Do Statutes of Limitations Make Good Retention Periods?

By Will Fletcher posted 12-16-2021 18:14

  

Do Statutes of Limitations Make Good Retention Periods?

Here Are Some Things to Consider

Even in heavily regulated industries, up to 40 percent of record series can lack legally mandated retention requirements. This still leaves records managers with a whole lot of records to figure out their useful business life. Where business requirements are short-lived, that nagging “in case we need it” voice often starts to speak up against a shorter retention period. To satisfy this voice, it can be tempting to find a statute of limitations to justify extending the retention period.

Tying a retention period to a statute of limitation will be lauded if the records later help you win or defeat a legal claim. But if a record that could have been lawfully destroyed lives past its useful business life only to become a liability for the company, your judgment is certain to be rebuked. Behold the business life-statute of limitations dilemma in records management.

Statutes of limitations are important to think about when setting retention periods. They are not legal retention requirements, though, and there are other, vital considerations to work through in tandem. In addition to creating liability risks, misplaced reliance on statutes of limitation periods can lead to over retention and unnecessary costs. The “in case we need it” approach to records management is long gone, and advice to retain records until any risk of litigation has ceased should be viewed with skepticism. For a balanced approach to evaluating statutes of limitation when setting retention periods, here are some of the chief considerations.

What exactly are statutes of limitations, anyway?

A statute of limitation (often abbreviated as an SOL)[1] is a law that sets a time limit to bring a legal action for a particular type of claim. The legal action can be a civil lawsuit, government investigation, an administrative proceeding, arbitration, or even a criminal case. As a records manager, SOLs you’ll likely encounter include those for tax liability, intellectual property, personal injury, contract, design and construction defect, and employment-related claims (such as wage, worker’s compensation, and discrimination). In the U.S., statutes of limitation found in both federal and state laws, and at the state level, can vary quite a bit across state lines. For example, in Colorado the statute of limitations for breach of a written contract is three years from the date of the breach;[2] a lawsuit filed more than three years after a breach would be dismissed as untimely. In Illinois, the limitation period for written contracts is 10 years, providing an extra seven years to file suit for the same type of claim.

Statutes of repose are a close cousin of statutes of limitations and often get lumped into the same category for records retention purposes. A statute of repose sets a deadline from a particular event for initiating a legal action (rather than being tied to a plaintiff’s injury or knowledge of the injury). For example, a statute of repose for a construction defect claim may be 6 years from the date of occupancy. This means if a building doesn’t show signs of a defect until 7 years from occupancy, the claim would be time-barred before it even existed. This kind of certainty makes statutes of repose easier to work into your retention schedule.

Statutes of limitations have been around for thousands of years. They’re built on the idea that a legal claim should be promptly prosecuted so both the claim and defense are not reliant on stale physical evidence and faded memories. Where a claim can be brought too far after-the-fact, the result tends to hinder rather than promote justice.  It’s no surprise then that courts are notoriously firm when applying statute of limitation periods. It won’t take much legal research to find examples of courts, without hesitation, dismissing lawsuits that were filed only a day after the limitation period. After all, “a complaint or petition filed one day late. . . is untimely, just as if a year late.”[3]

Challenges with tying retention periods to SOLs

In their details, statutes of limitations can get complicated. This can make lining up retention periods to an SOL period less than reassuring. A careful review of a jurisdiction’s case law is often necessary to understand how a particular SOL must be interpreted and applied. Tolling provisions for minors can result in much longer periods to file a legal action when compared to adults. In professional malpractice claims, the limitations period may not begin to run until a plaintiff has begun to suffer damage, which may be years from the date of the wrongful conduct (think of the accountant who prepares flawed tax returns; it may be years before the IRS begins levying sanctions against the client). Also, since limitations periods are coupled to a person’s conduct or an event, calculating the retention period from the record’s creation provides little help if  you aim to keep the record only as long as there’s a possibility of legal action. And figuring out which state’s statute of limitations must be applied gets litigated more often than you might think. Given all this, having confidence that any risk of litigation has passed is not always easy.

Statutes of limitation for fraud are particularly difficult to use as a retention period since the aggrieved’ s knowledge of the fraud most often is the trigger for starting the limitations period. This can be decades after the fraud is alleged to have begun. For this reason, most RIM professionals agree that SOLs for fraud should not be a driver for setting retention periods.

Reasoning through SOL retention considerations

 Whether to apply a statute of limitations as a retention period is an exercise in risk analysis. The default rule in your RIM practice should be to dispose of records once they no longer have a business purpose or are subject to a legal retention requirement. However, you may determine the potential need for certain record types to pursue or defend against a legal claim is enough to warrant their retention for a longer SOL period. Where an organization is regularly involved in or faces a higher risk of certain types of litigation, this practice makes sense. In another context, you may decide the overall litigation risk is small enough that retention for the SOL period is outweighed by the cost of over retaining an entire category, and sometimes multiple categories, of records.[4] In this situation, it may be ideal to rely instead on a sturdy legal hold process to flag any remaining records from destruction upon learning of a claim. Creating carve-outs within a record series to retain only certain documents for a longer, SOL period is yet another option.

Retention cost is another key consideration. Most courts adhere to the rule that the mere (or ever-present) possibility of litigation (such as being a large company that has been involved in previous lawsuits) does not translate into a duty to preserve records for the statute of limitations period.[5] Accordingly, where records have a low litigation risk but a high cost of storage, hanging on to those records just to satisfy a SOL period is hard to justify.

Finally, deciding what records might be relevant to support or defend against a claim easily becomes a fraught process that ends with thinking just about any record can be relevant to one claim or another. Records managers should avoid this “every conceivable contingency” mentality when considering statutes of limitations and instead focus on the most practical risks.

Whatever your approach to setting retention periods, there is no one-size-fits-all solution. How your organization treats SOL periods in its records retention program must be tailored to your organization’s individual needs, cost considerations, and risk appetite. Above all, having a well-vetted, approved, and consistently followed records retention schedule to show that records are destroyed in the regular course of business is the best defense against a spoliation of evidence claim (meaning that a party has intentionally or even negligently destroyed or altered evidence connected with a case).

But regardless of what your retention schedule says, you have a duty to preserve evidence once litigation is reasonably foreseeable.

Duty to preserve evidence in pending or reasonably foreseeable litigation

Once litigation is pending or reasonably foreseeable, a party must not destroy or alter relevant evidence. This means, even if a record is scheduled for deletion under your retention policy, it must be preserved until the legal matter has been resolved. A robust legal hold process is necessary to make sure this happens. Destroying records relevant to litigation can land you in a lot of trouble with the court, even if the destruction was not intentional. Sanctions can include fines, attorneys’ fees, or adverse inference instructions to the jury (instructing the jury to presume the destroyed document would have been damaging to the party who destroyed it). In particularly egregious cases, the court can even order the matter dismissed or a default judgment against you. Evidence destruction also can lead to criminal charges. Under the Sarbanes-Oxley Act, 18 U.S.C. 1519, it is a federal crime to destroy evidence in contemplation or anticipation of an investigation.

Conclusion

Establishing what statutes of limitation are relevant to each record series in your schedule is important. SOLs provide valuable information as you evaluate retention periods. But they must also be considered along with legal retention requirements, business needs, storage costs, the risks from maintaining or not maintaining the records, and the likelihood that the records will actually become relevant in a legal claim.

As a general rule, be careful not to over-rely on SOLs as a retention driver. At the same time, records managers must be careful to avoid giving any appearance that a retention period has been set short to try to target unfavorable evidence in case of litigation or a government investigation. Above all, given the legal complexities associated with retention requirements, always consult with counsel before setting retention periods—particularly where statute of limitations periods are being considered. If you have any questions about setting retention periods, please contact Zasio.

 

[1] Internationally, SOL equivalents often are referred to as a longstop period, period of prescription, or limitation of action.

[2] C.R.S. § 13-80-101(1)(a).

[3] Turner v. Singletary, 46 F.Supp.2d 1238, 1240 (N.D.Fla. 1999).

[4] And if you’re using a big approach to categorizing records, the overretention effect can be amplified even further.

[5] Example, Ramirez-Cruz v. Chipotle Servs., LLC, 2017 U.S. Dist. LEXIS 128149 (D. Minn., May 11, 2017).

Disclaimer: The purpose of this post is to provide general education on Information Governance topics. The statements are informational only and do not constitute legal advice. If you have specific questions regarding the application of the law to your business activities, you should seek the advice of your legal counsel.

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