Know When to Hold 'Em, When to Destroy 'Em: Based on Recent Court Decisions, Companies Must Follow Minimum Guidelines to Ensure Their Retention Schedule and Legal Holds Policy Are Effective and Legally Defensible

Isaza, John J., Information Management Journal

In the aftermath of the Sarbanes-Oxley Act, concerns over discovery, spoliation, and what is considered pending or potential investigations or litigation have catapulted to the priority lists of most companies. After all, severe penalties, including the possibility of jail time, are at stake for those involved in the destruction of relevant documents. Companies, therefore, must balance such severe consequences with proper management of all records, including electronic ones, during litigation.

A central and difficult issue surrounding otherwise sound retention policies is determining how and what records must be held from destruction. This is especially diffilicult when making the distinction between what is considered "potential" (or threatened) litigation as opposed to clearly "pending" litigation.

Spoliation is traditionally defined as intentional or unintentional destruction or disappearance of things or documents during litigation. The spoliation rule doctrine drives the duty to preserve documents in the context of litigation or agency investigations. However, various state and federal acts, such as Sarbanes-Oxley, broaden the reach of the spoliation doctrine from mere litigation matters to pending federal or state agency investigations.

States vary widely on whether or not to recognize spoliation as a separate cause of action or whether to give courts, at minimum, discretion for sanctions. A court's ability to sanction parties for spoliation has existed for hundreds of years, although the law has developed substantially over the past few years in light of high-profile investigations such as Enron and Arthur Andersen.

Whether or not a court sanctions a party for spoliation depends on several factors, including whether the conduct was intentional, the prejudice to the other side, and the availability of alternative evidence. Some states have gone so far as to recognize a separate tort or cause of action for spoliation. Thus, the range of sanctions that courts apply to spoliation includes:

* instructions to the jury that it may infer misconduct

* evidentiary sanctions (i.e., the inability to present relevant evidence because some pieces are missing)

* dismissal of the case

* recognition of a full-blown separate cause of action for either intentional or negligent spoliation

Legal Holds and the Duty-to-Preserve Continuum

Courts can exercise great discretion to impose sanctions for destroying records relevant to pending or potential litigation. Underscoring this discretion is a variety of sources that prescribe duties to preserve potentially relevant evidence, including:

1. statutory or regulatory obligations

2. statutes of limitations

3. potential or threatened litigation or investigation

4. preservation letters from opposing counsel or agency

5. service of a complaint and resulting civil discovery statutes, discovery requests, or court orders

The first two should be considered in creating actual records retention schedules. They are not factors in determining legal holds because these laws …

Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Know When to Hold 'Em, When to Destroy 'Em: Based on Recent Court Decisions, Companies Must Follow Minimum Guidelines to Ensure Their Retention Schedule and Legal Holds Policy Are Effective and Legally Defensible. Contributors: Isaza, John J. - Author. Magazine title: Information Management Journal. Volume: 39. Issue: 2 Publication date: March-April 2005. Page number: 39+. © 2009 Association of Records Managers & Administrators (ARMA). COPYRIGHT 2005 Gale Group.

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