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On Bank Litigation–E-discovery (Part 1): Record Retention and Compliance

E-discovery, or electronic discovery, has come to California’s court system. Given our litigious society, there is a good chance that your bank or financial institution will soon be responding to requests for e-discovery. Litigation is never the process of choice, but as all workout professionals know, there are times when the only way to collect the loan is to file suit.

Before filing any lawsuit, client and legal counsel should conduct a thorough review of the books and records of the Bank that are relevant to the claim. In the 21st Century, many of those books and records are created, shared and stored only in electronic form. For decades, being a party to a lawsuit meant that books and records had to be located, copied, numered and produced when the proper request was made.

There are also times when borrowers sadly decide that “the best defense is a good offense” and file suit against the bank for a seemingly endless and creative list of imagined sins. (See, for example, my recent post on the recent fad of suing the bank for elder abuse.)

A similar review process must be undertaken in defending a lawsuit, no matter how frivolous. A thoughtful, coordinated review of the books and records, both paper and electronic, must be undertaken and the results of the search carefully copied, numbered and catalogued.

The lesson is clear: litigation requires us to be ready before the process starts, even when we do not expect a lawsuit.

The process of exchanging information among parties to a lawsuit is called “discovery.” In many ways, the discovery process in litigation is similar to the process pioneered by Columbus and other explorers who sailed the ocean blue in search of new lands. During the discovery phase of a lawsuit, a party can take depositions of witnesses (including expert witnesses), send interrogatories (written questions to be answered under oath), demand that documents, other tangible items and electronic records be produced, request that certain facts be admitted as true or documents admitted to be genuine, and inspect documents, places and things. The discovery process was expensive, burdensome and demanding before electronic communication and storage of data became commonplace. Toss in e-mail and storage of records in electronic form and it does not take much to wish that we could go back to the good old days of carbon paper and typewriters!

Discovery generally requires lenders to produce their records in whatever form they exist. These records include e-mail, which as anyone with an Inbox knows, multiplies faster than rabbits. Although many of us consider e-mail as a lesser form of communication than formal letters or memos and certainly less important than contracts and loan documents, e-mail is a written record of events that took place at a given time and is generally admissible in court. In addition to taking care in preparing and sending e-mail, lenders now must also take care of the e-mail they have sent or received.

My partner, Stan Gibson, is co-chair of JMBM’s E-Discovery Group. Stan is an expert at helping clients with e-discovery. Stan and the members of the JMBM Special Assets Team™, have been addressing problems resulting from e-discovery for many years. I asked Stan if he would discuss e-discovery with our readers, and what I got was a four-part series! We will be posting the series over the next few days, so please stay tuned. Whether your institution finds itself in a garden variety collection case or a major class action, there is a lot to learn about this developing area of the law as it applies to workout professionals. Stan’s series starts with a frank discussion of the need for institutions to adopt and follow consistent systems of Record Retention.

Record Retention and Compliance

If you haven’t experienced litigation with your company, chances are you just haven’t been there long enough. When it comes to the discovery process during a lawsuit, managing electronic data has become a major source of headaches during the legal process. One way to avoid these problems, as well as potential fines or sanctions, is to develop a comprehensive litigation readiness plan that includes detailed instructions and processes for finding, maintaining and turning over electronic data. The steps laid out in this post and the ones that follow it should be managed by the legal department; depending on the size of your company and the depth of the litigation readiness process, you may be involved in record retention and electronic discovery, so it’s helpful to understand the process beforehand.

Record Retention

Record retention policies categorize essential documents by how long they should be kept and ensure that only the information necessary for business or legal matters is preserved, keeping paper and electronic documents organized and streamlined.

Hopefully, your legal department already has a record retention policy in place to sort and maintain relevant documents. A good retention includes both paper and electronic documents and clearly defines how long they should be kept. Each department at the company should be consulted to determine which types of documents should be considered for retention.

In addition, a retention policy should include a destruction schedule to ensure data is eliminated when it’s appropriate and legal. A comprehensive policy will also plan for certain contingencies, such as acquisition or bankruptcy, and indicate what documents should be preserved or destroyed in those situations.

Compliance and Audit Procedures

So your legal department has written a solid record retention policy. Without compliance procedures, however, you may as well not have one. If record retention isn’t regularly checked long before you need to turn those documents over, you run the risk of losing or discarding data. In many cases, courts see a poorly maintained retention policy as worse than no policy at all in terms of fines or sanctions.

Once the retention policy is created, the legal team needs to make sure it’s carried out by all the relevant departments. Compliance and audit procedures may be written specifically into the policy or they may exist separately; regardless, periodic spot-checking of documents for retention or disposal is necessary to get the full benefit of a well-written and comprehensive retention policy.

NEXT: The legal hold process.

This is Dick Rogan, bank lawyer and author of, signing off for now. Join us again soon to check out what’s new in the World of Workouts.

Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.


Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at, or (415) 398-8080.

Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.

JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.

NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]

JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.