing litigation costs and risks, while avoiding having their defense turned into the equivalent of ground hamburger.
For CIOs and other IT professionals, it is also a conversation starter with CEOs, CFOs and other management to change the perception that IT operations are a financial drain and, instead, actually contribute to the company’s bottom line. And certainly any CEO/CFO is going to appreciate any value added to the business operations in these tough economic times. For a great write up on this example, see Tough Times and Three Unequivocal Standards of IT Agility by Michael Hugos (noting that “Your company’s business agility (and the IT agility that drives it) will determine whether it becomes a victim of tough times or whether it rises to the challenge and reinvents itself to fit new circumstances.”).
The specific technique for using a Business Chi Na is implementing and perfecting what has become known as the “litigation hold.”
A “litigation hold” simply refers to suspending the applicable record retention policy, e.g., the deletion, recycling, or destruction of information no longer having a business purpose, in response to litigation or the likelihood of litigation. This suspension is required in response to actual or anticipated litigation. See Bloemendaal v. Town & Country Sports Center, Inc., 255 Mich. App. 207; 659 N.W. 2d 684 (2002) (Court dismissed plaintiff’s case as a sanction for failing to preserve evidence).
Companies must implement a litigation hold in response to litigation or the reasonable likelihood of litigation. This is because courts are coming down hard on companies that fail to issue litigation holds. See Keithley v. Homestore.com, Inc., 2008 WL 3833384 (N.D.Cal. Aug. 12, 2008) (The defendants’ failure to issue litigation hold after its preservation duty arose led the court to label the discovery misconduct “among the most egregious this court has seen” and resulted in an order requiring the defendants to pay over $250,000 in fees and costs associated with prior and future motion practice and expert fees, deferring additional amounts until actual fees can be determined, while also imposing an adverse jury instruction against the defendants); DaimlerChrysler Motors v Bill Davis Racing, Inc, 2005 WL 3502172 (ED Mich Dec. 22, 2005) (Adverse jury instruction ordered against Bill Davis Racing for its failure to preserve emails that were automatically deleted by computer program); United States v. Phillip Morris USA, Inc., 2004 WL 1627252 (D. D.C. July 21, 2004) (Court imposed $2,995,000.00 in fines for executives and high-ranking executives deletion of emails). In one instance, a court even fined a CEO $10,000 for failing to adequately implement a litigation a hold. Danis v. USN Communications, Inc., 2000 WL 1694325, 53 Fed. R. Serv. 3d 828 (N.D. Ill. 2000).
In addition to a litigation hold being required, it also has the added benefit of demonstrating to a potential judge that your company (1) Is on top of the litigation and, therefore, there is no need for judicial intervention in the form of a sweeping “hold everything, suspend all backup procedures, direct all third parties that may have information relevant to the litigation to do the same, and do not delete a single e-mail including the dubious e-mails from a Sudanese Businessman willing to share a couple of million dollars if you simply give him your bank account information to deposit the funds (ok perhaps slight hyperbole but for an example of a very broad preservation order see this 2007 Order from a Federal District Court); (2) Shows – regardless of the merits (or lack thereof) – that your company takes its litigation obligations seriously; and (3) Puts your company in a position to take advantage of a “safe harbor” provision under the Federal Rules if digital information was inadvertently lost or destroyed.
So what steps should a company consider in implementing a litigation hold policy? Virgil Hunter, a boxing trainer, provided a great explanation applicable to almost any endeavor: “It’s not about getting it right or wrong. There is no right or wrong. It’s about not getting hit.” (quoted from an equally great book, Sam Sheridan’s A Fighter’s Heart (2007)). In this regard, there is no right or wrong answer in implementing a litigation hold, just don’t get hit. And to avoid getting hit, companies creating a retention policy generally should focus on the business purpose of the information (if you don’t need it, get rid of it), what, if any, regulatory or statutory requirements must be complied with, and are there any preservation obligations due to existing or anticipated litigation. After addressing these issues with competent counsel, a company should also address the following topics associated with implementing a legal hold:
- Have a written retention policy that is enforced. Two points for you if you realized that this consideration was already discussed in the preceding paragraph. The reason for this duplication is that a written policy is so important in contributing to running an efficient business and reducing costs associated with litigation by eliminating the accumulation of information that no longer is relevant or otherwise serves a business purpose. This reduces the amount of information you will have to pay an attorney to review when litigation is involved. For example, the cost for retrieving and reviewing a sampling of e-mails for seven former employees and two managers totaled $42,892.42 in an employment claim. See Henry v Quicken Loans, Inc, Case No. 4:04-cv-40346-PVG-SDP, Dkt. No. 384 (ED Mich Feb 20, 2007).
- Know when to pull the trigger. Part of your retention policy should outline when the litigation hold must be put in place. Remember, the trigger date may predate the actual filing of litigation. It also may be required in situations your company is not involved in litigation. For example, in response to a subpoena, governmental investigation, or an internal investigation. The important point is to err on the side of caution and to document the reasons and rationale for not instituting a hold.
- Notify the key players. Written notice should be provided to those employees considered key players in the reason for the litigation hold. And IT professionals will always be included in the “key player category” (they hold the keys to the digital kingdom – how could the techies not be important?). The notice should explain to the key players what type of infomation must be preserved (e.g., e-mails, digital files, voice message, text messages, etc.), what sources of information must be preserved (e.g., laptops, USB drives, voice mail, etc.), the steps for preserving information, and a contact person for any questions about the hold process. You will also want to determine how much information about the reason for the litigation hold should be given. Public litigation may provide more leeway, while private matters will require more discretion.
- Confirmation from the key players. You should document that the key players have received the notice and have complied with it. Referring back to Virgil Hunter, there is no right or wrong way to do this, just make sure you won’t get hit down the road. In this regard, you will want to have a documented trail if a judge were to question your efforts in preserving litigation. So make sure the confirmation along with all of your steps along the litigation hold path are documented.
- Update the Hold as needed, including releasing it. You will probably find that the initial hold was nothing more than an unsatisfying lawyer’s mantra of “preserve everything.” While this may have been prudent at the outset of the litigation hold, you and defense counsel should begin the process of analyzing what is actually relevant to the litigation and, therefore, what actually must be preserved. This is because until the scope of preservation is determined, companies will likely incur unnecessary costs related to preservation. Further, from a judicial perspective, an open-ended “preserve everything” order is not desirable due to the vast amount of non-discoverable and redundant information that will likely be preserved with no gains towards resolving the pending action. Also, when the litigation hold is released, you will need to confirm whether the information that was subject to the hold should be deleted, preserved, or put back into the normal record retention policy.
Feel free to contact me about obtaining a copy of an example litigation hold letter. But be prepared: I may ask you to stand in while I work on executing a shoulder crank.