How long must a Wisconsin firm retain client files before destruction? What if you can’t locate the client? What are your fiduciary duties? When investigating how to deal with client records and property, turn first to the Supreme Court Rules. Obviously, you need to be concerned with property of existing clients, but what about files and property for clients you can’t locate?
What fiduciary responsibilities do you owe?
While many attorneys think of files as only consisting of paper (pleadings, correspondence, notes, and the like), client files also may contain other “property” of the client or a third party, such as stock certificates, checks or other negotiable instruments, and instruments of title for real and personal property. SCR 20:1.15(a)(4) and (10) define property that is considered to be fiduciary property or trust property. Of fiduciary property, SCR 20.1.15(a)(4) states:
“(4) ‘Fiduciary property’ means funds or property of a client or 3rd party that is in the lawyer’s possession in a fiduciary capacity that directly arises in the course of, or as a result of, a lawyer-client relationship. Fiduciary property includes, but is not limited to, property held as agent, attorney-in-fact, conservator, guardian, personal representative, special administrator, or trustee.”
Of trust property, SCR 20.1.15(a)(10) states:
“(10) ‘Trust property’ means funds or property of clients or 3rd parties that is in the lawyer’s possession in connection with a representation.”
The distinction between fiduciary property and trust property is important, because of the provisions of SCR 20:1.15(e)(6):
“(6) Record retention. A lawyer shall maintain complete records of trust account funds and other trust property and shall preserve those records for at least 6 years after the date of termination of the representation.”
SCR 20:1.15(e)(6) clearly establishes that records for trust accounts and trust property must be maintained for a minimum of six years after a lawyer has ended representation.
Although it is not as definitive as SCR 20:1.15, SCR 20:1.16 provides additional information on protecting a client’s interests, including rights to papers in the client’s file.
“(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client’s interests, such as giving reasonable notice to the client, allowing time for employment of other counsel, surrendering papers and property to which the client is entitled and refunding any advance payment of fee that has not been earned. The lawyer may retain papers relating to the client to the extent permitted by other law.”
SCR 20.1.6(a) establishes Wisconsin lawyers’ ongoing duty and obligation to protect client confidences when disposing of files:
“(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b), (c) and (d).”
There is no time limit on this obligation. This Rule adds a concern of how files are disposed (in addition to the concerns raised by SCR 20.1.15) when deciding: 1) how long to keep client files; and 2) how they are destroyed, if and when the decision is made to destroy them.
Two Wisconsin ethics opinions address the concerns raised by SCR 20.1.15 and 20.1.6 and provide a framework to consider when establishing a file retention and destruction policy. Unfortunately, the first opinion, E-84-5, referenced informal opinions of the American Bar Association and provided little information, leaving readers with their questions still unanswered. However, opinion E-98-1, titled Disposition of Closed Client Files, provides readers with greater detail and suggestions to follow. One pertinent excerpt states:
“[W]hile lawyers should not have the burden of maintaining client files forever given the attendant costs and economic burden, it is clear that certain safeguards should be followed before a file is destroyed.
“1. The lawyer has specific responsibility to hold client property in trust under SCR 20:1.15. The lawyer must be satisfied that the files have been adequately reviewed. To do otherwise, such as a spot check, would run the risk that client property or original documents would be destroyed.
“2. The existence of client property, or information that could not be replicated from other sources if necessary, and the age of the materials in the files are all factors that should be considered in determining the reasonableness of the decision to destroy the file. For example, client property or original documents such as wills or settlement agreements ordinarily should not be destroyed under any circumstances, and the level of effort to locate a missing client should be more diligent where there is actual client property involved than where, for example, the file is a long resolved collection file. See S.C. Ethics Op. 95-18, ABA/BNA Man. Prof. Conduct 45:1208.
“3. At a minimum the files should not be destroyed until six years have passed after the last act that could result in a claim being asserted against the lawyer. Cf. Kaap, The Closed File Retention Dilemma, 1 Wis. B. Bull. 25 (Jan. 1988).
“4. In the ideal situation, the lawyer would have discussed the issue of file retention/destruction in either the engagement letter with the client or in the letter terminating or completing the relationship or engagement. Absent an express agreement with the client, the lawyer should at a minimum try to reach the client by mail at the client’s last known address, should advise the client of the intent to destroy the file absent contrary client instruction, and should wait a suitable period of time (perhaps six months) before taking action to destroy the files. See Los Angeles County Ethics Op. 475 (1993), ABA/BNA Man. Prof. Conduct 1001:1703.
“5. The lawyer should keep a record or index of files that have been destroyed for a reasonable period of time. See ABA Informal Op. 1384.”
Wisconsin Ethics Opinion E-98-1 raises the interesting possibility of limiting the time necessary to maintain client records by including a provision in your representation agreement that specifically details your record retention policy. There is no specific rule or opinion that prohibits such an agreement between the lawyer and the client. However, any such agreement will not allow you to abrogate specific requirements, such as the six-year trust property requirement of SCR 20:1.15(e).
What this opinion and other resources1 clearly show is that there is no simple and definitive answer to the question of when is it safe to destroy the file. Since the Wisconsin statute of limitation for legal malpractice is six years after the date the error is discovered, not after the date the representation ended,2 there will be varying destruction dates depending on the type of file. The appropriate disposal date for a real estate file will be different than the appropriate disposal date for an estate planning file. Malpractice suits are not the only potential means of action by a party who is not happy with a lawyer’s representation: a client also can file a grievance with the Office of Lawyer Regulation (OLR).
As set forth in SCR 21:18, a client has 10 years to file a grievance. This time limit is subject to tolling for a client’s disability or an attorney’s active concealment of his or her conduct. The full text of SCR 21:18 states:
“(1) Information, an inquiry, or a grievance concerning the conduct of an attorney shall be communicated to the director [of the OLR] within 10 years after the person communicating the information, inquiry or grievance knew or reasonably should have known of the conduct, whichever is later, or shall be barred from proceedings under this chapter and SCR chapter 22.
“(2) The time during which a person who knew or should have known of the attorney’s conduct is under a disability as provided in Wis. Stat. § 893.16 (1997-98) and the time during which the attorney acted to conceal the conduct from or mislead the person who knew or should have known of the conduct regarding the conduct are not part of the time specified in sub. (1).”
The ethics opinions did not address the issue of a client filing a grievance with the OLR rather than commencing a malpractice lawsuit, but SCR 21:18 needs to be considered when lawyers establish a file retention and destruction policy. Furthermore, some malpractice carriers recommend a 10-year file retention period for the lawyers they insure. Ask your carrier for a sample file retention policy for review and adaptation by its policyholders.3
Conclusion
While you can opt for a six-year retention period, a better practice is to maintain your client records for 10 years, unless the time period is varied by your representation agreement and does not run afoul of the Supreme Court Rules.
To be successful, any file retention policy should:
1) be straightforward, concise, and as simple to understand as possible;
2) clearly detail both the firm’s and the client’s duties and obligations; and
3) be implemented and followed by everyone in the firm!