Federal Rule of Evidence 502

Traditional Treatment of Inadvertent Disclosures

Where a disclosure is not considered to be inadvertent under the facts of a case, courts do not excuse the behavior and instead find that the privilege has been waived. See, e.g., Engineered Prods. Co. v. Donaldson Co., Inc., 313 F. Supp. 2d 951, 1020-22 (N.D. Iowa 2004); Urban Boxes Office Network, Inc. v. Interfase Managers, L.L.P., No. 01Civ.8854(LTS)(THK), 2004 WL 2375819 (S.D.N.Y. Oct. 24, 2004); S.E.C. v. Cassano, 189 F.R.D. 83, 85-86 (S.D.N.Y 1999).

Once a disclosure is found to be inadvertent, a court must decide whether the disclosure results in waiver of the privilege. Over the years, courts have followed three approaches to determine waiver following an inadvertent disclosure: the strict approach, the intermediate approach, and the lenient approach. Under the strict approach, any document produced either intentionally or inadvertently loses its privileged status. In re Sealed Case, 877 F.2d 976, 980 (D.C. Cir. 1989). The strict approach has been criticized because it has the potential to chill communications between clients and attorneys. Gray v. Bicknell, 86 F.3d 1472, 1483 (8th Cir. 1996). Under the lenient approach, if the disclosure is determined to have been inadvertent, the privilege is not waived. Although this approach promotes open and forthright communications between attorneys and clients, it creates little incentive to maintain control over privileged material. Increasingly, courts have applied an intermediate approach, in which several factors are applied on a case-by-case basis. Courts applying the intermediate approach use the following factors to determine the reasonableness of steps taken when an inadvertent disclosure occurs:

• The relative importance of the communication. The more sensitive the communication, the greater the protective measures that should be taken.;
• The efficacy of the precautions taken and whether additional precautions might have been taken;
• The effect of external pressures such as the volume of documents or deadlines;
• Whether disclosure was made by the client, the lawyer, or a third party; and
• The degree of disclosure.

Two cases decided within a few months of each other, one prior to the enactment of Rule 502 and the other shortly thereafter, show very different approaches to the intermediate approach for determining waiver.

Victor Stanley, Inc. v. Creative Pipe, Inc.

Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (D. Md. 2008) was decided a few months before the adoption of Federal Rule of Evidence 502. The defendants in that case inadvertently produced 165 privileged documents. The plaintiff took the position that the defendants had waived the privilege as to those documents. The court agreed, concluding that the defendants had not acted reasonably to guard against the disclosure of privileged documents.

Early in the case, Magistrate Judge Grimm ordered the parties to “identify a joint protocol to search and retrieve relevant ESI [electronically-stored information].” The parties' electronic discovery experts met and created lists of search terms to run against the parties' collected ESI ' e-mails, files, and other material ' to identify relevant documents. The defendants ran an initial search using the identified terms. Then, concerned about the large volume of documents that the search had turned up, along with the danger of inadvertent disclosure of privileged documents, the defendants created a second set of search terms designed to identify privileged documents. The defendants also requested a “claw-back” agreement from the plaintiff that would have allowed them to recover any inadvertently disclosed privileged document and prevent a waiver of the privilege as to that document. When the district judge granted a four-month extension to complete discovery, however, the defendants abandoned their request for a claw-back agreement.

The plaintiff discovered the privileged documents when it began its review and notified the defendants, who had not discovered the disclosure. The defendants demanded the return of the privileged material and, when the plaintiffs refused, brought the issue to the magistrate judge.

In evaluating the defendants' search and retrieval methods, Judge Grimm noted that although the Fourth Circuit has not adopted a test for determining whether waiver has occurred in the event of inadvertent disclosure, it seems inclined to adopt the strict test. Given the lack of certainty, however, Judge Grimm proceeded to analyze the facts under the intermediate test that Maryland federal courts have applied, under which a party's behavior is analyzed in light of five factors: 1) the reasonableness of the precautions taken to prevent inadvertent disclosure; 2) the number of inadvertent disclosures; 3) the extent of the disclosures; 4) any delay in measures taken to rectify the disclosure; and 5) overriding interests in justice. Id. at 259, quoting McCafferty's, Inc., v. Bank of Glen Burnie, 179 F.R.D. 163, 168 (D. Md. 1998). In Judge Grimm's view, the first factor militated most strongly in favor of his conclusion that the defendants had waived the privilege.

The defendants argued that they had behaved reasonably in creating and executing their search methodology, both for responsive and for privileged documents, saying that applying search terms and using a search software is sufficient evidence of reasonableness. Judge Grimm both disagreed with this assertion and expressed displeasure about the defendants' vague characterizations of their actions.

He leveled two criticisms against the defendants' description of their own behavior: Their story was incomplete and misleading, if not false, and was so vague that they did not carry the burden of establishing reasonableness. First, the defendants complained that the text-searchable documents in their data set were actually difficult to search, but the plaintiff claimed to be able to perform a keyword search of those documents in about an hour using a standard desktop search tool. The defendants further complained that the non-text searchable files were likewise hard to handle, but the plaintiff countered that those files were primarily image files, such as photos and drawings, and unlikely to be privileged. More importantly, the privileged documents that the defendants disclosed were all readily searchable text files, while any .pdf files were either already searchable or could have been made searchable using OCR (optical character recognition) software. Judge Grimm noted that the defendants provided no rebuttal to the plaintiff's version of the defendants' privilege review.

Regardless of whether one credits the plaintiff's or the defendants' version, Judge Grimm found that the defendants “failed to carry their burden of explaining what they had done and why it was sufficient.” He criticized the defendants' description of their word search as “regrettably vague in their description of the seventy keywords used for the text-searchable ESI privilege review, how they were developed, how the search was conducted, and what quality controls were employed to assess their reliability and accuracy.” In particular, the affidavits of the lawyer and party who developed the terms lacked: 1) a description of their “qualifications for designing a search and information retrieval strategy that could be expected to produce an effective and reliable privilege review”; 2) a statement that sampling was conducted of the text searchable files that were NOT identified in the privilege search in order to validate the methodology: “The only prudent way to test the reliability of the keyword search is to perform some appropriate sampling of the documents determined to be privileged and those determined not to be in order to arrive at a comfort level that the categories are neither over-inclusive nor under-inclusive,” Id. at 255; and 3) a description of how the searches were conducted. Were they simple searches? Were Boolean connectors, “stemming” or “fuzzy” searching methods used?

Finally, Judge Grimm acknowledged that then-pending Federal Rule of Evidence 502 would solve some of the problems posed by inadvertent disclosures of privileged documents by codifying existing law and offering essentially bullet-proof protection through a court-approved claw back agreement ' however, not for defendant Creative Pipe, because it had abandoned its own request for a claw-back agreement and had not acted reasonably in preventing inadvertent disclosures.

The Advent of Federal Rule of Evidence 502

Federal Rule of Evidence 502 adopts the intermediate approach to inadvertent disclosures of privileged documents and sets a clear legal standard.

Section (a) provides that when a disclosure that waives the attorney-client privilege or work product protection is made in a federal proceeding or to a federal office or agency, the waiver extends to an undisclosed communication in a separate federal or state proceeding only if the waiver is intentional, the disclosed and undisclosed communications concern the same subject matter, and the communications ought in fairness to be considered together.

Section (b) provides that when an inadvertent disclosure is made in a federal proceeding or to a federal office or agency, the disclosure does not constitute a waiver in a federal or state proceeding if: 1) the disclosure is inadvertent; 2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and 3) the holder promptly took reasonable steps to rectify the error, including, if applicable, following Federal Rule of Civil Procedure 26(b)(5)(B).

Section (c) provides that if a disclosure is made in a state proceeding and is not the subject of state court order concerning waiver, the disclosure does not operate as a waiver in a federal proceeding if the disclosure: 1) would not be a waiver under Rule 502 if the disclosure had been made in a federal proceeding; or 2) is not a waiver under the law of the state where the disclosure occurred.

Section (d) provides that a federal court may enter an order providing that the privilege or protection is not waived by disclosure connected with the litigation pending before the court, in which event the disclosure is also not a waiver in any other federal or state proceeding.

Section (e) clarifies that an agreement regarding disclosure in a federal proceeding is binding only on the parties to the agreement unless it is incorporated into a Section (d) court order.

Section (f) provides that the new rule applies to state proceedings and to federal court-annexed and court-mandated arbitration proceedings, and applies even if state law provides the rule of decision.

The Advisory Committee Note tells us that the Rule has two major purposes. First, it resolves long standing disputes in the courts about the effect of inadvertent disclosures of communications protected by the attorney-client privilege or work product doctrine; and second, it responds to the wide-spread concern about the skyrocketing costs of reviewing electronic documents and the fear that disclosures of privileged electronic documents, even innocent ones, will operate as subject matter waivers.

Section (b) adopts the intermediate approach, which maintains the privilege if the producing party took reasonable steps. There is no mention of a court order in part (b) of the rule; this is the section that applies to parties who do not have the protection of a Rule 502(d) order. The Advisory Committee Note cites cases such as Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 104 F.R.D. 103, 105 (S.D.N.Y. 1985) which rely upon a multifactor test to determine whether inadvertent disclosure constitutes waiver. The Note states that none of the factors is dispositive, and that the Rule does not explicitly codify that test, noting that “[t]he Rule is flexible enough to accommodate any of those listed factors.” Further, “depending on the circumstances, a party that uses advanced analytical software applications and linguistic tools in screening for privilege and work product may be found to have taken 'reasonable steps' to prevent inadvertent disclosure. The implementation of an efficient system of records management before litigation may also be relevant.” Thus, “reasonableness” will take a number of factors into consideration, including steps taken before the litigation was filed.

Section (d), by contrast, does not mention reasonableness. It does, however, bind parties outside the litigation. The Note observes that “the utility of a confidentiality order in reducing discovery costs is substantially diminished if it provides no protection outside the particular litigation in which the order is entered.” In addition, “parties are unlikely to be able to reduce the costs of preproduction review for privilege and work product if the consequence of disclosure is that the communications or information could be used by nonparties to the litigation.” Section (d) contains the Rule's most robust protection, especially given its reach to state cases. Within this section lies the nub of the cost saving objective of the Rule. Indeed, it seems that there is nothing standing in the way of eliminating the privilege review altogether and executing a “dump” of digital documents on one's adversary, all under the protective umbrella of a Rule 502(d) court order. As the Note helpfully points out, “the Rule contemplates enforcement of 'claw-back' and 'quick peek' arrangements as a way to avoid the excessive costs of preproduction review for privilege and work product ' and ' provides a party with a predictable protection from a court order ' predictability that is needed to allow the party to plan in advance to limit the prohibitive costs of privilege and work product review and retention.” Significantly, a court order is enforceable whether or not it memorializes an agreement between the parties: “Party agreement should not be a condition of enforceability of a federal court's order.”

Rhoads Industries, Inc. v. Building Materials
Corporation of America

Rhoads Industries, Inc. v. Building Materials Corporation of America, 254 F.R.D. 216 (E.D. Pa. 2008) is the first case decided under Federal Rule of Evidence 502, which was signed into law on Sept. 19, 2008. The plaintiff admittedly produced over 800 privileged documents to defendants, but claimed that the production was inadvertent. Although Rule 502 was not in effect when the case was filed, it allows application to existing cases where “just and practicable.” In this case, the court concluded that it would be “just and practicable” to apply Rule 502 to the motions filed by defendants because it “sets a well-defined standard, consistent with existing mainstream legal principles ' .”

The parties did not enter into a claw-back agreement. The plaintiff had retained an electronic discovery consultant who helped it screen the documents using search terms. In addition, the consultant ran a separate set of search terms in order to identify privileged e-mails. Some e-mails were identified by the plaintiff but not listed on a privilege log. The court concluded that the privilege was waived in respect to the e-mails that had not been included in the privilege log; however, the 800 e-mails that were inadvertently produced could be “clawed back” without waiver of the attorney-client privilege.

The court analyzed Rhoads's behavior under Rule 502(b), which requires inadvertence, reasonableness in preventing the disclosure, and an attempt to rectify it. Although the court ultimately ruled that the interests of justice tipped the scales in favor of the producing party (the plaintiff) because the disclosure of privileged documents would be devastating to its case, the court also found that the plaintiff did not act reasonably in guarding against waiver. In its favor, the plaintiff retained a consultant who recommended and used a sophisticated screening device; this “shows that Rhoads substantially complied with” the Rule's Advisory Note, mentioned above, regarding the use of “advanced analytical software and linguistic tools.” Id. at 222. However, that was the only point in plaintiff's favor. The court found that, although it purchased litigation software and ran keyword searches, the plaintiff did not test the accuracy of those searches through sampling or other quality control methods except by running the searches again. This did not help, because the searches themselves seemed to have failed. Moreover, the plaintiff's search for privileged documents was applied only to the subject line of emails, and did not reach the body. Given the singularly unhelpful quality of many e-mail subject lines, this is a glaring omission. The plaintiff should have searched the entire text of the e-mail. As in Victor Stanley, the receiving party discovered the disclosure, an indication that the plaintiff was not on top of its production. Finally, the plaintiff's claimed time crunch resulted from its own failure to devote sufficient resources to the document review:

Rhoads failed to prepare for the segregation and review of privileged documents sufficiently far in advance of the inevitable production of a large volume of documents. Once this lawsuit seeking millions of dollars in damages was filed, [plaintiff] Rhoads was under an obligation to put adequate resources to the task of preparing the documents, which was completely under Rhoads's control. An understandable desire to minimize costs of litigation and to be frugal in spending a client's money cannot be an after-the-fact excuse for a failed screening of privileged documents ' Id. at 226-227.

Having described the plaintiff's failures in withering terms, however, the court exercised mercy and declined to hold that the privilege was waived. Given the plaintiff's omissions, the decision in Rhoads is surprising, and other courts may not follow it. The court seems to have been influenced by the fact that FRE 502 is a recent addition to the law, although the principles that it codifies are certainly not new.

Interestingly, the Rhoads court criticized Judge Grimm's Victor Stanley analysis for concluding in hindsight that more reasonable steps could be taken. Yet, how else can one determine reasonableness, other than through hindsight? In Rhoads, Judge Baylson acknowledged the plaintiff's failure to plan and allocate resources for its own case, but let the plaintiff off the hook for its unwillingness to expend the necessary resources to prosecute its own case. Judge Grimm's analysis is better-reasoned, and not unduly harsh. Abandoning its request for a claw-back agreement, Creative Pipe and the other defendants conducted an incomplete review of documents, even when reviewing for privilege, and failed to sample the documents that had not been returned by the privilege search. One could almost question whether the disclosure in that case ' and in Rhoads ' was truly inadvertent, a question that Rule 502 does not answer.

Part Two of this article will discuss the road ahead.

Cynthia K. Courtney is Day Pitney's Electronic Discovery counsel She is based in the Hartford, CT, office and is a member of the Commerical Litigation Department. Edgar B. Hatrick is an associate in the Commercial Litigation Department at the firm's Boston office. He practices in the areas of property and contracts litigation, product liability, and insurance defense.

The prospect of inadvertently disclosing privileged documents to one's adversary is one of a lawyer's worst nightmares. Before the advent of electronic discovery, when parties reviewed and produced tens of thousands, or even millions of pages of paper, it was an article of faith that every document would be reviewed, and, if found to be privileged, withheld under a substantiated privilege claim. There was a good reason for this: Courts routinely held that the attorney-client privilege was waived in the event of a disclosure, even if the disclosure was inadvertent, with the result that the document could be used by one's adversary. In some cases, the waiver applied to all documents of the same subject matter as the document that had been inadvertently disclosed, a development which could deal a death blow to one's case.

In today's digital environment, the volume of documents collected, reviewed and produced has exploded. One gigabyte ' about 75,000 pages ' is a relatively small case in the world of electronic discovery. With tight time frames and ever-increasing volumes of documents to review, the risk of inadvertently producing privileged material and the resulting pressure on lawyers and parties is greater than ever. Federal Rule of Evidence 502 was enacted in direct response to the risks and costs associated with reviewing large document sets and the attendant fear of disclosing privileged information.

This two-part article briefly summarizes the law of inadvertent waiver of privilege and the evolution of courts' approaches to this problem, describes the changes brought about by newly enacted Federal Rule of Evidence 502 and such leading cases as Victor Stanley, Inc. v. Creative Pipe, Inc. and Rhoads Industries, Inc. v. Building Materials Corp. of America, and offers a roadmap for the product liability practitioner to navigate the opportunities and challenges presented by Rule 502, while keeping privileged documents out of the hands of one's adversary.

Traditional Treatment of Inadvertent Disclosures

Where a disclosure is not considered to be inadvertent under the facts of a case, courts do not excuse the behavior and instead find that the privilege has been waived. See, e.g., Engineered Prods. Co. v. Donaldson Co., Inc. , 313 F. Supp. 2d 951, 1020-22 (N.D. Iowa 2004); Urban Boxes Office Network, Inc. v. Interfase Managers, L.L.P., No. 01Civ.8854(LTS)(THK), 2004 WL 2375819 (S.D.N.Y. Oct. 24, 2004); S.E.C. v. Cassano , 189 F.R.D. 83, 85-86 (S.D.N.Y 1999).

Once a disclosure is found to be inadvertent, a court must decide whether the disclosure results in waiver of the privilege. Over the years, courts have followed three approaches to determine waiver following an inadvertent disclosure: the strict approach, the intermediate approach, and the lenient approach. Under the strict approach, any document produced either intentionally or inadvertently loses its privileged status. In re Sealed Case, 877 F.2d 976, 980 (D.C. Cir. 1989). The strict approach has been criticized because it has the potential to chill communications between clients and attorneys. Gray v. Bicknell , 86 F.3d 1472, 1483 (8th Cir. 1996). Under the lenient approach, if the disclosure is determined to have been inadvertent, the privilege is not waived. Although this approach promotes open and forthright communications between attorneys and clients, it creates little incentive to maintain control over privileged material. Increasingly, courts have applied an intermediate approach, in which several factors are applied on a case-by-case basis. Courts applying the intermediate approach use the following factors to determine the reasonableness of steps taken when an inadvertent disclosure occurs:

• The relative importance of the communication. The more sensitive the communication, the greater the protective measures that should be taken.;
• The efficacy of the precautions taken and whether additional precautions might have been taken;
• The effect of external pressures such as the volume of documents or deadlines;
• Whether disclosure was made by the client, the lawyer, or a third party; and
• The degree of disclosure.

Two cases decided within a few months of each other, one prior to the enactment of Rule 502 and the other shortly thereafter, show very different approaches to the intermediate approach for determining waiver.

Victor Stanley, Inc. v. Creative Pipe, Inc.

Victor Stanley, Inc. v. Creative Pipe, Inc. , 250 F.R.D. 251 (D. Md. 2008) was decided a few months before the adoption of Federal Rule of Evidence 502. The defendants in that case inadvertently produced 165 privileged documents. The plaintiff took the position that the defendants had waived the privilege as to those documents. The court agreed, concluding that the defendants had not acted reasonably to guard against the disclosure of privileged documents.

Early in the case, Magistrate Judge Grimm ordered the parties to “identify a joint protocol to search and retrieve relevant ESI [electronically-stored information].” The parties' electronic discovery experts met and created lists of search terms to run against the parties' collected ESI ' e-mails, files, and other material ' to identify relevant documents. The defendants ran an initial search using the identified terms. Then, concerned about the large volume of documents that the search had turned up, along with the danger of inadvertent disclosure of privileged documents, the defendants created a second set of search terms designed to identify privileged documents. The defendants also requested a “claw-back” agreement from the plaintiff that would have allowed them to recover any inadvertently disclosed privileged document and prevent a waiver of the privilege as to that document. When the district judge granted a four-month extension to complete discovery, however, the defendants abandoned their request for a claw-back agreement.

The plaintiff discovered the privileged documents when it began its review and notified the defendants, who had not discovered the disclosure. The defendants demanded the return of the privileged material and, when the plaintiffs refused, brought the issue to the magistrate judge.

In evaluating the defendants' search and retrieval methods, Judge Grimm noted that although the Fourth Circuit has not adopted a test for determining whether waiver has occurred in the event of inadvertent disclosure, it seems inclined to adopt the strict test. Given the lack of certainty, however, Judge Grimm proceeded to analyze the facts under the intermediate test that Maryland federal courts have applied, under which a party's behavior is analyzed in light of five factors: 1) the reasonableness of the precautions taken to prevent inadvertent disclosure; 2) the number of inadvertent disclosures; 3) the extent of the disclosures; 4) any delay in measures taken to rectify the disclosure; and 5) overriding interests in justice. Id . at 259, quoting McCafferty's, Inc., v. Bank of Glen Burnie , 179 F.R.D. 163, 168 (D. Md. 1998). In Judge Grimm's view, the first factor militated most strongly in favor of his conclusion that the defendants had waived the privilege.

The defendants argued that they had behaved reasonably in creating and executing their search methodology, both for responsive and for privileged documents, saying that applying search terms and using a search software is sufficient evidence of reasonableness. Judge Grimm both disagreed with this assertion and expressed displeasure about the defendants' vague characterizations of their actions.

He leveled two criticisms against the defendants' description of their own behavior: Their story was incomplete and misleading, if not false, and was so vague that they did not carry the burden of establishing reasonableness. First, the defendants complained that the text-searchable documents in their data set were actually difficult to search, but the plaintiff claimed to be able to perform a keyword search of those documents in about an hour using a standard desktop search tool. The defendants further complained that the non-text searchable files were likewise hard to handle, but the plaintiff countered that those files were primarily image files, such as photos and drawings, and unlikely to be privileged. More importantly, the privileged documents that the defendants disclosed were all readily searchable text files, while any .pdf files were either already searchable or could have been made searchable using OCR (optical character recognition) software. Judge Grimm noted that the defendants provided no rebuttal to the plaintiff's version of the defendants' privilege review.

Regardless of whether one credits the plaintiff's or the defendants' version, Judge Grimm found that the defendants “failed to carry their burden of explaining what they had done and why it was sufficient.” He criticized the defendants' description of their word search as “regrettably vague in their description of the seventy keywords used for the text-searchable ESI privilege review, how they were developed, how the search was conducted, and what quality controls were employed to assess their reliability and accuracy.” In particular, the affidavits of the lawyer and party who developed the terms lacked: 1) a description of their “qualifications for designing a search and information retrieval strategy that could be expected to produce an effective and reliable privilege review”; 2) a statement that sampling was conducted of the text searchable files that were NOT identified in the privilege search in order to validate the methodology: “The only prudent way to test the reliability of the keyword search is to perform some appropriate sampling of the documents determined to be privileged and those determined not to be in order to arrive at a comfort level that the categories are neither over-inclusive nor under-inclusive,” Id. at 255; and 3) a description of how the searches were conducted. Were they simple searches? Were Boolean connectors, “stemming” or “fuzzy” searching methods used?

Finally, Judge Grimm acknowledged that then-pending Federal Rule of Evidence 502 would solve some of the problems posed by inadvertent disclosures of privileged documents by codifying existing law and offering essentially bullet-proof protection through a court-approved claw back agreement ' however, not for defendant Creative Pipe, because it had abandoned its own request for a claw-back agreement and had not acted reasonably in preventing inadvertent disclosures.

The Advent of Federal Rule of Evidence 502

Federal Rule of Evidence 502 adopts the intermediate approach to inadvertent disclosures of privileged documents and sets a clear legal standard.

Section (a) provides that when a disclosure that waives the attorney-client privilege or work product protection is made in a federal proceeding or to a federal office or agency, the waiver extends to an undisclosed communication in a separate federal or state proceeding only if the waiver is intentional, the disclosed and undisclosed communications concern the same subject matter, and the communications ought in fairness to be considered together.

Section (b) provides that when an inadvertent disclosure is made in a federal proceeding or to a federal office or agency, the disclosure does not constitute a waiver in a federal or state proceeding if: 1) the disclosure is inadvertent; 2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and 3) the holder promptly took reasonable steps to rectify the error, including, if applicable, following Federal Rule of Civil Procedure 26(b)(5)(B).

Section (c) provides that if a disclosure is made in a state proceeding and is not the subject of state court order concerning waiver, the disclosure does not operate as a waiver in a federal proceeding if the disclosure: 1) would not be a waiver under Rule 502 if the disclosure had been made in a federal proceeding; or 2) is not a waiver under the law of the state where the disclosure occurred.

Section (d) provides that a federal court may enter an order providing that the privilege or protection is not waived by disclosure connected with the litigation pending before the court, in which event the disclosure is also not a waiver in any other federal or state proceeding.

Section (e) clarifies that an agreement regarding disclosure in a federal proceeding is binding only on the parties to the agreement unless it is incorporated into a Section (d) court order.

Section (f) provides that the new rule applies to state proceedings and to federal court-annexed and court-mandated arbitration proceedings, and applies even if state law provides the rule of decision.

The Advisory Committee Note tells us that the Rule has two major purposes. First, it resolves long standing disputes in the courts about the effect of inadvertent disclosures of communications protected by the attorney-client privilege or work product doctrine; and second, it responds to the wide-spread concern about the skyrocketing costs of reviewing electronic documents and the fear that disclosures of privileged electronic documents, even innocent ones, will operate as subject matter waivers.

Section (b) adopts the intermediate approach, which maintains the privilege if the producing party took reasonable steps. There is no mention of a court order in part (b) of the rule; this is the section that applies to parties who do not have the protection of a Rule 502(d) order. The Advisory Committee Note cites cases such as Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co. , 104 F.R.D. 103, 105 (S.D.N.Y. 1985) which rely upon a multifactor test to determine whether inadvertent disclosure constitutes waiver. The Note states that none of the factors is dispositive, and that the Rule does not explicitly codify that test, noting that “[t]he Rule is flexible enough to accommodate any of those listed factors.” Further, “depending on the circumstances, a party that uses advanced analytical software applications and linguistic tools in screening for privilege and work product may be found to have taken 'reasonable steps' to prevent inadvertent disclosure. The implementation of an efficient system of records management before litigation may also be relevant.” Thus, “reasonableness” will take a number of factors into consideration, including steps taken before the litigation was filed.

Section (d), by contrast, does not mention reasonableness. It does, however, bind parties outside the litigation. The Note observes that “the utility of a confidentiality order in reducing discovery costs is substantially diminished if it provides no protection outside the particular litigation in which the order is entered.” In addition, “parties are unlikely to be able to reduce the costs of preproduction review for privilege and work product if the consequence of disclosure is that the communications or information could be used by nonparties to the litigation.” Section (d) contains the Rule's most robust protection, especially given its reach to state cases. Within this section lies the nub of the cost saving objective of the Rule. Indeed, it seems that there is nothing standing in the way of eliminating the privilege review altogether and executing a “dump” of digital documents on one's adversary, all under the protective umbrella of a Rule 502(d) court order. As the Note helpfully points out, “the Rule contemplates enforcement of 'claw-back' and 'quick peek' arrangements as a way to avoid the excessive costs of preproduction review for privilege and work product ' and ' provides a party with a predictable protection from a court order ' predictability that is needed to allow the party to plan in advance to limit the prohibitive costs of privilege and work product review and retention.” Significantly, a court order is enforceable whether or not it memorializes an agreement between the parties: “Party agreement should not be a condition of enforceability of a federal court's order.”

Rhoads Industries, Inc. v. Building Materials
Corporation of America

Rhoads Industries, Inc. v. Building Materials Corporation of America , 254 F.R.D. 216 (E.D. Pa. 2008) is the first case decided under Federal Rule of Evidence 502, which was signed into law on Sept. 19, 2008. The plaintiff admittedly produced over 800 privileged documents to defendants, but claimed that the production was inadvertent. Although Rule 502 was not in effect when the case was filed, it allows application to existing cases where “just and practicable.” In this case, the court concluded that it would be “just and practicable” to apply Rule 502 to the motions filed by defendants because it “sets a well-defined standard, consistent with existing mainstream legal principles ' .”

The parties did not enter into a claw-back agreement. The plaintiff had retained an electronic discovery consultant who helped it screen the documents using search terms. In addition, the consultant ran a separate set of search terms in order to identify privileged e-mails. Some e-mails were identified by the plaintiff but not listed on a privilege log. The court concluded that the privilege was waived in respect to the e-mails that had not been included in the privilege log; however, the 800 e-mails that were inadvertently produced could be “clawed back” without waiver of the attorney-client privilege.

The court analyzed Rhoads's behavior under Rule 502(b), which requires inadvertence, reasonableness in preventing the disclosure, and an attempt to rectify it. Although the court ultimately ruled that the interests of justice tipped the scales in favor of the producing party (the plaintiff) because the disclosure of privileged documents would be devastating to its case, the court also found that the plaintiff did not act reasonably in guarding against waiver. In its favor, the plaintiff retained a consultant who recommended and used a sophisticated screening device; this “shows that Rhoads substantially complied with” the Rule's Advisory Note, mentioned above, regarding the use of “advanced analytical software and linguistic tools.” Id. at 222. However, that was the only point in plaintiff's favor. The court found that, although it purchased litigation software and ran keyword searches, the plaintiff did not test the accuracy of those searches through sampling or other quality control methods except by running the searches again. This did not help, because the searches themselves seemed to have failed. Moreover, the plaintiff's search for privileged documents was applied only to the subject line of emails, and did not reach the body. Given the singularly unhelpful quality of many e-mail subject lines, this is a glaring omission. The plaintiff should have searched the entire text of the e-mail. As in Victor Stanley, the receiving party discovered the disclosure, an indication that the plaintiff was not on top of its production. Finally, the plaintiff's claimed time crunch resulted from its own failure to devote sufficient resources to the document review:

Rhoads failed to prepare for the segregation and review of privileged documents sufficiently far in advance of the inevitable production of a large volume of documents. Once this lawsuit seeking millions of dollars in damages was filed, [plaintiff] Rhoads was under an obligation to put adequate resources to the task of preparing the documents, which was completely under Rhoads's control. An understandable desire to minimize costs of litigation and to be frugal in spending a client's money cannot be an after-the-fact excuse for a failed screening of privileged documents ' Id. at 226-227.

Having described the plaintiff's failures in withering terms, however, the court exercised mercy and declined to hold that the privilege was waived. Given the plaintiff's omissions, the decision in Rhoads is surprising, and other courts may not follow it. The court seems to have been influenced by the fact that FRE 502 is a recent addition to the law, although the principles that it codifies are certainly not new.

Interestingly, the Rhoads court criticized Judge Grimm's Victor Stanley analysis for concluding in hindsight that more reasonable steps could be taken. Yet, how else can one determine reasonableness, other than through hindsight? In Rhoads, Judge Baylson acknowledged the plaintiff's failure to plan and allocate resources for its own case, but let the plaintiff off the hook for its unwillingness to expend the necessary resources to prosecute its own case. Judge Grimm's analysis is better-reasoned, and not unduly harsh. Abandoning its request for a claw-back agreement, Creative Pipe and the other defendants conducted an incomplete review of documents, even when reviewing for privilege, and failed to sample the documents that had not been returned by the privilege search. One could almost question whether the disclosure in that case ' and in Rhoads ' was truly inadvertent, a question that Rule 502 does not answer.

Part Two of this article will discuss the road ahead.

Cynthia K. Courtney is Day Pitney's Electronic Discovery counsel She is based in the Hartford, CT, office and is a member of the Commerical Litigation Department. Edgar B. Hatrick is an associate in the Commercial Litigation Department at the firm's Boston office. He practices in the areas of property and contracts litigation, product liability, and insurance defense.