Issue link: http://read.dmtmag.com/i/732012
I DA U N I V E R S A L S e p te m b e r - O c to b e r 2 0 1 6 11 LEGAL LINE Robert W. McIntyre IDA Association Legal Counsel T he current media storm surrounding the United States election has in part focused on a number of very embarrassing electronic "Oh S…t" incidents. What was expected to be secret was not, and hay was made while the burning sun shined on the "exposed" authors and errant communications. Fortunately, the same media searchlight has not been aimed at any of our members, but another far more dangerous level of privacy and records intrusion is a fact of business life in the U.S. Little is generally known or publi- cized, outside of some headline cases, involving investment or money fraud. e harsh reality is that every business located in the U.S. or that does substantial business in the U.S., is subject to comprehensive federal and state laws and regulations regarding maintaining records and seques- tering records when claims or litigation involve the company. is new world – which has been long in coming – has been driven by the unfortunate fact that companies, even under their counsel's advice, have made some extremely poor decisions involving fi nding and keeping records when claims or litiga- tion are threatened, or fi led and pending. As with many regulatory schemes, an over-reaction to abuses has probably made the process and penalties more oppressive than necessary, but obligations and risks remain that have to be understood and planned for to avoid unfortunate outcomes. How did this environment occur? Simply put, a lot of people who should have known better were at risk of losing their jobs or, worse, they simply went over to the dark side – in most instances, hand in hand with their equally culpable lawyers. e fi rst notable example of this situation was a series of lawsuits against a well-known aircra manufacturer which had made some bad engineering decisions – choices that resulted in some "loss of sustainable fl ight ability" incidents and multiple losses of life. e suits were proceeding in several federal courts, and both the company engineers and the lawyers soon learned that the claimants and their engineers were correct in identifying a number of very serious fl aws in the aircra . Further internal investigation demonstrated that not only were the defects known, but they also were glossed over and "sort of " concealed from the FAA at the orders of management, so that the company could fi ll deposited orders and start to recover tens of millions in development costs. Now, two choices were available in the lawsuits: 1) fess up and have to ground the sold or in-stock aircra , stop the production line, delay orders, and possibly recall and buy back $100 million in airplanes, pay a stiff fi ne to the FAA, and settle the lawsuits from a position of weakness; or 2) keep quiet and destroy all the adverse records. ey chose poorly. e outcome was easily predictable. Someone with a conscience told the truth, and not only were the previ- ously mentioned consequences (and more) soon realized, but the manufacturer was deemed automatically to lose the lawsuits and paid tens of millions in damages and millions for the winner's attorney fees. Other examples abound. An OEM collected all records in the legal department and then told a court that no "responsive records could be found in the company records." Another scheme was to put records in an automated warehouse which "could not be found." Another was to tell one court that "no records existed," while telling another that the very same records "proved their case." e list and players go on and on…at the highest levels in some cases …General Motors, Volkswagen, well known accounting fi rms , investment bankers and so on. Record Keeping 101 Continued on page 56