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Plan for Pre-trial Discovery with Record Retention Policies

Filed under Asset Protection Strategies. Fact checked on May 24, 2012.

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The American legal system, contrary to what you see on television, does not like either party to be surprised by witnesses or evidence presented at trial. Once the lawsuit is filed, both sides have the right to discovery--a period when the opponents are forced to answer questions and turn over documents. Many lawsuits are won or lost in the discovery phase. You need to be prepared and cautious.

Pre-trial discovery poses a significant risk factor for business owners. During discovery, you can be forced to answer an opponent's questions under oath and to provide copies of all relevant documents in your possession or under your control--even if this evidence is extremely damaging to your case.

Although pre-trial discovery is more often likely to harm a defendant's case, because the plaintiff is pressing the claim, it also can undermine a plaintiff's case, because the plaintiff, too, can be forced to provide damaging information.

Strategies exist that can significantly reduce the risks associated with pre-trial discovery. First, a system must be in place for document retention and destruction. In addition, if called to answer interrogatories or attend a deposition, you must carefully prepare your answers. 

Planning and implementation of these strategies must begin well before litigation arises.

Have a Document Retention and Destruction Policy

Written records can be used to prove conclusively certain facts, when verbal representations would be of little use. For example, without receipts, tax deductions will usually be disallowed by the IRS. Similarly, there is no proof a warranty claim was filed in a timely manner when the claim is made over the telephone, while a letter (especially a certified letter) would be significant proof that the claim was filed within the warranty period.

Innumerable cases, in virtually every area of law, have proved the principle that documentation can make the difference in winning or losing a case. In addition, the law requires that certain records, including tax and employment records for example, be maintained for a fixed period.

Don't retain damaging information. Recently, however, advice has taken a different direction--business owners should avoid creating certain written records, or shred the written records immediately after they are reviewed. This advice, of course, is limited to records that might be damaging to a company should they be disclosed, for example through pre-trial discovery. This advice has arisen from experience: Requests for documents, one of the tools of pre-trial discovery, can result in the defendant producing the very evidence that the plaintiff needs to win the case. 

Today, a sound practice is to verbally report any findings that may be damaging to the business, in the event of future litigation. Any written records (including computer records) generated should be destroyed pursuant to a written record retention policy, before any issues arise.

Address computer and other digital records in retention/destruction policies. The small business owner must take into account the fact that records may exist not only in paper form, but also in paperless form, on a computer's hard drive or disks. Special care must be taken with respect to e-mail and computer files, in general.

Even when this data is "deleted," computer specialists can sometimes retrieve the data. Mere deletion usually does not actually eliminate the data. Instead, when files are deleted, the computer's operating system no longer maintains an association with the data, and considers the space it occupies as available for new data. However, after "deletion," the data remains on the storage device. Formatting a storage device, such as hard drive or floppy disk, should eliminate the data. Further, software exists that purportedly eliminates all remnants of data.

In addition, when a computer is discarded, the hard drive should be physically destroyed to prevent recovery of data. Of course, when a computer is to be sold or traded, this is not possible. In this situation, the recommendations discussed above should be followed.

Don't Destroy Documents Once a Claim Arises

Document destruction that occurs after notice of a lawsuit is received, or even after an event (e.g., an accident) occurs, may be a criminal offense. Verbal reporting and document destruction should be an ongoing asset protection policy. As is true with asset protection strategies in general, planning in advance of a crisis is required.

In addition, written documentation is necessary in many cases:

  • Documentation of transactions between the owners and their business entity are an important aspect of many asset protection strategies. This documentation can prevent piercing of the veil of limited liability.
  • Federal and state statutes require that certain records, such as employment records, be maintained for a fixed period.
  • Documentation is essential for tax purposes to sustain a deduction or to prove that certain receipts were from nontaxable sources.

Document retention time periods. In many cases, the law is silent on the period of time for which records must be retained. In the absence of a fixed statutory period, the recommended period should coincide with the expiration of the statute of limitations.

Tip

The statute of limitations will vary from state to state and the type of action. The limitation period for most actions in most states is seven years or less. But, check the limitations for the states in which you do business and plan accordingly.

Technically, in a civil action, a party could be subpoenaed to testify about a study, record or report. This testimony might include questions concerning information from a verbal report or a written record that was destroyed. 

Clearly, a party with this information has a legal obligation to testify truthfully. In practice, however, where a record or report was generated many years before the litigation, the parties involved in the record or report may be unavailable, or their memories related to the record or report may not be so clear. Thus, truthful testimony may not be damaging--and if it is, you deserve it for deliberately harming people and breaking the law.

Prepare Your Answers Prior to Depositions

Cases are often won or lost during a deposition. Therefore, it is essential that you prepare as carefully and thoroughly as possible prior to participating in a deposition.

A deposition involves a face-to-face meeting, in which the opposing attorney will ask verbal questions, and the deposed party will give answers, after taking an oath that the responses will be truthful. The questions and answers will be recorded and a written transcript will be made.

Usually, the deposition will take place at the opposing attorney's office. The nature of the face-to-face questioning and the location of the deposition can unnerve the deposed party. And, the deposed party will have limited time to contemplate the responses. When asked a question, he will be required to provide an immediate verbal answer. While the deposed party's attorney also will attend the deposition, he cannot answer the questions, at least not directly.

In reality, the deposed party's attorney should, in effect, be answering every question. Adequate preparation is the key to making a deposition neutral, or even turning around its effect, so that the evidence it produces works against the party conducting the deposition. In short, nothing in a deposition should be spontaneous.

Anticipate Every Question

Effective preparation requires that the deposed party anticipate every question that will be asked in the deposition. A skilled attorney should be able to do this, as an attorney should be aware of all of the legal issues and facts that must be proved in the case.

For example, in an automobile accident case, the plaintiff's attorney will attempt, through the deposition, to prove the deposed party was negligent. Thus, he will ask questions that may prove carelessness on the part of the deposed party (e.g., the speed of his vehicle, the distance between his vehicle and the other driver's vehicle, his activities at the time the accident, etc.). The deposed party also should be prepared to explain how he knows these facts.

Craft narrow answers and rehearse the answers. The deposed party's attorney should ask these questions of his client, well in advance of the deposition, and help the party craft his answers. While you cannot lie in a deposition, carefully choosing your words can have significant implications.

For example, there is a significant difference between a deposed party saying he glanced at his speedometer "just before the accident" (which implies he caused the accident due to his inattention to the road) and saying he knew he wasn't speeding because he "glanced at his speedometer a block before the accident." 

Note the importance of the exact choice of wording. If the deposed party says he glanced at his speedometer "several blocks" before the accident, this fact may be irrelevant because during the intervening period the speed of his vehicle may have changed. Wording is everything.

Essentially, then, the deposed party should treat the deposition no differently than if it were a set of interrogatories. This practice defeats what otherwise represents the main advantage of the deposition to the other party--that in the absence of preparation, the deposed party usually will provide spontaneous and, thus, damaging statements

Do not volunteer answers to questions. Do not volunteer answers to questions that are not asked and do not provide any additional information unless you are certain that this information will help you and/or hurt the other side. Thus, a party who caused an automobile accident does not have to volunteer that he was not wearing his prescription glasses, if this question is not asked.

However, consider volunteering information if you are certain the answer will help your case and you and your attorney have discussed this information in advance. 

Do not go rogue on your attorney! Thus, if the deposed party saw that the other party had no brake lights or failed to use a turn signal, these facts should be worked into answers, even when questions do not directly address these issues. Through this technique, a deposed party actually can take an aggressive or offensive stand in a deposition, and thus turn the deposition into a weapon that can be used against the other party. Preparation, again, is the key, if this is to be done.

Utilize Time Permitted to Answer Interrogatories

Inadvertent errors that can jeopardize your case are not as common when submitting written answers to interrogatories as they are during written depositions. With interrogatories, a party usually has 30 days to return written answers. Thus, the party and his/her attorneys can carefully craft answers, going through many different drafts, until a final and favorable version is derived.

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