Judicial review of record retention programs

NOTICE: This article contains information related to sensitive and important legal issues. No section of this article should be construed as providing legal advice. All legal decisions related to records and information management should be reviewed by competent legal counsel.

Organizations establish records retention periods based upon their operational, legal, historical or other retention requirements. Records will then be destroyed under the retention schedule after internal approval by the organization.

Some have expressed concern that courts or regulatory agencies might "second-guess" the records retention decision of the organization. Since records will have already been destroyed, they comment, the organization may be subject to adverse consequences including fines, penalties and loss of rights if the retention period is later determined to be inappropriate or just plain wrong.

Certainly, state and federal regulatory agencies can impose severe fines and penalties for not maintaining appropriate records for the minimum period established by law. However, this problem can be overcome through reasonable legal research and proper application of legal conclusions to records retention decisions.

But will courts attempt to question a records retention program established by an organization? Will the courts review individual records retention periods? Have any courts rejected specific retention periods adopted by an organization? What should an organization do to prevent courts from "second-guessing" the records retention periods?

RECORDS RETENTION PROGRAMS UPHELD

Court decisions confirm that records may be destroyed under a records retention program. An organization that demonstrates destruction of records for legitimate business purposes, as evidenced by a records retention program, will likely prevail.

In Vick v. Texas Employment Commission,(1) Vick (plaintiff) filed suit against the Texas Employment Commission (defendant) for discrimination and requested certain records related to the proceeding. When the defendant responded that the records had been destroyed "pursuant to Commission regulations governing disposal of inactive records," the plaintiff claimed that records had been destroyed improperly and requested the court to apply the adverse inference rule(2) against the defendant. In denying the claim, the court said:

TEC [Texas Employment Commission] records on Vick were destroyed before trial, apparently pursuant to Commission regulations governing disposal of inactive records....The adverse inference to be drawn from destruction of records is predicated on bad conduct of the defendant....There was indication here that the records were destroyed under routine procedures without bad faith and well in advance of Vick's service of interrogatories. Certainly, there were sufficient grounds for the trial court to so conclude.

In Telectron v. Overhead Door Corp.,(3) Telectron (plaintiff) filed suit claiming that the defendant violated anti-trust laws by encouraging distributors to purchase garage door electronic controllers for its own subsidiary. The appellate court heard substantial evidence that Overhead Door Corporation (defendant) had engaged in outrageous conduct by improperly destroying records and confirmed the default judgment and sanctions previously imposed by the trial court.

At trial, the defendant filed a motion for sanctions against the plaintiff, claiming that the plaintiff also destroyed relevant records. This time, the court declined to impose sanctions against the plaintiff, noting that the plaintiff had destroyed the records pursuant to a preexisting records retention policy, after reviewing the records prior to destruction to make sure that relevant documents were not destroyed:

It is also clear from the evidence that Mr. Foster, in discarding certain records, adhered to Telectron's preexisting document retention policy, which called for the preservation of corporate records for a minimum of seven years, in conformity with the presumed mandates of the Internal Revenue Service.

In declining to impose sanctions against the plaintiff, the court did not approve of the chosen retention period for the records, the details of the records retention program, nor the review process prior to destruction. Rather, the court simply concluded that these factors demonstrated that the destruction of records lacked bad faith.

Thus, in the same case, both parties destroyed records. But the court imposed a default judgment on one party and approved the destruction of records in the other. What was the key difference in the two cases? Telectron destroyed records under a records retention program while Overhead Door Corporation engaged in an egregious scheme to obstruct justice!

In Moore v. General Motors Corp.,(4) Moore (plaintiff) sued for payment of an award under the employee suggestion plan program sponsored by the employer (defendant). Plaintiff claimed that the defendant improperly destroyed relevant records and should be punished under the spoliation doctrine.(5) The court denied the claim and observed:

Absent any evidence that the defendant was put on notice by the plaintiff that these records were essential to the preservation of his case, or a court order that these records not be destroyed, we see no evidence of fraud or bad faith in a corporation destroying records it is no longer required by law to keep and which are destroyed in accord with its regular practices. As we have previously observed, storage of records for big or small businesses is a costly item and destruction of records no longer required is not in and of itself evidence of spoliation.

Courts have imposed sanctions on parties claiming to have destroyed records pursuant to records retention programs when the claim could not be substantiated, the destruction took place when a duty to preserve records existed, or the courts determined that the destruction of records occurred to prevent unfavorable information from being considered in the case.(6) But, in the absence of a duty to preserve records, courts have consistently refused to sanction parties who have destroyed records pursuant to a records retention program.

RECORDS RETENTION PERIODS REVIEWED

Courts will generally not impose their view of what they think are appropriate record retention periods. They will tend to enforce legally-mandated retention periods--the legal requirements period found in statutes, regulations and rules. Records must also be kept for the legal considerations period during which a court-defined legal duty may exist to preserve them.(7)

Instead, courts generally focus on the reasonableness of the records destruction decision, based upon the particular facts and circumstances of the case. If records were destroyed under a records retention schedule prior to litigation, the details of the records retention periods will rarely be reviewed.

RECORDS RETENTION PERIODS UPHELD

Courts may still inquire whether the records retention periods chosen were reasonable, based upon the nature of the documents, or of business needs and industry practice. This review is designed to distinguish appropriate records retention programs from inappropriate destruction of records designed to destroy incriminating evidence or to disadvantage an adversary in litigation.

Although only a few court cases have specifically discussed records retention periods, several have concluded that the organization properly established a particular records retention period.

* 5 years for the retention of postal service promotion records(8)

* 3 years for vehicle maintenance records(9)

* 2 and 5 years for automobile inspection records created by the manufacturer based upon federal requirements(10)

* 2 years after disposition to third parties for hand grenade records(11)

Courts have focused on the motive to destroy records and the existence of legitimate records retention programs. An organization that reasonably creates a records retention program and establishes reasonable retention periods demonstrates good faith. Organizations that destroy records outside this context may raise questions for further judicial review.

RECORDS RETENTION PERIODS REJECTED

No courts have specifically rejected a records retention period properly established by an organization. They have, of course, rejected claims of destruction of records under a records retention program when no records retention program actually existed, when records were destroyed while litigation was in progress or when records were clearly destroyed as part of a systematic scheme to obstruct justice and disadvantage an adversary in litigation.

Some appellate courts have questioned the appropriateness of certain records retention periods and have remanded (sent back) the case to the trial court for further review. In Lewy v. Remington Arms Co.,(12) the plaintiff sued the defendant for manufacturing an allegedly defective rifle. The defendant asserted that certain complaint files and other records had been destroyed under its records retention program. To defend the claim, the defendant provided evidence of the records retention program, indicating that a 3-year retention period had been authorized for destruction of complaint files. In this case, there was no issue raised that the defendant deviated at all from the prescribed retention period for the specific complaint files requested.

The appellate court remanded the case back to the trial court for findings on whether the document retention policy was appropriate, stating:

We are unable to decide, based on the record we have before us, whether it was error for the trial court to give this instruction. On remand, if the trial court is called upon to again instruct the jury regarding failure to produce evidence, the court should consider the following factors before deciding whether to give the instruction to the jury. First, the court should determine whether Remington's record retention policy is reasonable considering the facts and circumstances surrounding the relevant documents. For example, the court should determine whether a three-year retention policy is reasonable given the particular document. A three-year retention policy may be sufficient for documents such as appointment books or telephone messages, but inadequate for documents such as customer complaints. Second, in making this determination the court may also consider whether lawsuits concerning the complaint or related complaints have been filed, the frequency of such complaints, and the magnitude of the complaints. Finally, the court should determine whether the document retention policy was instituted in bad faith.

The court did not specifically reject the 3-year retention period. Instead, it concluded that additional information was needed to determine whether the 3-year retention period reflected such practical factors as legally-mandated periods, customer expectation, industry practice, the nature of the records and the likelihood that the records might be needed in pending or future litigation. (The findings of the trial court were not reported.)

In another court case, Peskin v. Liberty Mutual Insurance Co.,(13) the court also questioned the records retention period. In this case, an insurance company sold excess liability insurance coverage to the plaintiffs who were killed or injured in an apartment fire. Unfortunately, nobody notified the defendant insurance carrier of the fire until approximately 11 years later. By that time, the defendant had destroyed the relevant insurance policies and other records under its records retention schedule. The defendant asked the court to dismiss the case because it was not able to defend itself properly because relevant records had been destroyed.

This court also remanded the case back to the trial court to determine the reasonableness of the defendant's records destruction program:

The record is silent as to industry standards or practices governing records retention. Therefore, this matter is remanded to determine whether Liberty's records retention policy comported with industry standards or practices or was otherwise reasonable...

RECORDS RETENTION PERIODS MEETING MINIMUM LEGAL REQUIREMENTS REVIEWED

Statutes and regulations may impose a legal duty to preserve records for a minimum period. Destruction of records prior to the expiration of the legally-mandated period evokes a strong suspicion that the records were destroyed in bad faith.

Everyone is presumed to know the law. Thus, ignorance of the law is no excuse for failure to comply with a legally-mandated retention period. This is particularly true for large, sophisticated organizations that face significant regulation and employ legal counsel to ensure legal compliance.

In United States v. ABC Sales & Service, Inc.,(14) the government filed suit against the defendant based upon a series of consumer complaints regarding the defendant's debt collection practice. The defendants failed to respond to discovery, asserting that many of the files that had been requested by the plaintiffs had been destroyed after 2 years.

In rejecting the defendant's excuse for nonproduction of records, the court noted that the defendants maintained offices in California and that California law required that debt collection files be kept for 4 years:

...[A]ny destruction of files of named complaining debtors appears to have been motivated more from an attempt to suppress evidence than from the need of additional filing space for new files. Three of defendants' offices are in California and defendants admit in their answers to interrogatories that debt collectors in that state are required to maintain collection files for a period of at least four years. The defendants were given notice that many of the named debtors were complaining to the Federal Trade Commission or had complained to lawyers regarding the conduct of defendants' employees. Given that notice, one would reasonably think that the defendants would have taken steps to preserve the files relating to those complaining debtors if there were any information in the files which would tend to refute the complaints.

When an organization destroys records after the legally-mandated period, courts will normally not impose sanctions for the destruction of records. However, if a legal duty arises prior to the actual destruction of records, such as notice of pending or imminent litigation, courts may well impose sanctions and other penalties. In the absence of such a duty to preserve records for longer periods, records destruction after a legally-mandated period and under a records retention program is likely to be reviewed as reasonable and done in good faith.

DOCUMENTATION REQUIREMENTS FOR A RECORDS RETENTION PROGRAM

In those cases where courts have upheld specific records retention periods and approved destruction of records under a records retention program, the parties involved successfully demonstrated that a records retention program existed and they had properly destroyed records under that program.

In a large number of other cases, courts have rejected claims related to destruction of records because either the party could not demonstrate through documentation that a records retention program existed or the records were destroyed under circumstances that clearly indicated bad faith.

The court decisions firmly support destruction of records under a records retention program and the establishment of records retention periods by an organization. Your records retention program should therefore include the following:

* Appropriate legal research to ensure compliance with minimum legally-mandated retention periods

* Documentation that clearly indicates the existence and consistent implementation of the records retention program

* Procedures to ensure the continued preservation of records when a legal duty arises such as litigation, government investigation or audit

REFERENCES

1. Donald S. Skupsky and John C. Montana, Law, Records and Information Management: The Court Cases, Information Requirements Clearinghouse (1994) at 103, 133-134, 139, 148, 539 citing Vick v. Texas Employment Commission, 514 F.2d 734 (5th Cir. 1975).

2. When the adverse inference rule is invoked, the court may infer that the offending party had something to hide by improperly destroying records or admit in evidence, in lieu of additional proof, the information that the other party claims existed in the missing records. This serves to punish the offending party and eliminate any disadvantage or other harm to the innocent party caused by the improper destruction of records.

3. Law, Records and Information Management at 73-75, 116-117, 133-134, 144-145, 147, 477 citing Telectron, Inc. v. Overhead Door Corp., 116 F.R.D, 107 (S.D.Fla. 1987).

4. Law, Records and Information Management at 71, 102, 134, 136, 139, 365 citing Moore v. General Motors Corp., 558 S.W.2d 720, 737 (Mo.Ct.App.1977).

5. Under the spoliation doctrine, when records or other evidence have been destroyed with bad intent or without adequate explanation, the court may punish the spoliator through sanctions or use other methods to prevent the innocent party from being harmed by the spoliation.

6. Law, Records and Information Management citing Carlucci v. Piper Aircraft Corp., 102 F.R.D. 472 (S.D.Fla. 1984); National Association of Radiation Survivors v. Turnage, 115 F.R.D. 543 (N.D.Cal. 1987).

7. Law, Records and Information Management, Part 3, pp. 67-128.

8. Law, Records and Information Management at pp. 134, 136, 148, 539 citing Valentino v. United States Postal Service, 674 F.2d 56 (D.C.Cir. 1982).

9. Law, Records and Information Management pp. 134, 136, 148, 410 citing Piechalak v. Liberty Trucking Co., 208 NE.2d 379 (Ill.Ct.App. 1965).

10. Law, Records and Information Management at pp. 71, 102, 134, 136, 139, 365 citing Moore v. General Motors Corp., 558 SW.2d 720 (Mo.Ct.App. 1977).

11. Law, Records and Information Management at pp. 104, 134, 136, 148, 179 citing Akiona v. United States, 938 F.2d 158 (9th Cir. 1991).

12. Law, Records and Information Management at pp. 77, 135-136, 352 Lewy v. Remington Arms Co., 836 F.2d 1104, 1112 (8th Cir. 1988).

13. Law, Records and Information Management at pp. 137, 396 Peskin v. Liberty Mutual Insurance Co., 530 A.2d 833 (N.J.Supr. 1987).

14. Law, Records and Information Management at pp. 107, 111, 138, 152, 155, 512 citing United States v. ABC Sales & Service, Inc., 95 F.R.D. 316, 318 (D.Ariz. 1982).

Copyright Association of Records Managers Administrators Inc. Oct 1994
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