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November 1998
Record Retention
Could your firm face liability for negligent spoliation of evidence?
Three years ago, your largest corporate client faced a products liability action involving catastrophic injuries and potential exposure in the low seven figures. You were relieved when the trial judge granted your summary judgment motion on causation issues.
Now, a second corporate defendant faces another suit, filed by the same personal injury plaintiff, again involving potential damages in excess of $1 million. The defendant, whose liability would be significantly reduced if a pre-existing disability could be proven, has served you with a records subpoena. Unfortunately, your file was destroyed six months earlier. Could your firm face liability for the negligent spoliation of evidence? Frighteningly, the answer in at least some jurisdictions is that you could.1
Client files: to keep or not to keep?
Clearly, law firms do not have a duty to forever retain clients’ files, billing information and other firm records. The expense of records storage for a law firm can be significant, and beside the expense and simple good housekeeping, indefinite retention of records can have serious consequences in the event of a claim. The sheer breadth of discovery allowed by some courts can force firms to retrieve, review, analyze and produce thousands of documents that are only tangentially relevant to a plaintiff’s allegations.2
If individual lawyers and staff do work on stand-alone computers, or if computer storage is not centralized, responding to discovery requests becomes all the more treacherous, and the risk of being unable to find exculpatory material in the event of a claim is also increased.
Because it is increasingly common for law firms to get drawn into their clients’ litigation, and because clients may have a reasonable expectation that their files will be kept intact by their attorneys, the destruction of files cannot be taken lightly. It should come as no surprise that law firms, like other organizations, will face tort liability, if not sanctions, for the intentional destruction of evidence to avoid discovery of damaging information.
However, a growing number of jurisdictions now recognize the tort of negligent spoliation of evidence.3 Thus, if the following factors are met, your firm could be liable for the destruction of records, even if the file was destroyed in good faith.
1. Existence of a potential civil action;
2. A legal or contractual duty to preserve evidence;
3. Destruction of that evidence;
4. Significant impairment in the ability to prove the lawsuit;
5. A causal relationship between the inability to prove the suit and the evidence destroyed; and
6. Damages.4
Document retention policy
Although the hypothetical situation above may seem far-fetched, one can easily imagine a jury deciding that the elements for the tort are met under the facts given.
To decrease the likelihood that your firm will ever face liability for having lost or destroyed a file, it is important that a document retention policy be made a part of your risk management program before your records become an issue in litigation.
The above considerations are only a part of the equation – many legal and ethical issues govern the storing and destruction of files. Since a primary consideration in record retention is to maintain files containing exculpatory material that is necessary to defend potential malpractice claims for an appropriate period of time, your firm’s retention/purge policy should take into consideration the following:5
1. The cost of having potentially important file materials microfilmed is relatively inexpensive, and it reduces storage costs to a nominal amount.
2. With continuing clients, make arrangements for returning files to the client, or communicate a time-table for destruction. For onetime clients, make suitable arrangements prior to the conclusion of the matter. Your engagement letter is a logical place to include this.
3. If no arrangements have been made, and contacting the former client is difficult, hold any potentially important files for at least 5 years.
4. All trust account records, receipts and disbursements should be permanently maintained or, after 7 years, microfilmed prior to destruction.
5. On any matter in which the result was unsatisfactory from the client’s perspective, assume that there could be a claim for malpractice. Maintain the file for at least 6 years, and then microfilm prior to destruction.
6. On criminal matters, maintain the file for at least 6 years after the end of the sentence or termination of the case, whichever is later. In some cases involving repeat offenders or other situations, the file should bekept longer.
7. On matters involving contracts, notes or any other matters with long or uncertain statutes of limitation, retain the files for up to 15 years (or until you obtain the client’s consent to destruction).
8. On matters involving guardianship or trust, keep the file at least 6 years after the termination of the guardianship, trust distribution, coming of age or restoration of competency. Financial records should be maintained indefinitely – at least on microfilm.
9. On real estate matters, keep files at least 6 years and then microfilm prior to destruction. Send important papers to the client.
10. On tax matters, maintain files a minimum of 5 years, and if there is any hint of possible fraud, maintain the file indefinitely.
11. Files relating to family law, custody and related matters should be maintained as long as any potential problems exist and then for at least another 6 years. Again, microfilming the file prior to destruction is recommended.
12. Tort matters involving injuries to adults can safely be destroyed if notice has been given to the client, but microfilm is again recommended because of the possibility of another injury claim. If the file involves a minor, hold the file until 2 years after the minor comes of age or 6 years, whichever is longer.
Record retention is an integral part of any firm’s risk management program, and a document purge/ retention policy designed and executed in good faith may constitute a complete defense to claims of spoliation of evidence.6 Keep in mind, however, that once your firm has implemented a retention policy, creative counsel in a malpractice action could create an adverse inference of spoliation if the policy is not adhered to regularly.
As professional liability specialists, we would be happy to answer any further questions.
Footnotes:
1See, e.g., Koplin vs. Rosell Well Perforaters, Inc., 734 P. 2d, 1177 (Kan. 1987) (noting that negligent spoliation cases involve a plaintiff asserting that the defendant’s destruction of evidence impaired plaintiff’s right to sue a third party tort-feasor).
2Edmonds, “Document Retention Policies and Spoliation of Evidence,” For the Defense (September, 1996)
3See, e.g., Velasco v. Commercial Bldg. Maint. Co., 169 Cal. App. 3d, 874 (1985); Bondu v. Gurvich, 473 So. 2d, 1307 (Fla. App. 1985); Foster v. Lawrence Memorial Hosp., 809 F. Supp., 831 (D. Kan. 1992)
4Continental Ins. Co. v. Herman, 576 So. 2d, 313 (Fla. App. 1991)
5The American Bar Association first published these 12 suggestions in the April 1997 edition of The Young Lawyer. 6See Akiona v. United States, 938 F. 2d, 158 (99th Cir. 1991), cert. denied, 503 U.S. 962 (1992). !
Article courtesy of Design Professionals Insurance Company (DPIC)
Y2K compliant?
Find help at websites!
In August of 1997, a Michigan grocer sued the supplier of its cash registers when they wouldn’t take credit cards with year 2000 expiration dates.
In November, a New York-based computer hardware company filed the first class-action lawsuit against a database software company because the software does not recognize dates after 1999.
Small businesses facing the Year 2000 (Y2K) computer glitch now have access to several sources on the Internet to help them cope and solve this technological dilemma.
The U. S. Small Business Administration has a Y2K site at www.sbaonline.sba.gov/hotlist/year 2000.html, offering background, checklists, solutions and related websites. Other company Y2K sites include:
” Microsoft: www.microsoft.com/year2000
” Apple: www.apple.com/macos/info/2000.html
” Digital Equipment Corp: www.digital.com/year2000
” Hewlett-Packard: www.hp.com/year2000/index.html. !
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Disclaimer: “Perspectives” is published as a service to lawyers. While the information contained herein is believed to be reliable, readers are advised to consult their own legal and insurance counsel for assistance in applying it to their unique situations.