A Trap for the Unwary? Discovery Plan Crafted Under Rule 26(f) No Guarantee Against Privilege Waiver

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January 07, 2010

In a recent decision, a magistrate judge in a U.S. District Court in New Jersey ruled that a discovery plan crafted pursuant to Federal Rule of Civil Procedure 26(f) did not protect the plaintiff’s inadvertent production of privileged documents from being subject to waiver. This case is important because it distinguishes between the procedural or process-based rules found in Federal Rules of Civil Procedure 26(b)(5)(B) and 26(f), and the substantive-based rules regarding privilege waiver found in Federal Rule of Evidence 502.

In United States v. Sensient Colors, Inc., 2009 WL 2905474 (D.N.J. Sept. 9, 2009), the parties entered into a joint discovery plan (the Plan) pursuant to Federal Rule of Civil Procedure 26(f). Two provisions in the Plan addressed the issue of inadvertent waiver. Paragraph III of the Plan provided:

Non-waiver: By exchanging documents or information with each other, the Parties do not waive any privilege, confidentiality or other protection from production that otherwise applies to such documents or information.

The second, found in Paragraph VI, stated that:

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The Parties agree that the inadvertent production of privileged documents or information (including ESI) shall not, in and of itself, waive any privilege that would otherwise attach to the document or information produced.

The plaintiff made six separate document productions to the defendant during the litigation. On three separate occasions the defendant notified counsel for the plaintiff that privileged documents had been produced, and on two other occasions, the plaintiff notified the defendant of errant productions. Ultimately, the defendant moved to compel production of these documents, arguing that plaintiff had waived the privilege on these materials. The plaintiff responded by asserting that the Plan addressed the inadvertent production of privileged documents, and that by its terms the production of the materials should not constitute a waiver.

The court rejected the plaintiff’s argument. The court determined that if the parties had intended the nonwaiver provision of the Plan (see Paragraph III excerpt, above) “to protect the disclosure of all privileged documents under any circumstances,” then Paragraph VI of the Plan “would [have been] superfluous.” The court also observed that if the parties had intended the Plan to function as a clawback agreement, that intent would have been specifically mentioned by the sophisticated counsel representing both litigants.1

Furthermore, the court found that the language in the Plan addressing inadvertent production was not meant to function as a clawback agreement, but was instead intended to function merely as an agreement between the parties “not to subject themselves to the harsh rule that a mere inadvertent production results in a[n automatic] waiver [of privilege].” The court buttressed this view by citing case law that disapproves of such blanket disclosure provisions as “contrary to relevant jurisprudence” because such clawback agreements “essentially immuniz[e] attorneys from negligent handling of documents,” and “lead to sloppy attorney review and improper disclosure which could jeopardize clients’ cases.”

The court then addressed the applicability of Federal Rule of Evidence 502 to the case. Initially, the court determined that although the matter was pending at the time of Rule 502’s enactment, the Rule could nevertheless be applied in this case because it found “no justifiable reason not to apply” it and because the Rule contemplated its application to ongoing matters “insofar as just and practicable.”

The court next observed that Rule 502(b) requires the producing party to establish three things. The party must demonstrate that (1) the disclosure was inadvertent; (2) it took reasonable steps to prevent disclosure; and (3) it took reasonable steps to rectify the error, including (if applicable) following procedures spelled out in Federal Rule of Civil Procedure 26(b)(5)(B). Citing the similarities between Rule 502(b) and existing case law that “opts for a middle ground approach to determine if an inadvertent disclosure operates as a waiver,” the court identified five factors that should be analyzed: “(1) the reasonableness of the precautions taken to prevent inadvertent disclosure in view of the document production, (2) the number of inadvertent disclosures, (3) the extent of the disclosures, (4) any delay and measures taken to rectify the disclosure, and (5) whether the overriding interests of justice would or would not be served by relieving the party of its error.” The court then organized the plaintiff’s multiple disclosures into three groups to conduct this analysis: (1) documents identified by the plaintiff as inadvertently produced in a September 10, 2008 letter; (2) those similarly identified in a letter dated November 21, 2008, and (3) those identified in later correspondence.

The court found that the plaintiff satisfied the standards established by Rule 502(b) with respect to the first batch. The size of the production and the number of records inadvertently produced (the plaintiff produced approximately 45,000 documents, of which 214 were inadvertently produced), the use of sophisticated technology to conduct the review, the number of trained staff charged with the privilege review, and the quality control measures in place prior to production were all considered “plus” factors by the court in its analysis, as was the fact that the plaintiff acted within eight days to rectify its error once it learned of its mistake.

The plaintiff was not so fortunate with respect to the second and third batches of documents. The court found that after the plaintiff received the defendant’s first letter, it was on notice that something was amiss in its document production and privilege review, and reasoned that this notice should have caused the plaintiff to examine its other (future) productions. The court also determined that the plaintiff failed to respond in a timely fashion to the defendant’s second and third notice regarding inadvertently produced materials—delaying any remedial effort by three months with respect to the former and more than a month with respect to the latter.

This case high lights a number of important issues in addition to those regarding the scope of Rule 26(f) and Rule 502. For example, this case illustrates how courts are turning to existing case law to determine whether a production of privileged materials was in fact inadvertent, and to assess whether reasonable steps were taken to prevent disclosure and to rectify any subsequent problems in a production. Furthermore, the steps taken by the producing party in this case—its use of a sophisticated review tool by a well-trained staff and the implementation of quality control processes—should be considered by practitioners as important factors in establishing and meeting the reasonableness standard imposed by Federal Rule of Evidence 502(b). Finally, this case is a reminder that if things do go wrong, a failure by the producing party to take prompt remedial actions can doom well-intentioned and reasonable actions taken during the preproduction review phase.

1. A so-called “clawback” agreement involves the return of documents without waiver irrespective of the care taken by the disclosing party. See Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (S.D.N.Y. 2003).

Morgan Lewis’s eData Practice was formed in 2004 to handle the increasing complexities of discovery and management of electronically stored information. eData’s “best practices” are nationally recognized, and its resources include four discovery management centers on the East and West Coasts, as well as a think tank, The Discovery Manager’s Roundtable.

For more information regarding the subject discussed in this LawFlash, please contact any of the following Morgan Lewis attorneys:

Stephanie A. “Tess” Blair 215.963.5161 [email protected]
Jacquelyn A. Caridad 215.963.5275 [email protected]
Scott A. Milner 215.963.5016 [email protected]

New York
Denise E. Backhouse 212.309.6364 [email protected]

San Francisco
RenĂ©e T. Lawson 415.442.1443 [email protected]

Washington, D.C.
Robert B. Wiggins 202.739.5040 [email protected]

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