Vol. 76, No. 4, April 2003

Managing Records Effectively

by Ann Massie Nelson

Your law firm's ability to recover from a fire, flood, tornado, or other disaster is greatly enhanced by a well-thought-out and executed records management plan.

Lawyers' professional responsibilities survive even the worst disaster. If your files were destroyed or inaccessible, could you provide competent and diligent legal representation? How would you communicate with clients? What steps would you take to assure client confidentiality?

Electronic files that are backed up weekly or daily and stored off-site provide some reassurance. However, records management experts point out that storing information on a computer server or back-up disk does not guarantee the information can be retrieved when needed. The volume of data that must be restored could delay law firm operations for days or weeks following a disaster.

The File Conundrum

One of the questions most frequently asked of risk management advisers is, "How long do I need to keep my files?" The answer always sounds like a riddle. Consider the following:

• Well-documented files can save you and your clients time, money, and embarrassment. On the other hand, information in your files is discoverable and could be used against you in future litigation. If only a chosen few files are lost or destroyed, your records management policy will look suspect.
• The value of files changes over time. New laws and events can make old records either more valuable or obsolete, depending on the situation.
• Records storage is a service many law firms use as a marketing and client retention tool. However, you assume the cost and liability of storing and safeguarding client files. As a lawyer, you have an ethical duty to protect client confidentiality.
• A records management plan can streamline information handling and decision-making. With efficiency comes a need to educate staff members to exercise judgment rather than blindly following a policy, as Arthur Andersen management claimed employees were doing when they shredded Enron audit files.
• Research conducted for one client could be mined and reused for another client with a similar matter, if your files were managed so you could easily find the information. The dilemma for lawyers who bill hourly is how to charge the second client.
• The "save everything" philosophy may give you a sense of security, but the task of retrieving the right information at the right time is more difficult. Furthermore, finding and recovering valuable or irreplaceable documents may be impossible if the records are damaged by water, fire, smoke, or wind.

No Easy Answers

These dilemmas underscore the need for legal expertise in developing a records management policy for your firm. Lawyers and staff need to work together to ensure that your records policy:

• meets your firm's (and your clients') needs for timely access to information
• supports the requirements of different areas of practice
• complies with laws and regulations regarding records
• upholds the rules of professional conduct for lawyers

A records management policy needs to be written in such a way that a new employee could answer the following questions.

1. What measures are necessary to comply with the law? Compliance with regulatory requirements for record keeping needs to be the number-one priority for your firm and the business clients you advise.¹ In your records management policy, specify how to red-flag files for regulatory compliance.

2. When should a new file be created? What situations call for a new file to be opened? If a potential client comes in for an initial consultation but doesn't retain your firm, do you open a file? When a current client retains your firm for a new matter, do you open a new file?

3. What type of information belongs in the file? Develop a file inventory checklist to make sure the right information is recorded in the file. For example, your checklist might include the client intake form, copies of the engagement letter and fee agreement, conflict of interest documentation, and space to record externally created records. Also note what information does not belong in the file, such as clients' original documents.

4. How are files identified and labeled? Whether simple or elaborate, the important thing is to create a system for labeling paper and electronic files that is universally understood and used. Make sure your identification system can accommodate a growing number of files.

5. How are records stored? Active, inactive, and closed files may be housed in different places, but all records need to be protected from prying eyes, theft, and physical damage. Fire-resistant, locked filing cabinets are ideal. Store files off the floor, where water damage is less likely to occur. Encourage employees to put files away at the end of the workday.

6. Where is the master directory of records kept? A directory or spreadsheet that lists each file and pertinent information about the file, such as where the file is stored, could be invaluable in disaster recovery. Make sure more than one person in the office can access the directory. Note when files are disposed of; you will save time spent looking for files that no longer exist.

7. What is the procedure for checking files in and out? Besides knowing the whereabouts of each file, you may need some guidelines for who has access to which files. Be sure to explain the need for confidentiality to new employees, who may be unaware of the hazard of leaving files on their desks or in their unlocked briefcases or cars.

8. How long are records to be retained? Ask lawyers to assign future review dates at the time they close the file. As noted earlier, file retention depends on a host of factors, such as the type of matter, the ages of minor children involved, and the likelihood that the file will be reopened. Some lawyers specify in their retainer agreement how long they will retain the client's file, for example, seven years from the date the file is closed. Keep in mind that the statute of limitation for lawyer malpractice is six years from the date the error or omission is discovered, not the date the matter is closed. Grievances may be investigated for up to 10 years.

9. What is the process for reviewing, purging, and discarding files? Who is responsible for reviewing files? How often? What criteria are used to evaluate files? How are records and other confidential information disposed of? Law firms that are cognizant of client confidentiality shred all documents before disposal.

10. If files are damaged, in what order will they be recovered and restored? Imagine the office sprinkler system malfunctions and all of your law firm's files are water-soaked. The process of recovering and restoring all documents is costly, time-consuming, unnecessary, and possibly hazardous to the health of persons handling them, but how will you know which files to save and which ones to send to the landfill? Consider labeling or color-coding files in a way that will help you quickly identify active or mission-critical files, in the event your files are damaged but recoverable.

Learn about document recovery techniques in the June Wisconsin Lawyer.

Endnotes

¹The Sarbanes-Oxley Act of 2002, passed in the wake of recent corporate scandals, creates new obligations for record keeping by publicly held companies and public accounting firms. Although beyond the scope of this column, privacy legislation (Gramm-Leach-Bliley Act, Health Insurance Portability and Accountability Act, and Fair Credit Reporting Act) also mandates new confidentiality measures.

For more information, please see Dean Dietrich's ethics column, "Determining Disclosure Under SEC Reporting Requirements," in the March 2003 Wisconsin Lawyer.

Wisconsin Lawyer