A 30(b)(6) Can Sink Your Ship: Good Records Management Policies and Knowledge of the Law Will Help Records Managers Keep Their Companies Afloat in the Face of Possible Litigation

Article excerpt

In several recent court cases, corporate IT representatives have incorrectly testified under oath that their company positively had or did not have certain potentially relevant documents or other data. When the truth was revealed in court that their original testimony was not accurate, the judge handed out stiff fines and other damaging sanctions. In a more recent case, Morgan Stanley's sanction for failure to preserve and produce certain electronic records contributed to an adverse $1.4 billion damages judgment. Coleman v. Morgan Stanley, 2005 WL 679071 (Fla. Cir. Ct. March 1, 2005); 2005 WL 674885 (Fla. Cir. Ct. March 23, 2005)

Why are we seeing more and more court sanctions imposed against companies for failure to meet their litigation discovery obligations? A lack of preparation, a sharp attorney, or even a mediocre IT background, can make the most experienced IT or records and information management (RIM) staff look incompetent, or worse, deceptive.

30(b)(6) Deposition

Federal Rule of Civil Procedure 30(b)(6), as well as the corresponding state rules, are the new "weapon of choice" in the battle for electronic discovery, and IT directors and RIM managers are in the cross-hairs of the controversy. Rule 30(b)(6) requires a company faced with electronic discovery to designate one or more officers, directors, managing agents, or other persons to testify under oath as to matters known or reasonably available to the organization, e.g., information management and document retention. Depending upon the counsel's goal and strategy, the questioning may be used for routine information gathering or rather it may be aimed at uncovering intentional or negligent spoliation of data potentially relevant to the litigation.

These 30(b)(6) depositions can be a nightmare for the unprepared because the court now places a big burden on companies to save potentially relevant documents and other data when they face the threat of litigation. A court may impose severe monetary sanctions against a company whose representative testifies that certain documents have been retained when they in fact have been destroyed or who testifies that certain documents were destroyed when they in fact were not destroyed. This means that a company must have reliable systems in place to know what documents have been retained and what documents have been destroyed.

Duty to Preserve

A legal duty to retain documents may arise from a number of sources, including:

1. Statutes and Regulation

* Internal Revenue Code

* State and federal environmental statutes

* Labor and employment laws

* Criminal statutes that punish obstruction

* Sarbanes-Oxley Act of 2002 and related SEC regulations, which, among other requirements, mandate that auditors maintain workpapers and other audit or review records for seven years from the conclusion of the audit or review

* Industry-specific statutes and regulations that impose unique document retention requirements

* USA PATRIOT Act and related regulations, which impose obligations for financial institutions, such as banks and credit unions, to collect and maintain information relating to customers, customer accounts, and certain types of transactions

* Statutes of limitations that indirectly impose document retention obligations by making certain documents, such as contracts and personnel files, relevant to potential disputes that may remain dormant until the statutory period for bringing suit passes

2. Contracts

Many contracts contain provisions requiring that certain materials be preserved for future use. For example, consulting agreements frequently require the consultant to retain analyses and data prepared as part of the contract for a specified period of time.

3. Common Law and Judicial Prerogative

Court decisions may also impose duties to retain documents. …