Media reports revealing that employees from Arthur Andersen shredded documents relating to Enron’s audit raised questions and reopened discussions concerning corporate document retention policies, obstruction of justice, and spoliation or destruction of evidence. Although Enron’s world of high finance may seem far removed from the governance of community associations, there are lessons to be learned that are universal.
 
What is spoliation of evidence and what does it mean to homeowner associations? Spoliation is not what happens to food left too long in the refrigerator. It is the destruction or significant alteration of discoverable evidence in the face of pending or reasonably foreseeable litigation or the failure to preserve property for another’s use as evidence in pending or future litigation. The general rule provides that a person, organization, or company has a duty to retain all evidence or documents that are discoverable in litigation that is pending, of which it has notice, or which is reasonably foreseeable. There are several factors that impact the decision of whether evidence should be retained, including foreseeability of the need for the evidence and the discoverability or relevance of the evidence under substantive or procedural law. Another factor is whether the association was acting pursuant to an established document retention policy.
 
Associations are faced with issues related to spoliation or destruction of evidence daily. Following are just a few examples where spoliation or destruction of evidence can be an issue:

·        The child of one of the homeowners in your association is injured when a piece of playground equipment breaks. The association manager inspects the playground equipment and removes it. Should the association store the playground equipment in case the parent decides to bring a product liability case against the manufacturer of the equipment or against the association for negligent maintenance?       
 
·         The association discovers that a former treasurer may have written checks to cash and kept the money. Does the association have a record retention policy for financial records? 
 
·         The association plans to bring a construction defect action against the developer. What obligation does the association have to allow the developer to inspect the alleged deficiencies before engaging the services of a contractor to correct the problems?

·         What if the association faces a suit based on a failure to maintain common areas that led to an injury. If the association destroys maintenance records after it knows of the claim, and contrary to its document retention policy, it may face adverse consequences for spoliation of evidence.

·         The secretary tapes meetings to assist in preparing the minutes. How long should those tapes be kept? Is the policy followed consistently?
 
·         The association has security tapes of the lobby, pool/spa area, etc. How long are they maintained before being recycled? 
 
·         Does the association keep detailed records of covenant enforcement procedures and decisions, as well as collection policies? This evidence could be critical in proving that the association was not discriminatory in its enforcement of its covenants, rules and procedures. Destruction of such evidence may lead to an inference that the association did not uniformly apply its policies.

·         The board periodically corresponds among themselves by e-mail. Just because an e-mail is deleted off of the hard-drive does not mean that it is gone, and it may still be discoverable. A record retention policy for e-mail is advisable.
 
Record retention policies are important in protecting an association against claims of spoliation of evidence. If documents are destroyed pursuant to a reasonable document retention policy, courts often find that no spoliation of evidence has occurred. In deciding whether a retention policy is reasonable, a court may look at the facts and circumstances surrounding the destroyed evidence.  Other reasons to implement a document retention policy include: (1) the expense of storing old documents; (2) the need to efficiently locate documents and records; (3) the need to avoid sanctions for spoliation of evidence; and (4) consequences that can arise from documents that should not have been retained.
 
Associations should consider the following when formulating a records retention policy:

1.        Put the policy in writing, date it, and disseminate it to all employees and the association’s manager.

2.        Make the policy simple and straightforward and write it in plain English.
 
3.        Have regular audits to ensure compliance with the document retention policy.
 
4.        As part of the policy, include a provision for annual purging periods when employees or the association’s manager review records within their control and discard any that should be discarded under the policy.

5.        Include in the policy a procedure for notifying employees and the association’s manager of instances when the retention policy should be suspended, as in the case of pending or potential litigation.

6.        Review the policy regularly and update as necessary to comply with any laws regulating document retention.

7.        Keep any outdated versions of the policy on file permanently.
               
In summary, document retention policies are critical in justifying the destruction of evidence should it occur. If you would like further information or assistance in drafting a document retention policy, please contact one of our attorneys.