In the last installment of this six-part series, we discussed the circumstances under which a court might find that there are sufficient “indicia of control” to warrant requiring the company to preserve and produce documents in the possession of a third party. This segment explores ways to minimize the company’s discovery obligations when the business units have outsourced certain functions to third party vendors or consultants.
When engaging a vendor or consultant it is worth thinking — at least in passing — about the risk of litigation and to what extent the company will be required to preserve and potentially produce documents in the hands of the third party. The following precautions may, together or in isolation, reduce the chance that a court will find sufficient indicia present to conclude that the company is “in control” of the third party’s documents. Of course, depending on the jurisdiction and the judge, none of these suggestions is foolproof.
Emphasize the independent contractor relationship
The closer the relationship between the company and the third party, the easier it is for the party seeking discovery to show that the requisite control over documents exists. As suggested in the last part in this series, courts will often look in the first instance to the agreement between the company and the third party to determine if the company should be deemed in “control” of the third party’s documents. When drafting the agreement, avoid words like “agent” or “fiduciary,” which are classic indicia of control. Instead, the contract should make clear that each party is an independent contractor and does not have authority to act on behalf of the other party. The following language might be considered: “The parties are independent contractors to each other. Nothing in this Agreement shall be construed to create a partnership, joint venture, or agency relationship between the parties.”
Give the third party an exclusive right to purely internal communications
A company might also consider including language in the agreement that gives each party exclusive control over its purely internal communications. For example:
Any and all inventions, discoveries, developments, innovations, and programs related to the duties of Contractor to the company will be the property of the Company. Any internal communications amongst the employees of the Contractor will be the exclusive property of the Contractor. Nothing in this agreement will give the Company the right to demand Contractor’s internal communications related to the Company’s business in which the Company is not the recipient.
All email communications related to the company’s business or operations exchanged among employees of the contractor without Company as a recipient or sender are the exclusive and sole property of the creator of the communication.
Carefully restrict access to shared databases and use a separate email address for non-employees
As we noted in the last segment, courts will often equate access with control. To the extent company employees have access to the consultant’s third party communications, a court may deem this sufficient to find that the company has control or at least the practical ability to obtain documents from that party. To limit the appearance of wholesale availability, the company should limit access to shared databases to only those documents and/or programs that are necessary for a particular employee to do his or her day-to-day work. While this series is focused primarily on vendors and consultants, this suggestion is particularly important for companies that want to avoid production of documents from corporate parents or sister companies.
Likewise, if possible, use a separate email system and address for third party contractors instead of assigning the contractor a company email address. Although outside the scope of this article, this can also be advisable from a strategic perspective. If you use the same email address or only a slight variation of the company email address, a jury may later fail to appreciate the distinction between who is a full-time employee and who is a contractor on any given document. In only the rarest circumstances do you want the contractor speaking for the company, and even then it is typically only with the company’s approval. (Of course, from a business perspective, if the representative is dealing with customers, you may want the email address to be consistent. This is a judgment call, but one that should be very carefully considered, ideally before litigation arises.)
Define the third party’s role narrowly
In the same vein, you want to avoid the appearance that the third party’s status is that of a “de facto employee” in light of his or her role at the company. This can be avoided by defining the third party’s role very narrowly either in the agreement itself or in practice. Note, however, that doing so might prevent the company from taking advantage of favorable precedent regarding the attorney client privilege. In In re Copper Market Antitrust Litig., the U.S. District Court for the Southern District of New York ruled that communications with third party public relations firm was privileged where the PR consultant was the“[f]unctional equivalent of an employee.”
Use of confidentiality clauses/notice provisions
Companies will typically include a provision such as the following in their standard agreements:
In the course of performance under this agreement, parties may be given access to confidential information owned or relating to the other party, including but not limited to products/financial/pricing/marketing information, business strategies, and information relating to the party’s organization and operations, in any and all forms including electronic communications. Such Confidential information shall be the sole and exclusive property of the creator of the information.
Parties agree not to disclose such confidential information without explicit prior written consent of the other party. In the case of judicial or administrative process or any governmental or court order requiring disclosure of such information, Contractor must provide notice to the Company at the earliest practicable time prior to disclosure and provide the company with the opportunity to review the information upon such notice.
Under the current state of the law, such provisions are unlikely to be viewed as giving the company “control” over the third party’s documents, assuming other indicia are not present. As the Southern District of New York wrote in GenOn Mid-Atlantics LLC v. Stone Webster, Inc., “Contrary to Shaw’s contentions, the fact that FTI agreed to treat its audit work product as confidential, and to provide Alston & Bird with advance notice of subpoenas . . . does not establish that GenOn was granted any legal rights with respect to FTI’s information . . . Moreover, the provisions relating to the confidentiality of FTI’s audit materials do no indicate that FTI had an affirmative duty to furnish those materials to GenOn at its request or that of Alston & Bird.”
At the same time, these provisions have the advantage of giving the company an opportunity to review and, at a minimum, seek appropriate orders from the court if the company feels that certain materials should be subject to a higher degree of confidentiality protection and/or sealed.
While following the above suggestions cannot guarantee that you will avoid a ruling that the company has “control” over a third party’s documents for discovery purposes, it should leave room to argue against such a finding. In the next segment, we will discuss some items to consider when determining if the company does, in fact, want to limit its “control” over third party documents. Although lawyers tend to have a knee-jerk reaction that it is always best to avoid involvement in another entity’s discovery, there are instances in which it might benefit the company to maintain some say in when and what documents are produced. In addition, we will briefly address how to satisfy the obligation should the company decide to, or be ordered to, preserve and produce documents from vendors or consultants.