This bLAWg is Part III in a series of bLAWgs designed to provide business owners with a high-level overview of the legal process for collecting on past-due accounts receivables.  Specifically, Part III focuses on the actions a business owner should take immediately upon obtaining a final judgment against a delinquent customer.

This may sound counterintuitive, but a judgment creditor’s first concern should not be with collecting on the judgment; rather, the first concern for a judgment creditor should be establishing and protecting its creditor status and the “priority” of its claim against the debtor.  If the judgment creditor’s priority status is not first established, then that creditor is in danger of losing preferred status while it attempts to collect from that debtor.

Many who are exposed to this process for the first time may be asking, “What does it mean to protect my creditor status and to establish my priority?”  First, it is not enough to merely obtain a judgment from the Court; the business owner must then record the judgment within the official records of both the county and the state.  Recording the judgment establishes your creditor status and priority as to that debtor.  The following scenarios may help explain this:

• “Creditor A” obtains a judgment against Debtor in January and records it in the official records in February.  If “Creditor A” is the only entity to obtain and record a judgment against Debtor then “Creditor A” has established its creditor status as having first priority.

• “Creditor B” then obtains a judgment against Debtor in March and records it in April.  Since “Creditor B” is the second entity to obtain and record a judgment against Debtor, it has established its creditor status as having second priority.

• However, let’s say “Creditor C” then obtains a judgment against Debtor in May yet fails to record it in the official records.  Next, “Creditor D” obtains a judgment against Debtor in June and records it immediately.  A few weeks later, during the month of July, “Creditor C” finally gets around to recording its judgment against Debtor.  Even though “Creditor C” was the third entity to obtain a judgment against Debtor, it was fourth in line when it came to recording the judgment.  As a result, “Creditor C” missed out on having third priority creditor status against Debtor and now has fourth priority creditor status.

In the scenario just described, if Debtor’s available assets are completely depleted by satisfying the judgments of creditors A, B & D, then “Creditor C” totally missed its opportunity for recovery on its judgment because it failed to make recording the judgment its first concern.   This illustrates the importance of recording the judgment immediately after obtaining it from the Court.

Not just any judgment can be recorded—to be official, the State of Florida, pursuant to Section 55.10(1), Florida Statutes, requires that a certified copy of the judgment be recorded.  It is not difficult or expensive to obtain a certified copy of the judgment.  Once the Court enters the final judgment order, the creditor can then request a certified copy from the clerk of court.  In Duval County, Florida, for example, the fee for a certified judgment is $1.00 per page and $2.00 for the certification.

Every judgment creditor should record a certified copy of the judgment within the official records of two offices:  (1) the Florida Secretary of State, and (2) any county in which the debtor owns real property.  Recording the judgment with the Florida Secretary of State establishes a creditor’s priority status as to the debtor’s personal property.  The Florida Secretary of State has established a website (Sunbiz.org) where a creditor can search for a debtor to find its creditor status and priority.

Recording the judgment within each individual county where the debtor owns real property will establish that creditor’s priority status as to that real property.  This is why it is important for a judgment creditor to do its research, including thorough post-judgment discovery, to determine exactly where all of the debtor’s real property is located.

The bottom line is that a judgment creditor must be diligent, and not just obtain the judgment, but record the judgment with both the Florida Secretary of State and the proper counties.  Doing so will secure the creditor’s priority status and provide the creditor with a valid judgment lien, which then gives the creditor the right to proceed against the debtor’s property through a writ of execution, writ of garnishment or other post-judgment collection tactics.

Stay tuned for Part IV of this bLAWg series, which details the various methods for conducting post-judgment discovery.

The post Collecting Accounts Receivable Part III: Obtaining a Judgment Against a Delinquent Customer appeared first on Jimerson & Cobb, P.A..

When it comes to community associations, nothing generates more conflicts and disputes than a hotly contested election for the association’s board of directors.  Most often, the debate involves whether or not, under Florida law, a certain individual is even eligible to serve on the association’s board.

Section 718.112(2)(d), Florida Statutes, explains that anyone desiring to be a candidate for the association’s board must give written notice of his or her intent at least 40 days prior to the scheduled election.  Moreover, the person providing such notice must be eligible to serve on the board at the time notice is given.  The candidate-to-be must be eligible according to the following provisions of Florida condominium law:

• “In a condominium association of more than 10 units . . . co-owners of a unit may not serve as members of the board of directors at the same time unless they own more than one unit or unless there are not enough eligible candidates to fill the vacancies on the board at the time of the vacancy.”  Fla. Stat. § 718.112(2)(d)(2).

• A person who has been suspended or removed from office by the division is ineligible to run for board election.  Id.

• A person delinquent “in the payment of any fee, fine, or special or regular assessment . . . is not eligible for board membership.”  Id.

• Anyone convicted of a felony in Florida or in any United States District, “or who has been convicted of any offense in another jurisdiction which would be considered a felony if committed [in Florida], is not eligible for board membership unless such felon’s civil rights have been restored for at least 5 years. . . .”  Id.

While those provisions of Florida law deem a person ineligible to run for election, the association should also keep in mind the provisions that apply to existing board members who may no longer be able to serve due to the following:

• Anyone elected or appointed to the board must “within 90 days . . . certify in writing to the secretary of the association that he or she has read the association’s declaration of condominium, articles of incorporation, bylaws and current written policies; that he or she will work to uphold such documents and policies to the best of his or her ability; and that he or she will faithfully discharge his or her fiduciary responsibility to the association’s members.”  Fla. Stat.  § 718.112(2)(d)(4)(b).

• In lieu of the certified writing mentioned above, “within 90 days after being elected or appointed to the board, the newly elected or appointed director may submit a certificate of having satisfactorily completed the educational curriculum administered by a division-approved condominium education provider within 1 year before or 90 days after the date of election or appointment.”  Id.

• Any elected member who fails to timely file the written certification or educational certificate as mentioned above is suspended from service on the board until he or she does so, and the board may temporarily fill the vacancy during the period of suspension.  Id.

• Any elected director or officer who becomes “more than 90 days delinquent in the payment of any monetary obligation due the association shall be deemed to have abandoned the office, creating a vacancy in the office to be filled according to law.” Fla. Stat.  § 718.112(2)(n).

• “A director or officer charged by information or indictment with a felony theft or embezzlement offense involving the association’s funds or property must be removed from office. . . .”  Fla. Stat.  § 718.112(2)(o).

One aspect of Florida law that association members may not be aware of is that even if a certain elected board member is later found to be ineligible to serve, the actions taken by the board while that person was serving are still valid and enforceable.  Fla. Stat. § 718.112(2)(d)(2).

One final item that association members should keep in mind is that non-unit owners may be able to run for the association’s board.  While Florida Statutes often mention only the term “unit owner,” the statutes’ board requirements are actually directed toward “[a]ny unit owner or other eligible person desiring to be a candidate. . . .”  Fla. Stat. § 718.112(2)(d)(4)(a) (emphasis added).

The situation where a non-unit-owner runs for office may exist if, for example, the unit is owned by a corporation and an officer of that corporation wishes to run.  Another common situation exists when the spouse of a unit owner, who is not on the deed his or herself, wishes to run.  However, in either situation, a non-unit-owner can only run for election for the association’s board if the by-laws specifically allow for it.  If the by-laws do not grant this privilege to non-unit-owners, then, under Florida law, only unit owners may serve on the association’s board.

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In Part One of this bLAWg post, we focused on what document retention policies are, who should have them and what documents should be kept for what length of time. Please click here to review Part One. In Part Two of this bLAWg post, we will focus on what the legal ramifications of failing to comply with your document retention policy are, with special attention given to responsibilities of the retaining company once litigation is anticipated or underway.

If I do not have a document retention policy, what are the legal ramifications that my company might face if faced with a lawsuit?

In the litigation context, as an extreme, a company that does not have a document retention policy may be sanctioned, subject to adverse jury instructions and/or may automatically be found liable for the underlying action.

If I have a document retention policy, but do not abide by it, what are the legal ramifications that my company might face?

Companies have been held liable for failing to abide by their document retention policies. A corporation will not have acted fraudulently or in bad faith if the documents are no longer required to be kept by law and are destroyed according to the company policy. Moor v. Gen. Motors Corp., 558 S.W. 2d 720, 737 (Mo. Ct. App. 1977). However, a corporation cannot “blindly destroy documents” and then expect to be protected by a document retention policy that was not carefully followed. Gumbs v. International Harvester, Inc., 718 F.2d 88, 96 (3d Cir. 1983).

Special circumstances may require certain documents to be retained for longer periods, such as those documents subject to a litigation hold. If a document covered by a litigation hold is not retained, then the company could be subject to an adverse inference instruction, attorneys’ fees, exclusion of evidence, or some other judicial sanction. One of the more notable cases involving a litigation hold was Arthur Andersen LLP v. United States. In that case, once Enron’s financial difficulties were known, the Arthur Andersen firm reminded partners working on Enron matters to ensure compliance with its document retention policy, which resulted in substantial paper and electronic documents being destroyed. Although the jury determined that Arthur Andersen was guilty of knowingly, intentionally, and corruptly persuading employees to withhold documents from a regulatory proceeding, the U.S. Supreme Court ruled that company managers could instruct employees to comply with a valid document retention policy so long as there was no “nexus” between the “persua[sion] to destroy documents and a particular proceeding” and remanded the case for the jury to make this determination.

Ultimately, it is within the court’s discretion on how to penalize a party who destroys documents, including the ability to assess sanctions or render a default judgment. Telectron, Inc. v. Overhead Door Corp., 116 F.R.D. 107, 109-10 (S.D. Fla. 1987) (finding that a default judgment was appropriate when the party destroyed documents willfully and intentionally and the corporate officer who initiated destruction lied about the destruction during his testimony).

How do I know if our document retention policy is adequate?

In litigation, the court looks at a three part test to determine whether a company’s document retention policy was reasonable:

1.         Was the policy reasonable concerning the facts and circumstances surrounding the relevant documents,

2.         Whether lawsuits have been filed regarding the issue and the frequency of those complaints; and

3.         Whether the document retention policy was instituted in bad faith.

Lewy v. Remington Arms Co., Inc., 836 F.2d 1104, 1112 (8th Cir. 1988).

Is there a particular way that documents should be kept and where should I look for guidance?

There is no particular way that documents should be maintained. The company can preserve its documents electronically, in hard copy, or in a combination of both. No matter how the documents are to be kept, it is important to keep the method of preservation consistent. This way, if a corporation is sued, the corporation will be able to comply with the discovery request to produce the documents.

An effective records management program will ensure the records necessary in conducting business and fulfilling legal responsibilities are kept and are available. Though you are not required to keep every shed of paper, email or electronic document, as this would “cripple corporations,” it is imperative to understand the needs of your business in order to set standards and mitigate liability. Zubulake v. UBS Warburg LLC, 2004 U.S. Dist. LEXIS 13574 (July 20, 2004). To offset discovery productions, under certain circumstances, courts have allowed cost-shifting to divide the costs of production between parties if the production is difficult or expensive. See generally Zubulke v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003).

In n 2006, the U.S. Supreme Court’s amendments to the Federal Rules of Civil Procedure created a category for electronic records that, for the first time, explicitly named emails and instant message chats as likely records to be archived and produced when relevant. One type of preservation problem arose during the Zubulake v. UBS Warburg LLC lawsuit. Throughout the case, the plaintiff claimed that the evidence needed to prove the case existed in emails stored on UBS’ own computer systems. Because the emails requested were either never found or destroyed, the court found that it was more likely that they existed than not. The court found that while the corporation’s counsel directed that all potential discovery evidence, including emails, be preserved, the staff that the directive applied to did not follow through. This resulted in significant sanctions against UBS. The formalized changes to the Federal Rules of Civil Procedure in December 2006 and in 2007 effectively forced civil litigants into a compliance mode with respect to their proper retention and management of electronically stored information. Improper management of ESI can result in a finding of spoliation of evidence and the imposition of one or more sanctions including an adverse inference jury instructions, summary judgment, monetary fines, and other sanctions. In some cases, such as Qualcomm v Broadcom, attorneys can be brought before the bar and risk their livelihood.

Zubulake has been a leading case for e-discovery and document recovery. It has set important practices relating to both the legal and technical aspects of electronic discovery and document retention, as the relevant communication among interested parties was available in digital form. The main issues raised and precedential value conveyed were:

• The scope of a party’s duty to preserve digital evidence during the course of litigation or even when first acknowledged that a chance of litigation exists;

• Lawyer’s duty to monitor their clients’ compliance with electronic data preservation and production (litigation hold);

• Data sampling, so that knowledge about costs and effectiveness of the recovering process are known in advance;

• The ability for the disclosing party to shift the costs to the requesting party of recovering inaccessible media (backup tapes, for example);

• The imposition of sanctions for the spoliation of digital evidence.

In typical lawyer fashion, my answer to this question is it depends on what you are  preserving and what reasons and policies you are preserving them for. Whatever you preserve, however, you should be prepared for it to be discoverable in the event of subsequent litigation.

When does a litigation hold attach?

Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and implement a litigation hold to ensure the preservation of relevant documents. There is no bright line test to determine when the duty to preserve documents and implement a litigation hold attaches. Indeed, the duty arises independent of a court declaration and can be triggered by pre-suit events; however, courts employ a case-by-case analysis to determine when the party reasonably knew or should have known that future litigation was likely.

When I anticipate litigation, what must I do to implement a “litigation hold?”

The short answer is that the retaining company must retain all relevant documents (but not multiple identical copies) in existence at the time the litigation hold should be implemented, and any relevant documents created thereafter. There is a duty to preserve what the party knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request. While this standard may be somewhat nebulous, overbroad and burdensome, in cases past I have identified the “key players” in the litigation early on, which in turn helped to identify which documents must be preserved.

Once any judicial or investigative proceeding is contemplated or begins, companies should automatically suspend their document retention policies. A company should send out a litigation hold letter that will tell employees to save documents related to the proceeding. Upon receiving a subpoena, the company should suspend any document destruction policy it has in order to prevent the destruction of responsive documents. Employees of the retaining company should be constantly reminded that destruction of documents in the midst of litigation is expressly prohibited.

Conclusion

A document retention policy is only as good as its implementation. Small and mid-sized businesses should regularly enforce their policies to ensure certain documents are stored for the time periods necessary, but also to ensure those documents are destroyed after its retention cycle has passed. This will be a preparation tool so as to persuade the court that certain records and data were purged pursuant to a policy and not deliberately destroyed once litigation ensues.  Auditing your policies will ensure that a company maintains the records prescribed by law while simultaneously protecting a business’ interests in the long run. Once litigation commences, it is very important to work with your counsel to ensure that the appropriate litigation holds are enforced.

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This bLAWg is Part II in a series of bLAWgs designed to provide business owners with a high-level overview of the legal process for collecting on past-due accounts receivables.  Specifically, Part II focuses on commencing legal action against delinquent customers once it’s become apparent that pre-suit collection efforts are futile.

Before getting into the various legal actions against delinquent customers, the necessity of having a written contract must first be discussed.  The importance of a business entering into a contractual relationship with its customers prior to conducting business, i.e., prior to providing services and delivering goods, cannot be over-emphasized.  In fact, let this be rule number one for all business owners—always memorialize the terms of an agreement in written contract form, which must then be signed and dated by the customer.  Put that rule on a Post-it note and stick it to your computer.  Not having written contracts in place makes litigation against delinquent customers tougher than it needs to be.

Every business should have a standard contract specifically tailored to its line of work and which includes the following provisions:  (1) attorneys’ fees and legal costs to be paid by the delinquent customer should the business have to commence legal action to collect; (2) a set default interest rate for past-due accounts receivables (the highest rate allowable under Florida law is 18% per annum or 1.5% per month); (3) a set interest rate for post-judgment interest (see http://www.jimersoncobb.com/blawg/2013/05/contractual-post-judgment-interest/); and (4) a personal guaranty for a customer to sign in his or her individual capacity (more on this below).  This list of important contractual provisions isn’t exhaustive, but if these are included in your standard contract then legal action against delinquent customers becomes much easier.

Once it has become obvious that pre-suit collection efforts have no effect on a delinquent customer, the next step is to file suit against that customer by filing a Complaint with the court.  Within that Complaint, your various causes of action against the delinquent customer are laid out and presented to the court.  If you have a written contract with the customer, as outlined above, then your Complaint will include the strongest and easiest-to-litigate cause of action against a delinquent customer – Breach of Contract.  If there is no written contract, however, not all is lost as Florida law allows for numerous other possible claims to be made against delinquent customers.  The following are other causes of action that can be made in the absence of a written contract:

Breach of Oral Contract:  This claim is obviously not as strong as a Breach of Written Contract claim because the business bringing the action must first prove the existence of an oral agreement.

Open Accounts:  This cause of action exists when a debt is created by a series of credit transactions.  See Hawkins v. Barnes, 661 So.2d 1271, 1273 (Fla. 5^th DCA 1995).  For example, your business provides services and/or sells goods on credit but the customer has failed to make adequate payments on that outstanding credit line.  The business must provide proof of this open account by attaching an itemized invoice, or some other acceptable form of evidence, to the Complaint.  See H & H Design Builders, Inc. v. Travelers’ Indemnity Co., 639 So.2d 697 (Fla. 5^th DCA 1994).

Accounts Stated:  This cause of action exists when the parties have entered an agreement (oral or written) for previous transactions, the business provided the services and/or goods the customer requested, it sent the customer a bill, and the customer failed to pay yet did not object to the bill within a reasonable amount of time.  See Merrill-Stevens Dry Dock Co. v. Corniche Express, 400 So.2d 1286 (Fla. 3d DCA 1981); Robert C. Malt & Co. v. Kelly Tractor Co., 518 So.2d 991 (Fla. 4^th DCA 1988).

Goods Sold and Delivered:  This is another cause of action that exists when the business has delivered goods to a customer and the customer failed to pay.  The business may bring this action to recover the purchase price of said goods.

This list of possible causes of action against delinquent customers is not exhaustive, and there are numerous other causes of action that a business can bring depending upon the unique circumstances of each dispute.  This list is meant to impress upon the business owner the importance of not only having a written contract in place with all its customers, but also the importance of maintaining complete and accurate billing and accounting records.  Proof of each cause of action must be attached to the Complaint or else the Complaint can be dismissed.

It was mentioned above that it is good practice for a contract to include a “personal guaranty” section.  A personal guaranty is a binding promise to answer for the debt and/or default of another, and it is considered a separate and independent contract.  Nicolaysen v. Flato, 204 So.2d 547 (Fla. 4^th DCA 1967).  If the contract includes a personal guaranty, the business can add another cause of action to its Complaint—Action on Guaranty—and now file suit against two defendants in order to collect on the outstanding accounts receivable.

Why is the personal guaranty so important even when there is a written contract with the commercial customer?  Well, what if the commercial business failed to pay its bill because it is in financial difficulties?  Moreover, what if it takes a year or more to obtain a final judgment against the business?  During that time, the failing business may dissolve or file for bankruptcy.  If there is no personal guaranty, then any judgment against the now-defunct commercial business is not even worth the paper it is printed on because the judgment would be uncollectable.  However, if there is a personal guaranty in place, then there is still hope for the business to collect on its past-due accounts receivable.

Stay tuned for Part III of this bLAWg series, which focuses on what to do once legal action against a delinquent customer is concluded and a final judgment is obtained.  Part III discusses receiving the final judgment, certifying it, and then recording it so that the business can then pursue it against the debtor.

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It is common knowledge that when a person or business files for bankruptcy, the end result is typically a discharge of debts.  The bankruptcy debtor will no longer be personally responsible for payment of the outstanding debts.  However, a security interest in real property remains, such as a lien created by a mortgage on a home.  But what happens to a security interest in something more intangible, like insurance proceeds?

A discharge in bankruptcy eliminates the debtor’s personal liability for payment of certain debts.  Specifically, it can void judgments and stop pending or future collection activities on debts forever.  Once a debt has been discharged, the creditor can never go after the debtor for payment of that debt in the future.  For more detailed information pertaining to the discharge of debts in bankruptcy, please review the Federal Bankruptcy Code.

So what happens to a lien on property when the monetary debt is discharged?  The answer is simply: nothing.  The lien on the property remains in place.  This is clear when the property is a tangible item, such as real estate or a vehicle.  But the issue becomes more complicated when the security interest is in something like the proceeds from a life insurance policy that have not yet become ripe for payment.  Even though a lien on an insurance policy may not seem the same as an interest in real property, the treatment of that security interest is the same.

The bankruptcy courts have made clear that a security interest in a life insurance policy created by the assignment of the policy to a creditor survives discharge.  “[D]ischarge does not prevent the Bank from collecting its lien on the proceeds of the policy assigned to it as collateral for a debt, to the extent of the unpaid balance of the debt.”  Jennings v. The Prudential Insurance Company of America, 402 So.2d 1367, 1369 (1st FL DCA 1981).

The moral of the story here is to remember that a lien on property survives a discharge in bankruptcy.  Do not be fooled by a debtor requesting a satisfaction of lien because that lien stays in place.  There are circumstances where a lien may be stripped, but that’s a tale for another day.

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By: Charles B. Jimerson, Esq.

Management of records including creation, retention, access, and destruction, has been a major concern for businesses. This is mainly due to the growth in volume of records (especially electronic data) and the lingering fear of litigation. Once a business is named as a party to suit, high scrutiny is placed on litigants in order to prevent spoliation of evidence that may be relevant to prosecution or defense of the lawsuit. Development and execution of an effective document retention policy is critical as the alternative may result in unfavorable discovery, loss of critical information, unnecessary expenses and adverse judgments. This two part bLAWg post endeavors to provide small and mid-sized businesses a few an overview what document retention policies are and things to consider when creating an internal document retention policy.

We are frequently asked by clients about what must go into an effective document retention policy, what records must be maintained and for low long those records should be maintained. Unfortunately, statutory and case law is not entirely clear and there is no one right answer to any of these inquiries. Drafting a document retention policy involves consideration of federal and state regulations, contractual duties, statutes of limitations, statutes of repose and industry standards. These various legal requirements must then be harmonized with business concerns and operational burdens. What follows are common sense answers to questions any growing business should be asking itself.

Frequently Asked Questions

What is a document retention policy?

A document retention policy standardizes how long the company retains both paper and electronic records and the proper procedures for documents that could aid during litigation, known as a “litigation hold.” Document retention policies should detail what documents are to be retained, what documents are to be destroyed, and the period of time that the documents are to be kept for. Document retention policies are created and enforced by the individual company. Typical document retention policies preserve records such as memorandum, e-mail, contracts, correspondence, accounting books and records and many other things. Many laws require companies to maintain certain types of corporate records, usually for a specified period of time. Failure to retain those records for those minimum periods could subject the company to penalties and fines, cause the loss of rights, obstruct justice, spoil potential evidence in a lawsuit, place the company in contempt of court, or seriously disadvantage the company in litigation.

A preferred document retention policy will organize the documents so they are readily accessible and legible. Document retention policies should also clearly detail what the proper procedures are if the company is involved in litigation or potential litigation, known as “litigation holds.” Litigation holds typically state that if a corporation is involved in litigation or potential litigation, then all documents that relate to that litigation will be preserved. A preferred document retention policy will detail who is in charge of informing the company’s employees if there is litigation, so that they may preserve any documents that they have pertaining to that litigation. Typically, a company’s legal department is in charge of this notification. It is the legal department’s responsibility to determine when the records that are relevant or potentially relevant to litigation may be destroyed. An optimal document retention policy will also be carefully enforced to ensure that all employees are aware of the policy and abide by its terms.  Additionally, a sound document retention policy will designate an employee or department who is in charge of the policy and its enforcement. This individual should be someone who has access to the entire office and all of its employees; typically, the office manager.

Why should businesses have a document retention policy?

Businesses should have a document retention policy because it standardizes company policy, ensures compliance with the law, and may shield the company during litigation.

Who should have a document retention policy?

Any company that produces records should have a document retention policy. A record can be any company document, including memorandum, emails, files, receipts, accounting ledgers, video surveillance footage, graphs, charts, photographs and even desktop calendars or appointment books. Florida Rules of Civil Procedure § 1.350 lays out the scope of documents which may be requested and must be produced during the discovery period of litigation.

How long should documents be maintained?

There is no specific law or statute that requires how long general records must be maintained. Sometimes, federal or state law mandates how long records should be kept. The only common law duty to retain documents and records is when a company is on notice of pending litigation. Thus, document retention policies vary from industry to industry and case to case. Please note that the suggested retention periods shown are not offered as final authority, but as guideposts against which to compare your needs. There may be several situations, for historical or reference purposes, for example, that necessitate longer periods than legally required. In addition, many specific industries require retention periods that are different than noted here for specific terms. In most cases, the period of retention listed in this post provides a more conservative retention period.

Tax records

Before finalizing an entity’s taxation record retention procedures, it is recommended that the IRS regulations, state and local government retention requirements and the AICPA’s Filing and Record Retention Procedures Guide be reviewed. The Massachusetts Society of Public Accountants provided a records retention guide that sets forth retention guidelines for specific accounting records, including accounting systems, human resources, legal documents and corporate records. Tax records include, but may not be limited to, documents concerning payroll, expenses, proof of deductions, business costs, accounting procedures, and other documents concerning the company’s revenues. Tax records should be retained for at least six years from the date of filing the applicable return. The Internal Revenue Service has also specified how long tax records should be kept. The IRS has published a simple guide for small businesses that pertain to records retention guidelines for returns.

Human Resources

State and federal statutes require businesses to keep certain recruitment, employment and personnel information. The retaining company should also keep personnel files that reflect performance reviews and any complaints brought against the company or individual employees under applicable state and federal statutes. The retaining company should also keep all final memoranda and correspondence reflecting performance reviews and actions taken by or against personnel in the employee’s personnel file. Employment and personnel records should be retained for seven years. Employee’s benefits, corporate policies and insurance documents should also be kept for seven years.

Corporate documents

Corporate documents should be kept indefinitely. These records include, among other things, articles of incorporation or partnership agreements, bylaws, stock records and board of directors’ minutes.

Board and Board Committee Materials

Meeting minutes should be retained in perpetuity in the company’s minute book. A clean copy of all Board and Board Committee materials should be kept for no less than four years by the company.

Legal Files

Legal counsel should be consulted to determine the retention period of particular documents, but legal documents should generally be maintained for a period of ten years.

Marketing and Sales Documents

The retaining company should keep final copies of marketing and sales documents for the same period of time it keeps other corporate files, generally four years. An exception to the three-year policy may be sales invoices, contracts, leases, licenses and other legal documentation. These documents should be kept for at least five years beyond the life of the agreement.

Development/Intellectual Property and Trade Secrets

Development documents are often subject to intellectual property protection in their final form (e.g., patents and copyrights). The documents detailing the development process are often also of value to the retaining company and are protected as a trade secret where the company:

(i) derives independent economic value from the secrecy of the information; and

(ii) the company has taken affirmative steps to keep the information confidential.

The retaining company should keep all documents designated as containing trade secret information for at least the life of the trade secret.

Contracts

Final executed copies of all contracts entered into by the retaining company should be retained for at least five years beyond the life of the agreement, and longer in the case of publicly filed contracts.

Electronic Mail or other salient communications

E-mail that needs to be saved should be either: (ii) printed in hard copy and kept in the appropriate file; or (ii) downloaded to a computer file and kept electronically or on disk as a separate file. The retention period depends upon the subject matter of the e-mail, and should be addressed elsewhere in the corporate document retention policy. The length of time emails should be retained depends entirely on the scope and subject matter of the email. As a general proposition, emails or other salient communications should be retained for at least 5 years and at most 10 years.

It stands to reason that certain records will need to be maintained longer than others, particularly those that are industry related. Though case law can provide an analysis based solely on the facts and circumstances of the specific action, federal and state regulations are a useful tool for further guidance. Below are just a few examples of record keeping regulations provided by federal and local law:

1.         The U.S. Equal Employment Opportunity Commission (“EEOC”) requires personnel and employment records to be maintained for one (1) year. Payroll records must be kept for a period of three (3) years.

2.         The U.S. Internal Revenue Service (“IRS) requires that records supporting an item of income or deductions on a tax return until the period of limitations for that return runs out. Employment tax records should be kept for at least four (4) years after the date the tax becomes due or is paid, whichever is later.

3.         The Securities and Exchange Act requires SEC-regulated companies such as financial institutions to maintain emails for at least three (3) years.

Small and mid-sized businesses may also want to be aware of the statute of limitations and statutes of repose. In Florida, there are certain time periods in which a case may be filed for damages pursuant to contracts, liens, equitable claims and negligence among other things:

Professional Malpractice: 2 years from the date of the act giving rise to injury, or within two years from the date the injury was or should have been detected, but no malpractice action may be commenced more than four years following the act giving rise to the injury.

Personal Injury: 4 years.

Fraud: 4 years.

Libel / Slander / Defamation: 2 years.

Injury to Personal Property: 4 years.

Product Liability: 4 years.

Contracts: Written, 5 years; Oral, 4 years. Actions for specific performance must be commenced within one year.

In Florida, a lawsuit based on construction defects must be brought within four years of the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction (if construction is not completed), or the date of completion or termination of the contract between the association and an engineer, architect, or contractor (whichever date is latest).  When an action involves a latent defect, however, the time begins to run from the time the defect is discovered or should reasonably have been discovered. In no event may a lawsuit be brought after 10 years.  This 10 year limitation period is known as the “statute of repose.”

Fla. Sta. § 95.11 (2013).

Thus, one can infer that if a breach of contract claim can arise within five (5) years of its execution, it may be good practice to maintain all contracts for at least five (5) years. Knowledge of the statute of limitations (minimum liability period) and the statute of repose (maximum liability period) affecting your business will help you tailor your document retention policy.

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Many creditors have default interest provisions in their contract documents.  The highest rate allowable under Florida law for these default provisions is 18% per annum or 1.5% per month.  However, creditors almost never address post judgment interest in their contract documents.  Such omission leaves them at the mercy of the interest rate set forth in Section 55.03, which states:

(1) On December 1, March 1, June 1, and September 1 of each year, the Chief Financial Officer shall set the rate of interest that shall be payable on judgments or decrees for the calendar quarter beginning January 1 and adjust the rate quarterly on April 1, July 1, and October 1 by averaging the discount rate of the Federal Reserve Bank of New York for the preceding 12 months, then adding 400 basis points to the averaged federal discount rate.

The final sentence of Section 55.03 provides some interesting guidance for creditors by saying, “Nothing contained herein shall affect a rate of interest established by written contract or obligation.”  See Whitehurst v. Camp, 699 So.2d 679 (Fla. 1997).  Since July 1, 2012, the statutory post judgment interest rate has been 4.75%.  Not very good considering the statutory rate topped out at 11% in 2007 and 2008.

Creditors can eliminate the uncertain fluctuation of statutory post judgment interest and insert an agreed upon post judgment rate in their contracts or credit applications.  Parties may agree to deviate from statutory interest rates but the language of the post judgment contractual provision must affirmatively demonstrate the parties’ intent to deviate from the post judgment rate set by the statute.  The contractual post judgment statutory rate must not violate usury laws either.  Therefore, creditors should write post judgment interest provisions alongside their default interest provisions.  Parties should also consider inserting such provision into any pre-suit and post suit settlement agreements and forbearance agreements.

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A diverse and strong portfolio that demonstrates success is what sets a normal business apart from an extraordinary one.  Here at Jimerson & Cobb we pride ourselves on our vigorous work ethic, attention to details and commitment to our clients.  Expressed in our mission statement, “We are accessible, responsible, prepared, efficient and technologically advanced.”  Our goals are clear and one has been recognized and validated by the community at large.  Thanks in part to our partnership with Paper Street Web designs, we are very proud to announce that our website recently received 1st place in the 19th Annual Communicator Awards in Excellence in Law and Legal Services.

Paperstreet and its creative director Jillian, a graduate from Indiana University Fine Arts Program (Graphic Design) launched  the redesigned “http://www.jimersoncobb.com/site-map/” in October of 2012.  Since then the creative and tech team alongside our own Marketing committee have devoted themselves to ensuring that the website maintains ease of use as well as the latest information about the firm.  This is best seen in our blawgs and newsletters.  While other law firms may bombard potential clients with various ads or numbers to call, “jimersoncobb.com” stays focused on the balance of information and assistance.  Our blawgs are directed at an audience that can be fellow practitioners or businesses searching for answers to their legal questions.  Our newsletters share our accomplishments and triumphs in and out of the courtroom with the public. You can easily gain information about a certain topic by searching through our index of blawgs posted weekly by our attorneys.  A client is just a click away from being able to connect to any attorney via email or by viewing their biography pages which showcase each attorney’s strengths and accomplishments.

Not too flashy or flamboyant, “http://www.jimersoncobb.com/” clearly demonstrates excellence in web design and we are grateful to the Communicator Awards for selecting our site for this year’s award.  We are looking forward to continuing to expand and develop our site and we are excited to further our collaboration with PaperStreet.

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The Florida Statutes are clear—persons who purchase a residential foreclosure with outstanding assessments and dues attached to it are responsible for paying those past-due amounts to the governing association upon taking possession of the property.  See Fla. Stat. § 718.116(1)(a) (applying to condominiums); see also Fla. Stat. § 720.3085(2) (applying to property governed by  homeowners’ associations).  This Florida law applies to banks as well.

This means that when a bank purchases a residential property at a foreclosure sale, the bank is responsible for paying to the association the past-due fees and assessments on that subject property (up to a capped amount—see below).  However, as reported by the Community Associations Institute, 70% of the time, banks don’t pay those past-due assessments and fees to the respective association.  The result is associations are left without much-needed revenue used to maintain their communities.

Does this mean that associations are simply out of luck?  Absolutely not!  The Florida Statutes also provide associations with a much needed remedy.  Florida associations are given a statutory lien on residential property for unpaid assessments and dues.  That statutory lien allows associations to “foreclose a lien for assessments in the same manner in which a mortgage of real property is foreclosed. . . .”  Fla. Stat. § 720.3085(1)(c) (applying to homeowners’ associations; see also Fla. Stat. § 718.116(6)(a) (applying to condominium associations).  This statutory lien can be used by an association to foreclose on a bank that hasn’t paid the past-due assessments and fees it owes.

Florida’s condo associations must keep in mind, however, that if the bank acquiring the residential property through foreclosure is the first money mortgage lender for that property then its liability for past-due assessments is limited by the “safe harbor” provision of § 718.116(1)(b), Florida Statutes.  The safe harbor provision states that the first mortgagee’s liability is limited to 12 months of unpaid past assessments or 1% of the original mortgage debt, whichever is less.  That past due amount must be paid to the association within 30 days of the bank receiving the title.  Moreover, the bank is then responsible for 100% of future assessments while it owns title to the property.  If the bank fails to pay either the safe harbor amount or the future assessments, the association can foreclose on it.

In order to foreclose on the bank, the association must first file a valid claim of lien against the financial institution.  See Fla. Stat. § 718.116(5); see also Fla. Stat. § 720.3085(1).  If the claim of lien is recorded, and the bank doesn’t respond by paying in full the assessments and fees it owes, the association can then move forward with the foreclosure process.  This process includes delivering to the bank the Notice of Intent to Foreclose Lien and, if the bank doesn’t respond to the Notice, ultimately foreclosing on the property.

This strategy is great for an association to ensure it is receiving the assessments and fees owed to it once a bank acquires one of its properties.  Associations utilizing this strategy have found that banks, more often than not, pay the outstanding assessments and fees rather than risk losing the property via foreclosure.

However, if the bank never pays up, the association, through the foreclosure process, may end up in a position where it can ultimately generate extra revenue in this depressed housing market.  For example, if the association obtains possession of these properties through the foreclosure process, it can then rent out those properties.  Over time, the association may end up with more revenue from rental income than it would have by simply receiving the past-due assessments and fees in the first place.

For associations finding themselves in this situation, it may be time they turn the tables on the banks and initiate foreclosure proceedings on financial institutions that refuse to pay past-due assessments and fees.

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Effective 1992, the Condominium Act requires arbitration of certain condominium disputes as an alternative to court litigation and also authorized mediation of such disputes. The objective of the program is to provide condominium unit owners and associations a just, speedy and inexpensive alternative to litigation in the court system.

Section 718.1255, Florida Statutes, defines which disputes are eligible for arbitration “as any disagreement between two or more parties and the authority of the board of directors or the association’s governing document”.  An eligible dispute for arbitration requires any owner to take or not to take any action involving that owner’s unit, or involving the alteration or addition to a common area or element of the condominium property.  Also required to be arbitrated under the Condominium Act are disputes involving the failure of a governing body, when required by law or an association’s document to: (1) properly conduct elections; (2) give adequate notice of meetings or other actions; (3) properly conduct meetings; or (4) allow inspection of books and records.

In condominium arbitrations, an attorney-arbitrator functions as a hearing officer or judge and issues a decision or award after hearing the evidence and testimony. An arbitration proceeding may involve a hearing if there are disputed issues of fact.  If a hearing is held, each party is given an opportunity to present testimony and evidence through witnesses and/or exhibits.  If there are no disputed issues of fact, the arbitrator will generally decide the case based on the assertions in the petition for arbitration, the answer, and the applicable law.   If a party does not appeal the arbitration final order within 30 days from the date of the order, the final order becomes binding on the parties. Rules of Procedure for Mandatory Non-Binding Arbitration are located in the Florida Administrative Code at 61B-45.001 et. seq.

To initiate a condominium arbitration, the unit owner or association must file a petition and be accompanied by a $50.00 filing fee.  Petitions, answers and other pleadings must be filed with the Division of Condominiums at the DBPR at the following address: Department of Business and Professional Regulation, Division of Florida Condominiums, Timeshares, and Mobile Homes, Arbitration Section, Northwood Centre, 1940 North Monroe Street, Tallahassee, Florida 32399-1029. Filings may also be made by facsimile at 850.487.0870.

The arbitration program’s jurisdiction is limited. Therefore, any party who is in doubt as to whether a controversy falls within the jurisdiction of the arbitration program may file a request for expedited determination of jurisdiction.  This is accomplished by filing a completed DBPR form ARB96-004, REQUEST FOR EXPEDITED DETERMINATION OF JURISDICTION along with a completed Mandatory Non-Binding Petition – DBPR Form ARB 6000-001. The $50.00 filing fee must accompany the request. The Department will then issue a finding of jurisdiction.

Disputes not eligible for arbitration include any disagreement that primarily involves: (1) title to any unit or common element; (2) the interpretation or enforcement of any warranty; (3) the levy of a fee or assessment; (4) the collection of an assessment levied against a party; (5) the eviction or other removal of a tenant from a unit; (6) alleged breaches of fiduciary duty by one or more directors; (7) claims for damages to a unit based upon the alleged failure of the association to maintain the common elements or condominium property.

Condominium owners should also be aware that if they lose in arbitration they may have to pay the other side’s attorney’s fees and costs as such fees are awardable under the Condominium Act and usually in the declarations.  If a party does not understand the arbitration process, they should consult an attorney licensed to practice law in the State of Florida.

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