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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Will Tough Economy Push Companies to Outsource Legal Work? Some companies see big savings in ‘offshoring’ legal work – But how’s the quality?

David Hechler
Corporate Counsel
December 22, 2008

Martin Shively directs the worldwide IP operations of Microsoft Corp. But he doesn’t commute to the company’s campus in Redmond, Wash., every day. The associate GC works in a remote office in New Delhi, where he’s been based for 18 months overseeing not call centers, but outsourced patent work. And his operation is saving Microsoft millions on its legal bills.

Shively’s Indian experience dates back to 2004, when he took over budget responsibility for Microsoft’s patent group. There was a lot of buzz about outsourcing legal work to India; corporations like General Electric Co. were doing it, and slashing their legal bills. So Shively figured why not Microsoft? He started with the most basic task he could think of — proofreading patent applications. Instead of paying high-priced associates to do this work at a dozen U.S. law firms that drafted Microsoft’s filings, he hired one vendor in New Delhi to do them all. It was, he says, “a safe place to have a failure.” If it flopped “we just wouldn’t tell anyone,” he laughs.

But it didn’t flop. “We went there to save money,” he acknowledges. “We stayed and expanded because we liked the quality of the work.” It wasn’t just OK, it was better.

For more see law.com.

GCs: In-House Life Overloaded With Meetings, Bureaucracy

Katheryn Hayes Tucker
Fulton County Daily Report

Establishing trust with businesspeople is a key to success for a general counsel, according to a panel of GCs who offered advice and tips in a program for the Association of Corporate Counsel Georgia chapter last week at the Cumberland Maggiano’s Little Italy.

Keith Scott, senior managing attorney for Rollins Inc., parent of Orkin Exterminating, said when he joined the company 11 years ago, his first assignment was to spend a hot June day in Florida drilling holes in concrete to insert chemicals to kill termites. He said he quickly developed empathy for people working in other departments of the business.

Teresa T. Kennedy, assistant general counsel for Cox Communications Inc., said she studied the culture of the company and the different departments within it to learn how to communicate. She also learned to follow the word “no,” with “but…” and offer alternatives when she had a legal issue with a business goal.

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For more see Fulton County Daily Report (via Law.com).

Federal Government Turns Up Heat on General Counsel

By Mary S. Diemer, Litigation News Associate Editor

Anyone who thinks that being a general counsel is a cushy position with a corner office, providing plenty of time for playing golf and other kinds of perks, is living in the past. At a recent roundtable hosted by the ABA Section of Litigation’s Corporate Counsel and Class Actions and Derivative Suits Committees, panel members discussed the changing roles of a corporation’s general counsel and the increased scrutiny, responsibility, and visibility placed upon them in the post-Enron, Sarbanes-Oxley regulatory environment.

These days, general counsel are subject to almost strict liability-if they could have stopped the conduct, they may be accountable regardless of whether they were involved.

There is no dispute that general counsel must pay more attention to corporate compliance, as the government perceives them to be a gatekeeper for preventing corporate misconduct. According to a study prepared by the Section’s Corporate Counsel Committee, which was discussed at the program, there have been at least 76 investigations, enforcements, and criminal proceedings against in-house lawyers in the last five years, with 24 of those resulting in criminal indictments or convictions.

For more see ABAnet.org and General Counsel Under Attack-Criminal and Enforcement Proceedings, investigations and the Travails of In-House Counsel (ABA 2007)

CHIEF LEGAL OFFICERS PUTTING HIGH PRIORITY ON RECORDS AND INFORMATION MANAGEMENT COMPLIANCE PROGRAMS FOR 2008

91% of corporate counsel view records management compliance as important, but 75% still lack auditable standards for e-discovery processes

WEST ORANGE, N.J. – Nov. 1, 2007 – Since the new Federal Rules of Civil Procedure took effect last year, organizations have been looking to outside resources for more assistance in managing information capture and production demands. But a recent survey of chief legal officers from over 100 organizations indicates disappointment with the quality of those services and marginal progress with improving records and information management practices.

“The professional services market is fixated on legal discovery response needs, but not nearly enough attention has being given to the root cause of the information management crisis. E-discovery is a symptom of a more serious problem. More concentration on policy development, business process improvement, and education will enable companies to reduce the overall volume of information subject to discovery in the first place. The costs will continue to mount until leaders decide to get proactive. This is a great opportunity to add value to the bottom line,” says Lexakos founder Rick Wolf. 

In its just-released “Chief Legal Officer 2008 Strategic Planning Survey,” Lexakos asked law department leaders about plans to allocate resources to litigation support over the next year. The findings are telling. While 90% of companies expect their operating budget to increase or stay about the same in 2008, 86% do not plan to expand internal staff dedicated to litigation support. “These data suggest the trend of outsourced litigation support services will continue next year,” says Wolf. “While this might appear to be a boon for the legal services industry, organizations want innovation and better service, and the competition to win business should be high in 2008.” 

The study shows that 86.5% rank as important the need for “controlling outside counsel legal spend and reducing the number of law firms who represent our organization.” Only 21% “trust outside counsel to manage costs and choose the best alternatives for document review,” while 54% “do not believe outside counsel has a vested interest in devising cost-effective document review strategies.” These results are a wake-up call for law firms and e-discovery vendors.   

The study also asks chief legal officers key questions regarding their preparedness for the upcoming changes to the Federal Rules of Evidence and the doctrine of inadvertent waiver.

Lexakos is a business advisory group serving both the professional services industry and corporate legal community on governance, compliance, and risk management.


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Morgan Stanley May Face Wave of Suits After Admitting It Withheld E-Mail Evidence

As predicted in an earlier post on The Datakos Blawg titled “What is Happening to Morgan Stanley Could Happen to You,” Morgan Stanley is beginning to feel the ripple effect of its problems with email backup tape maintenance and controls.  The Daily Business Review reports “[a]ttorneys say they are gearing up to file hundreds of lawsuits against Morgan Stanley for allegedly hiding evidence from clients who filed arbitration claims.” 

 The residual effects of a bad outcome in a case of poor records management can be felt for many years to come.  For this reason, corporate leaders will have a difficult time avoiding any longer the need to invest and make a concerted effort to improve records and information management compliance.  The rationale that a bad event stemming from records management deficiencies is a “one off” or “unlikely to recur” simply will not cut it.  Once an organization gets sanctioned for signficant records management flaws, expect collateral attack from former litigants and regulators, who will attempt to reopen settlements and adjudications where evidence is perceived to have been withheld or carelessly destroyed.


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Record Backdating Settlement Reached in Mercury Case

By Debra Cassens Weiss

A group of pension funds will receive $117.5 million to settle their class action suit against Mercury Interactive Corp. for losses caused by stock options backdating.

The deal is the largest to date in a stock options backdating suit, the San Jose Mercury News reports. Previously the record was an $18 million settlement, according to the law firm representing the funds, Labaton Sucharow.

Mercury had already agreed to pay another $28 million to settle civil fraud charges related to the backdating that were filed by the Securities and Exchange Commission, the Wall Street Journal reports (sub. req.). The agency has also filed civil charges against four former Mercury executives, including former general counsel Susan Skaer.

For more see ABA Law Journal Online.