Clawback Agreement Does Not Prevent Waiver of (Inadvertent) Disclosure of Privileged Documents to Expert

A federal district court ruled that a lawyer’s purportedly inadvertent disclosure of privileged documents to testifying expert results in privilege waiver.  The waiver occurred even though the parties previously entered an anti-waiver clawback agreement governing inadvertent disclosures.  Great–West Life & Ann. Ins. Co. v. Am. Economy Ins. Co., 2013 WL 5332410 (D. Nev. Sept. 23, 2013).

In this insurance-coverageHanding Documents case, Great–West Insurance (GWI) and American Economy Insurance (AEI) entered a clawback agreement supplanting Fed. R. Evid. 502 and declaring that inadvertent disclosure of privileged documents did not result in privilege waiver.  AEI disclosed 12 privileged documents to its testifying insurance expert, who admitted that he reviewed the documents prior to preparing his Rule 26 expert report.

GWI sought production of these documents, arguing that disclosure to the expert waived the privilege.  AEI claimed that its lawyer inadvertently disclosed the 12 privileged documents to its experts and, consequently, the clawback agreement or FRE 502 precluded a waiver finding.

The court did not buy AEI’s argument, noting that disclosure of privileged documents to experts “falls outside” the parties’ clawback agreement and FRE 502.  The court found it irrelevant whether the documents were inadvertently disclosed because of FRCP 26’s bright-line disclosure rule.

With limited exceptions, FRCP 26(b)(4) protects from discovery an attorney’s communications with a testifying expert.  The rule does not, however, protect from discovery privileged documents provided to the expert for report-preparation purposes.

By claiming that it inadvertently disclosed the privileged documents to its expert, AEI attempted to apply the clawback principles of FRE 502 to Rule 26(a) expert disclosures.  But the court easily pierced this argument, finding the clawback agreement inapplicable because it applies to party-to-party disclosures, not disclosures to experts.  FRCP 26 governs disclosure to experts, and disclosing privileged documents to experts waives the privilege regardless whether disclosed intentionally or inadvertently.

Excellent DRI Article on Duty of Confidentialty and FRE 502 Waiver Preventions

Federal Rule of Evidence 502 authorizes parties to enter nonwaiver orders and nonwaiver agreements in an attempt to remedy inadvertent disclosures and avoid waiver of the attorney-client privilege or the work-product doctrine.Puiszis_Page_1  (As an aside, Rule 502 waiver preventions apparently do not apply to other evidentiary privileges).  Questions arise, however, whether Rule 502 protections comport with Model Rule 1.6’s duty of confidentiality, and whether utilizing Rule 502 protections may nevertheless lead to ethical violations.

Steven M. Puiszis’s excellent article, Reconciling Federal Rule of Evidence 502 with Model Rule 1.6, published in DRI’s reputable For the Defense journal, identifies the problems and offers sound solutions.  The article, accessible here, explains how 502(d) nonwaiver orders and 502(e) nonwaiver agreements may help avoid pre-production privilege-review costs but at the same time breach the lawyer’s confidentiality duty.   Mr. Puiszis’ correctly points out that Rule 502 has “not lived up to its promise” of reducing costs, and posits that the reason is concern that using 502 orders or agreements may result in an ethical violation:

While the entry of a Federal Rule of Evidence 502(d) nonwaiver order or a Federal Rule 502(e) nonwaiver agreement may allow an attorney to recover privileged or protected information produced in discovery, an unauthorized disclosure has nonetheless occurred. . . . Accordingly, a disciplinary tribunal could conclude that the mere entry of a nonwaiver order does not qualify as a reasonable attempt to prevent disclosure as required by Model Rule 1.6(c).

The article contains a thorough discussion of the “reasonable steps” required to protect against inadvertent disclosures and inadvertent release of confidential information and concludes with 7 meaningful practice tips.  The article is a must-read for in-house and outside counsel.  My thanks to Mr. Puiszis and DRI for permission to reprint the article in this post.

Privileges, Clawbacks, and Inadvertent Disclosures–Is Technology the Solution?

E-discovery requirements raise at least two significant concerns for in-house counsel: (1) controlling costs associated with collection and production; and (2) inadvertently producing privileged information.   And these two concerns force in-housecatch22 lawyers into a Catch-22 situation: a complete pre-production privilege review constitutes a significant cost item; yet, producing documents with limited to no pre-production privilege review risks inadvertent disclosures and privilege waiver, which could result in adverse ethical and legal-strategy consequences.

In my article, Privileges, Clawbacks, and Inadvertent Disclosures–Is Technology the Solution?, published in the January 2013 issue of The Corporate Counselor, I argue that Federal Rule of Evidence 502 and clawback agreements have proved inadequate to control costs and reduce privilege waiver risks.  Instead, in-house lawyers should consider technology assisted review (TAR) software as a tool for handling these competing concerns.  TAR software, also known as computer assisted review or predictive coding, uses sophisticated algorithms to review electronically stored information and return only highly relevant documents.  Use of the TAR software was recently approved by Magistrate Judge Andrew Peck in Da Silva Moore v. Publicis Groupe, 2012 WL 607412 (S.D.N.Y. Feb. 24, 2012), and this decision will likely persuade other courts to approve its use in e-discovery processes.

The article discusses FRE 502, clawback agreements, courts’ treatment of inadvertent disclosures, and how TAR software provides an alternative, and better, solution.  You may access the article at this link.  Thanks to ALM and The Corporate Counselor for permitting use of the article in this blog post.