Closing Files, Destroying Files and Making Money
By Jim Calloway, Director, OBA Management Assistance Program

When I was a young lawyer starting my own practice, a more experienced lawyer asked me if I was making any money. I responded that I had opened five new files the previous week. “Son,” he replied, “you don’t make money opening files. You make money closing files.” So hopefully readers will understand that they, too, are making money when they properly close old client files.

How to close client files and manage closed client files is a subject of frequent inquiry to the OBA Management Assistance Program. This month we will deal with the closing and destruction of physical paper client files, even as many law offices are continuing to make the transition to rely more on digital client files then paper client files.

I must note that most law offices should be at least considering their transition to files that are primarily digital files. The costs, in both time and money, of doing in the same old way are going to continue to increase.

This article is being completed from my new office location in the OBA temporary housing module. Having the “opportunity” to go through every single item that had been stored over the last 10 years was an interesting experience, to say the least. This reinforced my belief that lawyers are going to have to switch from a primary paper-based file system to a digitally-based file system in the very near future. Growing your practice need not mean a growing number of storage cabinets. In the “good old days,” a lawyer might be able to store an entire year’s worth of closed files in a few banker’s boxes. Now a single client matter might take up numerous banker’s boxes. This means that no longer can the lawyer treat destruction of the old client files as something “that my executor can worry about.”

So let’s concentrate on closing paper files and making good decisions about their ultimate destruction. No matter where you are headed in terms of digital client files in the future, most every lawyer who has had a law practice for very long at all now has a collection of closed paper client files.

HOW LONG MUST A LAWYER RETAIN CLOSED CLIENT FILES?

The most commonly asked question about this topic is “how long am I required to retain closed client files?”

While I would like to be able to give a clear-cut answer to this question, the correct answer is that in Oklahoma there is no specific “controlling legal authority” on this issue. OBA General Counsel Dan Murdock has written on several occasions that in the absence of specific controlling legal authority, he looks to Oklahoma Rules of Professional Conduct Rule 1.15 that requires that trust account records must be maintained for a minimum of five years after termination of the representation. So it would seem that a similar rule should apply to closed client files. This always seemed like a logical conclusion to me.

This line of reasoning has been around for a while. In January 2000, Oklahoma City attorney Mark A. Robertson and I wrote “Case Closed!!! Now What Do I Do with the File?” where we adopted the same idea. http://tinyurl.com/36fvrk A form file closing letter was included with the article and is still available online.

I now often tell lawyers that it may be better to use a six-year rule so that nobody gets confused. Most lawyers store their closed files by calendar year. So it may appear that the files you closed in the year 2000 are ripe for destruction in 2005. But in reality the file that you closed Dec. 31, 2000, should not be destroyed until at least Jan. 1, 2006. So it may be easier to refer to it as a six-year rule.

Of course there are always exceptions to this rule. We will discuss those in a moment. As noted in the previously cited article, several OBA-NET members indicated in an online discussion that they thought 10 years was a better time frame. Since that article was written, the Missouri Supreme Court has adopted a 10 year “safe harbor” file destruction rule.

BEGIN AT THE BEGINNING

Some of the most important aspects of law firm file closing and file destruction policies and implementation occur well in advance of the time to do those tasks.

There are many items that should be included in the attorney retainer agreement or the initial documents that are provided to the client at the beginning of representation. A very important one is the firm’s file destruction policy. It should be an office practice to notify the client in writing of the law firm’s file destruction policy at the beginning of the representation.

One does not want to wait until years after the representation has concluded, when the client may have moved and left no forwarding address, to attempt to notify clients about file destruction.

PREPARING A CLIENT FILE FOR DESTRUCTION

When a file is closed, all of the decisions about file destruction and actions that need to be taken should be done at that time. The client should receive a file closing letter that outlines several matters. (See previously cited article.) Among those matters should be a restatement of the file destruction policy that was originally communicated to the client.

Preparation for all aspects of file destruction must take place at the time that the file is closed. One of the biggest mistakes in closing files that law firms fail to do is prepare for the ultimate file destruction right at the time when everything is fresh on people’s minds and the client is available.

All documents or other material that need to be returned to the client should be returned at the time the file is closed. The firm should have policies about when photocopies should be made or receipts are to be signed by the client.

But you do not want to review the file five years later and find that it there are important originals that must be returned to the client. This is why a lawyer, or at the very least an experienced legal assistant, must review the file when it is closed.

Although the law firm should have a clear written policy on file destruction, it is still up to a lawyer within the firm to make the final call on whether any particular client file falls within the policy or is “an exception to the rule.” A clear exception would be for files that have tasks or implications extending past the five-year period. The best example is a friendly suit involving a minor plaintiff. If a distribution of proceeds is due to a minor plaintiff upon reaching majority in 10 years, the law firm would certainly not want to destroy the file after five years, even if the firm was not going to be involved further. In those cases the best practice is to retain the file until at least two years after the minor plaintiff reaches majority and some will opt for five-year retention after the age of majority.

A lawyer might decide, as a general rule, to retain probate files that affected the title to real property for a longer period. Wills and estate plans might be another situation where the files should be kept for an extended period. One would hate to receive a subpoena to testify in a will contest proceeding a few months after you have destroyed the file and any notes that one might have taken. Even though we believe it has become a business necessity to implement a file destruction policy, I certainly still recognize that there may be files that fall into the “keep forever during my lifetime” category. (I’ll leave it to the experts to opin over whether and how long an estate planning file might need to be retained after the lawyer’s death.)

Adoption files are another special case. Title 10, Section 7508-1.1 provides:

“All records of any adoption finalized in this state shall be maintained for twenty-two (22) years by the child-placing agency, entity, organization or person arranging or facilitating the adoption.

Other special situations might include a particularly difficult client, a very hotly contested matter or where an opposing party has had a history of making untrue statements about the lawyer’s conduct.

The final aspect of file closing is for someone to sign and date that they have reviewed the file and indicate the appropriate file destruction date. This can, and probably should, be done on the outside of the file, although many firms prefer to also keep a log that is retained after the files had been destroyed.

The nice thing about going through this process when the file is closed is that there is little additional work that needs to be done when it is time to destroy the files. Generally speaking, they can just be destroyed. In my view, there is no need for an additional notice to the client five or six or 10 years later after they have been notified several times of the policy and had their entire set of original or needed documents given to them.

CLOSED FILE STORAGE

When I was in private practice, it was generally the practice to keep the previous years closed files stored in the office. It seemed that there was a fairly frequent need to examine those files. Afterwards we utilized an off-site storage facility.

Closed files should be stored in such a way that they are available for retrieval prior to destruction and the intended destruction date is either the box in which the file is stored or the file itself. In fact, there are now commercial services that for a flat fee will hold your files for the designated amount of time and then securely destroy them as scheduled. Until the files are destroyed, you’re free to have access to them.

Closed client files should be kept in a secure location. It should go without saying that most of these files will contain confidential client communication that the lawyer has a duty to protect.

An index should be maintained of the box where each closed file is stored. This index likely needs to be retained for a very long time, even after the files have been destroyed. It can be very helpful when a former client comes in and is incorrect about the year in which they were represented.

Some thought needs to be given to the location of files that are the exception to the standard office policy.

The most simple solution is just to store them with the other files that were closed that year until it is time to destroy the rest of the files. The potential problem with that approach is that someone may fail to go and remove them before the rest of the files are destroyed. If you’re going to operate this way, then I suggest that you make liberal use of a highlighter or perhaps even use a colored paper wrapper to make it clear which file or files in a particular box are not to be destroyed with the rest. I also think it would be a prudent practice to write on the outside of the box that there were files contained there that should be removed before the others are destroyed.

The other method is to store the files with a different destruction date separately. Then it would probably make sense to place a blank file folder with the client name on the tab in the place where the file normally would have been, which indicates where that particular file is located.

Either method works and, as you can see, either method has its potential for problems. But with attention to detail, the process can be made easy and painless.

I hope you have benefited from this discussion of closing and destruction of client files. Closing files really is about making money. Properly closing files is also about not building up a future liability of time debt that will have to be paid off at some point – whether by you or your heirs.

Originally published in the Oklahoma Bar Journal August 4, 2007 - Vol. 78; No.21.