September 30, 2020"Enhanced Intelligence: AI and Your Legal Analysis," UofSC School of Law LegalTech Seminar Series
June 17, 2020
Companies routinely face decisions on what information should be retained, what information should be maintained, and what information, if any, must be preserved. Many companies make these decisions without truly understanding the distinction between the choices. For instance, just last month, a business was sanctioned for discarding documents under its formal document retention policy because it failed to realize that it had a superseding, judicially-imposed duty to preserve the documents and suspend its routine document destruction and retention policies. Ad Astra Recovery Servs., Inc. v. Heath, No. 18-1145-JWB-ADM, 2020 WL 969762, at *4-9 (D. Kan. Feb. 28, 2020); see also Small v. Univ. Med. Ctr., No. 2:13-CV-0298-APG-PAL, 2018 WL 3795238, at *24 (D. Nev. Aug. 9, 2018) (“One of the most astonishing assertions UMC made in its objection to the special master’s R & R is that UMC did not know what to preserve. UMC and its counsel had a legal duty to figure this out.”). Accordingly, it is important to understand the obligations imposed by each standard and how a company’s records management procedures can streamline retention and disposal procedures, thereby reducing risk.
Retention is an internal duty to keep documents or electronically-stored information (“ESI”) that a company voluntarily creates or receives due to statutory requirements, regulatory obligations, or business needs. Generally, a company should retain business records that the company is legally required to retain or have other legal compliance or business value. It is important to note that not all documents should be considered “records.” Instead, companies should categorize documents based on the content of a document. For instance, an email should not constitute a “record” simply because it is a corporate document; however, an email may qualify as a record because it contains information implicated by the company’s records management policy or schedule. See In re Text Messaging Antitrust Litig., 782 F.3d 867, 873 (7th Cir. 2015) (refusing to impose an adverse inference on the defendant for the destruction of certain emails that, based on their content, fell outside of the company’s retention policy).
Maintenance is a company’s method to keep documents and data that it does not have an existing obligation to retain, but do serve a purpose for the business itself. A company should maintain these types of data – e.g., non-official reference copies of documents, system back-up files, or marketing materials – so long as they serve business needs. The maintenance of these documents is often driven by decisions made at the individual employee or department level and falls outside of a company’s records management policy. Therefore, these documents should not be “retained” or kept for a full retention period. Rather, these documents should be maintained for an appropriate period of time and disposed when they no longer serve their purpose.
Preservation is a duty to keep documents and ESI imposed by a legal proceeding. The scope of the preservation duty is predicated on the claims, defenses, and factual allegations at issue in the litigation or adversarial proceeding and preempts a company’s document retention policy. That is, a potentially relevant document must be preserved by a company, irrespective of whether it must be “retained” under the company’s document retention policy, until the litigation or adversarial proceeding has resolved. A company must preserve records as soon as it has notice that litigation or other adversarial proceeding is “reasonably foreseeable.” Goodman v. Praxair Servs., Inc., 632 F. Supp. 2d 494, 505, 509–511 (D. Md. 2009). To determine when litigation is “reasonably foreseeable,” courts examine the extent to which the company was on notice that litigation was likely and that the business records at issue would be relevant. Id. at 509-511. Such notice may not occur until a lawsuit is filed or it can arise earlier from something as simple as a letter from a disgruntled former employee hinting at the prospect of litigation. As the court in Ad Astra Recovery Servs., Inc. v. Heath recently made clear, the duty to preserve requires a company to locate, retain, and preserve all documents that may be related to the claims or defenses in the matter, including those documents that a company could have previously disposed of prior to receiving notice of that litigation was reasonably foreseeable.
For this reason, it is important for companies to institute proper document destruction policies in parallel with retention policies and schedules. Principle 1 of The Sedona Conference Principles and Commentary on Defensible Disposition stresses that organizations not only have the authority to dispose of information no longer subject to a company’s retention policy or other legal obligations, but should do so as a best practice of information management. Companies do not have an obligation to defend or justify disposal of any information that it does not have a duty to preserve and the processes and procedures for such disposition are typically not discoverable. However, a process that selectively disposes of material based on the content of that material, i.e., retaining beneficial information while deleting data that may be harmful in litigation, may be considered “anticipation of litigation” and trigger the duty to preserve. Ad hoc decision-making regarding which documents to keep when a transaction closes or a project concludes can be a daunting, exhausting, and often impossible process; however proper planning and implementation of records management principles can largely automate and streamline this practice, and yields myriad of benefits such as improved legal compliance and reduced discovery costs and risk. As evidenced in Ad Astra Recovery Servs., Inc. v. Heath, how companies evaluate their ever-growing data can greatly impact ongoing or future litigation. Taking proactive measures to identify and classify documents through retention policies and legal hold procedures will help companies comply with their obligations.
These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.