Protecting Privilege — New Rule 502 mitigates the risk of inadvertent e-discovery disclosures

By Michael Kozubek

Published in the 2/1/2009 Issue of Inside Counsel.

Privilege review has been a major culprit in the skyrocketing cost of e-discovery. With hundreds of thousands of documents subject to discovery in numerous cases, attorney-client communications and work-product information frequently end up in the hands of the opposing party. Because the production of privileged documents during discovery waives the privilege, discovery teams scour through documents trying to ensure nothing slips through that could damage their case. Still, with the volume of electronically stored information, inadvertent disclosure is almost inevitable, with potentially devastating results.

“Cases have been lost in part because of inadvertent disclosures,” says Bobby Balachandran, CEO of Exterro, a legal hold and workflow software provider.

But that risk diminished when Rule 502 of the Federal Rules of Evidence (FRE 502), originally drafted by the Judicial Conference Committee on Rules of Practice and Procedure, recently became law. The new rule is designed to mitigate the expense of privilege review while protecting companies from potentially large liabilities arising from inadvertent disclosures of privileged communication.

The rule provides that privilege is not waived when privileged communications are inadvertently disclosed, provided the holder of the privilege took “reasonable steps” to prevent disclosure and to rectify the error.

Litigators celebrated the enactment of FRE 502 while warning that it is not a panacea and does not remove the need for sound e-discovery management practices.

“The new rule is welcome news for litigants,” says David Lender, a partner at Weil, Gotshal and Manges. “An inadvertent production will not result in the waiver of the privilege as long as reasonable steps are taken to preserve the privilege before production.”

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CVS Pays $2.25 Million and Toughens Practices to Settle HIPAA Privacy Case

The U.S. Department of Health and Human Services and the Federal Trade Commission today announced that CVS, the nation’s largest retail pharmacy chain, will pay the U.S. government a $2.25 million settlement and take corrective action to ensure it does not violate the privacy of its millions of patients when disposing of patient information such as identifying information on pill bottle labels.  The settlement, which applies to all of CVS’s more than 6,000 retail pharmacies, follows an extensive investigation by the HHS Office for Civil Rights (OCR) for potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule.

In a coordinated action, CVS Caremark Corp., the parent company of the pharmacy chain, also signed a consent order with the FTC to settle potential violations of the FTC Act. OCR, which enforces the Privacy Rule, opened its investigation of CVS pharmacy compliance with the Privacy Rule after media reports alleged that patient information maintained by the pharmacy chain was being disposed of in industrial trash containers outside selected stores that were not secure and could be accessed by the public.

At the same time, the FTC opened an investigation of CVS. OCR and the FTC conducted their investigations jointly. This is the first instance in which OCR has coordinated investigation and resolution of a case with the FTC. “OCR is committed to strong enforcement of the HIPAA Privacy Rule to protect patients’ rights to privacy of their health information. We hope that this agreement will spur other health organizations to examine and improve their privacy protections for patient information during the disposal process,” said Robinsue Frohboese, acting director of OCR. “Such safeguards will benefit consumers everywhere.”

The Privacy Rule requires health plans, health care clearinghouses and most health care providers (covered entities), including most pharmacies, to safeguard the privacy of patient information, including such information during its disposal. Among other issues, the reviews by OCR and the FTC indicated that: * CVS failed to implement adequate policies and procedures to appropriately safeguard patient information during the disposal process; and * CVS failed to adequately train employees on how to dispose of such information properly. Under the HHS resolution agreement, CVS agreed to pay a $2.25 million resolution amount and implement a robust corrective action plan that requires Privacy Rule compliant policies and procedures for safeguarding patient information during disposal, employee training and employee sanctions for noncompliance.

HHS and FTC also will require CVS to actively monitor its compliance with the resolution agreement and FTC consent order. The monitoring requirement specifies that CVS must engage a qualified independent third party to conduct assessments of CVS compliance and render reports to the federal agencies. The HHS corrective action plan will be in place for three years; the FTC requires monitoring for 20 years.

The HHS Resolution Agreement and Corrective Action Plan can be found on the OCR Web site at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/cvsresagrcap.pdf. OCR has posted new FAQs that address the HIPAA Privacy Rule requirements for disposal of protected health information.

They can be found on the OCR Web site at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/disposalfaqs.pdf.

Information about the FTC Consent Order agreement is available at http://www.ftc.gov .

Feds Set Sights on ‘Gatekeepers’ in Fraud Investigations

Joe Palazzolo
Legal Times

Federal law enforcement officials said Wednesday they are targeting lawyers, mortgage brokers, real estate brokers and other “gatekeepers” who perpetrated fraud that contributed to the current economic crisis — a clear warning shot as the federal government is pumping billions of dollars into the financial sector.

“They have the most to lose, they’re the most likely to flip, and they make the best examples,” said Neil Barofsky, the special inspector general for the Troubled Assets Relief Program, during a congressional hearing on fraud enforcement. Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., was even more blunt: “I want to see these people prosecuted,” he said. “Frankly, I want to see them go to jail.” The hearing was meant to underscore the need for more law enforcement resources amid an upsurge in mortgage and corporate fraud investigations.

Leahy and Sen. Charles Grassley, R-Iowa, have introduced a bill that would expand the scope of federal fraud laws and provide funding for more prosecutors and investigators. FBI Deputy Director John Pistole told the committee that mortgage fraud investigations nearly doubled in the last two years to more than 1,600 in 2008. The bureau, he said, has more than 530 corporate fraud investigations open, including 38 directly related to the current financial crisis.

Pistole said he could see that number potentially rising into the hundreds. But federal law enforcers could do much more with additional resources, he said, pointing to the Justice Department’s successes in the wake of the savings-and-loan crisis of the 1980s. At the time, 1,000 agents and forensic investigators and dozens of federal prosecutors were devoted to the effort, which produced more than 600 convictions and $130 million in restitution. Compared to the $160 million lost during the S&L crisis, the current situation is far more dire, with financial institutions globally reducing their assets by more than $1 trillion.  But the Justice Department’s focus on national security has diminished the fraud ranks.

Pistole said 240 agents, supplemented by investigators from other agencies, are working on fraud cases stemming from the economic crisis. Rita Glavin, acting head of the Justice Department’s Criminal Division, said the department was in discussions with Barofsky about how best to handle criminal referrals and prosecutions when his office uncovers wrongdoing. She also said the Justice Department’s fraud section had created a mortgage fraud working group, with a collection of other enforcement agencies. Sen. Sheldon Whitehouse, D-R.I., asked Glavin whether DOJ had any designs for a nationwide mortgage fraud taskforce. Then-Attorney General Michael Mukasey repeatedly rejected the idea, saying individual U.S. Attorneys’ Offices were better equipped to handle the work. Glavin said the department was studying the issue. “No decision has been made with respect to that,” she said.

Data breaches rose sharply in 2008, study says Most of the lost data was neither encrypted nor password-protected

By Jeremy Kirk

January 7, 2009 (IDG News Service)

More than 35 million data records were breached in 2008 in the U.S., a figure that underscores continuing difficulties in securing information, according to the Identity Theft Resource Center (ITRC).

The majority of the lost data was neither encrypted nor protected by a password, according to the ITRC’s report.

It documents 656 breaches in 2008 from a range of well-known U.S. companies and government entities, compared to 446 breaches in 2007, a 47% increase. Information about the breaches was collected by tracking media reports and the disclosures companies are required to make by law.

Data breach notification laws vary by state. Some companies do not reveal the number of data records that have been affected, which means the actual number of data breaches is likely much more than 35 million.

“More companies are revealing that they have had a data breach, either due to laws or public pressure,” the ITRC wrote on its Web site. “Our sense is that two things are happening — the criminal population is stealing more data from companies and that we are hearing more about the breaches.”

The data breaches came from a variety of mishaps, including theft of laptops, hacking, employees improperly handling data, accidental disclosure and problems with subcontractors.

For the rest of this story, see computerworld.com.

Obama Administration Could Mean More Compliance Regs

January 5, 2009
By Drew Robb

Just as accounting scandals earlier this decade led to new regulations like Sarbanes-Oxley, last year’s global financial meltdown coupled with Democratic control of the White House and Congress seems like a recipe for a host of new compliance regulations — and thus more business for storage vendors and more work for storage administrators.

But the changes won’t stop with an Obama presidency and the 111th Congress. The leaders of the Group of 20 industrial and emerging countries (G-20) have been meeting to consider global regulations aimed at raising bank capital standards and regulating hedge funds, with European leaders at the forefront of the new financial market regulation.  While it might be years before all this results in any kind of international consensus, another round of regulation is almost certainly at hand.

* * *

SOX and other regulations like FRCP stimulated interest in the archive and nearline disk market and exposed tape media’s shortcomings for meeting search and audit requests.

“Generally, additional regulation mandates that organizations have to demonstrate their ability to reproduce transactional records within a specified timeframe when requested,” said Brian Kelly, an executive at Ernst and Young Global Ltd. “After the failure of some major organizations to respond to such audit requests, an overhaul of the archival process was mandatory.”

For more see enterprisestorageforum.com.

Reviewing Your Email and Internet Usage Policies

Written by Sue Walsh on January 2, 2009

As the year comes to a close it’s good time to review your Email and Internet usage policies and insure that they are clear and comprehensive. The folks over at SmartBiz have published some helpful tips to assist you. Here’s an excerpt:

As the Internet and email have become a big part of our everyday lives, employers need to make clear the separation between work and non-work. What someone would consider appropriate with friends may be out of line in the workplace. Each practice needs to have a clear, written policy in place to eliminate confusion by the employees on what is and is not acceptable.

Such policies are critical in this day and age. It only takes one email or dubious website to cause your business a lot of trouble in the form of viruses, security or confidentiality breaches, even lawsuits. So keep your policy updated and easily available to all your employees!

Welcome to 2009: the year of the regulator

British businesses will have to navigate a “regulatory minefield” in 2009 as global law enforcement agencies and regulators step up activity in response to the economic downturn, leading lawyers warn.

Neil Gerrard, head of the regulatory and litigation practice at DLA Piper, said: “I have no hesitation in calling the developing situation a regulatory minefield – and this is not an exaggeration. We are operating in an unprecedented time of financial pressures and market volatility and the authorities are more determined than ever that everyone will play by the rules.”

Mr Gerrard’s comments, which are echoed across the legal industry, follow an intense burst of regulatory activity in 2008. Last year saw the Financial Services Authority (FSA) launch its maiden criminal prosecutions for insider dealing and forging documents as well as tens of civil cases for market abuse and other offences. It also saw the Office of Fair Trading (OFT) launch its first criminal price-fixing prosecutions and levy record fines on businesses for breaking competition rules. Elsewhere the Serious Fraud Office (SFO), HM Revenue and Customs and the Health and Safety Executive all announced major investigations against British businesses and individuals.

Robert Wardle, former director of the SFO and a consultant at DLA Piper, said the aftermath of the credit crunch would create a particular focus: “We live in a fast changing world and have witnessed drastic and irreversible changes to our financial sector this year with the effects due to continue well into the new year and into the next decade,” he said.

“In the UK, the SFO has already announced a 50 per cent increase in investigations planned for 2009, whilst the FSA and City of London Police are keen to show that London is no soft touch on regulatory enforcement,” Mr Wardle added.

Although experts are divided over whether there is an increase in the actual level of corporate crime committed during an economic downturn, they are united in the belief that the level of such crime which is discovered always surges when times are tough. “When credit dries up and management changes, fraud comes to light,” Mr Wardle said, “There will be lots of material for regulators to look at it in 2009.”

As well as having more material to investigate, regulators and prosecutors will have the benefit of new tools to help pursue wrongdoing. In particular, Mr Wardle points out that the current recession is the first for which the Fraud Act 2006 will be in effect. In addition to simplifying the offence of fraud, the act also criminalises new practices such as making false representations and failing to disclose information, making it easier to prosecute behaviour that previously slipped outside the definition of fraud.

For more see timesonline.com.