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Turn Off the Shredder: Likely Litigation Triggers Duty to Preserve Records

The fall of Arthur Andersen shows what can happen when companies destroy documents on the brink of litigation. The former Big Five accounting firm was convicted of obstruction of justice for destroying documents that would have been responsive to an anticipated subpoena in the Enron investigation. As the company predicted, the indictment and subsequent conviction were effectively a death penalty for the company 1 Your company may not collapse like Andersen, but destroying documents can cause major problems. In fact, missing documents sometimes cause more damage than had they been retained because the courts may presume the documents would, if introduced at trial, harm your case. Companies Should Keep Critical Evidence When Litigation Is Likely–Even If It Has Not Been Filed YetAs Andersen learned, receiving a subpoena or a lawsuit is not the triggering event for keeping records. Once you know litigation is coming, the safest course is to preserve all relevant documents. The litigation process allows the parties to discover relevant documents from the other side. Failure to preserve documents for threatened or pending litigation is what courts call “spoliation,” a term referring to the destruction of evidence or the failure to preserve records for use in foreseeable litigation. Courts sanction parties who destroy relevant documents by giving an adverse inference instruction to the jury during the trial. In other words, the court tells the jury it may infer that the missing evidence is unfavorable to the party who should have maintained the evidence. In particularly egregious cases, sanctions can include ordering facts established at trial, striking defenses, or outright dismissing the case. These sanctions make it very difficult to prosecute or defend cases, even when the facts and law are otherwise favorable. Once Litigation Begins, Routine Document Destruction Should Be Suspended So Relevant Evidence Is PreservedMany companies have instituted document retention policies to ensure that important documents are preserved. But those policies frequently include a document destruction component–calling for routine destruction after a specified period. If instituted correctly and uniformly, these policies can be a great asset in avoiding spoliation-type claims. But when litigation begins, you must retain relevant documents, no matter how old they are. That’s a lesson one company learned the hard way. Pursuant to a document retention policy, the company destroyed maintenance records the plaintiff requested in litigation and claimed it was simply following routine policy. The court ruled the routine document retention policy was no shield from sanctions after the records had been requested. 2 This not-surprising ruling is a reminder that once litigation begins, companies should take extra steps to retain documents that relate to the litigation. Any “routine” document destruction must be stopped if it would result in destroying documents relevant to the litigation. Do Not Destroy Evidence That Has Been Requested In LitigationThis seems like a no-brainer, but the casebooks are littered with litigants who thought compliance with discovery was optional. Like Andersen, these scofflaws frequently pay the price. One small company in a patent infringement case used a computer program known as “Evidence Eliminator” to destroy computer files the night before its computer was to be examined by the adverse party. 3 The court originally ordered the drastic remedy of dismissing the wrongdoer’s claims. In another recent case, a sexual harassment plaintiff used a program called “Cyberscrub” to clean her hard drive. Cyberscrub essentially erases all data from computers and precludes both software and hardware recovery. In response, the court granted an adverse inference instruction. 4 The most important lesson here: If litigation is remotely possible, never, ever, use a product called Evidence Eliminator or Cyberscrub.Some Records Are So Important, They Cannot Be DestroyedFor businesses involved in particularly dangerous enterprises, and companies frequently involved in litigation, courts are beginning to apply an even higher standard, requiring that critical evidence about incidents that frequently lead to litigation be retained. In a case involving a collision between a train and an automobile, the disputed evidence was an audiotape of radio communications between the train crew and its dispatcher. The railroad’s policy was to keep the tapes for 90 days and then reuse them. By the time the injured driver filed the lawsuit, the tapes had been destroyed. Because the company was sophisticated and knew the tapes would be crucial to litigation, and litigation was the common result of such accidents, the court ruled they should have been preserved. 5 There also was evidence that the railroad retained previous tapes when beneficial to the railroad.It’s Not Just Paper; The Duty To Preserve Evidence Includes Electronic Data Just As Much As Paper Documents Or Audio TapesCourts treat computer back-up tapes and other computerized data in much the same way as normal paper; and the scope of what is included can be enormous, including voicemail, email, deleted email, data files, program files, back-up files, archival tapes, temporary files, system history files, website information in textual, graphical or audio format, website files, cache files, “cookies” and other electronically stored information. Courts continue to sort out who should pay the costs of actually producing computer data, but the result of destruction is not much in question–no good can come from it. If your IT department has programmed the automatic elimination of emails every 90 days, find a way to turn off that destruction for people and issues involved in litigation.Create A Retention PlanBusinesses can avoid litigation sanctions by creating and diligently implementing a document retention program. These programs include taking inventory of business records, determining the relevance of all records to anticipated litigation, and retaining critical documents for a minimum of the regulatory or statutory requirement with the longest limitations period–a period of time that likely is much longer than the standard document retention policy. Companies should suspend routine document destruction when litigation is likely–and especially if it has already begun. Individual employees should be promptly notified of litigation that relates to them, and they should be instructed to preserve whatever information they have that relates to the case. Suspension of document destruction should include a hold on destruction of electronic records, especially records generated or maintained by key witnesses and record custodians. By implementing a thoughtful document retention plan and promptly responding to threatened litigation and discovery requests, businesses can avoid the negative consequences that can result when evidence disappears. Otherwise, the evidence that hurts you most may be the evidence you no longer have.1 “Andersen Indicted in Scandal,” “Houston Chronicle Online, http://www.chron.com/cs/CDA/story.hts/special/enron/1296595 (visited May 11, 2004)2 “Stevenson v. Union Pac. R.R. Co.,“ 354 F.3d 739, 746 (8thCir.2004)3 “Kucala Enterprises, Ltd. v. Auto Wax Co., Inc., “2003 WL22433095, *1 (N.D.Ill. 2003).4 “Anderson v. Crossroads Capital Partners, L.L.C., “2004 WL256512, *2 (D.Minn. 2004).5 “Stevenson v. Union Pac. R.R. Co., “354 F.3d 739, 746 (8thCir. 200