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Winning the Battle of ESI Discovery Costs Without Losing the War – Proposed Federal Rule of Evidence 502: Time to Get the ESI House in Order

On September 26, 2007, the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States (Judicial Conference) submitted proposed Rule of Evidence 5021, Attorney-Client Privilege and Work Product: Limitations on Waiver, to Congress.2   In submitting proposed Rule 502, the Judicial Conference acknowledged that the current law on waiver of privilege and work product is responsible in large part for the rising costs of discovery, especially discovery of electronically stored information (ESI).  The Judicial Conference noted that in complex litigation, lawyers spend significant time and effort preserving privilege and work product because if a protected document is produced, there is a risk that a court will find a subject matter waiver that will apply not only to the instant document and case but to other documents and cases as well.

The Judicial Conference also recognized that there is enormous expense associated with document production in order to protect against inadvertent disclosure of privileged information, because the producing party risks a ruling that even an inadvertent disclosure can result in a subject matter waiver.  Accordingly, the Judicial Conference took the position that if there were a way to produce documents in discovery without risking subject matter waiver, i.e., pursuant to proposed Rule 502, the discovery process could be made less expensive and less worrisome.

In its September 2007 submission to Congress, the Judicial Conference noted that proposed Rule 502 provides the following protections against waiver of privilege or work product:

Limitations on Scope of Waiver. Rule 502(a) provides that if a waiver is found, it applies only to the information disclosed, unless a broader waiver is made necessary by the holder’s intentional and misleading use of privileged or protected communications or information.

Protections Against Inadvertent Disclosure. Rule 502(b) provides that an inadvertent disclosure of privileged or protected communications or information, when made at the federal level, does not operate as a waiver if the holder took reasonable steps to prevent such a disclosure and employed reasonably prompt measures to retrieve the mistakenly disclosed communications or information.

Effect on State Proceedings and Disclosures Made in State Courts. Rule 502(c) provides that (1) if there is a disclosure of privileged or protected communications or information at the federal level, then state courts must honor Rule 502 in subsequent state proceedings; and (2) if there is a disclosure of privileged or protected communications or information in a state proceeding, then admissibility in a subsequent federal proceeding is determined by the law that is most protective against waiver.

Orders Protecting Privileged Communications Binding on Non-Parties.  Rule 502(d) provides that if a federal court enters an order providing that a disclosure of privileged or protected communications or information does not constitute a waiver, that order is enforceable against all persons and entities in any federal or state proceeding.  This provision allows parties in an action in which such an order is entered to limit their costs of pre-production privilege review.

Agreements Protecting Privileged Communications Binding on Parties.  Rule 502(e) provides that parties in a federal proceeding can enter into a confidentiality agreement providing for mutual protection against waiver in that proceeding. While those agreements bind the signatory parties, they are not binding on non-parties unless incorporated into a court order.

If the December 2006 Amendments to the Federal Rules of Civil Procedure regarding ESI did not spur company counsel to undertake a detailed compliance review of the company’s ESI retention policies, the possibility that Congress might enact proposed Rule 502 should be cause to expedite such a review.  Given the expense associated with conducting ESI privilege reviews, enactment of Rule 502 will put tremendous pressure on company counsel to agree to produce ESI pursuant to Rule 502 which, although culled by various key word searches or other filters, has not been reviewed by counsel for privilege.

The rationale for such an approach will be that any privileged ESI that may be produced can simply be retrieved as inadvertently produced or pursuant to a court order and/or agreement of the parties.3   It does not take much imagination to foresee circumstances where having an opposing party simply “return” inadvertently produced privileged ESI will not undo the harm inflicted by such disclosure.  In addition, an often unacknowledged byproduct of detailed ESI privilege reviews is the ability to eliminate ESI which may have been included in a production set due to key word searches or other filters, but is not responsive to the request at issue, and may be of such a sensitive nature, that any harm caused by disclosure can not be undone.

Accordingly, company counsel must come to grips with the fact that combining the enactment of Rule 502 with an outdated and/or ignored ESI retention policy (or worse, the absence of an ESI retention policy altogether) is a recipe for disaster.  It is only through a well managed ESI retention policy that company counsel will be able to utilize proposed Rule 502 to win the battle of ESI discovery costs without losing the war by “inadvertently” disclosing privileged or non-responsive damaging ESI.

1Proposed Federal Rule of Evidence Rule 502 provides: Rule 502. Attorney-Client Privilege and Work Product; Limitations on Waiver.  The following provisions apply, in the circumstances set out, to disclosure of a communication or information covered by the attorney-client privilege or work-product protection.

(a) Disclosure made in a federal proceeding or to a federal office or agency; scope of a waiver. – When the disclosure is made in a federal proceeding or to a federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a federal or state proceeding only if: (1) the waiver is intentional; (2) the disclosed and undisclosed communications or information concern the same subject matter: and (3) they ought in fairness to be considered together.

(b) Inadvertent disclosure. – When made in a federal proceeding or to a federal office or agency, the disclosure does not operate as a waiver in a federal or state proceeding if: (1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to prevent disclosure: and (3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Fed. R. Civ. P. 26(b)(5)(B).

(c) Disclosure made in a state proceeding.  When the disclosure is made in a state proceeding and is not the subject of a state-court order concerning waiver, the disclosure does not operate as a waiver in a federal proceeding if the disclosure: (1) would not be a waiver under this rule if it had been made in a federal proceeding; or (2) is not a waiver under the law of the state where the disclosure occurred.

(d) Controlling effect of a court order.   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.

(e) Controlling effect of a party agreement.  An agreement on the effect of disclosure in a federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order.

(f) Controlling effect of this rule.  Notwithstanding Rules 101 and 1101, this rule applies to state proceedings and to federal court-annexed and federal court-mandated arbitration proceedings, in the circumstances set out in the rule. And notwithstanding Rule 501, this rule applies even if state law provides the rule of decision.

(g) Definitions. In this rule: (1) “attorney-client privilege” means the protection that applicable law provides for confidential attorney-client communications; and (2) “work-product protection” means the protection that applicable law provides for tangible material (or its intangible equivalent) prepared in anticipation of litigation or for trial.

2See Hill Letter – Re EV 502.  Rules governing evidentiary privilege must be approved by an Act of Congress.  28 USC § 2074(b).

3“Claw-back” or “quick peek” agreements between parties create a procedural framework for potential sequestering and/or retrieval of privileged ESI that is inadvertently disclosed during the course of discovery. Such agreements may be incorporated into a court order.

“This article appeared in the February 2008 issue of the Nebraska Lawyer.”