2 Record Retention and Preservation Measures

• Library: Spoliation of Evidence: Sanctions & Remedies for Destruction of Evidence in Civil Litigation (ABA) (2013 Ed.)

"It wasn't a smoking gun—it was a nuclear warhead."¹

Even in an era of electronically stored information it would be the rare company that retained indefinitely all the data or documents that it received or generated. The expense alone would be prohibitive. Although some information, like a company's historical documents, may be appropriate for permanent retention, most data and documents need only be kept for a specific period of time and then, absent special circumstances, the information should be destroyed.²

There are many reasons for a company to implement a record or document retention program.³ These include: (1) the expense of document storage, (2) the need to locate records efficiently, (3) the desire to avoid sanctions for improper destruction of documents, and (4) conversely, the potentially devastating consequences that can result from documents that should not have been subject to retention.⁴

Legitimate document retention policies are created in part to keep adverse information from getting into the hands of others.⁵ But implementing a document retention program to disadvantage a potential defendant or as part of a litigation plan may support a finding that an organization acted in bad faith.

Rambus, Inc. v. Infineon Technologies. AG,⁶ is illustrative. There, the court observed that "[d]ocument retention programs, lawfully implemented, are certainly permissible. . ." but a company's conduct "defies that precept" when it actually starts a program because it anticipates that it would soon commence litigation against one or more possible defendants.⁷ The court rejected the argument that a company's decision to defer commencement of litigation for a period of time after implementing the program suggested it acted appropriately. Rather, the court inferred that the company deliberately destroyed documents while it attempted to improve "its litigation posture and while it refined its litigation strategy and slightly altered its litigation targets." The court found "no precedent for finding that such conduct is legitimate or that document destruction under those circumstances can be clothed with propriety merely by calling it a 'document retention program.'"⁸

Despite the existence of "countless long-standing document retention policies," many "businesses may be surprised to find that, because of the spoliation doctrine, they may be sued for spoliation of evidence or otherwise penalized as a consequence of their actions."⁹ One commentator explained the tension between document retention policies and obstruction of justice laws as follows:

Document retention policies request that a business enterprise destroy documents. Conversely, obstruction of justice laws seek the inherently opposite position, since they are designed to protect documents from being destroyed. Truth-seeking, impartiality, and the honor of the judicial and governmental system seem to necessitate more legal control over document retention policies because such policies are designed to destroy documents relevant to potential litigation.¹⁰

A well-designed document retention policy can strike an appropriate balance between these seemingly contradictory views.¹¹ Achieving this balance requires that the policy calling for document destruction be suspended upon commencement of litigation or an official investigation, or when a company has reason to know litigation or an investigation is reasonably foreseeable.¹² The key question will be: What provides a company with "reason to know?"¹³

Discussing the required nexus between the "persua[sion] to destroy documents and any particular proceeding" in the criminal case against the accounting firm in Arthur Andersen, the Supreme Court observed: "It is . . . one thing to say a proceeding 'need not be pending or about to be instituted at the time of the offense,' and quite another to say a proceeding need not even be foreseen."¹⁴ The Court continued, a "knowingly . . . corrupt[t] persuade[r] cannot be some-one who persuades others to destroy documents under a document retention policy when he does not have in contemplation any particular official proceeding in which those documents might be material."¹⁵

Document retention policies exist "in part to keep certain information from getting into the hands of others, including the government."¹⁶ So, ordinarily, a company may instruct its employees to comply with a valid document retention policy.¹⁷ As the U.S. Supreme Court has noted, "[d]ocument retention policies, which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business. It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances."¹⁸ That means, "a party can only be sanctioned for destroying evidence if it had a duty to preserve it."¹⁹

For instance, in one employment discrimination case, the district court denied a request to impose an adverse inference after the employer could not produce a comparator's personnel file because it had been destroyed in compliance with the company's practice to discard employee files after the six-year anniversary of their termination. The court found no evidence of bad faith because the company "destroyed the file pursuant to its ordinary document retention practices" before the date that it first knew that the file might be relevant to the employee's case.²⁰

The absence of a coherent document retention policy or ignorance of its requirements has potential consequences.²¹ For example, in Telectron v. Overhead Door Corporation,²² the defendant had destroyed numerous documents that were the subject of a document request. Although the defendant ostensibly had a document retention policy in place, the defendant company's president admitted he did not know any details about the policy. The Telectron court concluded that the defendant company's secrecy about the lawsuit and the type of documents requested constituted a "pervasive state of ignorance,"²³ and ultimately found the entry of default judgment "the only sanction truly capable of punishing [the company] for its willful subversion of the discovery process."²⁴

DESIGNING A DOCUMENT RETENTION PROGRAM

Despite the fact that some courts consider a document retention policy essential, simply having a policy is not sufficient. A document or data retention program may "fulfill[ ] its litigation role only if (1) it includes provisions for suspending the expiration of retention periods and obligations to discard transient materials; (2) it is adopted for reasons of record management, not to avoid discovery obligations; and (3) it is regularly enforced, not just when it is convenient in order to eliminate 'troublesome' information. The absence of any one of these conditions can turn the program into evidence of spoliation."²⁵

A well-designed document retention policy "must be tailored to fit the specific needs of the business involved and should have a legitimate business purpose at its core."²⁶ Yet, a company cannot have a different record retention policy for each jurisdiction where it operates. "[T]he only 'safe' way to do so is to design one that complies with the most demanding requirements of the toughest court to have spoken on the issue, despite the fact that the highest standard may impose burdens and expenses that are far greater than what is required in most other jurisdictions in which they do business or conduct ac-tivities."²⁷

When determining whether a document should be retained or destroyed as a matter of policy, the central inquiry must be the legal or business purpose for keeping or discarding the document, as opposed to the content of the document.²⁸ Document retention policies designed to eliminate potential "smoking guns" or other damaging documents will not withstand judicial scrutiny.²⁹

An organization must "consider the externally mandated laws and regulations that govern it. . . , as well as its duty to preserve data relevant to actual or reasonably anticipated litigation" when developing a policy.³⁰ Records management programs and policies also serve "legitimate information, storage, access and retention needs of the organization,"³¹ which courts have long recognized.³² To that end, "[m]any organizations have made a good faith decision not to retain information such as instant messaging, chats, or voice-mail messages in the ordinary course of business."³³ That decision should be reflected in the records retention policies of those organizations.³⁴

To avoid questions about the motives for developing, changing, and/or implementing a document retention policy, the policy should be created or revised and implemented at a time when "litigation or an investigation is not pending or foreseeable."³⁵ Companies should also regularly review their policies to insure that they are in compliance with new or current regulations. For example, after passage of the Sarbanes-Oxley Act of 2002 accounting firms had to review their policies to reflect retention requirements.³⁶

Not only should a company insist upon strict compliance with its document retention policies, it may want to routinely remind employees about the need to follow its policies.³⁷ "Reminders about document retention policies should be sent. . . in accordance with a regular schedule to avoid allegations that document destruction took place in connection with a particular matter."³⁸ But when and how to remind employees of a company's document retention policies can be challenging and, in at least one case, led to prosecution for obstructing justice.³⁹ So, even though an organization can and should remind employees about compliance with record retention procedures, those procedures "must give way to the duty to fulfill obligations to preserve potentially relevant evidence."⁴⁰

A document retention program should also consider procedures for educating the workforce regarding the policy itself...