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Issues management in the global economy: creating and managing documents.

The documentary record is important, particularly for products manufacturers, but care must be taken that policies are in place and pitfalls are avoided

IT IS vitally important to the proper development of a product to encourage an open exchange of ideas, to make certain that the product is developed within proper protocols and then to document these facts and the reasons design decisions were made. Communication in the design, testing and production process is paramount and it is for this purpose that manufacturers keep records.

The primary purpose of a documents management program lies in the management, retention and destruction of electronic and hard documents in the course of the day-to-day operations of a business. It assists the manufacturer to build a better and safer mousetrap by creating a library for new product design and performance, to comply with certification and reporting requirements, and to respond to calls for information--sometimes many years after the individuals involved have departed.

However, in an age when product liability litigation in the American market is a given, and where it is growing elsewhere, manufacturers must assume that their records will be discovered and, if at all possible, used against them. How those records are created and maintained will be crucial when the company finds itself on the witness stand.

Creation of a comprehensive documents management or retention policy as early as possible is an important component of presenting a "product story" in litigation of almost every type. Credible engineers involved in the design of the product become even more credible when their testimony is supported by documents. Documents are useful to establish that manufacturers have explored problems and have done what was appropriate to close any open issue. Documents also can be helpful in impeaching the testimony of turncoat employees. For all these reasons, it is critical that manufacturers tightly control the creation and retention of their documents.

A carefully developed documents management program is crucial to the successful operation and development of any business, not merely a products manufacturer, and many general issues in developing and maintaining such a program apply across the board. The selected topics in this article focus on products liability issues as examples, but other businesses also are all too often engaged in litigation, or are required to file or maintain documents for a myriad of governmental regulations, or are targets of governmental action. Whether prosecuting a plaintiff's business tort or commercial claim, complying with European Community environmental directives, or seeking credits under sentencing guide lines, the company must have the documents to support its claim or show its compliance with applicable laws.

DOCUMENT MANAGEMENT FOR PRODUCT MANUFACTURERS

A. Government and Industrial Standards

A proper documents management and retention program begins with the creation of a system and library that includes these standards on a current basis and alerting designers to changes. Compliance with governmental and industry standards is a minimum requirement in product development and in the defense of a product.(1) Whatever type of documents management policy is adopted, it is essential that the policy comply with applicable governmental regulations. For example, the Office of the Federal Register publishes the Guide to Record Retention Requirements, which digests provisions of U.S. federal laws and regulations relating to record-keeping requirements. The guide describes (1) what records must be kept, (2) who must keep them and (3) how long they must be kept.

B. Design Review System and History of Design

Manufacturers should establish clear and coherent product history records stating the reasons why they chose certain design alternatives or followed certain procedures. This is important for the further development of a reliable and efficacious product, as well as development of the later generations of the product. In short, it is part of and must be coordinated with an overall design review process.

Record-keeping is nothing more than establishing a history of an event to show what occurred and, more important, why it occurred. That the manufacturer had and can document that it had an effective design review system, followed established protocols and properly tested the product helps to demonstrate due care in the design and manufacture of the product. The records should show that concerns raised by designers and others and unfavorable test results were explored and overcome or adequately addressed.

Such concerns and unfavorable test results cannot be ignored, as the very fact that unfavorable results or comments are ignored may provide a basis for both general and punitive damages.(2) Documents containing unfavorable evidence regarding a product must be responded to by the manufacturer, the manufacturer's written record regarding the product must contain this response, and the deficiencies must be overcome or otherwise properly accounted for.

Charles A. Blixt of the Caterpillar Tractor Co., in his paper to the Society of Automotive Engineers, writes:
      Because you can assume that your product, and therefore your design,
   will someday be challenged in the litigation process, your role in this
   process must begin when you are first asked to become involved in the
   design of a product or some portion of that product, and you are
   consequently asked to begin making the decisions and the tradeoffs which we
   all know must be made in the design process. These tradeoffs include
   balancing safety against cost; safety against function or utility; and even
   safety in one application against possible counter safety in other
   applications of the same product. You know that you must make these trade
   offs; yet once you have made these decisions, the decisions themselves will
   ultimately be used as a weapon against you by sharp attorneys for injured
   plaintiffs.

      The only way to attack this problem is to be certain that you document
   your design decisions and the reasons for excluding certain designs from
   your ultimate product. This documentation should essentially anticipate the
   fact that your product will be involved in an accident and resulting
   litigation at some time during its working life. You must be able to
   demonstrate that the best possible effort was made to anticipate potential
   hazards of a product and to protect individuals from those hazards.(3)


This is not to say that a manufacturer should keep all documents and all drafts of documents. Not only would such a system be cumbersome and expensive even with today's technology, but it also would make finding and using the important documents more difficult. However, the ability to keep documents and data more and more cost-effectively keeps moving the scale that way. After all, the jury that will be judging the manufacturer and the product will know--or be told by plaintiffs--how easy it is to keep these documents, and plaintiffs will use any "missing" document to raise a negative inference against the manufacturer, at least in the minds of the jury if not also so stated from the bench.

Examples of documents a manufacturer should keep, at a minimum in addition to those required by applicable domestic or foreign governmental regulations, are: all specifications; all design drawings and parts lists; documents related to testing (and protocols) and test results; documents reflecting assumptions, trade-offs and the rationale of final design; documents, especially when a hazard cannot be eliminated, that reflect efforts to do so, why the hazard could not be eliminated and what was done and why to alert the users to the hazard; documents relating to warranties, sales and marketing of the product; and documents relating to claims and responses. In addition, if applicable, all documents and specifications from the buyer/user or documents reflecting involvement of others, such as governmental entities, customers or component suppliers in the design process are also important. The involvement of the governmental entity may give rise to the government contractor defense available in the United States.

One very significant issue is how long to keep documents. The threshold lies in applicable domestic and foreign governmental regulations or related certification requirements--for example, EC directives. Beyond that, in the context of products liability, documents should be kept as long as the anticipated or foreseeable life of the product, plus some reasonable period such as 10 years.(4) In other contexts, such as environmental, where the tail is virtually endless, a reasonably convincing argument can be made that all relevant documents should be kept in perpetuity.

It also is crucial that there be a central repository of all such documents. Not only does this allow for a more complete library for future use in product development, but it also provides for greater certainty and cost efficiencies in later litigation. In addition, this type of library makes it easier to tag designs that have been changed or updated.

C. Certifications

Proper documents management programs are required for various mandatory or desirable governmental or industry certifications. For example, documentation is an important part of the ISO 9000 series. Pharmaceutical and medical device manufacturers are or should be familiar with U.S. Food and Drug Administration requirements or those of counterpart agencies in other countries where such products are marketed. Airplane manufacturers have similar requirements under the U.S. Federal Aviation Administration and its counterparts.

There are strict requirements for the documentation necessary for compliance with European Community directives, such as the products liability directive and individual applicable directives (for example, toys, medical devices, etc.) and for obtaining the CE (Conformite Europeene) mark. Under these directives, there are obligations--including obtaining and maintaining data--that exist beyond the sale and last throughout the foreseeable life of the product. Documented preventive actions create defenses in the event of legal action.

D. History of Product's Performance

A manufacturer should keep product service and performance records, as well as detailed accident and safety records showing how a product has performed in the field. That a product has not had problems in the field can be probative of non-defectiveness.(5) If there are problems, these records--and, more accurately, an efficient, timely records gathering system--will enable the manufacturer to cure potential problems as they arise and to anticipate others. Ultimately, this helps to "build a better mousetrap" in the next product generation. It also enables the manufacturer to fulfill any post-sale duties that may arise or reporting requirements under, for example, the U.S. Consumer Product Safety Improvement Act or previously mentioned EC directives.(6)

These documents should include any reports of the product's failures and injuries caused by it, as well as documents that establish the service history of the product. Of particular importance in this category are any documents establishing that the manufacturer knew or should have known (or did not know nor could have known) from the product's performance history that some defect or problem existed in the design of the product. This information should be effectively communicated to management so that any problems may be dealt with immediately, as soon as they arise, thus demonstrating the safety consciousness of the manufacturer. And it might even avoid an accident and litigation tomorrow.

Some may argue that it is foolhardy to retain such records. While manufacturers' records can undoubtedly be a double-edged sword, they are important and are likely to come to light in any event. It is better for the manufacturer to know what documents are in its (and others') files, deal with what they reflect before the litigation is commenced, and control their location, retention and use.

E. Education of Employees

A most important part of any documents management program must be the education of engineers and other employees regarding when and how to create documents and when and how to dispose of documents, and in particular for these purposes to make them sensitive to important legal issues and how their documents can and will be used. Recognizing that this remains a balancing act and that one can become overburdened with minutiae, persons who create documents must be complete and phrase things well. Each document must be able to be shown to a jury and not be embarrassing, at least not so with related or responsive documents. If engineers understand how their testimony can be bolstered by the documents, as well as how potent a weapon an incomplete or misleading record can be in the hands of the opposition, it is likely they will be more conscientious in recording and retention.

E-mail presents enormous potential problems. E-mail communications often are regarded as water-cooler conversations, informal and occasionally irreverent. But while in face-to-face encounters the inflection and demeanor may demonstrate that the comment was not serious, that is lost in an e-mail message. Moreover, water-cooler comments usually are not recorded or put into writing, but an e-mail message is a document, usually traceable and available.(7)

Engineers also must be sensitive to the fact that words may have different meanings in the legal and engineering worlds and that the legal must take precedence. Words such as "defect," "unsafe," "hazardous," "reckless," "misrepresentation" and "negligent" are too often used by engineers, but when they are confronted with how such words are used in the legal world, they will protest that that is not what they meant. For example, they may want to use "non-conforming" instead of "defective." On the other hand, they also must be honest, so that what is involved in this point is often not content, but form.

F. Avoid Punitive Damages

In the event a punitive damages claim is made under U.S. law, all the evidence that a manufacturer can gather to establish its due care in design and manufacture of the product is crucial.(8)

As stated in Product Safety and Liability: A Desk Reference:
      A good records-keeping policy also helps establish that a company is
   taking reasonable precautions to market safe products. The existence of a
   questioning memo from a designer concerned with safety aspects of a new
   product, combined with evidence that the designer's point of view was
   adequately considered, is probably better in most situations than a "blank
   record" suggesting that safety related areas were never considered at all
   or that the records have been sanitized to prevent embarrassment in
   court.(9)


PRIVILEGES AND PROTECTIONS

A. Attorney-client Privilege

In short, the purpose of the attorney-client privilege is to encourage full and frank communication between attorneys and their clients. By safeguarding communications, the privilege encourages disclosures by clients to their counsel in recognition of the fact that "sound legal advice or advocacy serves public ends and ... depends upon the lawyer's being fully informed by the client."(10) The privilege belongs to clients or those who seek to be clients, and the communication must be made to lawyers, acting as such, and must relate to matters of which the lawyers were informed by the clients in confidence for the purpose of securing legal opinions, legal services or assistance in legal proceedings. The communication may not have been made in perpetuation of a crime or tort.

The privilege also may extend to communications between clients and agents of attorneys, such as accountants and investigators, if made in confidence for the purpose of obtaining legal advice.

Communications for business rather than legal purposes are not protected. In maintaining the attorney-client privilege during the course of an internal investigation or a compliance audit, a key issue is whether counsel has been retained to perform legal services or provide business advice. This can be a very difficult issue when the attorney is in-house counsel. In general, for the attorney-client privilege to apply, the lawyer must have been consulted in a professional legal capacity. Where counsel's activities are business rather than legal in nature, communications are not privileged.(11)

The attorney-client privilege can be waived, intentionally or even inadvertently. Many courts have held that the voluntary disclosure of privileged materials, even to government law enforcement authorities, creates a waiver of the privilege as to the entire subject matter of the otherwise privileged communication and not just that one document or statement. It almost goes without saying that public use of counsel's report of an internal investigation may also constitute waiver.

Once the attorney client privilege has been waived, the privilege is generally lost for all purposes and in all forums.

B. Self-critical Analysis Privilege

1. Definition

Compliance audits and internal investigations may be protected from disclosure to non-governmental third parties under the self-critical analysis privilege. This qualified privilege protects from discovery documents in which a party candidly evaluates the facts, procedures and potential liabilities regarding one or more aspects of its operation. It allows corporations to assess compliance with regulatory and legal requirements without creating evidence that could be used by an adverse party in some future litigation. The theoretical basis for the privilege is that critical self-analysis advances the public interest in observing and complying with legal requirements.(12)

2. Scope and Availability

While some courts have recognized the self-critical analysis privilege,(13) others have declined to do so.(14) Other courts have limited the privilege to self-evaluation reports that were required by law to be prepared.(15)

3. Requirements

In jurisdictions that have recognized the self-critical analysis privilege, courts have required that the protected information satisfy at least the following four fact-specific requirements: (1) the information must result from a voluntary self-critical analysis undertaken by the corporation; (2) the public must have a strong interest in preserving the free flow of this type of information; (3) the information must be of the type whose flow would be curtailed if discovery was allowed; and (4) the information must be prepared with the expectation it would be kept confidential, and confidentiality must be maintained.(16)

4. Limitations

The privilege has not been applied to a grand jury subpoena.(17) It also has been held inapplicable to a whistle-blower action brought under the U.S. False Claims Act.(18) Like many privileges, the self-critical analysis is not absolute. It is a qualified privilege that can be overcome on a showing of substantial need or extraordinary circumstances.(19) And, as with other privileges, it may be waived if the information is voluntarily disclosed.(20)

C. Freedom of Information Act

First and foremost, manufacturers must assume that any document they file with the government ultimately will be disclosed. Therefore, they must take care that documents filed with the government and its agencies are clear and complete. Once those records have been filed, manufacturers must be vigilant in protecting them.

Product liability plaintiffs may use the U.S. Freedom of Information Act in addition to civil discovery in an attempt to secure access to these documents. The FOIA is advantageous to plaintiffs' attorneys for several reasons, including the fact that information is disclosed under the FOIA without any showing of need or relevancy.

Once documents are in the government's possession, the extent that they may be protected from disclosure may depend on the policies of the particular governmental agency.(21) Some disclosures to governmental agencies are privileged or inadmissible, and some agencies have regulations requiring the notification and solicitation of comments from businesses when a FOIA request is filed.

D. Blocking Statutes

Blocking statutes may protect non-U.S. manufacturers from disclosure of documents in the United States. A blocking statute is generally enacted by a government in order to prohibit the production of corporate documents in foreign courts. However, such statutes are not viewed favorably by U.S. courts, which are especially concerned by efforts to defeat the purpose and objectives of discovery by the simple device of transferring documents to an office in a "blocking statute" country in order to frustrate discovery by U.S. litigants.

Although a statute in another country may forbid a party from disclosing information to a U.S. court, if the party acts in bad faith by using the statute to refuse to produce relevant documents for discovery, the court may impose sanctions. Likewise, U.S. courts have held that a company cannot escape discovery by maintaining a documents retention system that conceals relevant information.(22)

Several nations have enacted blocking statutes, including Bermuda, Canada, the Cayman Islands, Germany, France, Liechtenstein, Norway, Panama, Singapore, Switzerland and the United Kingdom. An example is the Swiss Penal Code, Article 273 StGB (1989 ed.), which provides:
      Whoever explores a manufacturing or business secret in order to make it
   accessible to a foreign authority or a foreign organization or a foreign
   business enterprise or their agents, ... shall be punished with
   imprisonment, in serious cases, with penitentiary confinement. This
   deprivation of liberty can be combined with a fine.


However, the United States has entered into various consular treaties and consular conventions to facilitate the taking of discovery in foreign countries by American litigants. The most important of these is the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, popularly known as the Hague Evidence Convention, and the Japan Consular Convention. These two treaties are available on the Internet respectively at http://travel.state.gov and http://travel, state.gov/japan_obtaining_evidence.html

SPOLIATION ISSUES

A. Destruction of Evidence

The first impulse after a lawsuit is filed or even before may be to rid storage of any evidence that may provide adverse evidence or implications in the lawsuit. The best advice is: Don't do it!

On the legal side, there may be sanctions for such conduct. Besides criminal laws that may apply to the destruction of evidence in both criminal and civil suits, such as obstruction of justice, courts may invoke other sanctions, such as allowing a jury to draw adverse inferences or ordering default judgments. In addition, ethics rules prohibit lawyers from destroying evidence.

These punishments often turn on the intent of the "spoliating" or destroying party, as well as the over-all damage done. Courts look at four key issues when confronted with destruction of evidence: (1) what evidence was destroyed, (2) when was the evidence in question destroyed, (3) who destroyed the evidence, and (4) how was the evidence destroyed.

B. Document and Retention Policies

Internal corporate documents management policies allow companies some leeway in destroying documents in the ordinary course of business. The first question in a spoliation claim is: Were the documents destroyed in accordance with a documents management or retention policy that pre-dated the litigation? Courts have recognized that because of high storage and organization costs, corporations and enterprises cannot be expected to keep documents forever. Usually, records may be destroyed as long as they are not relevant to some ongoing or foreseeable litigation.(23)

On the practical side, it must be remembered that documents are never "gone." They may still exist in employees' "personal" files, electronic records, or other places. They will show up in court.

(1.) See, e.g., RESTATEMENT, THIRD, OF TORTS: PRODUCTS LIABILITY [sections] 4; Christopher Scott D'Angelo, Effect of Compliance or Noncompliance With Applicable Safety Regulations on a Determination of Product Defect, 36 So. TEXAS L. REV. 453 (1995).

(2.) See, e.g., Gillham v. Admiral Corp., 523 F.2d 102 (6th Cir. 1975), cert. denied, 424 U.S. 913 (1976).

(3.) Product Liability and Quality SP-586, Paper 841052, at pages 7-8 (Society of Automotive Engineers, 1984).

(4.) See, e.g., The Accident Prevention Manual for Industrial Operations, Administration and Programs (National Safety Council, Chicago, 1988); Williams, Corporate Policies for Creation and Retention of Documents (Litigation and Administrative Practice Course Handbook Series, Practising Law Institute, 1987).

(5.) See, e.g., Spino v. John S. Tilley Ladder Co., 696 A.2d 1169 (Pa. 1997).

(6.) See, e.g., RESTATEMENT, THIRD, OF TORTS: PRODUCTS LIABILITY [sections] 10. See also EC Products Liability Directive (85/374/EEC) and related individual directives.

(7.) See, e.g., Straus v. Microsoft Corp., 814, F.Supp. 1186 (S.D.N.Y. 1993) (sexual discrimination liability based on e-mail); Siemens Solar Industries Inc. v. Atlantic Richfield Co., 1994 WL 86368 (S.D.N.Y. 1994). See also Besler (comment), A Wreck on the Info Bahn: Electronic Mail and the Destruction of Evidence, 6 COMMLAW CONSPECTUS 75 (1998).

(8.) See, e.g., BMW of North America v. Gore, 517 U.S. 559 (1996).

(9.) Published by Kolb & Ross, 1980.

(10.) Upjohn Co. v. United States, 449 U.S. 383, 389 (1981).

(11.) See In re Grand Jury Subpoena Duces Tecum dated Sept. 15, 1983, 731 F.2d 1032, 1037 (2d Cir. 1984).

(12.) See Bredice v. Doctors Hosp. Inc. 50 F.R.D. 249 (D. D.C. 1970), aff'd mem., 479 F.2d 920 (D.C. Cir. 1973). See generally 6 MOORE'S FEDERAL PRACTICE [sections] 26.48[2] (3d ed. 1997).

(13.) See, e.g., O'Connor v. Chrysler Corp., 86 F.R.D. 211 (D. Mass. 1980); Reichold Chemicals Inc. v. Textron Inc., 157 F.R.D. 522, 527 (N.D. Fla. 1994).

(14.) See, e.g., Federal Trade Commn. v. TRW Inc., 628 F.2d 207, 210 (D.C. Cir. 1980) (privilege inapplicable when documents are subpoenaed by government agency as part of administrative investigation).

(15.) Roberts v. Carrier Corp., 107 F.R.D. 678, 685 (N.D. Ind. 1985) (courts have "consistently applied" requirement that material must have been prepared for "mandatory government reports," and evaluation made voluntarily in document not required by government or produced for government is not privileged).

(16.) See Dowling v. Am. Hawaii Cruises Inc., 971 F.2d 423, 426 (9th Cir. 1992) (pre-incident safety reviews not protected from disclosure); Louisiana Envtl. Action Network Inc. v. Evans Indus. Inc., No. 95-3002, 1996 WL 325588, at *2 (E.D. La. June 11, 1996) (refusing to extend privilege to voluntary environmental self-analyses because under EPA voluntary disclosure program, it was unclear that such self-analyses have expectation of confidentiality).

(17.) See In re Grand Jury Proceedings, 861 F.Supp. 386, 389-90 (D. Md. 1994).

(18.) United States ex rel. Falsetti v. Southern Bell Tel. and Tel. Co., 915 F. Supp. 308, 313 (N.D. Fla. 1996).

(19.) See Reichhold Chemicals, 157 F.R.D. at 527.

(20.) Bergman v. Kemp, 97 F.R.D. 413, 416 (E.D. Mich. 1983).

(21.) See, e.g., Consumer Product Safety Improvement Act of 1990, 15 U.S.C. [subsections] 2055, 2065, 2084.

(22.) Chochran Consulting Inc. v. UWATEC USA Inc., 102 F.3d 1224 (Fed.Cir. 1996). See also Note: A Comprehensive Study of U.S. and British Approaches to Discovery Conflicts: Achieving a Uniform System of Extra Territorial Discovery, 18 FORDHAM INT'L L.J. 1340 (1995).

(23.) See, e.g., Lewy v. Remington Arms Co., 836 F.2d 1104 (8th Cir. 1988). See also Edmonds, Document Retention Policies and Spoliation of Evidence (Products Liability Advisory Council, 1995) and the bibliography thereto; Solum & Marzen, Truth and Uncertainty: Legal Control of the Destruction of Evidence, 36 EMORY L.J. 1085 (1987).

IADC member Christopher Scott D'Angelo is a partner and chairman of the Products Liability and Toxic Torts Section of the Litigation Department at Montgomery, McCracken, Walker & Rhoads, LLP, in Philadelphia. His practice emphasizes commercial, business, class action and products liability litigation, including in his role as national counsel for U.S. clients and his representation of foreign businesses in the United States and U.S. companies abroad. He is a graduate of the University of Virginia (B.A. 1975, J.D. 1978).
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Author:D'Angelo, Christopher Scott
Publication:Defense Counsel Journal
Geographic Code:0JINT
Date:Oct 1, 1998
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