Document Discovery Litigation Hold

Arthur Andersen Conviction for Obstruction of Justice (Impeding Official Government Investigation)

Record Retention & Destruction Policy

Early destruction of sensitive business records is risky because law will second-guess the decision to destroy. Video from the Enron scandal dramatizes how difficult it can be for a company to justify the destruction of important records after-the-fact.

The 8.5 minute video comes from the web site of Congressman Cliff Stearns of Florida. (Link to the video appears at the end of this post.) The video shows part of the hearings Congress held in the wake of Enron. In this video, Congressman Stearns interrogates Nancy Temple, a lawyer for auditor Arthur Andersen, who gave advice on AA's management of records and "litigation hold" on record destruction.

Congressman as Prosecutor
Congressman Stearns plays the role of a public prosecutor. He tries to show the public (the "jury") that Arthur Andersen handled its records improperly. In effect, he tries to show that Andersen intentionally destroyed important records so as to deny access by legal authorities. He argues Andersen should have implemented a litigation hold on its Enron records months before Enron imploded.

Congressman Stearns makes his point by questioning Ms. Temple about what she knew about deficiencies at Enron and when she knew them. He seeks to establish that she had long known many bad facts about Enron, and therefore should have implemented a litigation hold on the records many months before she did . . . long before any litigation or government investigation had been initiated on Enron's financial condition.

Looking Backwards

The video is a specific example of a common event. So often, after something bad happens, adversaries like Congressman Stearns (prosecutors, regulatory watchdogs, plaintiff lawyers, inspectors general) look back retrospectively and say to an enterprise and its advisors, "You knew all this bad information. You had reason to believe a lawsuit or investigation would eventually come. Why did you allow records to be destroyed?"

A few months after this congressional hearing, a courtroom jury convicted Arthur Andersen criminally for destroying its records. The jury concluded Andersen had "obstructed justice" by destroying records on the eve of a government investigation. The Andersen conviction is one of many examples of the legal system punishing organizations for destroying records when they should have known those records would be needed for an investigation or lawsuit.

Incentive to Keep More Records

Given stories like Arthur Andersen, how should organizations manage their records? The problem – from the perspective of an organization – is that it is very difficult, in practice, to assess which records will in fact be needed for future, potential litigation.

Knowing this difficulty, organizations have incentive to be increasingly generous in the retention of important records. When managing records, organizations are prudent to give themselves a wide margin for error and keep more records, longer than they did a decade ago.

See Video of Congressman Stearns Questioning Arthur Andersen's Nancy Temple.

By: , Senior Instructor on computer privacy law at the SANS Institute.

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