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The Cost of Destroying Electronic Records
By Sylvia A. Ezenwa, JD  In this increasingly digital age, the use of information technology has become the key to running a successful business. Companies, both large and small, now strive for a virtual, paperless office. This is an office in which e-mail is the preferred method of communication; a website is the quintessential marketing tool; an electronic database stores client information; and alternative media, such as backup tapes, archive e-mail and other inactive electronic files.
But technology is ever-changing, threatening to leave many business owners behind, as they struggle to first, understand the technology; and then, decide how best to use it in their businesses.Lawyers and judges face similar challenges, especially at trial, where incriminating documents and records—whether paper or electronic—can influence the outcome of a case. Suppose your orthotics and prosthetics practice is sued by a former patient complaining of an improperly fitted prosthesis. But several months before trial, you inadvertently delete an e-mail sent to you by an associate prosthetist in your office, which made reference to some of the difficulties the associate faced during the patient's fitting. The deleted e-mail was an electronic record, and might have helped the patient prove her case at trial. So the judge is left scrambling to determine if the e-mail can be recovered from an alternative source, such as restored backup tapes, and what sanctions to impose on your practice for the destruction of an electronic record.
An O&P practice, like any other healthcare provider, is susceptible to litigation by patients who are dissatisfied with the care they received. So it is incumbent upon you to develop a company policy for the retention of electronic records
before
your practice faces a lawsuit. If you do not, and important electronic records are intentionally or inadvertently destroyed, it will cost you—either in time (maybe, in prison!) or money. The question is: How much will it cost? This article will answer that question.
The Sarbanes-Oxley Act
Enron. WorldCom. Adelphia. Just a few of the companies whose officers and directors have been prosecuted for allegedly bilking shareholders and investors out of millions of dollars, with questionable accounting and auditing practices, insider trading, and related white-collar crimes. In an effort to stem the tide of corporate fraud, Congress, in 2002, passed the Sarbanes-Oxley Act, which aims to protect investors in publicly traded companies by making officers and directors accountable for the accuracy and reliability of financial disclosures required by the securities laws (e.g., annual or quarterly reports).
1
It is a violation of § 802 of the Sarbanes-Oxley Act to knowingly alter, destroy, conceal, or falsify any record or document with the intent to impede, obstruct, or influence a federal investigation.
2
Likewise, it is a violation of § 1102 of the Act to corruptly alter, destroy, or conceal a record or document with the intent to impair its availability for use in an official proceeding, such as a trial.
3
Should you be worried about the Sarbanes-Oxley Act? Yes, if your practice is a publicly traded company,
and
if the electronic record that you altered or destroyed pertained to a financial disclosure required by the securities laws. If prosecuted, you could face a considerable fine, a prison term of up to 20 years, or both.
4
Your Duty to Preserve Evidence
But if your company is not publicly traded, must you still avoid the destruction of electronic records? Absolutely. Because separate from statutes passed by Congress or state legislatures, there is a "
common law duty" to preserve relevant evidence
.
5
A "
common law duty
" does not come from any statute like the Sarbanes-Oxley Act; rather, it is developed by judges in different court cases over time. Moreover, only
relevant
evidence needs to be preserved, that is any evidence that could help prove your opponent's allegations at trial.
When you fail to preserve relevant evidence, and destroy or alter the evidence so that it cannot be used against you at trial by your opponent, you have committed an act known as
spoliation
.
6
And in determining what sanctions to impose on your practice, the judge will have to consider whether the spoliation was intentional or merely
negligent
(i.e., by your failure to use reasonable care).
7
For instance, if you destroy an electronic record, a judge can instruct the jury to infer that the record contained information that would have been unfavorable to you. But the judge can only give that instruction if your opponent can prove to him that:
(1)
you had control over the record and had an obligation to preserve it at the time it was destroyed;
(2)
you destroyed the record with a "
culpable state of mind
"; and
(3)
the record was relevant to, and probably would have supported, your opponent's allegations against you.
8
To have a "
culpable state of mind
," you do not necessarily have to intentionally or deliberately destroy a record. Depending on the court, the judge could determine that you had a culpable state of mind even if a record was destroyed only negligently or recklessly. If a record was destroyed negligently or recklessly, then your opponent must prove to the judge that the record was relevant and would have supported her allegations. However, if a record was destroyed intentionally or deliberately, then your opponent will
not
have to prove that the record was relevant; rather, the judge will presume that it was.
9
How to Preserve Evidence
In the course of each work day, an office generates many different electronic records—e-mails; database records; backup tapes, CD-ROMs, and other archival media. And as the owner of an O&P practice, you have an obligation to ensure that both you and your employees preserve any records which might be relevant at trial.
Your preservation obligation begins once you reasonably anticipate litigation, or receive an order from a court or your attorney asking you to preserve evidence. When either of these events occurs, you should:
Step 1
: Suspend your practice's normal record retention policy.
Step 2
: Announce a "
litigation hold
" to your employees, both orally and via e-mail. A "
litigation hold
" halts the destruction of records until all sources of potentially relevant evidence have been identified and placed on hold. Generally, a litigation hold will not apply to inaccessible backup tapes which are used only for disaster recovery; but it will apply to accessible tapes used for information retrieval.
Step 3
: Communicate and work with your attorney to:
(1)discover
all relevant evidence (and all sources of such evidence);
(2)retain
all relevant evidence on a continuing basis; and
(3)produce
to your opponent all relevant evidence that is not protected by any type of privilege, such as the attorney-client or doctor-patient privilege.
Step 4
: Ensure that your attorney meets with employees who are likely to be deposed or called as witnesses at trial to discuss how those employees manage and store electronic records.
Step 5
: Ensure that your attorney meets with information technology personnel to discuss your practice's normal record retention policy, and its processes for information retrieval and archival (e.g., the use and recycling schedule of backup tapes).
Step 6
: Remind employees, throughout the course of litigation, about the litigation hold, and their obligation to preserve relevant electronic records; and monitor their compliance.
Step 7
: Instruct employees to immediately produce copies of relevant electronic records to your attorney upon request.
Step 8
: Instruct information technology personnel to segregate and safeguard any archival media that may contain relevant electronic records (e.g., backup tapes and databases used to archive e-mails).
10
Sanctions for Destroying Evidence
Whether to impose monetary sanctions for the destruction of relevant electronic records is a decision left solely up to the judge. He might issue an order requiring your practice to pay for the restoration of backup tapes that archive deleted e-mails; or the reasonable expenses, including attorney's fees, incurred by your opponent in filing motions for the discovery and production of deleted records.
11
Considering the high price of tape restoration, attorney's fees, and other litigation expenses, the cost of these types of sanctions can add up very quickly and eventually become quite burdensome for your practice.
Conclusion
Although it is your attorney's job to help you discover, retain, and produce any relevant electronic records generated in your office, if he somehow shirks his duty and a relevant electronic record is destroyed, the judge will place the blame squarely on your shoulders. So do not wait for a lawsuit before instructing employees to preserve electronic records. You need to draft and enforce a record retention policy for your practice
right now
. My next article, in the November issue of
The O&P EDGE
, will show you how.
Sylvia A. Ezenwa is a lawyer, author, and freelance writer based in Superior, Colorado. She writes regularly on a variety of legal topics, including bee law, business law, golf law, health law, and real estate law, for trade and consumer publications. She is the author of Honey Bee Law: Principles and Practice (The A.I. Root Company 2005). She obtained a BA in chemistry from Rice University and a JD from the University of Virginia School of Law. She is licensed to practice law in the State of Texas.
DISCLAIMER: The information in this article is not intended to constitute legal advice. Please consult an attorney regarding your specific situation.
Copyright 2005 Sylvia Ezenwa. Reproduction of any portion of this article in any form is prohibited without the expressed, written consent of the author. References
Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204. Id. § 802. Id. § 1102. Id. §§ 802, 1102. Zubulake v. UBS Warburg LLC, et. al, 02 Civ. 1243, at *5 (S.D.N.Y.July 20, 2004) (Loislaw.com, Federal District Court Opinions). Id. at *20. See Id. at *20-23. Id. at *21. Id. at *22-23. See Id. at *24-26, 46-47 (for information on Steps 1-8). Id. at *47-48. 
Table Of Contents - October 2005
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