Document retention

Internal Auditor, Dec, 1996 by Robert M. Barker, Julia N. Karcher, Nancy L. Meade

When a company retains documents that contain potentially harmful or sensitive information, a risk exists; and the age of information technology has exacerbated that risk. Given the nature of office computing networks and electronic management information systems, compounded by the vast data storage capacities inherent in each, many organizations are quickly accumulating a large quantity of documents at a relatively low cost. Unfortunately, this exponentially growing base of documents can become an overwhelming, expensive liability for the organization in litigation. Organizations using electronic means to create and disseminate documents may, in the very near future, find themselves at risk from those documents if they do not have a properly established document retention policy.

Many companies that already have document retention policies in place may not have updated them to include electronically stored documents. For example, most organizations do not take the time to regularly purge documents from removable electronic storage media, such as disks or tapes, because the storage problems inherent with paper records do not exist. In most organizations, such files and documents are retained simply out of habit, with an expectation that someday they will be useful. Those files and documents indeed may become useful, but to a plaintiff in a suit brought against the company. Organizations, therefore, should draft and follow document retention policies that specifically address electronically stored files and correspondence.

* Legal Issues

A document retention policy is key to avoiding litigation nightmares. In the U.S. and some other countries, jurisdictions often use "notice pleading," wherein the court notifies the defendant party when a lawsuit is initiated. The process of discovery follows, subject to that jurisdiction's rules of civil procedure. Typically, these rules allow each party to perform interrogatories, take depositions of the other party or its witnesses, and request the production of documents.

If a party to the litigation destroys information pertinent to the case, the opposing party has a right to notify the jury that the information was destroyed due to its unfavorable impact on the destroying party. Such a notification may negatively influence the jury's verdict.

In the case of Brown & Williamson Tobacco Corp. v. Jacobson (1987), a CBS reporter was charged with libel and slander. Prior to the trial, the defendant destroyed portions of a script that addressed the alleged slander. The court agreed that Brown & Williamson was entitled to a jury instruction stating that the reporter acted in "bad faith" and destroyed the material because it was unfavorable to his case.

The access to documents may go beyond strict relevance. In The United States v. Arthur Young & Co. (1985), the court allowed the IRS to obtain items of even potential relevance to the ongoing investigation without reference to its admissibility. This case was cited in ensuing cases extending government purview into private documents. In Equal Employment Opportunity Commission v. Shell Oil Co., the Court granted the EEOC unlimited access to any documents that might prove enlightening. Similar power was reinforced in Securities and Exchange Commission et al. v. Jerry T. O'Brien, Inc. et al.

Yet, if an organization has a document retention plan whereby information is destroyed after its useful life, the organization can avoid the hazards of a negative jury instruction. In Lewy v. Remington Arms (1988), the United States Eighth Court of Appeals outlined the general judicial relevance of a document retention plan. In this case, the trial court gave the following standard "legal forms" jury instruction: "If a party fails to produce information that is under his control and reasonably available to him and not reasonably available to the adverse party, then you may infer that the evidence is unfavorable to the party who could have produced it and did not."

However, the Appeals Court found that the instruction should not be given in the case of a document retention program unless: "[the] policy is unreasonable considering the facts and circumstances surrounding the relevant documents." In other words, the retention policy must be reasonable for each class of documents. A plan for the purging of electronic mail on a monthly basis might be reasonable; but a monthly elimination plan would be less appropriate for product design records.(1)

The Lewy court further stated that, once a claim or suit arises, all retention plans concerning relevant documents should be suspended. The Court also pointed out that it could be inferred as "bad faith" to create a document retention plan solely to avoid the appearance of damaging evidence in court. Therefore, companies should always substantiate that they established the document retention plan to ensure the proper management of data storage.

The electronic storage of documents presents another problem for organizations. When records are stored on paper, a defendant can argue that a search for specific documents relating to the case would be too cumbersome or expensive to mount. Today's technology effectively refutes that argument. Tens of thousands of records can be searched quite efficiently and effectively using keywords. Thus, organizations cannot assert that finding the documents is either impossible or too costly. If an organization argues that those files or messages have been purged from the system, the lack of an explicit policy detailing why those documents have been destroyed could lead to a negative jury instruction.