The Dealership Litigation Hold: Unpacked

These Are A Few Of My Unfavorite Things.

(Sing with me here…)
“Gossip and taxes and unpleasant divorces,
Pulling of wisdom teeth, with chronic hoarseness,
Lawyers and penalties which costs money and stings,
These are a few of my unfavorite things.”

Speaking of unpleasantries, here’s another dreaded phrase which involves dealerships all too often. We need to consider and discuss (1) what is a litigation hold, (2) why is it important, (3) what elements of my business should I think about in relation to a potential litigation hold, and (4) what are some preventative measures I can take right now.

What is a Litigation Hold?

Litigation hold is “also known as a legal hold... or preservation order. An instruction within a business organization directing employees to preserve, and refrain from destroying or modifying, certain records and information (both paper and electronic) that may be relevant to the subject matter of a pending or anticipated lawsuit or investigation.”

A litigation hold includes all electronically stored information (ESI), including all emails related to the litigation as well as other documents which may be relevant.

These are also known as “stop destruction requests.”

Consider that Microsoft has a primer on its website about how to “Create a Litigation hold” for email boxes.

“When an organization anticipates or becomes a party to litigation, an investigation, or an audit, it must develop and implement a protocol to preserve all relevant information (preservation protocol).”

Failure to comply with a litigation hold request can result in sanctions, accusations of contempt of court, striking of evidence or pleadings, and other general ugliness. It is called spoilation.

In addition, lawyers or regulators may issue a document preservation letter for your cloud service providers, as well as sending a request directly to you. They may request include individual cell phone data which may reside on your phone or employee cell phones.

If you have a data retention policy, and your IT director follows that policy, your data routinely should be deleted according to your GLBA Guidelines (remember those?). These deletions must be suspended pending the outcome of any discovery and litigation.

Everything is discoverable: hard copies, text messages, voice mail messages, calendar entries, task lists, social media, blogs, technical drawings, thumb drives, hard drives, laptops, photographs, network activity logs, police reports etc.

If you have to comply, it’s very time consuming and very expensive.

Five Considerations

In considering the potential future problem of a litigation hold, here are five (5) considerations:

1. Consider the depth and breadth of your daily dealership operations. Consider the “what if” scenario and how a litigation hold could affect your daily operations. Knowing this is a possibility, are there changes you would make?
2. Consider this adage: Only e-mail information that you wouldn't mind reading to a judge on the witness stand. Does your entire team understand this notion?
3. Sensitive discussions are best handled in person.
4. Conduct regular risk assessments to identify potential areas of concern or exposure.
5. How would your insurance policies respond to a litigation hold? What is your financial exposure to comply with electronic discovery only?

Seven Preventive Measures

Before you get into a situation where you will be required to implement a litigation hold, consider these problem preventing strategies:

1. All employees should understand unethical or fraudulent activities will expose them to severe consequences. Have policies and procedures in place to prevent “bad apples” from working for you. (You’d rather deal with the unscrupulous employee upfront rather than discover issues upon notification of a litigation hold and information review.)
2. Most problems come on two (2) legs, either through customer issues or employee concerns. To prevent litigation with employees, consider having (1) a Legal Rights Agreement signed upon onboarding and (2) an exit interview with every, single employee. Litigation and regulatory inquiries are most often the result of unsatisfied customers and team members. Consider establishing a chain of command to ensure satisfaction of all these problems. Be relentless here.
3. Document. Document. Document. Consider establishing a central repository of all training and compliance audits and materials. This can be accomplished through GRC (governance, risk, and compliance) software. Demonstrating compliance activities can often reduce penalties and fines, in addition to providing your attorney with an affirmative defense.
4. Don’t have a formal compliance program? Start one today. Any robust program includes an audit mechanism to check behind your policies and procedures to ensure they are being followed. You will discover which policies are being followed and which are not only through checking. (“Expect what you inspect.”)
5. Have an Employee Guidebook, which clearly sets out expectations and policies which employees are required to follow. Update it regularly.
6. Training: all employees should be routinely trained (ideally, at least monthly) on legal requirements at your dealership and about your specific Company policies. Employees should understand who to speak with about potential conflicts or compliance issues.
7. Whenever possible, attempt to resolve all disputes through whatever means possible. The more informal the mechanism, the less it will cost your company to resolve the issue. As you delve into formal mediation or arbitration, your expenses will rise and so will the employee’s and customer’s blood pressures.

If you think about these issues upfront, and work to prevent problems before they occur, you might not “feel so bad,” as the song says. In my experience, when you apply these principles to your business practices, the severity of the problems is usually greatly reduced and/or even eliminated.

If you’ve braved it to the end of this article, wouldn’t you agree you’d rather be singing about cream-colored ponies and crisp apple strudel? Plan accordingly and you can!