Essential Business Practice: Effective Record Retention Policy

Rule 26 of the Federal Rules of Civil Procedure provides that parties "may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense [...]," but may not obtain discovery of electronically stored information from sources that are not reasonably accessible because of undue burden or cost. Having an effective record retention policy may be the solution to saving thousands of dollars in the event of a lawsuit. The example below demonstrates just how important this essential business practice can be.

A former employee of a medical center ("employer") filed an action under the False Claims Act, alleging that the employer knowingly overbilled Medicare. The time period relevant to the lawsuit was 2006 to 2014. Within that time period, the employer produced or agreed to produce emails from 2006-2011 and 2013-2014, but refused to produced emails from 2011-2013. The employer claimed that technology, its email record retention policy and cost prevented it from being able to disclose emails from that time period.

According to its retention policy, the employer retained emails on backup tapes. The employer restored backup tapes containing emails from 2011 and prior, which cost more than $100,000 However, because it would allegedly cost at least $248,000 to restore the backup tapes between 2011-2013, the employer refused to restore those tapes.

As mentioned, Rule 26 of the Federal Rules of Civil Procedure prohibits the discovery of electronically stored information from sources that are not reasonably accessible because of undue burden or cost. However, even if a party shows that the information is not reasonably accessible because of undue burden or cost, the court may nonetheless order discovery if the requesting party shows good cause. The court may also require the parties to share the cost.

The court ordered the employer to produce the emails because it failed to demonstrate that the emails were reasonably inaccessible as a result of an undue burden or cost. With regard to undue burden, the court noted that the employer produced emails that were stored on backup tapes prior to 2011, so it was technologically feasible to restore the emails after that time too, even if it had to use a third-party vendor to restore the emails.

With regard to undue cost, the court would not consider the costs for attorney review and storage of emails in determining whether the request for emails was too costly. $136,000 was attributable to restoration and searching costs and the court determined that amount would not impose an undue cost on the employer. Accordingly, the court determined that the emails were reasonably accessible and ordered production.

Even if the emails were not reasonably accessible, the court determined that good cause existed for their production because the emails were highly relevant to the case and this type of action is an important tool in combating false claims. Further, the court would not order cost sharing, and noted that cost of production was small in relation to the potential value of the case, and the claimant's resources were miniscule in comparison to the employer's. The court also noted that the employer voluntarily chose to use backup tapes for archival purposes and stored hundreds of thousands of documents randomly without organization.

This case is a perfect example of why an effective record retention policy is essential for businesses. The employer in this example could have avoided the costs it spent in disputing the issue, as well as the costs incurred to restore the emails, if it had a well-thought out record retention policy. For more information or if you have any questions regarding record retention policies, please call Attorney Jillian Jagling at 401.824.5100 or email [email protected] We welcome your comments, questions and suggestions.

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