Being involved in litigation isn’t as inevitable as death or taxes, but if you do business long enough, it’s close.  Everyone knows that lawsuits are costly, but there are steps you can take in advance to reduce the expense of the most costly part of a lawsuit—discovery.

 Whether you are in state or federal court, discovery in lawsuits is broad.  Your opponent gets to find out expansive information about your business related to the issues at stake in the lawsuit.  They can ask for any documents that are relevant to the issues in the lawsuit and “reasonably calculated to lead to the discovery of admissible evidence.”  Subject to your lawyer’s objections that the requested documents are privileged or otherwise protected, you have to provide your opponent with the documents they request.

 This is where discovery can get expensive—and where you can save the most money by keeping your house in order ahead of time.  There are two significant costs associated with document discovery; one is a certain cost that can be reduced by proper planning, and one is a potential cost that can be avoided entirely.  The certain-but-reducible cost is the amount of time and money you and your lawyers have to spend gathering and reviewing your documents.  The potential-but-avoidable cost is sanctions by the court for failing to fulfill your discovery obligations.

Here are three steps you can take in advance of litigation to preemptively limit your expenses:

1.  Have a comprehensive system in place to organize your documents, both hard copy and electronic.  In order to produce the documents requested by the other side, you have to know where your documents are.  To know where your documents are, you need to keep them organized.  Yes, it’s a simple idea.  But you would be amazed at how many people and businesses either don’t have a comprehensive system for organizing their files, or don’t use the system they have appropriately.

Problems get compounded when dealing with electronic documents or computer files.  Don’t keep some of your electronic documents in a folder with a customer’s name on it on your local hard drive, some in your “My Documents” folder, some on your desktop, some on a server, and others on a flash drive.  It’s a recipe for confusion, expense, and missing documents when you have to respond to a discovery request.  Keeping your documents and computer files organized can also help you by making it easy to find documents favorable to your case.

When you do become involved in a lawsuit, your attorney should ask you about what kinds of documents you have and where you store them.  Be ready to answer those questions.

2.  Have an up-to-date document retention policy that covers both paper and electronic documents.  Once you are on notice that you might become involved in litigation, whether you are suing or being sued, you have a duty to preserve any documents that might be discoverable by the other side.  If you had relevant documents at one time but they were destroyed, the judge could sanction you if she concludes that the documents were destroyed in violation of your preservation duty.  A comprehensive document retention policy can limit your exposure to sanctions by prescribing appropriate times to dispose of documents and providing a mechanism to track exactly what documents were disposed and when.  Of course, once litigation is reasonably foreseeable, you must suspend any regularly-scheduled destruction of documents that are potentially relevant to the dispute.  A retention policy’s key strength is that it can help you show the court that any destroyed documents were disposed of before you had a duty to preserve them.  If you do not have a document retention policy in place, talk to a lawyer about implementing one.

3.  Educate your employees about your document retention policy, and make sure your practices match the policy. It’s not enough to have policies and systems in place.  You actually have to follow them and make sure your employees do, too.  A policy that isn’t followed provides no protection.  Give your employees the necessary training, and check in from regularly to make sure things in the real world are working like they are supposed to “on paper.”

 The cliché “an ounce of prevention is worth a pound of cure” is particularly true in the context of litigation.  Putting in the effort now to create or update your document management system and document retention policy can pay significant dividends by reducing costs and headaches later on.