Law Firm DQ’d for Use of Inadvertently Disclosed Privileged Email

In a 2–1 decision, a California appellate court upheld a trial court’s disqualification of a law firm after one of its lawyers decided not to return an adversary’s privileged email and to use it offensively before obtaining a court order allowing him to do so.  The court issued the ruling even though the lawyer received the privileged email from his client—not opposing counsel—and it facially appeared that the opposing party had waived the privilege by forwarding to a third-party.  McDermott Will & Emery LLP v. Superior Court, 217 Cal. Rptr. 3d 47 (Ct. App. 2017).  You may read this lengthy—but instructive—opinion here.

Client Sends Privileged Email to Third-Party

The facts are a bit convoluted, so I’ll try to simplify.  Dick Hausman, the 80 year-old son-in-law of Allergan Pharmaceuticals’ founder, was the president of a holding company that managed the family’s investment portfolio.  The McDermott firm represented the holding company.  Mr. Hausman’s son, Rick Hausman, later became president and “a struggle for control” of the holding company ensued.  Dick Hausman retained lawyer Mark Blaskey to represent him in these disagreements. More…

18 Questions Doom Counsel’s Inadvertent Disclosure Argument and Waive Privilege

We all know that lawyers must “promptly take steps to rectify” an inadvertent disclosure of privileged information or risk privilege waiver.  FRE 502.  And while the term “promptly” may have different meanings in different contexts, a federal court has ruled that permitting a lawyer to ask 18 deposition questions about an inadvprivilege boxertently disclosed, privileged email before lodging an objection was not prompt enough.  Waste Connections of N.C., Inc. v. K.R. Drenth Trucking, Inc., 2015
WL 4647823 (W.D.N.C. Aug. 5, 2015).  You may read the opinion here.

Background

In this breach-of-contract case, the corporate plaintiff produced over 11,000 emails and documents, including emails between the company’s Division Vice President and two in-house lawyers.  One of these emails contained a statement indicating the vice president’s interpretation of a pertinent contract provision.

At the vice president’s deposition, defense counsel showed him one of these emails and asked 18 questions about it without objection from plaintiff’s counsel.  The parties took a 49-minute lunch break and, upon resumption of the deposition, plaintiff’s counsel informed defense counsel that it appeared his client inadvertently produced privileged documents.

Defense counsel then filed a motion asking the court to deem the privileged waived as to the email used at the deposition as well as all inadvertently disclosed privileged emails.

Consent Protective Order

The parties agreed that a Consent Protective Order, available for review here, governed the vice president’s deposition and related discovery.  While the Order provides guidance regarding the identification and return of inadvertently produced documents, it was silent regarding the precautionary measures that the parties must take to avoid inadvertently producing privileged information.  The court took note of the absence of any governing provisions.

Adequate Measures

In the absence of guidance from the Consent Protective Order, the court defaulted to FRE 502 to determine whether the corporate plaintiff took adequate precautionary measures to prevent inadvertent disclosures.  The plaintiff argued that objections to privileged materials do not have to be immediate, but the court determined that allowing 18 questions before asserting an objection was neither immediate nor prompt.

The Court is sympathetic with counsel, but does not believe that he should be afforded greater protection than an attorney at trial who does not object to evidence at the critical point when tendered.

The court found the privileged waived and ordered production.

PoP Analysis

Two lessons arise from the Waste Connections opinion.  First, if lawyers agree on a protective order that governs inadvertent disclosures, then they should consider including an agreement on precautionary measures that each party must take to avoid inadvertent production of privileged information.  Without identified and agreed-upon measures, courts will default to FRE 502 (or state equivalent) to determine the adequacy of procedures.  A word of caution: if a party agrees to certain pre-production measures, then he must adhere to them or risk indefensible waiver.

Second, while allowing your opponent lawyer 18 questions on a putatively privileged document may not seem overly permissive, particularly when the lawyer was unsure how defense counsel obtained the documents and felt secure in the Consent Protective Order, the court’s ruling instructs lawyers to object immediately, even with a protective order, and prevent further questioning until all of the facts are known.

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.