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Technology: 5 tips to maximize the value of clawback agreements

Protect attorney-client privilege in the age of inadvertent production of electronic documents

One of the most well-established principles of our judicial system is attorney-client privilege. Attorney-client privilege is designed to promote full disclosure between attorneys and clients and to encourage individuals to seek attorneys’ services to help them understand and follow the law. The protection of this privilege is among the most important services that an attorney can provide for his client, particularly in the course of discovery.

With the advent of electronic discovery and the massive increase in the volume of material that is collected, reviewed and produced in litigation, it has become increasingly difficult to protect against the inadvertent disclosure of privileged material. Revealing the content of privileged material can be damaging to a client’s litigation position and, in some cases, his business.

Moreover, the production of privileged material could result in a waiver of the privilege as to the inadvertently produced material and/or its subject matter. An important, and underused, tool available to protect against these risks is the clawback agreement.

A clawback agreement is a mechanism that allows parties to agree in advance that if privileged material is produced during the course of litigation, privilege will not be waived. Rrather, the inadvertently produced material will be returned to the producing party and not used by the recipient. These agreements provide protection against the limitations of electronic screening and human error that is inherent in document review and production, particularly where the materials are voluminous. If used properly, clawback agreements can greatly reduce the costs of e-discovery by eliminating the need for a page-by-page privilege review before production.

Federal Rule of Evidence 502 (FRE 502) was enacted in 2008 with the express goal of combating the prohibitive costs of protecting against waiver of attorney-client privilege. The rule essentially provides that an inadvertent disclosure of privileged material will not operate as a waiver, so long as

  • The disclosure is inadvertent
  • The holder of the privilege took reasonable steps to prevent disclosure
  • The holder promptly took reasonable steps to rectify the error

The rule further provides that if the parties enter into a clawback agreement that it is binding on the parties and if it is memorialized in a court order it is also binding on third parties.

It is clear that with the adoption of FRE 502 and Federal Rule of Civil Procedure 26(b)(5)(B), which requires a party to “promptly return, sequester or destroy” and not use material that is identified as having been inadvertently produced until the claim is resolved, that the federal courts have taken significant steps to validate the utility and enforceability of clawback agreements. Moreover, there is no legitimate benefit to opting not to enter into a clawback agreement. Thus, every lawyer should seriously consider entering into a clawback agreement in litigation.

Provided below are a few simple guidelines to maximize the protections that can be created by entering into an appropriate clawback agreement:

1. Your clawback agreement must clearly state that inadvertent production of privileged material shall not constitute a waiver of privilege as to the material and/or its subject matter if the producing party identifies the material as having been inadvertently produced.

2. Your clawback agreement should be memorialized in a court order so that it is afforded all of the protections available under FRE 502. If you are unable to persuade your adversary to agree to your terms, you should file a motion with the court seeking to have a clawback order entered.

3. Your clawback agreement should address what steps must be taken to avoid inadvertent disclosure and to rectify the error in order to protect the privilege of any inadvertently produced material. The reasonableness requirements embodied within FRE 502 create an ambiguity that if left open by the parties could allow a court to effectively undo the protections that the parties expected to enjoy when they drafted their protective order.

One way to address this is by including a provision whereby all parties waive the “reasonable steps” requirements of FRE 502. Another option is for the parties to disclose in detail the steps they intend to take to avoid an inadvertent production of privileged material, establish the steps that will be required to rectify such disclosure and acknowledge and agree that such steps constitute “reasonable steps” as contemplated by FRE 502 for purposes of the agreement.

4. Your clawback agreement should clearly establish a procedure to be followed if there is a dispute regarding an assertion of privilege. This provision should clearly establish that, in accordance with FRCP 26(b)(5)(B) , a party must “promptly return, sequester, or destroy” and not use any material that the producing party identifies as having been inadvertently produced until the claim is resolved.

5. Lastly, you should consider whether you wish to include cost-shifting terms in your agreement. The resolution of a dispute over the privileged nature of a document can be costly and, particularly where documents are produced electronically, the return, sequestering or destruction of material can also be costly. It may be wise to agree up front who will bear those costs.

Contributing Author

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Judah Lifschitz

Judd Lifschitz is Co-President and the head of the Construction and Litigation & Trial Practice Groups at Shapiro, Lifschitz & Schram, P.C. He is an...

Additional Contributors: Laura Fraher

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