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RECORDKEEPING

How long should you keep client and practice records?

A lot of questions come up about the most basic elements of maintaining and destroying client records.

And that’s because to many of those questions “there’s no hard and fast answer,” says Washington, DC, attorney and record management consultant Teresa Schoch is also a past member of the Michigan Bar Association’s ethics committee.

Here are seven such issues.

The 10-year retention practice

How long do client records have to be kept?

Client records are usually maintained for 10 years, Schoch says. “That’s a common number.” It applies to anything other than wills, trusts, documents related to corporate filings, and original documents that have to be kept long term.

However, other factors need to be considered.

One is state law, which varies on retention periods and destruction

Another is the malpractice carrier’s requirements, which often set longer retention periods than state law calls for. When that’s the case, the firm should follow the carrier’s rules. For that reason, she says, don’t set a retention schedule before getting the malpractice carrier’s approval.

There’s also the client’s retention schedule to consider. If possible, the firm should follow it.

Suppose the client has a five-year retention policy and destroys the record at that point. Later, the client gets sued and there’s a discovery demand for the record. The client doesn’t have the record because it followed its retention schedule, but the firm does have it because it didn’t follow the same schedule. The information gets produced and the client is damaged.

The client could sue for breach of fiduciary duty because the firm didn’t protect its interest in terms of maintaining a destruction policy that equaled its own.

The firm will then have to show that it followed a reasonable retention schedule. For example, it would be reasonable to follow the schedule the malpractice carrier requires.

That issue is best settled up front, she says. The engagement letter should tell how discrepancies in the client’s and firm’s retention schedules will be handled.

Billing records and contract law

What about the billing records?

Again, the malpractice carrier may have a requirement. But absent that, keep them for at least the length of time set out in the state’s statute of limitations for contract violations.

Also, many state associations have rules or opinions on bill retention.

The offsite record kidnapper

Offsite storage is a hazard area many firms aren’t aware of, Schoch says.

The danger is “enticing deals” that can turn into expensive traps for the unwary.

One that hit many firms in the recent past was an offer to store files free for a certain number of years and then charge a fixed annual rate after that. A great storage deal, but what the firms didn’t take into account was that once they turned the records over, they had to pay an administrative fee to get anything out plus a per-box removal fee that ran anywhere from $3 to $18.

For a large matter or for firms with many cases, an arrangement of that sort can run to the thousands of dollars in retrieval fees, she says. In fact, “a lot of the firms cannot afford the fees to get their boxes out.”

Worse, if a firm is negotiating a merger, the cost of retrieving the files could be costly to the extent of being a deal breaker.

Take that into consideration when storing data on The Cloud – how will the retrieval fee affect the total cost and the reasonableness of moving to The Cloud?

With file storage, “there needs to be long-term planning versus short-term thinking,” she says. Don’t leave the retrieval costs open lest the firm be held hostage to an exorbitant fee.

Getting files to the client

How far does the firm have to go in shipping files to clients?

A rule of thumb is that the client has a right to the file. But – and again, a general rule – the requirement is that the firm make the file “available for pick-up.”

A question here, Schoch says, is what to do when a former client that has relocated to, say, Boston, wants its former New York firm to send all the files.

For a very a large client, the firm might have “a whole barge of documents” stored in a warehouse, and the cost of retrieving, copying, and shipping the file can be prohibitive.

Thus, the firm has a right to charge for the retrieval and shipping as well as the cost of organizing the file.

To avoid that issue entirely, she says, add a statement to the engagement letter that the firm will deliver all copies of files electronically. That makes it relatively easy to meet any request.

That won’t be possible with all clients, of course. An individual client in a custody matter “may not even have a computer.” But do it wherever possible, and always with a large client.

Does the client get the notes?

Is the client entitled to the attorney’s notes?

The majority view is that the attorney must give the client everything that’s part of the file, she says. “But there is also a minority view,” which is that the attorney should be able to take out the personal notes – and not without reason. What firm wants to produce a note that says “I think this client is flaky”?

Some states do say the client owns the file, and it’s possible a client might insist that the firm produce everything. But usually that’s not an issue.

Again, common sense prevails, she says. Just be reasonable. And what’s reasonable is to tell the client ahead of time what elements of the file will be available, perhaps “you are entitled to everything you want other than our personal notes, which we do not consider part of the file.”

Which state rules?

Another issue occurs when firm and client are in different states. Which state’s ethics rules on file maintenance apply?

 “It’s where the files are” that counts, Schoch says.

If both firm and client were originally in Virginia and the client moves to New York, it’s Virginia law that applies.

However, if the firm has a physical office in New York, there’s good argument that New York law should apply.

The trip from one firm to another

Still another issue is who gets the files when an attorney leaves a firm.

When an attorney leaves, it’s up to the client to say if the business leaves as well, she says. And current files stay with the client.

Thus, if the client stays with the attorney, the attorney takes the file along. Though for its own protection, the first firm should keep copies of it.

Past files, however, stay with the former firm. Again, that’s common sense. “Whoever made the money from the representation is responsible for the files.”

Three little destruction items

Schoch also points to three basic but oft overlooked safety practices on file destruction.

First, keep an account of everything that is destroyed.

Second, “take one last look before the final shred” to make sure there are no documents such as wills and trust information and property deeds that should not be destroyed with the rest of the file.

And third, “make sure the files are shredded and not just dumped.”

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