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The E-Discovery Plot Thickens with the Passing of FRE 502

On September 19, 2008, Federal Rule of Evidence (FRE) 502 passed into law with the goal of establishing uniform, nationwide standards addressing the waiver of attorney-client privilege and work product protection. Besides healing the rift between numerous jurisdictions with varying standards, FRE 502 responds to rapidly escalating e-discovery costs by attempting to change the traditional document-by-document review process.

"The proposed new rule facilitates discovery and reduces privilege-review costs by limiting the circumstances under which the privilege or protection is forfeited, which may happen if the privileged or protected information or material is produced in discovery," according to the committee notes for the rule. "The burden and cost of steps to preserve the privileged status of attorney-client information and trial preparation materials can be enormous. Under present practices, lawyers and firms must thoroughly review everything in a client's possession before responding to discovery requests. Otherwise they risk waiving the privileged status not only of the individual item disclosed but of all other items dealing with the same subject matter. This burden is particularly onerous when the discovery consists of massive amounts of electronically stored information."

502(b) is the rule's core provision. It states that an inadvertent disclosure will not constitute a waiver when made in a federal proceeding or to a federal agency, if the privilege holder took reasonable steps to prevent disclosure or rectify the error.

This consolidation around a unified negligence standard (i.e. "reasonable steps") ends some of the problematic ambiguity attorneys have had to struggle with in the past. But open questions still exist regarding whether this new standard will allow lawyers to effectively change their habits and move beyond their traditional, expensive privilege review processes. To date, the results have been mixed, with understandably sparse attorney adoption and case law development.


All Rhoads Lead to "Justice"

From a case law perspective, the leading opinion is Rhoads Indus. Inc. v. Bldg. Materials Corp. of Am., abreach of contract action where the plaintiff admittedly (yet inadvertently) produced over 800 privileged, electronic documents. After returning the documents, the defendants claimed the producing party waived privilege because the production was careless, the response seeking return of the documents was delayed, and the plaintiff failed to produce adequate privilege logs.

As the first to interpret FRE 502, the court stated that "the most appropriate approach was to first determine whether the producing party has at least minimally complied with the three factors stated in Rule 502, i.e., that the waiver was inadvertent, the party took reasonable steps to prevent disclosure, and attempted to rectify the error."

The court correctly acknowledged that the reasonableness of the privilege review was the crux of the dispute and then determined that it should proceed to the traditional five factor test as stated in Fidelity & Deposit Co. of Md. v. McCulloch:

1) How reasonable were the precautions taken to prevent inadvertent disclosure regarding the extent of document production?

2) How many inadvertent disclosures were there?

3) What was the extent of disclosures?

4) Was there a delay in measures taken to rectify the disclosure?

5) Would the overriding interests of justice be served by relieving the party of its errors?

Despite finding for the receiving party on the first four factors--meaning that the producing party's processes were not "reasonable"--the Rhoads court nevertheless put a heavy weighting on the final "justice" factor:

"I find that the fifth factor, the interest of justice, strongly favors Rhoads. Loss of the attorney-client privilege in a high-stakes, hard-fought litigation is a severe sanction and can lead to serious prejudice. ... [D]enying these documents to Defendants is not prejudicial to Defendants because, in the first place, they have no right or expectation to any of Rhoads's privileged communications."

In an analogous opinion, but one that presaged FRE 502--Victor Stanley Inc. v. Creative Pipe Inc.--the court came to a different conclusion using the Fidelity testto determine if the producing party waived privilege after inadvertently producing 165 electronic documents. The Victor Stanley court honed in on the "reasonableness" of the search protocols, finding ultimately that the producing party's ad hoc approach didn't meet judicial muster, given the complexity now associated with e-discovery search technologies:

"Use of search and information retrieval methodology... requires the utmost care in selecting methodology that is appropriate for the task because the consequence of failing to do so... may be the disclosure of privileged/protected information to an adverse party, resulting in a determination by the court that the privilege/protection has been waived."


E-Discovery Defensibility in Light of FRE 502

The sparse case law currently surrounding FRE 502 probably won't do much to assuage litigators who are already wary of abandoning traditional document-by-document review methods for ones facilitated by "advanced analytical software applications" and claw back agreements. In addition to the general newness of FRE 502, litigators often voice concerns about how "bad facts" can still be harmful, even if the underlying documents are ultimately returned. This is because the opposition can often discover "clawed-back" information via depositions and other targeted discovery. Finally, there are those who voice ethical concerns about fulfilling their obligations completely without doing a page-by-page privilege review.

On the other hand, reducing e-discovery costs with claw-back agreements and advanced search tools is simply another exercise in risk management. Undoubtedly, there is significant monetary and time savings available to those litigators who use tools transparently and defensibly. In fact, this area has become so specialized that a number of law firms now market their capabilities as "electronic discovery counsel" since they're able to bring a higher level of competency than many traditional firms that attempt to manage e-discovery on an infrequent basis.

Failure to embrace new approaches and new technologies is the type of bunker mentality that may work in the near term but certainly isn't sustainable as companies push to contain escalating e-discovery costs.


What's next?

While the dust has not settled regarding the application of FRE 502, it is fairly certain that the reasonableness of e-discovery search (a core component of a defensible 21st century review process) will soon be litigated much more frequently. And, when litigators fail to meet the necessary standard of care, the underlying lawsuits will be decided in the balance... inevitably sprouting malpractice actions.

While the stakes are higher, the risks and rewards are ultimately manageable if litigators give this new area the concerted focus it warrants. Anything less, as the judge in Victor Stanley wrote, is to truly "go where angels fear to tread."

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Dean Gonsowski

A former litigator, general counsel and associate general counsel, Dean Gonsowski is the global head of information governance at Recommind and has more than 15...

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