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March 19, 2014 Articles

A Privileged Position—Guidance for Nonwaiver Agreements and Orders

By David L. Schwan

For many young lawyers, the thought of discovery is usually preceded by the word “electronic.” You simply cannot fathom a world in which paper was the paramount, if not exclusive, realm of discovery. And while e-discovery has brought many helpful innovations to litigation, the legal world has confronted new problems requiring new solutions.

For instance, before email became the leading method of business communication, document discovery usually focused on a few file cabinets that were identified as possessing potentially responsive information. This would include relevant memoranda and notes, which were passed around and ultimately stored in an identifiable place. Then, with the advent of email and electronic documents, multiple versions of a single document were exchanged among several people across an organization and beyond. This led to an exponential rise in potentially relevant data for lawyers to review.

Unsurprisingly, as lawyers reviewed more documents, the privilege-review process became quite burdensome. And as of the 1990s, the fear of inadvertently producing a document loomed large in jurisdictions where production of privileged documents resulted in waiver, sometimes including all materials of the same subject matter. To address this growing problem, the Federal Rules of Civil Procedure were amended to provide a procedure for requesting potentially privileged documents after production and to encourage parties to enter nonwaiver agreements and orders. The Federal Rules of Evidence were also amended in 2006 to clarify the circumstances for a waiver finding after disclosure of privileged material, with further encouragement to pursue a judicial protective order precluding waiver arguments in other proceedings. And in 2012, the ABA amended the Model Rules of Professional Conduct to require attorneys to take “reasonable efforts” to protect client information from inadvertent disclosure.

ESI and the New Rules
In the early 2000s, e-discovery costs grew as strict waiver rules in some jurisdictions resulted in lengthy, and costly, privilege reviews of electronically stored information (ESI) and paper documents. Given this difficult situation, courts began to recognize that “insist[ing] in every case upon ‘old world’ record-by-record pre-production privilege review, on pain of subject matter waiver, would impose upon parties costs of production that bear no proportionality to what is at stake in the litigation.” See Hopson v. Mayor of Balt., 232 F.R.D. 228, 244 (D. Md. 2005). Even in cases in which the parties performed expensive privilege reviews, the complexity and sheer number of documents increased the risk that inadvertent privilege disclosures would occur.

The rule makers stepped in and amended Rules 16 and 26 of the Federal Rules of Civil Procedure in 2006. The amended rules encouraged parties to enter nonwaiver agreements and prodded the courts to recognize these agreements at scheduling conferences. However, while the new rules provided a great deal of encouragement, they were not mandatory and did not protect parties against third-party claims of waiver. The rule makers went back to the drawing boards pretty quickly and returned with a new rule for the Federal Rules of Evidence.

In 2007, the advisory committee for the Federal Rules of Evidence proposed Rule 502. The proposal addressed circumstances in which a disclosure of privileged information in a federal proceeding will result in waiver and, when waiver is found, its scope. The Senate passed the bill approving Rule 502 on February 27, 2008, and it passed the House on September 8, 2008. Eleven days later, President Bush signed the bill into law. It then became effective in all proceedings “commenced after the date of enactment” and “insofar as is just and practicable, in all proceedings pending” on September 19, 2008.

Five subsections of Rule 502 merit a brief overview. Rule 502(a) addresses the scope of a privilege waiver in a federal proceeding. Under the new rule, the court may find a subject-matter waiver if the producing party intentionally discloses a privileged document in a selective and misleading manner to gain a tactical advantage (i.e., the sword-and-shield approach). In other words, an inadvertent disclosure will never result in subject-matter waiver.

Rule 502(b) moves away from the limited scope of privilege waivers and turns to the circumstances when waiver will be found for a particular document. An inadvertent disclosure will not result in a waiver finding in a federal or state proceeding if the producing party took “reasonable steps” to prevent the disclosure and, after learning of the document’s production, to rectify the error. The use of the term “reasonable” is, by necessity and by design, malleable and will vary on a case-by-case basis. And while the “reasonableness” inquiry has generally been a forgiving one by the courts, this has not always been the case, as described further below.

Rule 502(c) was passed to deal with disclosures in a state proceeding in which the disclosure was not the subject of a state-court order concerning waiver. The rule states that such disclosure will not result in waiver within a federal proceeding if either (1) the disclosure would not effect a waiver under the law of the state in which the disclosure occurred; or (2) the disclosure would not result in a waiver if it had been made in a federal proceeding. The drafters included this bifurcated approach to provide the greatest latitude for protection of the privilege under either local or federal law, whichever would be more deferential to its assertion.

Rule 502(d) states, in full, that “[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.” As discussed below, the language of the rule does not require “reasonable steps” (language from Rule 502(b)) to be taken that would prevent a waiver finding upon an inadvertent disclosure. Rather, the advisory committee specifically drafted the rule to permit courts to go beyond Rule 502(b) and approve clawback procedures in the absence of pre-production privilege reviews. The courts will generally enter 502(d) orders that are agreed upon, but the court may enter an order even in the absence of both parties’ consent. Rajala v. McGuire Woods, LLP, No. 08-2638-CM-DJW, 2010 WL 2949582 (D. Kan. July 22, 2010) (citing Congress’s statement that subsection (d) “is designed to enable a court to enter an order, whether on motion of one or more parties or on its own motion, that will allow the parties to conduct and respond to discovery expeditiously, without the need for exhaustive pre-production privilege reviews. . . .”).

Lastly, Rule 502(e) requires that to be binding on third parties, the litigation parties’ agreements as to disclosures and potential waivers must be incorporated into a court order under Rule 502(d). Thus, subsection (e) encourages nonwaiver agreements but also pushes parties to seek orders to obtain additional benefits as to third persons who may profit from a potential waiver.

On another front, as lawyers grappled with the new Rule 502 landscape encouraging clawback agreements, the ABA took a slightly different tack in amending Model Rule 1.6 on client confidences. Most lawyers are familiar with Model Rule 1.6(a), which imposes a duty to maintain the confidentiality of privileged and other information relating to a client’s representation. Model Rule 1.6(b) contains certain well-delineated exceptions to the general rule, and a new subsection, 1.6(c), states as follows: “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.” Thus, to comply with Model Rule 1.6(c), a lawyer must endeavor to prevent an unauthorized disclosure in the first instance, regardless of the effects of such disclosure. This is distinct from a lawyer’s potential duties under a Rule 502 order or agreement that may permit disclosure while avoiding waiver. The lawyer’s challenge is to employ a strategy of “reasonable efforts” to comply with confidentiality obligations, while simultaneously addressing potentially broad court orders regarding disclosure.

What Is “Reasonable” under Rule 502(b) and Model Rule 1.6(c)?
As stated above, Model Rule 1.6(c) imposes a duty on lawyers to take “reasonable efforts” to prevent any unauthorized disclosure, a duty that is often stricter than the range of permissible conduct under Rule 502. In developing a path forward, lawyers should understand what is allowed under the rules and find a way to be “reasonable” in both worlds.

The commentary to Model Rule 1.6 states that the determination of “reasonable efforts” may rest on certain nonexclusive factors, including “the sensitivity of the information, the likelihood of disclosure if additional safeguards are not employed, [and] the costs of employing the additional safeguards. . . .” Model Rule 1.6 cmt. 18 (2012). The client may also require certain safeguards to be taken beyond those required to comply with the rule or may give informed consent to waive the rule’s requirements.

Rule 502’s commentary addresses similar but distinct factors for determining whether “reasonable steps” were taken to avoid an inadvertent disclosure. According to the advisory committee’s note, the non-dispositive factors include “the reasonableness of precautions taken, the time taken to rectify the error, the scope of discovery, the extent of disclosure and the overriding issue of fairness. . . . Other considerations . . . include the number of documents to be reviewed and the time constraints for production.”

To date, there have been several cases in which courts have interpreted whether “reasonable steps” to prevent disclosure have been employed under certain facts. In most cases, the courts have taken a forgiving approach, recognizing that few privileged documents were disclosed within large productions and that the attorneys’ efforts to identify privileged documents beforehand were reasonable, albeit imperfect. However, this is not always the case, and courts sometimes take a harsh view toward inconsistent efforts to prevent disclosures. This is particularly when the documents contain egregious examples of attorney-client misconduct.

In any federal proceeding, a prudent lawyer should first talk to the client about the expected scope of discovery and the client’s cost-sensitivity for pre-production privilege reviews. Consistent with Model Rule 1.6(c), if such a review is prohibitive in terms of time and/or expense, the lawyer may advocate for a clawback agreement to minimize or avoid a lengthy privilege review. Before such a review, the lawyer should seek the client’s informed consent to avoid an ethical violation related to potential disclosures. In any event, those discussions should yield a protocol regarding how documents will be reviewed to reduce the risk of disclosures, a useful step that will be meaningful in any Rule 502(b) analysis.

Additional Tips
After developing a discovery protocol with particular steps including, for example, identifying an ESI vendor, and reviewing and testing sample sets of potentially privileged documents, attorneys should then seek opposing counsel’s agreement to implement these procedures on both sides of the litigation. The agreement should be explicit as to the tasks employed by everyone in reviewing documents before production, including steps that could protect third parties for subpoenaed documents, and also any actions producing parties should take after a production has been made. Further, the parties should specify in the agreement that their procedures are by definition “reasonable steps” under Rule 502(b), which can help minimize judicial inquiries into what else could have been done to avoid inadvertent disclosures. The parties should be clear that any disclosure of privileged materials is per se inadvertent and shall not constitute waiver if the party complies with the procedures as set forth in the agreement. This statement will lead the court to construe the parties’ duties under the agreement, not the potentially stricter reasonability analysis under Rule 502(b). And, after securing an agreement, the parties should incorporate that agreement into a court order under Rule 502(d) to ensure its applicability to nonparties and in other federal and state proceedings.

Nevertheless, if you as a prudent lawyer are unable to secure an agreement with opposing counsel, do not fear. You should move for a protective order with your proposed discovery protocol. If the court agrees with you, you will be protected under the Rule 502(d) order. If the court does not, or modifies your order, you will have further guidance and will at the very least have an advantage against opposing counsel because you have already developed procedures that you can later argue, if necessary, are “reasonable steps” to avoid a finding of waiver.

Young lawyers should definitely be aware of the new rules that have been established in the last decade to deal with inadvertent disclosures and waiver. Rule 502 presents a powerful option to preserve the privilege, even as to waiver challenges by third parties in state proceedings, and a prudent litigator should seek a carefully drafted Rule 502(d) order. And in complying with such orders, lawyers should be mindful of their competing ethical duty to avoid an inadvertent disclosure. While these rules may diverge at times, you should keep in mind that a well-crafted strategy to protect a client’s confidences will benefit you, the client, and the court under the new rules. In other words, you can achieve great results through your “reasonable” efforts.

Keywords: mass torts litigation, young lawyer, Rule 502, Model Rules, Federal Rules of Civil Procedure, Federal Rules of Evidence, e-discovery, ESI

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