Ethics Corner: Inadvertent Disclosure—Traps Await the Unwary

Assume the following hypothetical:

You are a senior partner at a large international law firm, headquartered in a major metropolitan city. Suddenly, there comes an urgent knock on the door of your corner office. One of the firm’s brightest young associates, upon your wave, comes bursting in and shouts out: “I have incredible news! The other side in our bet-the-company case has produced to us some ‘smoking gun’ documents which will turn the tide of the litigation!” Upon your questioning of the young lawyer, she tells you (i) the “smoking gun” documents reflect privileged communications between the opponent’s board of directors and the company’s attorneys, and (ii) that the materials were undoubtedly produced by mistake. She also tells you that she has looked into the applicable rule of professional responsibility (Rule 4.4(b)), and all that is required is the following: “A lawyer who receives a document or electronically stored information relating to the representation of the lawyer’s client and knows or reasonably should know that the document was inadvertently sent shall promptly notify the sender.”

What should you, the senior partner, do? Does it depend on the jurisdiction in which you sit? Does it depend on things beyond what the ethics rules say? Does it depend on the court in which the litigation is being waged? Why is one prominent legal academic who called Rule 4.4(b) a “model of clarity” so wrong? The answers to these (and other) questions follow below.

The first question you need to ask yourself is: where am I? Many states do not follow ABA Model Rule 4.4(b). For example, a number of states require that you: (i) stop reading the document; (ii) notify the sender; and (iii) abide by the sender’s instructions. Other states require something less than those three steps. And while some states do in fact follow the ABA Model Rule, still other states have no Rule 4.4(b) at all. This disparate kettle of fish tees up an ethical quandary for any lawyer who has clients beyond just the four corners of the state in which she is licensed: how does she comply with these very different ethical obligations vis-à-vis inadvertent disclosure?

But let us assume you are in a jurisdiction that tracks ABA Model Rule 4.4(b) verbatim (e.g., New York). One thing the young associate did not mention (and perhaps has not read) are the Comments to Rule 4.4(b). And even though the Comments “are intended as guides for interpretation” only (and “the text of each Rule is authoritative”), two key Comments to Rule 4.4(b) have hidden in them two huge red flags. In the fourth sentence of Comment 2, the Rule drafters wrote the following:

Although this Rule does not require that the lawyer refrain from reading or continuing to read the document, a lawyer who reads or continues to read a document that contains privileged or confidential information may be subject to court-imposed sanctions, including disqualification and evidence-preclusion. (emphasis added)

And in the third sentence of Comment 3, the Rule drafters wrote the following:

[S]ubstantive law or procedural rules may require a lawyer to refrain from reading an inadvertently sent document, or to return the document to the sender, or both. (emphasis added)

Thus, if all you read is the “authoritative” Rule, but not the red-flagged Comments, you (the unsuspecting, but rule-compliant) senior partner might be “ethical,” but you could be facing some pretty unhappy consequences for blithely following this “model of clarity” Rule. And this is especially so, given that you are dealing with privileged materials inadvertently produced.

A few years ago, the legal powers that be (with the assistance of Congress) made some changes to protect lawyers who are imperfect in dealing with the production of privileged material. First, the Federal Rules Advising Committee adopted Fed. R. Civ. P. 26 (b)(5) (and analogs to it in Rules 16, 33, 34, and 37); and Congress thereafter adopted Rule 502 (b) of the Federal Rules of Evidence. The rules codify that an “inadvertent disclosure” of privileged material does not operate as a waiver so long as (i) the privilege holder took “reasonable steps to prevent disclosure”; and (ii) the privilege holder took “reasonable steps to rectify the error.” Whether this “reasonableness” approach has led to the promised land is unclear; for example, “reasonableness” appears to be in the eye of the judicial beholder. Compare Rhodes Industries, Inc. v. Building Materials Corp. of America, 254 F.R.D. 216 (E.D. Pa. 2008) with Sitterson v. Evergreen School District of 114, 196 P.3d 735 (Wash. Ct. App. 2008) with Mt. Hanley Ins. Co. v. Felman Prod. Inc., 2010 WL 1990555 (S.D. W. Va. May 18, 2010) with Edelen v. Campbell Soup Co., 265 F.R.D. 676 (N.D. Ga. 2010). And the claw-back safe haven provided by F.R.E. 502(d) has not appeared to have had much effect in obviating the risks of the “reasonableness” standard. See Spicker v. Quest Cherokee, 2009 WL 2168892 (D. Kan. 2009); see also J. Rosans, “6 Years In, Why Haven’t FRE 502(d) Orders Caught On?” Law360 (July 24, 2014).

As part of these reforms, Fed. R. Civ. P. 26 (b)(5) puts specific obligations onto the receiving lawyer once she is made aware of the production of privileged information: (i) she “must promptly return, sequester, or destroy” the material(s); (ii) she “must not use or disclose the information until the claim is resolved”; and (iii) she “must take reasonable steps to retrieve the information if the [receiving] party disclosed it before being notified.” (Interestingly, these requirements are similar to what the ABA prescribed prior to the promulgation of Rule 4.4(b). See ABA Formal Opinions 92-368 & 94-382.) About half of the states have imposed similar obligations on litigating lawyers in their jurisdictions. One that has not is New York State, which does not have the same or similar obligations in the Civil Practice Law and Rules. So New York litigators in New York federal courts would seem to have very different responsibilities with regard to inadvertent production than they would in New York State courts. And Virginia licensed attorneys also have their hands full. According to that state’s Standing Committee on Legal Ethics, an attorney who receives privileged materials inadvertently is not ethically obligated to return the materials to the sender, if “the confidential information [was] received in the discovery phrase of litigation,” rather than “[o]utside of the discovery process.” See Opinion 1871 (July 24, 2013).

In addition, the above-mentioned federal and state protocols have left some open issues for all lawyers governed thereby. For example, does the receiving lawyer have an affirmative obligation to notify the sender, or may she wait until she is “notified” of the inadvertent disclosure? And can the receiving attorney read the inadvertently produced material and/or share it with her client? Finally, what about privileged or confidential information that is overheard? (None of these rules seem to cover that scenario.)

Given the complexity and over-lay of different (but related) concepts, it is perhaps not surprising that courts, in sorting out the various protocols, have not been uniform in their approach to dealing with inadvertent disclosure. Compare Lipin v. Bender, 597 N.Y.S. 2d 390 (1^st Dept. 1993) (disqualification of attorney) with MNT Sales, LLC v. Acme Television Holdings, LLC, Index No. 602156/2009, NYLJ, p. 42, col. 5 (Sup. Ct. N.Y. Co. April 29, 2010) (use of material barred at trial) with Rico v. Mitsubishi Motors Corp., 171 P. 3d 1092 (Cal. 2007) (attorneys and experts disqualified) with Merits Incentive LLC v. Eighth Judicial District Court, 262 P. 3d 720 (Nev. 2011) (disqualification of attorney not ordered).

To help flesh out many of the foregoing points a bit more, a very recent judicial decision is instructive. In Harleysville Ins. Co. v. Holding Funeral Home, Inc., No. 1:15cv0057, 2017 BL 395 (W.D. Va. Feb. 2, 2017), a federal magistrate judge denied plaintiff’s motion to disqualify defense counsel. The litigation arose out of a dispute about insurance coverage relating to a funeral home’s fire. An employee for the insurance company put the entire case file (which included privileged materials) on an unprotected file-sharing site (which had no password protection), and then emailed a link to the site to the company’s outside investigator. Defense counsel issued a subpoena to the investigator, and its production in response included the e-mail listing the link. Defense counsel (i) first accessed the case file, and (ii) later produced the case file back to the insurer; the latter of which led to the motion to disqualify, as well as to motion practice on whether the insurer could claim a non-waiver under F.R.E. 502(b).

With respect to the Rule 502(b) issue, the magistrate judge focused (as highlighted above) on the “reasonableness” of the insurance company’s actions to protect the privileged materials. Based upon “material facts… not in dispute,” the magistrate judge determined there was “no evidence… that any precautions were taken to prevent this disclosure.” (emphasis by the court) By making the case file “accessible to anyone with access to the internet,” with no password protection, the insurance company failed the most basic tenet of “reasonableness”; as the magistrate judge concluded: “It is hard to imagine an act that would be more contrary to protecting the confidentiality of information than to post the information to the world wide web.” (The magistrate judge also ruled that there was a waiver of any attorney work product on similar grounds.)

Turning to the disqualification motion, the magistrate judge then ruled that the actions of defense counsel were improper under federal and Virginia procedural rules, as well as under operative Virginia ethics opinions (including Opinion 1871). Given that the e-mail link to the file-sharing site had a prominent “Confidentiality Notice” (which included this language: “This e-mail contains information that is privileged and confidential, and subject to legal restrictions and penalties regarding its unauthorized disclosure or other use.”), defense counsel (i) should have contacted plaintiff’s counsel about its access to the case file, and (ii) should have sought the court’s guidance as to whether there had been a waiver of applicable protections, before making use of the information. [All defense counsel had done was to call the Virginia State Bar Ethics Hotline for advice, action which, in the words of the magistrate judge, “belie[d] any claim that they believed that their receipt and use of the materials… was proper under the circumstances.”]

As to a sanction, the magistrate judge ruled that disqualification would be pointless, since “based on the court’s ruling on waiver, substitute counsel would have access to the same information.” As such, she found that “the more reasonable sanction is that defense counsel should bear the cost of the parties in obtaining the court’s ruling on the matter.”

Conclusion

In light of all of the foregoing, a number of concerned folks have suggested that the ethics gurus should go back and articulate a better (and more transparent) set of standards to govern how to handle inadvertent disclosure. But there has been significant pushback to that suggestion—on the ground that such a step “would be a step backwards.” According to one commentator, “[a] profoundly important argument for limiting the scope of lawyers’ ethical obligations in these situations is the unfairness of making the ‘innocent’ lawyers who receive such communications potentially subject to professional discipline in situations” not of their making; according to this pushback argument, “vagueness is preferable to… any broader rule.” See A. Davis, “Inadvertent Disclosure—Regrettable Confusion,” New York Law Journal (November 7, 2011).

Who is right in this debate? Who knows. What I do know is that, at present, inadvertent disclosure is one tricky and sticky wicket for any lawyer who gets caught up in it unaware.