Each law firm where I worked doubtless had a written records-retention policy, but I was blissfully unaware of it. Instead, I and at least some of my colleagues did whatever we thought appropriate. In that regard, the one question that seemed to crop up quite often was whether after a deal closes one should retain in the files for that deal any drafts of the signed contracts.
Some partners were of the view that once a deal closes, you should discard all drafts. I never understood that approach. If after closing the parties disagree over the meaning of any given provision in a contract, understanding how that provision had changed over the course of negotiations could help significantly in determining what the parties had intended. That might work in favor of the other side, but it could equally well work in favor of your client. And if you’ve thrown out all your drafts and the other side has retained all its drafts, your client could be at a significant disadvantage.
The benefits of preserving your drafts after a deal has closed were clearly on display in the declaration of Tor Braham that Novell recently filed in its litigation with The SCO Group. (Thanks to Mister Thorne of the Set in Style Blog for telling me about this.)
In 1995 Wilson Sonsini, Novell’s outside counsel, was retained by Novell to negotiate and draft an asset purchase agreement with Santa Cruz Operation, Inc., The SCO Group’s predecessor. Braham, then a Wilson Sonsini partner, led the team handling this matter. In describing in his declaration, twelve years later, what the intent of the parties had been, Braham was able to refer to a series of drafts and draft markups (apparently both internal and external) from 1995. (You can find on Groklaw a link to the declaration and its exhibits, as well as a discussion of the litigation.) It would seem that Novell benefitted greatly from Braham’s filing habits.
So before throwing out all your drafts in a fit of post-closing exuberance, consider how Braham might have felt if the “Drafts” folder in Wilson Sonsini’s files for the Novell deal with The SCO Group had been empty.
On the other hand, bear in mind that nowadays the notion of paper files might be beside the point. Most documents are now stored on document management systems and distributed electronically, so if you needed to find the drafts and markups for a given deal, you probably could lay your hands on electronic copies. And presumably so could litigators representing the other side in litigation against your client.
By the way, here’s a further thought regarding the Braham declaration: Wilson Sonsini’s job was to draft an agreement that clearly expressed the intent of the parties. The fact that Novell had to ask Braham to elucidate the intent of the parties suggests that the agreement was not as clear as it should have been. Being able to retrieve a full set of drafts and markups was a neat trick, but avoiding litigation by drafting a clear contract would have been much neater.
Finally, if you’re wondering whether there’s some middle ground between trashing all drafts and saving every scrap of paper, below is an extract of a sample client-file retention policy. It’s from Lee R. Nemchek, Records Retention in the Private Legal Environment: Annotated Bibliography and Program Implementation Tools, Law Library Journal (Winter 2001). Ms. Nemchek is the information resources manager at Morrison & Foerster’s Los Angeles office.
The Drafts subfile should contain only one clean, unmarked copy of each draft of a document received by or prepared by and circulated outside the Firm. All other drafts should normally be destroyed when the file is sent to offsite storage. As a general rule the file should not include internal draft documents, which we have not circulated to anyone outside of the Firm, or documents marked with handwritten comments, except when we have circulated the marked copy to a client, opposing counsel or other persons outside the Firm. An individual partner may conclude that on a particular project it is important to retain marked copies or internal drafts that have not circulated outside the Firm. When a partner believes that marked copies or internal drafts should be retained in the official file and the practice group head concurs, the secretary who maintains the files should segregate the marked copies in a separate drafts or memoranda file which properly identifies the drafts as marked or working copies. When the project is complete, the partner should reevaluate the decision to retain these copies. In most cases, the Firm believes that marked copies do not add a meaningful history to the file. Usually these copies reflect the correction of drafting or other errors, without casting any meaningful impression of the parties’ intentions.
7 thoughts on “Should You Retain Drafts of Contracts?”
Extremely important point that you have raised. Recently I represented a VC investor, who invested into a French Subsidiary in India. After conducting the legal due-diligence, I had made certain recommendations to protect investment, and accordingly the Investment Agreement was drafted. Disputes arose between the parties on interpretation and intention of parties. The Arbitrators directed us to file my Due-diligence Report along with my recommendations that I made to my clients. Arbitrators relied on my DD Report and my exchange of emails with the Clients to find out the true intention.
The point therefore is not only draft Agreements which exchanged between the two Lawyers or Parties with track changes needs to be retained also internal advice given by way of Memos/ DD Reports to Clients becomes important and at times is helpful.
In today’s world of electronic media it is easy to store documents into proper folders or sub-folders for identification and be retained for some time atleast.
Doesn’t the Parol Evidence Rule still have any meaning? Or, are all contracts now deemed to be so inherently ambiguous that we can always presume that all of the prior discussions, drafts, voice-mails, notes and lunch napkins will come into play every time I draft a contract?
(All sarcasm aside, I hope that we don’t use the idea that all the prior drafts, etc., might come in as a crutch, and still strive to write an agreement that could, in theory at least, survive a parol evidence rule challenge and stand on its own without reference to the crud that preceded it.)
Michael: If you enter into a contract that contains an ambiguous provision, I don’t think you can complain if the court looks high and low for anything that could indicate what the parties had in mind. If you don’t want anyone to look beyond the agreement, then you had better make sure that it’s clear. Ken
Courts are being asked to spend far too much time trying to figure out what things could possibly mean.
If Braham and his expensive team were handsomely paid to prepare an agreement, why should a judge and a cadre of clerks have to spend umpteen hours trying to figure out what it says?
On a related note:
Politicians complain about activist judges, but then they draft laws so haphazardly that it takes a panel of judges who can’t agree to decide what those laws allow and prohibit.
A good example is the Clean Air Act, which defines an air pollutant as absolutely anything that enters the air. As Scalia noted recently (Massachusetts v. EPA), this includes farts and frisbees.
Although I do believe keeping drafts is very important, in the case you noted, the APA is very clear. The debate is around Copyrights which is covered in “Excluded Assets”.
The depositions from all the folks that worked on the APA, the APA its self, drafts, and Novells board meeting notes all bear this out.
It’s pretty obvious that this is a last ditch effort to avoid PSJ by trying to create a disputed fact where none exist.
Bob: Thank you for pointing that out. Ken