Tackling the Closed File Beast

Tackling the Closed File Beast

5.27.2021

By Marian C. Rice

An attorney’s obligation to maintain closed client files has been on my mind a lot recently. My firm moved offices two months ago. We had a lot of client files. And while we thought we had a fairly robust file retention and destruction policy, when we began to plan our move, we realized our intentions, while good, may not have been compliant.

Fortunately, we also had sufficient time to address the problem and a goal date by which we had to complete our review, assessment and, where appropriate, return or purge. We all know attorneys never address issues without deadlines. Finishing a 15-year lease and the move to a new office provided a drop-dead date with no wiggle room. Our mission was accomplished, but the obvious lesson learned was that life would have been easier had we kept to the original game plan all along.

While ethics opinions generally state that “with certain important exceptions” an attorney has no ethical duty to retain closed files for an indefinite period, it is the “important exceptions” that make the process difficult. An attorney’s ethical obligation to properly retain and dispose of closed client files transcends the closure of an attorney’s law practice,^[1] the dissolution of a law firm,^[2] natural disaster,^[3] inheriting a law firm’s closed files by joining the firm^[4] – even death.^[5] In other words – you can’t avoid it. And ignoring the problem just increases the dilemma of what to do with the closed files. Before addressing how you can keep up with your obligations to retain or purge client files, some background on the related court rules, case law and ethical obligations in order.

The Bright Lines

Lawyers like bright lines. Unfortunately, the only crystal-clear delineation of record retention obligations an attorney or law firm must meet applies to certain bookkeeping records and escrow obligations. Under Rule 1.15 of the New York Rules of Professional Conduct, the following documents must be kept by the law firm:

• the records of all deposits into and withdrawals from the escrow and operation bank accounts maintained in the attorney’s practice of law, specifically identifying the date, source and description of each item deposited, and the date, payee and purpose of each withdrawal or disbursement;
• a record for special accounts, showing the source of all funds deposited in such accounts, the names of all persons for whom the funds are or were held, the amount of such funds, the description and amounts, and the names of all persons to whom such funds were disbursed;
• all retainer and compensation agreements with clients;
• all statements to clients or other persons showing the disbursement of funds to them or on their behalf;
• all bills rendered to clients;
• all records showing payments to lawyers, investigators or other persons, not in the lawyer’s regular employ, for services rendered or performed;
• copies of all retainer and closing statements filed with the Office of Court Administration; and
• checkbooks and check stubs, bank statements, prenumbered canceled checks and duplicate deposit slips regarding the special accounts specified in RPC 1.15 (B) and any other bank account which records the operations of the lawyer’s practice of law.

Attorneys must also maintain accurate, contemporaneous entries of all financial transactions in their records of receipts and disbursements, in their special accounts, in their ledger books or similar records, and in any other books of account kept by them in the regular course of practice. Luckily, given our digital capabilities these days, these requirements may be satisfied by maintenance of original records, photocopies, microfilm, optical imaging, and any other medium that preserves an image of the document that cannot be altered without detection.

These records must be contemporaneously maintained and must be available for production for seven years. Violation of Rule 1.15 results in mandatory disciplinary action. Vigilant adherence to these bright-line requirements is critically important.

In addition, various statutes and court rules may also have an effect on a law firm’s obligation to retain files. For instance, in lawsuits seeking damages for (1) personal injury or for property damages; (2) death or loss of services resulting from personal injuries; (3) condemnation; or (4) change of grade proceedings, the First and Second Departments require the attorneys for both plaintiff and defendant to maintain their files for seven years.^[6] Attorneys need to determine whether their specific areas of practice mandate specific file retention obligations.

The Case-by-Case Analysis

Excepting the bright line examples cited above, the analysis of what must be kept by the attorney from the files maintained in the representation of a client must be decided case-by-case – not the most encouraging response one wants to hear when formulating a standardized file retention policy. The Court of Appeals has broadly held that the client has a presumptive right to access the file maintained in the client’s representation except for documents that might violate a duty of nondisclosure owed to a third party, a duty imposed by law, or firm documents intended only for internal law office use.^[7] As a result, a client’s right to some or all of what is broadly termed the “client file” is a question of law.

Let’s start with the premise that, under Rule 1.15(e)(4), an attorney must promptly deliver to a client, upon request, any property of the client in the lawyer’s possession. Essentially, the ethics opinions divide the components of a closed file into four categories: (1) documents belonging to the attorney; (2) documents the attorney is under a legal duty to keep; (3) documents the client must keep; and (4) the remaining majority of documents found in an attorney’s file.^[8]

The opinions state that documents belonging to the attorney may be disposed of in a fashion that honors the client’s privilege, provided the lawyer has no other legal duty to keep the materials and there is no apparent indication the client has a need for the file. The problem with this subjective analysis is evident. If one employs the analysis utilized by most ethics opinions, there is little in a file that may be unqualifiedly categorized as materials belonging to the attorney.

Documents that the attorney is legally obligated to keep refers to the bright-line items noted above: generally, the documents identified in RPC 1.15(d)(1), various appellate rules, and those documents mandated by one’s specific area of practice.

The analysis of those documents the client must keep is difficult. To get it right, you must know your client’s business/personal issues. If original documents that cannot be replaced exist, for example wills, the originals must be kept virtually ad infinitum unless returned to the client. The best rule is to return to the client all original documents and filings, keeping a copy (scanned) for the attorney’s file. If the documents cannot be returned to the client, the attorney must keep the documents for at least the period required by the client’s business or longer if it appears the client might have a need for the document after the legal period has expired.

The last category, the majority of documents likely to be found in a client’s file, may be destroyed consistent with the client’s instructions. If no such instructions exist, the attorney must make reasonable efforts to return the file to the client. The first step toward that process is to send a letter to the client indicating that destruction of the file is intended, offering to return the file, and describing any documents the client may want or need in the file. If the client cannot be located or does not respond, the attorney may discard the file except for those documents that the client must retain and documents the client may foreseeably need. Remember that substantive emails are part of the client’s file and the attorney’s ethical obligations extend to that part of the client’s closed file as well.^[9]

All this is of little assistance to the attorney who would like to practice law for his or her current clients rather than spending precious time closing the files on already completed matters. However, there is no bright-line date sanctioned by ethics opinions beyond which an attorney may discard a file with impunity. Common sense must be used given an attorney’s area practice with a view toward exceeding by a significant margin the statute of limitations for legal malpractice or other claims that may be made against an attorney arising out of the representation of a client.^[10] If one’s practice regularly involves the representation of infants, care must be taken to consider that the infancy toll would extend the ordinary limitations period. A review of the ethics opinions, combined with securing the client’s instructions for the disposition of a file in the original retention letter, should provide a law firm with guidelines suitable to its practice.

Developing Your Plan

You have miles of closed files you pay dearly to store. Where do you start? Do not let the huge backload of long–closed files paralyze you into taking no action. Start the process by putting your document retention plan into place with the next file that walks in the door.

First, state your policy clearly in your engagement letter.^[11] If you are at a point where you are virtually paperless, tell the client the files are maintained electronically.

Second, scan incoming and outgoing documents as a matter of daily practice. This ensures that your current files will be much less of a problem once they are closed. And any attorney living through the past 15 months of the global pandemic knows the value of accessing your files (securely) from remote locations. NYSBA offers seminars on how to convert your office to an orderly paperless environment.

Third, establish a protocol on how to close a file. Develop standard procedures, geared to your practice, setting forth what steps must be taken before a file may be closed. Common procedures include:

1. sending a letter to your client documenting the termination of the representation, reminding the client of the firm’s retention policy before destruction and returning any original documents they may need or they provided during the representation;
2. checking to ensure that all necessary orders or judgments have been filed;
3. ensuring all security interests have been properly docketed and calendared for renewal, if necessary;
4. determining whether any documents properly belong in the firm’s form system or brief bank;
5. confirming that all parties were entered in the firm’s conflict system;
6. removing any duplicate documents and filing any loose papers; and
7. calendaring the file for destruction, if appropriate. A perpetual inventory of all files destroyed by the firm, with the date of destruction, must be kept.

Fourth, make sure everyone follows the plan. Start with requiring the attorneys in your practice to send a single group email stating the date the file is closed. The email should alert your accounting department to make sure a final invoice is generated; calendaring to make sure that any necessary dates are recorded; and administration to make sure the file is reviewed, the originals segregated and returned, duplicates disposed of and the balance of the file  scanned and closed.

The Backlog

How do you tackle the backlog? The first step is to survey the problem. Set realistic goals for each month of closed files starting with the most recent matters. Lists should be generated for attorneys to mail or email the clients about the firm’s destruction policy. A form letter or email makes the odds of it being sent to the client greater but, if you tailor it to the client’s representation, you can also make it a marketing opportunity. From recent experience, many clients will ask for copies of the document that reflects how the engagement terminated: e.g., a closing statement, court decision or settlement agreement, but most will wholeheartedly agree that the file should be destroyed. If you can do so, scan the balance of the file. Our firm made significant progress having a dedicated scanner manned by hourly workers who saved the files in an orderly fashion. At the end of the day, it was less expensive than renting the real estate to house the closed files.

If a law firm has not been monitoring its possession of client’s files at the conclusion of the representation, addressing the backlog can be a mammoth, but essential, undertaking. Ignoring the backlog of closed files will not make the problem go away – the black hole of improperly closed client files will only multiply as time goes by. The time to close files properly and under your ethical obligations begins with the next matter you open. You must start someplace, so start with the next client you take on.

---

[1]. N.Y. Cnty. Lawyers’ Ass’n Comm. on Prof’l Ethics, Formal Op. 725 (1998).

[2]. NYSBA Comm. on Prof’l Ethics, Op. 623 (1991).

[3]. N.Y. City Bar Ass’n Comm. on Prof’l Ethics, Formal Op. 2015–6 (2015).

[4]. NYSBA Comm. on Prof’l Ethics, Op. 1192, ¶ 12 (2020).

[5]. Bar Ass’n of Nassau Cnty. Comm. on Prof’l Ethics, Op. 43–89 (1989).

[6]. E.g., 22 N.Y.C.R.R. § 603.25 (1st Dep’t); 22 N.Y.C.R.R. § 691.20(f) (2d Dep’t).

[7]. See Sage Realty v. Proskauer Rose, 91 N.Y.2d 30 (1997).

[8]. NYSBA Comm. on Prof’l Ethics, Op. 623 (1986).

[9]. N.Y. City Bar Ass’n Comm. on Prof’l Ethics, Formal Op. 2008–01 (2008).

[10]. While the period of limitation for legal malpractice is three years, (CPLR 214(6)), the period of limitations for a claim under Judiciary Law § 487 is six years. Melcher v. Greenberg Traurig, LLP, 23 N.Y.3d 10 (2014).

[11]. See N.Y. City Bar Ass’n Comm. on Prof’l Ethics, Op. 2010–01 (2010), for a discussion on the use of engagement letters to manage the lawyer’s file retention obligation and sample engagement letter provision.