Spoliation and Retention of Records

/in /by

As the old saying goes, “Paperwork wouldn’t be so bad if it weren’t for all the paper.  And the work.”  The life-blood of your business is information.  It’s your stock in trade like the butcher’s cleaver, the baker’s loaves, or the candlestick maker’s wax. With today’s technology, that important information can be accessed from virtually anywhere.  Protecting and preserving your company’s information is critical in more ways than one. Establishing record retention policies helps protect your business from future legal problems.

  1. WHAT’S THE BIG DEAL?

Georgia law encourages companies to preserve business records.  Business records are defined as “letters, words, sounds, or numbers, or the equivalent of letters, words, sounds, or numbers, recorded in the operation of a business by handwriting, typewriting, printing, photostat, photograph, magnetic impulse, mechanical or electronic recording, or another form of data compilation.”[1]  These records range from electronic communications to billing matters to customer records.  Preserving records allows your business to better defend itself if legal disputes arise.  And when disputes arise, as they inevitably do, the discovery process can be lengthy and expensive.  Do yourself a favor and store records in an organized fashion – it will be easier to identify and gather those records if you ever need them.

  1. STORAGE IN THE CLOUD

Much like everything else in business, cloud storage has advantages and disadvantages.  Once your company establishes a system for storing customer information in the cloud, you can access that information from virtually anywhere.  Unfortunately, if you do not have adequate protection in place, your customer information is susceptible to data breaches, ransomware attacks, and hackers.  In the same way you want to protect your company from cyber-attacks, you want to shield your company from legal trouble.  If you use cloud storage, one of the most important ways to limit legal liability is to disclose to your clients, in writing, that you store customer data in the cloud.

  1. CREATING A RECORDS RENTENTION POLICY

The first step in creating a record retention policy is understanding what type of business records must be preserved, in what way they must be stored, and the corresponding period of preservation time.  Under Georgia law, business records are required to be preserved for three years from the date the document was created.[2]  But, you need to keep corporate formation documents, by-laws, records of sales and minute books indefinitely.

Records may be stored electronically, as long as the electronic record “accurately reflects the information set forth in the record after it was first generated in its final form as an electronic record or otherwise” and the record remains accessible for the retention period.[3]  Additionally, Georgia law allows your business to preserve reproductions of original business records, if done in the regular course of business.[4]  Once you establish your methods for storing records, create a company-wide policy and make sure your employees understand how to follow the guidelines.

  1. WHAT IS SPOLIATION AND WHY DOES IT MATTER?

Spoliation refers “to the destruction or failure to preserve evidence that is necessary to contemplated or pending litigation.”[5]  The duty to preserve evidence must be examined from the viewpoint of the party in control of the evidence. The duty begins when you know or should reasonably know that litigation is under consideration, whether or not you have notice of a potential claim or lawsuit.[6]  Both actual and constructive notice can trigger a possible spoliation claim.  This may sound like worrying about how many angels can dance on the head of a pin, but getting records retention wrong can cost you big time.

Remedies for spoliation of evidence can range from excluding testimony of the evidence to dismissal of the case to a rebuttable presumption jury charge stating that a “presumption arises that the charge or claim against the party is well founded.”[7]  In that awful situation, a court could instruct the jury to presume your missing evidence would prove your opponent’s case.  You never want to be in that position.

  1. HOW TO PROTECT YOURSELF

There are some key ways you can protect your business from a spoliation sanction.  First, put in place a clear-cut, detailed records retention policy.  Second, follow that policy and train your staff to follow it. Third, treat with special care any records related to a situation where you or your company could be sued.  Preserve those documents until the claim is resolved or the statute of limitations has expired. Finally, tell your clients in writing if you store their information in the cloud.

 

This article is not intended to provide “legal advice” on the issues discussed in it and does not create an attorney-client relationship. It is only for informational purposes. Please contact Slotkin Law Firm or another attorney who is knowledgeable in this area of the law about your specific situation before taking any action.

[1] O.C.G.A. § 10-11-1(a)

[2] O.C.G.A. § 10-11-2

[3] O.C.G.A. § 10-12-12(a)(1)-(2)

[4] O.C.G.A. § 10-11-3

[5] Phillips v. Harmon, 297 Ga. 386 (2015).

[6] Id. at 396.

[7] O.C.G.A. § 24-14-22.