Pitfalls for Pack Rats and Purgers

One inevitable byproduct of the information age is, like it or not, an overabundance of information. Forget the intellectual challenges of information overload, I'm talking about the very practical matters of information disposition. What records should you keep and how should you store them? How will you find and retrieve documents once you've decided how long and where to keep them? More important, what kind of trouble are you going to get into if you do these things wrong?

Record storage and retrieval is a complex and expensive process, and different approaches seesaw with tradeoffs. The fewer records you keep the more time and resources you must put into selecting which to toss, but then finding things amid what's left is easier--and vice versa. Quantum increases in the capacity of electronic media have made storage much easier and affordable, but searching and retrieving more difficult.

These tradeoffs must be considered in light of cost and convenience, certainly, but also with an eye to legal requirements. It is too late to adjust retention practices once legal problems arise. To avoid problems, companies should develop and implement appropriate, written document retention policies.

BEST POLICY--HAVE A POLICY Any document retention policy's first objective should be to retain records needed to operate the company. Of course, the ability to retrieve desired documents has to be part of that. In addition, systems should account for two types of legal requirements: statutory compliance and potential litigation. That is, they should help you follow the law and be ready for a lawsuit.

Statutory or regulatory requirements promulgated by government entities provide explicit guidelines for storing records. For example, the U.S. Internal Revenue Service and the Securities and Exchange Commission have specific rules regarding what financial documents should be retained and for how long. Since the IRS can audit tax records seven years back, all tax-related documents should be retained at least that long. Litigation-related requirements, however, are much more complex, less explicit and more adaptable to specific company objectives.

All companies hope to avoid litigation; however, the difficulties that can result from failing to prepare for it mean you have to do more than keep your nose clean. Litigation-related considerations are essential to a good record retention policy. Several recent cases illustrate this point. During the antitrust prosecution of Microsoft the government was able to obtain documents from Microsoft Corp., including e-mails, that suggested the company was acting in an anticompetitive manner. Also, judges have slapped Wal-Mart Stores with sanctions as large as US$18 million for withholding and destroying documents in connection with various lawsuits. Similar problems occur for any company embroiled in unintended litigation. Following a proper document retention policy can avoid such problems.

Although top management usually establishes a document retention policy, the CIO has a significant role based on the move to electronic documents. Any policy must be feasible given the company's personnel and equipment, including information systems. Furthermore, the locating of records during litigation will often fall to the IS department, which maintains the records. Thus a CIO's input on the creation and content of a document retention policy is in everybody's best interest.

DOCUMENT YOUR GOOD INTENTIONS Spoliation is the intentional destruction of evidence that is material to an ongoing or imminent litigation matter. During the regular course of business, many records and documents are destroyed.

E-mails are deleted. Files are erased. Paper documents are shredded or thrown away. But if a court finds that documentary evidence was improperly destroyed, sanctions can be imposed. All of a party's claims or defenses could be denied.

The jury could be instructed to infer the content of the destroyed documents in a manner adverse to the party who destroyed them. Significant fines could be imposed.

When documents no longer exist, indications of the party's good intent in their loss or destruction can help prevent penalties. Evidence of having followed normal business practices can show good intent. Assertions of a lack of intent to destroy documents or indifference to destruction, on the other hand, will not help you avoid sanctions.

Any document retention policy should include alternate practices for times of ongoing litigation. Spoliation standards allow sanctions when relevant documents are destroyed after a suit was filed, or when a suit is fairly perceived as imminent.

NEEDLES IN HAYSTACKS The second consideration for a company hoping to survive litigation is its ability to locate documents that prove its own positions.

Computer files are often haphazardly organized and stored; such random storage increases the costs of litigation. In most cases, each party bears its own expenses of discovery, including production of documents. That is, you, not your opponent, are responsible for sifting through a large amount of irrelevant material to find information that is important to you or that has been requested by your opponent. You may incur expenses up to $100,000 or more, reviewing electronic documents required by an opposing party.

Often documents from relevant time periods are necessary to corroborate your position. Even if the data still exists, if it cannot be located or effectively accessed, then it is as good as destroyed. A data retention policy that manages electronic information can save a company time and expense because proper documents will be retained, and can be easily located.

TECHNOLOGY'S INCONSTANCY The third reason to implement proper document retention procedures is simply to avoid the side effects of technological advancement. A company may scrupulously maintain its electronic information but find it is unable to access it when it is ultimately needed. Software programs change, and data created and stored using a prior version may not be easily accessible.

When companies completely change software platforms, old data may be inaccessible after the changeover. During litigation, a party may have to spend a lot to retrieve data hidden away in outmoded programs. Plan how to access old data at the time software changes are made rather than years later when the alternatives are fewer and more expensive.

Keep in mind that even though electronic files may be deleted, network servers may have backup tapes that include those ostensibly deleted documents.

Accordingly, any document retention policy should address the length of time that backup tapes are retained. Finally, remember that today coworkers are spread around the world. Records may be retained on hard drives by individuals, even if deleted elsewhere as per policy. The best laid plans are always defeated by someone who did not get the message.

Brett Dorny is of counsel in the Boston office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC, where he specializes in intellectual property law. E-mail us about legal matters at fineprint@cio.com.

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