Colorado Bar Journal 2011.

Transcription

1 Colorado Bar Journal , August, Pg. 85. New Colorado Rules on Retention of Client Files The Colorado Lawyer August 2011 Vol. 40, No. 8 [Page 85] Articles Professional Conduct and Legal Ethics New Colorado Rules on Retention of Client Files by Michael A. Kirtland, John M. Lebsack Professional Conduct and Legal Ethics articles are sponsoredby the CBA Ethics Committee. Articles published here do not necessarily reflect the legal interpretation of the Committee. Coordinating Editor Stephen G. Masciocchi, Denver, of Holland and Hart LLP-(303) , smasciocchi@hollandhart.com About the Authors Michael A. Kirtland is a member of Kirtland and Seal LLC, Colorado Springs, where he practices estate planning and elder law-mak@kirtlandseal.com. John M. Lebsack is a shareholder of White and Steele, P.C., where he specializes in appeals and insurance litigation-jlebsack@wsteele.com. This article describes the new Colorado Rules of Professional Conduct with regard to client file retention and retention of client property, and considers some of the unanswered issues related to the rule changes. The Colorado Supreme Court recently adopted changes to the Colorado Rules of Professional Conduct (Rules or Colorado Rules) dealing with a lawyer's duty to maintain files and records. Effective February 10, 2011, the Court enacted Rule 1.16A, a new rule concerning retention of client files. The Court also made small but important changes to existing Rule 1.15 concerning safekeeping property.(fn1) Although Colorado has long had a rule governing retention of a lawyer's accounting records and other specific types of documents, the Court for the first time adopted a rule concerning retention of client files in general.(fn2) Nothing in the new rule supersedes any other file retention requirements imposedby court rules, court orders, statutes, or regulations.(fn3) With the new rule, Colorado joins the small number of states with a formal rule of ethics governing client file retention.(fn4) Over the years, the Colorado Bar Association Ethics Committee (Committee) often received questions about how long a lawyer must keep client files. Until this new rule, there were no answers to these questions. The Committee typically advised lawyers that this issue should be addressed in a written engagement agreement and in a law firm's written policies. The Committee recommended a policy concerning file retention,(fn5) leaving the decision to the lawyer's "good professional discretion and common sense."(fn6) The American Bar Association Model Rules of Professional Conduct do not address the question of how long lawyers must retain client files.(fn7) The Restatement of the Law Governing Lawyers provides only the general guidance that lawyers should keep client files "while there is a reasonable likelihood that the client will need the documents" but "may destroy documents that are outdated or no longer of consequence."(fn8) The new Colorado Rule 1.16A supersedes those general recommendationsby imposing specific time limits and requirements. The new rule thus provides needed clarity to a topic of importance to Colorado lawyers, particularly those in private practice. File Retention in Civil Matters The new rule specifies when lawyers in private practice(fn9) may destroy client files involving civil matters. Lawyers who work as in-house counsel for a corporation or other entity are not subject to the rule, under the rationale that the file is under the control of the entity, not the lawyer.(fn10) The rule addresses file destruction in several scenarios-with notice to the client, without notice to the client, and pursuant to the client's specific request. Civil lawyers in private practice are now permitted to destroy client files without notice to the client after the expiration of ten years from the termination of representation in a matter, subject to two conditions: first, there are no pending or threatened legal proceedings known to the lawyer; and second, the file destruction is not contrary to an agreement with the client.(fn11) The rule does not define "termination of the representation." In some matters, that date may not be clear. For example, when a lawyer has represented a client on a variety of small matters intermittently over the course of years, it is not clear whether the ten years run from the end of the first matter or the last. On the other hand, some types of civil matters end on a specific date, which leaves little potential for misunderstanding between lawyer and client that the lawyer's work is done. One example is the final judgment in a civil action. To avoid misunderstandings

2 with the client about whether the matter has terminated, the safer course (although not an ethical requirement) is for the lawyer to send the client a written message that the lawyer's representation is finished.(fn12) As an alternative to file destruction without notice to the client, the lawyer may give written notice to the client that the lawyer intends to destroy the file. The notice must give a date certain when the file will be destroyed. The date must be at least thirty days after the notice. File destruction with notice has the same two conditions as destruction without notice: the lawyer must be unaware of pending or threatened legal proceedings relating to the matter, and the destruction must not be contrary to an agreement with the client.(fn13) To provide the notice, the lawyer must make reasonable efforts to locate the client; if the lawyer cannot find the client, the lawyer may send the notice to the client's last known address.(fn14) A lawyer may comply with the notice requirementby adopting a written file retention policy and providing notice of that policy in a fee agreement.(fn15) Colorado does not require a written fee agreement, just written confirmation of the basis or rate of the fee when the lawyer has not regularly represented the client. The new file retention rule does not require that notice of the lawyer's file retention policy must include a statement of the entire policy, but if a lawyer intends to use the option of providing notice of the file retention policy in the fee agreement, a safe practice would be to include a statement of the entire policy. The new rule requires that the written file retention policy be "consistent" with the rule,(fn16) but the rule and comments do not elaborate on that requirement. If the lawyer seeks to use the option of complying with the notice requirementby adopting a written policy and then including notice of that policy in the fee agreement, there apparently is no need for any subsequent notice of the lawyer's intent to destroy the file. In other words, the rule permits notice of the file destruction policy in a fee agreement at the outset of the representation, without the need to provide any subsequent notice of the intent to destroy the file. This option presents a risk for the lawyer. The risk is that the client is not focused on a topic like file destruction at the start of a case and, as a result, pays little attention to that portion of the fee agreement. If a long time passes until the end of the case, the client may have forgotten about the file retention policy altogether. Without additional notice of the lawyer's plan to destroy the file-as a reminder of what was in the fee agreement at the outset of the representation-the lawyer faces the risk that the client may be surprised and unhappy to learn the lawyer destroyed the file. A safer procedure, if the fee agreement contains notice of the file retention policy, is to send a reminder of that policy at the conclusion of the representation, giving the client the opportunity to prevent destruction of the file. This is optional-the rule does not require a second notice. Where the representation terminates, the new rule does not change the requirements of existing rules with respect to surrendering client papers and property to which the client is entitled.(fn17) Limits on Following Client Instructions The new rule explains when the lawyer may (and may not) destroy a file in a civil matter at the client's request. A civil lawyer in private practice may destroy the file if the client authorizes the destruction in a writing signedby the client, and there are no pending or threatened legal proceedings known to the lawyer.(fn18) In other words, if the lawyer is aware of pending or threatened legal proceedings, the lawyer cannot destroy the file even if the client requests. The new rule permits the lawyer to keep a copy of a file destroyedby client request.(fn19) Instead of destroying the file, the lawyer may simply deliver it to the client.(fn20) This does not require the client's consent; under the rule, the lawyer may deliver the file to the client even though the client does not want it. Because delivery may occur when the lawyer withdraws from an ongoing matter, in this situation there is no requirement that the lawyer be unaware of pending or threatened legal proceedings relating to the matter. File Retention in Criminal Matters In criminal cases, separate retention periods apply. In contrast to the rule for civil matters, which applies only to lawyers in private practice, there is no such restriction for criminal cases. The new record retention rule applies to all lawyers handling criminal cases, regardless of whether they are in private practice. The provisions governing criminal case files anticipate the potential for lengthy criminal appeals, which may last for many years after the criminal trial and sentencing. If the criminal matter resulted in a conviction and the sentence was death, life imprisonment without parole, or an indeterminate sentence including any sentence under the Colorado Sex Offender Lifetime Supervision Act of 1998, the lawyer must retain the file for the life of the client.(fn21) For any other felony conviction or sentence, the retention period depends on whether the sentence was appealed. If it was appealed, the minimum retention period is eight years; if it was not appealed, the minimum retention period is five years.(fn22) The rule does not specify the retention period for matters involving misdemeanor convictions or acquittals. The Client's File Under a Comment to new Rule 1.16A, the client's file consists of "those things, such as papers and electronic data, relating to a matter that the lawyer would usually maintain in the ordinary course of practice."(fn23) This definition of "client files" leaves room for differing interpretations. It is not clear what things "the lawyer

3 would usually maintain" or whether the standard is subjective or objective. The rule refers to "the lawyer" and not "a lawyer," suggesting that the test is not what other lawyers in the same field generally do, but what the specific lawyer's office policy is. That reading carries risks, however, so the safer practice is to maintain items that most lawyers in the same field would maintain in the client file. A Comment explains that the new rule is not intended to require lawyers to preserve documents they normally discard, such as multiple copies or drafts.(fn24) Methods of File Storage The new rule does not mandate any particular method of file storage, and it permits the lawyer to maintain or convert the file to electronic format for storage as long as the lawyer can produce a paper version if necessary.(fn25) If more than one lawyer in a firm worked on a matter, they all do not need to keep a copy of the file; a single file is adequate.(fn26) All partners in a law firm, or those with comparable managerial authority, have a duty to make sure the firm complies with the new record retention rule.(fn27) Holding Property In addition to adopting an entirely new rule on file retention, the Supreme Court modified existing Rule 1.15 governing a lawyer's duties when safekeeping property of others. Where the attorney is holding property of a client-as distinct from the lawyer's own file on the client's matter-a separate rule applies.(fn28) Effective February 10, 2011, the Supreme Court modified the definition of "property" to refer generally to: jewelry and other valuables entrusted to the lawyerby the client, as well as documents having intrinsic value or directly affecting valuable rights, such as securities, negotiable instruments, deeds, and wills.(fn29) The Court also made a corresponding change in new Rule 1.16A governing the lawyer's duty to retain such documents. Comment [1] to the new rule clarifies that lawyers must safeguard client property, including "documents having intrinsic value or directly affecting valuable rights, such as securities, negotiable instruments, deeds and wills."(fn30) The list in the new comment is not exhaustive, so there may be other documents in the client file that have intrinsic value such that the lawyer must retain those documents notwithstanding the lack of a specific reference to them. Duties on Dissolutions and Departures The Court also changed the requirements in the event of dissolution of a law firm or departure of a lawyer or lawyers from the firm. The rule change places the burden on all lawyers in the firm to make arrangements for maintenance and disposition of the client files and records.(fn31) The prior rule simply stated that one of the lawyers in the firm was responsible for maintenance of the records. The new rule makes all lawyers responsible for such care and maintenance. The Court did not change the requirement to retain all records of receipts and disbursements from trust accounts and other bank accounts. Thus, a lawyer still must keep COLTAF records for seven years, including information identifying individual client accounts within the COLTAF account.(fn32) Even if the lawyer may destroy the client file earlier, the seven-year requirement still applies to trust account and other financial records. The records may be kept in paper or electronic form; however, the lawyer must be able to reproduce the electronic record on paper if necessary.(fn33) Unresolved Areas Although the new rule provides needed clarity regarding the lawyer's duty to maintain client files, some areas remain unresolved. One such area is the requirement not to destroy files known to the lawyer to be related to a "pending or threatened proceeding." The rules define "known" as denoting "actual knowledge of the fact in question," but "knowledge may be inferred from circumstances."(fn34) Knowledge of "pending" matters is a more straightforward question than knowledge of "threatened" matters. One interpretation of knowledge of "threatened" matters is that it refers to a lawyer's knowledge that someone (either the client or a third person) is considering whether to begin legal proceedings related to the matter. However, there is a distinction between a threat of a legal proceeding and the potential for legal proceeding. The rule uses the term "threatened" (which implies a subjective standard) instead of a term like "reasonably anticipated" (objective standard). That suggests the rule does not prohibit file destruction if there is only a potential for future proceedings, not an actual threat of such proceedings. Nonetheless, a careful lawyer should consider whether circumstances require keeping a file even if the rule permits its destruction. Furthermore, it is easy to imagine scenarios where the threat occurred so long ago that there is no longer any practical need to keep the file (for example if the statute of limitations has expired). The lawyer must exercise judgment in deciding when a threat is so old that the file may be destroyed, despite the lawyer's knowledge of the threat. The lawyer should, in other words, determine whether the threat is still a realistic possibility; if the statute of limitations has demonstrably expired on all potential claims, there is no viable threat of legal proceedings. Another uncertain area is the rule's effect on lawyers or firms with offices in Colorado and elsewhere. What if more than one office of the firm worked on the matter-in Colorado and in another state-and parts of the file reside at both offices? A similar issue could arise if a Colorado lawyer works on a matter with co-counsel from another state. Under what circumstances is it safe for the

4 Colorado lawyer to authorize the destruction of files stored in another state that relate to a matter that was handled at least in part in Colorado? The lawyers in all affected offices should consider the file retention rules, if any, of the states where those offices are located. The prudent course, although not requiredby the new Colorado rule, would be to follow the longest retention requirement of the states in question, and apply that period to all parts of the file in all offices. Finally, new Rule 1.16A does not specify how to destroy the file. There is no express requirement to shred the file. Whether the file needs to be shredded depends on the lawyer's duty to maintain confidentiality of information relating to the representation of the client. The need to shred also may depend on the nature of the documents. For example, a lawyer would be well-advised to shred copies of medical records and tax returns, but might not need to shred copies of newspaper articles. Conclusion With the adoption of these rule changes, Colorado lawyers have much clearer guidance on when they may destroy files. In civil matters, private practice lawyers have the benefit of clear deadlines marking when they may destroy a file-with thirty days' notice to the client, or without notice if the matter ended more than ten years ago. The new rule draws a balance between the lawyer's desire to destroy files that are unneeded and the client's right to access to files that may be needed for pending or threatened proceedings. In criminal matters, lawyers have clear time limits depending on the nature of a felony conviction and the sentence. Colorado lawyers now have specific ethical rules on which to base their file retention policies. Footnotes: 1. The rule changes appeared at 40 The Colorado Lawyer 98 (April 2011). 2. Colo. RPC 1.15(a), (j), and (k) require financial records, such as certain bank statements, to be maintained for seven years. As explained in Comment [3] to the new Colo. RPC 1.16A, the lawyer still must keep contingent fee agreements for six years, the originals of e-filed documents for two years, and notice of the use of servicesby suspended or disbarred lawyers for two years. If a document is subject to more than one retention period, the lawyer should apply the longest period. 3. Colo. RPC 1.16A(e). 4. More than a dozen states have adopted rules on file retention. See /services/ethicsearch/ materials_on_client_file_retention.html (summary of those rules, as well as ethics opinions and articles on this topic). 5. See Micklewright, "Understanding File Retention: Developing an Ethical Policy and Plan-Part I," 30 The Colorado Lawyer 147 (Oct. 2001); Micklewright, "Understanding File Retention: Developing an Ethical Policy and Plan-Part II," 30 The Colorado Lawyer 77 (Nov. 2001). 6. Truhlar and de Raismes, "Coping with the Paper Avalanche: A Survey on the Disposition of Client Files," 16 The Colorado Lawyer 1787 (Oct. 1987). CBA Formal Ethics Op. 104 recommended that lawyers review that article for guidance in how long to retain client files after termination of the representation. The article suggested the following guideline for determining how long to keep client files: "A lawyer should use good professional discretion and common sense in determining the length of time for retention or disposition of a file." Id. at The American Bar Association (ABA) Ethics Committee issued two opinions on file retention. In 1977, the Committee adopted a general guideline: "We cannot say that there is a specific time during which a lawyer must preserve all files and beyond which he is free to destroy all files. Good common sense should provide answers to most questions that arise." ABA Standing Comm. on Ethics and Professional Responsibility Informal Op (March 14, 1977). In 1992, the Committee issued an opinion on the duty of sole practitioners to develop a plan for appropriate file storage after their death. ABA Standing Comm. on Ethics and Professional Responsibility Formal Op (Dec. 7, 1992). 8. Restatement of the Law Governing Lawyers 46, cmt. b (2000). 9. Colo. RPC 1.16A(a). The rules do not define "private practice." Presumably, the term refers to nongovernmental lawyers who work in a "firm" or "law firm" as defined in Colo. RPC 1.0(c). See, e.g., Colo. RPC 1.11(d)(2)(i). 10. Colo. RPC 1.16A, cmt. [2]. 11. Colo. RPC 1.16A(a)(2)(b). 12. The rules define a "written" communication as one with a tangible or electronic record. Colo. RPC 1.0(n). 13. Colo. RPC 1.16A(a)(2). 14. Colo. RPC 1.16A, cmt. [5]. 14. Colo. RPC 1.16(d). 16. Id. 17. Id.; Colo. RPC 1.16A, cmt. [4].

5 18. Colo. RPC 1.16A(a)(1) and cmt. [5]. See Colo. RPC 1.0(n) for the definitions of "writing" and "signed." 19. Colo. RPC 1.16A, cmt. [5]. 20. Colo. RPC 1.16A(a)(1). 21. Colo. RPC 1.16A(c)(1). 22. Colo. RPC 1.16A(c)(2) and (3). 23. Colo. RPC 1.16A, cmt. [1]. 24. Id. 25. Id. 26. Id. 27. Id. 28. Colo. RPC Colo. RPC 1.15, cmt. [1]. 30. Colo. RPC 1.16A, cmt. [1]. 31. Colo. RPC 1.15(l). 32. Colo. RPC 1.15(j). 33. Colo. RPC 1.16, cmt. [2]. 34. Colo. RPC 1.0(f).