Must business organizations keep every “record” they possess? In a word, “No!”

Common sense, good business practice, and the law allow business organizations to destroy records that are not protected from destruction by statute, regulation or, needed for ongoing business purposes.

However, to avoid a claim that the records were destroyed for inappropriate reasons, business organizations should adopt a formal records management policy, and aggressively and consistently implement the policy.

Why is emphasis placed on the need for a formal records management policy?

First, there are several thousand federal and state laws and regulations that mandate the preservation of specific records. Absent a formal records management policy that ensures the retention of specific records, it is inevitable that protected records will be lost or destroyed.

If this happens, the business organization may be subject to obstruction of justice charges or instructions to a jury that they may draw an adverse inference against the party responsible for destruction, or to liability under separate tort theories of “spoliation”.

Second, if there is no formal records management system in place it may be expected that the collection of documents will grow to unmanageable size. The costs associated with the unmanaged retention of documents are several. Paper copies of documents take up costly space. Documents stored electronically take up space on computer drives. As these collections grow, it costs more to search a large archive of all documents for a relevant document or documents.

Third, without a formal policy that is aggressively enforced, good records management will not occur. Why is this important? Managing documents in an organization is just as important as managing any other part of the business of the organization.

Documents and records embody the history of the organization and it’s products. No one would suggest that an organization keep outdated inventory, obsolete equipment, unproductive assets, or unused land. There are costs associated with keeping unnecessary records, just as there are costs associated with keeping the items just mentioned. Like unused equipment and inventory, unused documents are a drain on the financial life of an organization.

Fourth, even though there is uncertainty about what documents need to be kept and when the duty to keep them arises, it is clear that it is safer to destroy documents pursuant to a formal records management policy than it is to destroy documents haphazardly.

How do you begin the creation of a records management policy? Usually, the creation of a formal records management policy will occur after the business organization has been in operation.

The records to be kept and those to be destroyed will be determined by the nature of the business organization. For example, the pharmaceutical industry is heavily regulated by the United States Food and Drug Administration (FDA) in this country and analogous agencies outside the United States. Here, the FDA demands that certain documents must be kept.  In fact, to a great extent, the documents are the DNA of the company’s product.

Records specified for retention by the FDA will be designated for safe keeping because they form the formal life history of a product. Similarly, other government agencies demand that companies they regulate keep certain records relevant to the activity the agency monitors. Those records are added to the formal records management policy and are designated for safe keeping for the time prescribed by the statute or regulation.

When evaluating a company’s response to a discovery request, it is important for courts and juries to understand that, in most cases, these documents, preserved by statute and regulation, are the most relevant documents related to the product, not documents of a transitory nature, such as e-mail and off-hand memoranda.

Other documents must be kept for the ongoing business needs of the organization. These materials should also be designated for safe keeping, for an appropriate term. For example, if a company is a party to a joint venture or is co-marketing a product with another company, documents relating to the formation and performance of the joint endeavor will be kept for a period of time dictated by the term of the contract, law, regulation, or other business needs.

As a company begins the process of describing the documents in its possession, and assigning appropriate retention periods, it must research the laws of the locations where it does business to determine whether certain records must be kept and, if so, for how long. Beyond the records that are designated for retention by law, regulation, or ongoing business purposes, the need to keep documents is ambiguous.

However, the following guidelines should always be considered:

•  Anticipate litigation;

•  Keep supportive documents;

•  Understand the definition of document;

•  Do not forget “personal files”;

•  Apply records management consistently, not haphazardly;

•  Do not forget to push the “stop button” on record retention.

Anticipate Litigation. Business organizations have an affirmative duty to preserve documents relevant to pending or anticipated litigation. This general rule of law was well articulated in William T. Thompson Co v. General Nutrition Corp., F. Supp. 1443, 1455 (C.D. Cal. 1984). The court noted that sanctions might be imposed against a litigant who is on notice that documents and information in its possession are relevant to litigation or potential litigation, or are reasonably calculated to lead to the discovery of admissible evidence, and destroys such documents and information.

While a litigant is under no duty to keep or retain every document in its possession, once a complaint is filed it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request.

The duty to preserve evidence requires a corporation to timely instruct employees, officers and agents in possession of potentially relevant evidence to take necessary action to preserve such evidence. National Association of Radiation Survivors, 115 F.R.D. 543, 557-58 (N.D. Cal 1987).

Furthermore, the duty to preserve evidence may attach even before a lawsuit has been filed, if litigation can reasonably be anticipated. See Lewy v. Remington Arms Co., Inc., 836 F.2d 1104, 1112 (8th Cir. 1988) (“If the corporation knew or should have known that the documents would become material at some point in the future, then such documents should have been preserved. Thus, a corporation cannot blindly destroy documents or expect to be shielded by a seemingly innocuous document retention policy”). See also Struthers Patent Corp. v. Nestle Co., Inc., 558 F. Supp. 747, 765-66 (D.N.J. 1981).

Therefore, it is important to identify the various categories of documents that are relevant, might lead to the discovery of admissible evidence, or might be requested during the litigation.

Keep Supportive Documents. Retention of supportive documents may take several forms. For example, it is not uncommon for business organizations to find themselves in dispute with insurance carriers. Without appropriate documentation of policies of insurance, premium payments and proper claim handling procedures, the organization may encounter a denial of coverage.

Another example of the retention of supportive documents is the necessity of properly documenting that “best efforts” clauses in joint venture or joint marketing agreements have been satisfied.

In sum, retention of supportive documents is not simply keeping good documents and throwing away documents that may be controversial. It is about planning ahead and, in some cases, simply performing good process implementation required under a contract.

Understand The Broad Definition Of Document. Federal Rule of Civil Procedure 34(a) and analogous state rules broadly define “documents” to include: “writings, drawings, graphs, charts, photographs, phonorecords, and other data compilations from which information can be obtained, translated, if necessary, by the respondent through detection devices into reasonably usable form….”

This broad definition also encompasses information stored in electronic media on a broad array of equipment.

Do not forget “personal files.” Records, documents, or reports that are prepared by employees in the course and scope of their employment will more than likely be considered “corporate” and not “personal” records, regardless of the intent of the writer at the time the document was created.

Thus, if compulsory process calls for items that a so-called “document owner” might consider personal, including, personal meeting notes, task lists, agendas, or calendars, among many other potential subjects of production, they will normally need to be produced if they were created in the course of the person’s employment.

Apply records management policies consistently, not haphazardly. As noted above, although there is some ambiguity about which documents must be kept and when the duty to preserve certain documents arises, it is safer to discard transitory documents if that is achieved pursuant to a formal records management policy rather than what might appear to be an opportunistic effort to destroy evidence.

If a business organization has rationale for the destruction of certain types of materials after an initial retention period and before anyone could reasonably anticipate that they might be called for in litigation, it is unlikely that an adversary could successfully claim that the destruction was for an inappropriate purpose.

Do not forget to push the “stop button” on record retention. Even if certain documents would ordinarily be subject to record retention, they should be retained if it becomes reasonably likely that the documents might be responsive to requests made in threatened or pending litigation.

For example, in Capellupo v. FMC Corp., 126 F.R.D. 545 (D. Minn. 1989), the court awarded monetary sanctions for the destruction of documents that occurred prior to filing of the complaint.

The court stated that “[s]anctions are appropriately levied against a party responsible for causing prejudice when the party knew or should have known that the destroyed documents were relevant to pending or potential litigation.” Id. at 551.

The court’s language was broader than necessary. The court had noted elsewhere that the destruction was part of a premeditated effort to subvert the proceedings in the present case. Id. at 546. And the standard for “known or should have known” was not necessarily a broad one. At the time of destruction, the judicial complaint had not yet been filed, but the corporation did know that a preparatory EEOC complaint had been filed. Id. at 549-50.

Managing corporate records is a part of good product stewardship, the discipline of caring for a product throughout its lifecycle.

Unfortunately, in some companies today, records are created and stored without serious consideration given to how those records will be used or misused. Many of the documents that are created in organizations today are in the form of e-mail, which has become a substitute for oral communication that, in an earlier time, might not have been reduced to writing.

These “writings” that document thoughts and communications, even though of a transitory nature, become, unlike oral communication, a permanent record associated with a product. If they are not discarded pursuant to a formal record retention program, they become costly to store in several ways.

In order to avoid a successful charge of “spoliation,” an organization seeking to effectively manage its records must retain documents pursuant to statute and regulation, retain records for ongoing business needs, and preserve documents that it may reasonably anticipate will be relevant to threatened or pending litigation. This end is best achieved by means of a thoughtfully created and carefully implemented record retention policy.

Harold J. Decker is senior counsel at the 300-attorney Miller Canfield where he focuses on corporate law. From 1980-2001, he served in various advisory positions leading to associate general counsel and vice president in corporate litigation and product stewardship at Pharmacia Corporation. From October 2001 to September 2002, Mr. Decker was interim CEO and president of the American National Red Cross, a position that placed him at the helm of the Red Cross just a month following the 9/11 terrorist attacks. Prior to accepting this position, he was general counsel and corporate secretary. He can be reached at (269) 383-5861 or decker@millercanfield.com. For more information on Michigan-based Miller Canfield, visit www.millercanfield.com.