Today’s Take: The Evidentiary Implications in Sending and Receiving Demand Letters
The first war cry of litigation is often the sending of a formal demand letter. Why? The most obvious reason is to put the recipient on notice of potential litigation. Another reason is to demonstrate to the Court that an informal attempt was made to resolve the dispute before resorting to litigation. There is another, less known, reason for sending a demand letter, however: to trigger the recipient’s duty to preserve evidence. The general rule is that a party’s duty to preserve evidence triggers at the time a party knew or should have known of pending litigation.
Other than being served with a lawsuit, the time at which a party knew or should have known of pending litigation may vary, making it unclear when the duty to preserve triggers. In some cases, correspondence between the parties, such as the issuance of a demand letter by counsel, may trigger the duty to preserve. Demand letters that offer to explore negotiations, business remedies or even suggest the possibility of a lawsuit may not be sufficient to put a party on notice of pending litigation sufficient to trigger the duty to preserve. Such a threshhold is generally at the Court’s discretion and thus varies on a case-by-case basis. District Courts have generally held that to be effective in triggering a duty to preserve, a demand letter should explicitly indicate litigation is imminent as opposed to implying the possibility of litigation. Once the duty to preserve triggers, a litigation hold must be placed on all evidence relevant to the lawsuit. Failure to do so may result in a variety of sanctions.
The recipient of a demand letter must keep several important factors in mind. From a practical standpoint, if a demand letter is received, one should immediately consider the implications it may have on the preservation of evidence, including electronically stored evidence (ESI). Even while a recipient is reading a demand letter, company servers could be automatically scrubbing archived evidence from company hard drives (spoliation). Issues with preserving ESI arise in that it is often costly and unreasonable to preserve all data, particularly in a corporate environment. The good news is there are limitations on the amount and scope of ESI that must be preserved, which saves significant time and cost. Therefore, even if a company fully intends on settling a demand without an attorney, it is best practice to consult an attorney for the limited purpose of determining what data should be preserved in the event settlement fails. It also may be wise to have an attorney establish overall policies for information technology departments in preserving ESI in the face of litigation.
Today’s Taste: After receiving a demand letter, ECJ partner, Rodney Lee, recommends a glass of Donnhoff’s Riesling. An appropriate wine pairing in contemplating the spoliation of evidence, many dessert wines, such as Donnhoff’s, are derived from spoiled or moldy grapes that concentrate the sugar to make it sweet. No sanctions for that!
On Writs and Wine is the blog of ECJ’s Litigation Department, featuring our takes on a variety of litigation-related issues, plus a wine recommendation for your palate’s delight. Your feedback—on both the takes and the wine—is much appreciated. Enjoy!
