To read more about FRE 502 in different jurisdictions, click here.
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."
The Waiver "Fix"
Prior to FRE 502, courts took conflicting positions on whether an inadvertent disclosure of protected information constitutes a waiver of privilege. Three different tests have been used by various courts: the strict test, where any production waives the privilege; the no-waiver test, under which inadvertent production never waives the privilege; and the intermediate test, which applies a multifactor test to determine whether the production waived the privilege.
Courts have also been inconsistent in determining the scope of the waiver. Until Rule 502's enactment, a party could be deemed to have waived the attorney-client privilege and work-product protection not only for information disclosed but also for any undisclosed information pertaining to the same subject matter.
For example, inadvertent disclosure of a transmittal letter from an attorney to a client might not be important, but the other party might use that disclosure to seek all communications related to the subject matter mentioned in the letter.
"Subject matter waiver has always been a bigger issue than inadvertent disclosure of privileged communications," Lender says. "The new rule says subject matter waiver will be the exception."
Before FRE 502 took effect, courts could approve "clawback" agreements between the plaintiffs and defendants ,providing that disclosing privileged documents did not waive the privilege and requiring the return of the inadvertently disclosed documents. But such agreements did not protect the privilege with regard to third parties that might become involved in subsequent litigation. FRE 502 extends the privilege protection to third parties for agreements a judge approves.
Even with FRE 502 in effect, inadvertent disclosure of protected information can still result in a privilege waiver. Litigation experts note the requirements for taking "reasonable" precautions against inadvertent disclosure and "reasonably prompt" measures to rectify it if it does occur are preconditions for maintaining privilege. This includes following the procedures in Rule 26 of the Federal Rules of Civil Procedure, which require notice to any party receiving the information claimed to be privileged and other provisions.
Beyond that, FRE 502 does not define what constitutes "reasonable" steps.
"Until case law develops to offer some examples, the rule will be open to interpretation by judges with widely differing levels of e-discovery savvy," says Jay Yelton, a partner at Miller Canfield.
It is clear that intentional disclosure of privileged information can result in subject matter waiver, says Michael Simon, technology counsel at Stratify Legal Discovery. When privileged information is intentionally disclosed, the rule states related subject matter may also need to be disclosed "if the undisclosed material covers the same subject matter as the materials that were disclosed, and the materials ought in fairness to be considered together."
Although the Judicial Conference considered making FRE 502 applicable in both federal and state venues, the final rule limits its application to
"However, under Rule 502(d), if a federal court orders that privilege was not waived by a disclosure, that order is supposed to bind other state courts as well," Yelton says.
As of press time, three states--Maryland, Arkansas and Louisiana--have adopted equivalent rules for use in their state courts, a trend Lender says is likely to continue.
Companies should take several reasonable precautions to provide for defensible e-discovery processes, including using state-of-the-art technology to assist in identifying privileged material. Simon cites the Judicial Conference's Explanatory Note to FRE 502, which states, "The use of advanced analytical software applications and linguistic tools in screening for privilege and work product may be found to constitute 'reasonable steps' to prevent inadvertent disclosure [of privileged information] ... depending on the circumstances." But review by human experts is still important.
"After data processing has begun, keyword searching should be reviewed to determine the types of documents appearing in 'hits' and keyword terms adjusted as required," Simon says.
Good records management, including data mapping (knowing what data is in what systems), records retention cycles (knowing what records are maintained for stated periods) and chain of custody (knowing who was responsible for receiving and maintaining records) remain important in providing a basis for argument of the reasonableness of e-discovery processes, Balachandran says.
Finally, Yelton recommends developing a privilege review protocol during the "meet and confer" session with the opposing counsel.
"Your opponents will find it much harder to challenge the reasonableness of your decisions if you agree on a protocol in advance," he says.