Pivotal Case Law for Legal Holds
3 rulings underpinning expectations about preserving ESI
The risks of a failed litigation hold can have serious fallout. Never mind the internal embarrassment of losing potential evidence in a case. An improperly handled legal hold can lead to unfavorable settlements, costly court sanctions, and long-term damage to an organization’s reputation.
Today, legal holds are essential to locking down electronically stored information, or ESI, that may be relevant in active or anticipated litigation. The courts over the years have shown they will not tolerate sloppiness in the legal hold process, including delays in suspending data retention policies, failure to enforce custodian compliance, or other errors that lead to the loss of potentially relevant information.
Given the volume and complexity of today’s digital communications, understanding important milestones in U.S. case law around legal holds and how the rules for data preservation have evolved — and learning from real-world missteps — is more important than ever. Some of the pivotal moments came in the 2002 opinion in Zubulake v. UBS Warburg and the 2014 ruling in Knickerbocker et al. v. Corinthian Colleges (both employment discrimination cases), and 2018 intellectual property infringement lawsuit Klipsch Group., Inc. v. ePRO E-Commerce.
Zubulake v. UBS Warburg: Setting the Standard
The modern framework for safeguarding potentially relevant information has roots in the landmark employment discrimination case Zubulake v. UBS Warburg, which set the tone for how courts evaluate legal hold efforts today.
The plaintiff, Laura Zubulake, alleged that her employer, UBS Warburg, had failed to preserve emails relevant to her claims. Her proof was in the hundreds of emails she had saved and printed, which far outnumbered those that UBS produced. The court agreed, finding that key communications were deleted despite internal instructions to preserve them.
In a widely cited opinion, Judge Shira Scheindlin of the Southern District of New York, faulted UBS Warburg for the data loss in the case and issued a precedent-setting opinion: “Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.”
The jury awarded Zubulake $29.2 million in compensatory and punitive damages before the parties settled.
And legal holds entered center stage in ediscovery practice. Zubulake established that parties to a dispute had an obligation to protect relevant electronic material from spoliation (loss or destruction) — not only after a lawsuit has been filed, but well before litigation actually started.
2006 ESI Milestones in Federal Rules of Civil Procedure
Ediscovery continued to evolve after Zubulake with significant changes to the Federal Rules of Civil Procedure, or FRCP, which govern how civil cases are conducted in U.S. federal district courts. First adopted in the late 1930s, the rules aim to “secure the just, speedy, and inexpensive determination of every action and proceeding.”
A key turning point came in 2006, when FRCP amendments formally recognized electronically stored information, or ESI, as a category of discoverable material. The courts started to take a more active role in managing discovery and began to require parties to address ESI early in litigation — including the form of production, preservation obligations, and agreements for handling inadvertent disclosure of privileged information.
These rule changes reinforced that legal teams must proactively address preservation — including legal holds — early in a matter.
Knickerbocker v. Corinthian Colleges: A Costly Oversight
The costs of failing to suspend auto-deletion policies after receiving notice of potential legal action can add up, as demonstrated by Knickerbocker et al. v. Corinthian Colleges.
In the 2014 employment discrimination case, the court imposed sanctions on the defendant as well as its counsel for failing to issue and enforce a legal hold — leading to the loss of evidence.
In this case, the plaintiffs alleged that Corinthian had not taken adequate steps to preserve potentially relevant emails after the Equal Employment Opportunity Commission sent notices on the plaintiffs' behalf. Despite its legal obligation to preserve potential evidence, they said, the defendant did not reverse its auto-delete policies, permanently destroying the employees’ emails.
The U.S. District Court for the Western District of Washington found, “by clear and convincing evidence, that Corinthian’s and Corinthian’s counsel’s lackluster search for documents, failure to implement a litigation hold, deletion of evidence, refusal to cooperate with Plaintiffs in the discovery process […], reliance on a recklessly false declaration, shifting litigation positions, and inaccurate representations to the court constitute bad faith or conduct tantamount to bad faith.”
The result was $25,000 in spoliation fines for Corinthian and $10,000 in penalties for its lawyers. The organization’s failure to put an effective litigation hold in place also led to extra expenses to recover emails from backup tapes and for depositions of IT staff and others — which could have been avoided if it had properly preserved evidence in the first place.
Klipsch Group v. ePRO: A $2.68M Sanction for Willful Spoliation
The stakes are even higher when a court finds willful spoliation of evidence and other discovery abuses.
By establishing clear principles about the proportionality and severity of sanctions for discovery misconduct, the court decisions in Klipsch Group, Inc. v. ePRO E-Commerce marked an important inflection point in ediscovery case law.
Klipsch had sued ePRO for allegedly selling counterfeit Klipsch products. The dispute escalated when discovery efforts led to claims that ePRO failed to preserve and produce relevant documents. According to Klipsch, the ecommerce company did not disclose responsive documents in a timely fashion and did not put an appropriate legal hold in place after a court order to do so.
On top of this was the finding that ePRO had manually deleted files, used data-wiping software, and failed to provide access to employee email accounts — actions that, the court found, amounted to willful spoliation. The district court awarded Klipsch $2.68 million to compensate for its forensic and discovery costs.
In 2018, the Second Circuit Court of Appeals upheld the ruling, clarifying that the scale of the sanctions reflected the degree of discovery misconduct, not the value of the damages at stake — which were only about $20,000.
“The proportionality that matters here is that the amount of the sanctions was plainly proportionate—indeed, it was exactly equivalent—to the costs ePRO inflicted on Klipsch in its reasonable efforts to remedy ePRO’s misconduct,” the appeals court said.
The ruling underscores that even in “small” cases, the consequences of discovery misconduct can be massive when a party engages in obstruction or willful spoliation.
Fireproofing the Legal Hold Process
As these cases make clear, courts are paying close attention to how legal teams handle their preservation obligations. Whether the problem is a failure to adjust retention settings, sending an incomplete legal hold notice, or a breakdown in monitoring and follow-through, even small missteps can lead to big consequences, with legal, financial, and reputational harm.
The bar for defensibility isn’t theoretical. It’s being tested in courtrooms across the country. In today’s digital-first business environment, legal teams need a scalable process that holds up under scrutiny.
For those legal teams still struggling to manage legal holds with unsuitable tools and outdated workflows, now is the time to consider automating the most risky steps.
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