House Passes New Rule of Evidence on Inadvertent Disclosures

September 17, 2008
Kevin X. McGann, Jack E. Pace III, Owen C. Pell, James S. Trainor Jr.

On September 8, 2008, the US House of Representatives passed a bill (previously passed by the Senate) that, if signed into law, may eliminate some uncertainty associated with waiver of privilege by inadvertent production and provide some relief with respect to expenses associated with document review.

The bill, proposed Federal Rule of Evidence 502, is primarily directed to the admissibility of inadvertently disclosed information otherwise subject to the attorney-client privilege or work product protection. In particular, proposed F.R.E. 502 addresses a source of rising discovery costs attributable to the collection, processing, and production of electronically-stored information in federal civil litigation and federal agency investigations — the fear that a random e-mail inadvertently produced could waive the attorney-client privilege as to broad subject matter category of documents.

In part, proposed F.R.E. 502 reads, under the heading, "Inadvertent Disclosure":

When made in a Federal proceeding or to a Federal office or agency, the disclosure does not operate as a waiver in a Federal or State proceeding if:

(1) the disclosure is inadvertent,

(2) the holder of the privilege or protection took reasonable steps to prevent the disclosure, and

(3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B);

Proposed F.R.E. 502(b).

Clients engaged in complex litigation or investigations by federal agencies, such as the Securities and Exchange Commission and the Department of Justice, have long been wary of inadvertently disclosing privileged communications in the course of a large-scale document production. Traditionally, clients have engaged counsel to conduct a document by document review to preserve privilege. The cost and complexity of such reviews have increased dramatically with the exponential growth in electronically stored information. Where the volume of "documents" collected and reviewed reaches six or seven figures, as is often the case in complex litigation or agency investigations, an indiscriminate, document by document review for privilege may become prohibitively expensive.

Traditionally, Federal courts have followed three different approaches to deal with inadvertent disclosure of privileged information — the "strict" test (any production is a waiver as to the subject matter of the document), the "intermediate" test (similar to proposed F.R.E. 502) and the "lenient" test (only actual knowing waiver operates as a waiver). Although some circuits fell into the strict and lenient categories, many courts appear to have applied some variation of the intermediate approach. The Congressional intent underlying proposed F.R.E 502 is to codify the "intermediate test," which, not coincidentally, turns on the presence or absence of "reasonable steps to prevent the disclosure."

In evaluating the reasonableness of the steps taken by the holder of a privilege, the courts applying the intermediate test generally have considered: (1) the nature of the precautions taken to preserve the privilege, (2) the number of documents inadvertently produced, (3) the extent of the inadvertent production, (4) the promptness of the actions taken to retrieve the privileged documents, and (5) fundamental fairness to the respective parties. Under this test, courts generally ruled no waiver occurred where the total number of documents was high, the number of inadvertently produced documents was comparatively low, attorneys (as opposed to non-legal staff) were employed in the review, and, if IT professionals were involved, were they properly instructed and closely monitored by attorneys.

There are an increasing number of tools available to enable litigants to identify and remove potentially privileged documents before making a production to another litigant or government agency. These tools, when properly employed and monitored by qualified counsel, should provide litigants with strong arguments that the steps the litigant took to prevent inadvertent disclosure were reasonable. Some guidelines to consider in planning for any document review under new F.R.E. 502 would include:

(a) determine the names of attorneys, law firms, in-house personnel and their administrative assistants who may be authors or recipients of privileged communications (this includes identifying domain names from which or to which privileged materials were sent or received);

(b) use a combination of electronic search tools and manual review of all or a very substantial portion of the documents;

(c) have legal staff instruct and monitor the performance of any non-legal staff, including conducting some form of quality control before transferring materials to an adverse party or an agency;

(d) document the steps taken in planning and monitoring the review (in case you are called on later to explain them); and

(e) if an inadvertent disclosure occurs, promptly make efforts to recover the materials and document those efforts.

Thus, while clients may consider a combination of electronic tools and attorney review to identify privileged materials and reduce costs associated with a privilege review, "quick peek" type reviews, which allow opponents to review documents before steps are taken to remove privileged documents, may well not pass muster under the "reasonable steps" standard.

Subsections (d) and (e) of proposed F.R.E. 502 highlight the importance of obtaining a court order in at least two instances. First, subsection (d) entitled "Controlling Effect of a Court Order" states:

A Federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court – in which event the disclosure is also not a waiver in any other Federal or State proceeding.

Thus, if possible, a party seeking the return of an inadvertently produced document should have the disposition incorporated into a court order to prevent a later opponent from contending that the inadvertent disclosure caused a waiver of privilege. This protection extends to both Federal and State proceedings and avoids having a production in one proceeding result in a waiver before another court applying a stricter test for waiver.

Similarly, subsection (e), entitled "Controlling Effect Of A Party Agreement" states:

An agreement on the effect of disclosure in a Federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order.

Proposed F.R.E. 502(e). When read together, subsections (d) and (e) highlight that, if the litigants' agreement is not incorporated into a court order, an opponent in a later litigation would remain free to assert that an inadvertent production in an earlier litigation or proceeding was a waiver of privilege. Fortunately, the solution is potentially simple: reduce to writing the parties' agreement for the handling of inadvertent disclosures and have it endorsed by the court as an order.

If you have any questions regarding this Alert, please contact:

Kevin X. McGann
Partner
+1 212 819 8312

 
Jack E. Pace III
Partner
+1 212 819 8520

Owen C. Pell
Partner
+ 1 212 819 8891

Kevin McGann, Jack Pace, and Owen Pell are litigation partners in the New York office of White & Case. Mr. McGann is in the Intellectual Property Group, Mr. Pace the Antitrust Group, and Mr. Pell the Commercial Litigation Group. All three serve on the Firm's E-Discovery Committee. James Trainor, who also serves on the E-Discovery Committee, assisted in the preparation of this article.
 
The White & Case E-Discovery Committee monitors legal and technical trends relating to electronic evidence discovery, litigation and developments in the e-discovery industry. The Committee advises clients on best practices, document retention policies, emerging strategic issues and recent developments in e-discovery, and also has developed training programs that can be made available to clients. The Committee draws partners from around the Firm's office network, including Europe, to ensure that clients and lawyers in the Firm are attuned to the latest developments relating to e-discovery issues.

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