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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E-Discovery Trends in 2009 — New developments in e-discovery will affect enterprise general counsel and compliance officers, law firms serving corporate clients, and IT departments

By Christine Taylor, January 9, 2008, 12:10 PM

A few years ago, the Taneja Group coined the term “Information Classification and Management” (ICM) to describe the technology of locating and classifying data throughout the enterprise. ICM covered sub-technology sectors such as e-discovery, compliance, data security control, and data management. However, we saw the term “e-discovery” trump the more comprehensive name as rabid attention turned from ICM to the specifics of civil litigation software tools. We are now seeing the e-discovery term itself take on a fuller usage, more akin to ICM. People do use the term when talking about civil litigation, but are also expanding it to encompass compliance, corporate governance, data classification, and even knowledge management.

In this broad sense we have looked at the trends of the e-discovery market as they impact its largest stakeholders: the enterprise general counsel and compliance officers, law firms serving corporate clients, and IT.

The crux of the matter is that e-discovery and its related areas will be extremely hot for litigation and compliance, especially those related to the financial meltdown. The market increasingly understands the necessity of e-discovery software tools and systems, and will move toward proactive e-discovery adoption. A more reactive approach will remain alive and well as many companies will still avoid implementation until driven to it by a lawsuit or federal investigation. But companies will increasingly understand that the e-discovery solution phenomenon is much more than a litigation aid. It also has major effects on federal compliance and internal governance, and potentially on data management throughout the enterprise.

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Judge Looks Past Inadvertent Disclosure Protection Rule

Shannon P. Duffy
The Legal Intelligencer
December 8, 2008

In one of the first decisions to interpret a new rule of evidence that governs “inadvertent disclosure” of privileged documents, a federal judge has held that if the “reasonableness” of the accidental disclosure remains in dispute, courts should continue to apply the traditional five-factor test to determine whether the privilege has been waived.

In his 21-page opinion in Rhoads Industries Inc. v. Building Materials Corp. of America, U.S. District Judge Michael M. Baylson was forced to resolve a dispute that arose when plaintiffs lawyers accidentally turned over more than 800 privileged e-mails when they provided the defense lawyers with copies of 78,000 e-mails.

The decision is one of the first to apply the newly enacted Rule 502 of the Federal Rules of Evidence, which protects against waiver of privilege if the disclosure is inadvertent and if the holder of the privilege took “reasonable steps” to prevent disclosure and to rectify the error.

But for lawyers, the ruling also serves as a reminder of another rule, Rule 26(b)(5)(B) of the Federal Rules of Civil Procedure, which mandates that lawyers create a privilege log for all documents withheld.

Although Baylson ultimately concluded that the privilege wasn’t waived for all 800 documents, he nonetheless found that the plaintiff’s failure to comply fully and timely with the mandatory requirements of Rule 26 meant that the privilege was waived for 120 documents.

“The obligation to log privileged documents is mandatory under the specific terms of Rule 26(b)(5). Despite Rhoads’s attempts to justify, explain and minimize its failure to log all of its inadvertently privileged documents by June 30, 2008, the court finds that the delay in doing so until Nov. 12, 2008 is too long and inexcusable,” Baylson wrote.

Defense lawyers urged Baylson to rule that the plaintiff had waived the privilege for all of the inadvertently disclosed documents because its process of screening the documents was “grossly insufficient.”

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Senate Judiciary Committee Passes Evidence Rule 502

The Senate Judiciary Committee approved S. 2450 without amendment.  The bill would amend the Federal Rules of Evidence to add new Evidence Rule 502. See Library of Congress

The legislation addresses waiver of the attorney-client privilege and work product protection and is identical to proposed language approved by the Judicial Conference of the United States and submitted to Congress for its consideration in 2007.  Any new rule of evidence requires an act of Congress to take effect.  See 28 U.S.C. § 2074(b).  New Federal Rule of Evidence 502 is expected to become law in December 2008.

Proposed Legislation Adopting Federal Rule of Evidence 502

The Judicial Conference’s Committee on Rules of Practice and Procedure submitted its proposed Federal Rule of Evidence 502 dealing with “Attorney-Client Privilege and Work Product; Limitations on Waiver” to the House and Senate Judiciary Committees.  See S. 2450.

After receiving the proposed rule from the Judicial Conference’s Rules Committee, the Senate Judiciary Committee asked the ABA for its view on the proposed rule. After conferring with the leaders of the ABA Litigation Section (principal sponsor of the ABA main policy on FRE 502(b)) and a subcommittee of the ABA Task Force on Attorney-Client Privilege, the ABA submitted a letter to the Senate Judiciary Committee on December 7 endorsing proposed FRE 502. See ABA Letter to SJC re 502The ABA Litigation Section sent supplemental letters in support of legislation to implement proposed FRE 502 to the Senate and House Judiciary Committees on December 10. Several other coalition groups, including ACC and the U.S. Chamber of Commerce, also submitted separate letters to Congress endorsing the legislation.

After receiving this substantial input, Senators Leahy and Specter introduced legislation on December 11, 2007, S. 2450, which would adopt proposed FRE 502 as submitted by the Judicial Conference’s Rules Committee. A copy of S. 2450 is attached. It is expected that the legislation will advance following the current recess of Congress, though it is unknown whether the Senate will hold hearings or vote on the bill without hearings.

Prediction for 2008: Avoiding Inadvertent Disclosure of Privileged Information becomes Top E-discovery Risk and Costs More than Complying with the FRCP

We have a year under our belt with the amended Federal Rules of Civil Procedure and the new procedures might not have caused as much immediate collateral damage as expected.  After all, the rules are procedural and did not affect substantive rights.  While the common law interpretation of the new procedures continues to evolve in practice, quickly emerging on the horizon is a substantive law that will, by comparison, rock the legal world — new Rule 502 of the Federal Rules of Evidence. 

There is much uncertainty, even among many lawyers, as to when the attorney-client privilege should be invoked or asserted.  Let’s face it, business people, and lawyers too, insist on using email for everything.  Hence, operationally, there are numerous challenges we all face in protecting confidential information from leaking through email forwarded to third parties.

In the context of records and information management, this is an increasingly important area.  New Federal Rule of Evidence 502 is scheduled to take effect in December 2008. The rule codifies circumstances in which a party might inadvertently disclose privileged information without waiving privileges. If “reasonable steps” are taken to avoid disclosure (e.g., measures taken before producing information to an adverse party) but some information accidentally gets in the hands of a third party, there would not be a waiver.  Good RIM policy and procedures would constitute reasonable steps. If you review the notes to the new rule, which are provided in earlier posts on this blog, you will find reference to this notion.  I testified on this specific subject before the Advisory Committee on Evidence Rules in January 2007.

The doctrine of inadvertent waiver is an area of great concern to all generals counsel in the United States, as a recent Lexakos survey of chief legal officers demonstrates. The subject of privilege waiver is an area lawyers, compliance officers, IT and RIM professionals need to study and better understand.  2008 should be an interesting year!

Best wishes to all for a happy holiday season!

Employee E-Mails to Personal Attorney Using Company E-Mail Systems Are Not Privileged

Employee messages to his attorney sent over the employer’s e-mail system, a practice against company policy, are not protected by attorney-client privilege or the work product doctrine under New York state law.  In denying the employee’s motion for a protective order, the court in Scott v. Beth Israel Medical Center (“BIMC”) precluded the employer from viewing Scott’s e-mails to his attorney from his BIMC account. In finding that the employee waived privilege, the court concluded that BIMC had an e-mail policy banning personal use and that Scott had constructive notice that BIMC had the right to monitor e-mail communications over its network. The court also rejected Scott’s work product doctrine argument based upon his attorney’s confidentiality notice e-mail footer, holding that the attorney’s confidentiality notice at the end of e-mails was “insufficient and not a reasonable precaution” to create a qualified privilege against disclosure.

See Scott v. Beth Israel Medical Center Inc., No. 602736/06, 2007 N.Y. Misc. LEXIS 7114 (N.Y. Sup. Ct. N.Y. Cty Oct. 17, 2007).