Today the risk of inadvertently disclosing privileged material is greater than ever. In an e-discovery world where attorneys must review an ever-increasing mass of information before turning over evidence to the other side, errors are inevitable. With these come a knotty legal problem: What should a lawyer do if he or she receives a privileged document by mistake?
In Rico v. Mitsubishi Motors Corp. (42 Cal. 4th 807 (2007)), the California Supreme Court unanimously concluded that when a lawyer comes across material from an adversary that is obviously confidential or privileged - and it appears that the material was disclosed inadvertently - the lawyer has a duty to:
- examine the material only to the extent necessary to determine that it is privileged or confidential;
- immediately notify the sender of the lawyer's possession; and
- attempt to resolve the dispute informally, or refrain from using the material until further court order.
Outside California, some jurisdictions view inadvertent disclosure as a waiver of privilege or weigh a number of factors to determine whether privilege has been waived. But in Rico, the protection discussed extends beyond attorney-client and work product documents; in California it applies to all privileged and confidential materials (Rico, 42 Cal. 4th at 817 n. 9).
Even if a receiving lawyer is uncertain whether the inadvertently disclosed material is privileged or confidential, the lawyer still must notify the sender that he or she is in possession of the materials. Further, an objective standard governs whether a lawyer should have known that a document was privileged. The court considers whether "reasonably competent counsel" would have concluded the materials were privileged, how much review was reasonably necessary to draw that conclusion, and when counsel's examination should have ended (42 Cal. 4th at 818). In the Rico case, for example, the document in question was not labeled as confidential or privileged; rather, it comprised typed notes of a meeting with experts. The court found that the document was obviously work product, a fact the reviewing lawyer quickly recognized.
Failure to abide by the rules governing privileged or confidential information can result in a lawyer's disqualification. Indeed, this is exactly what happened in Rico. The court determined that the plaintiff's lawyer came into possession of his opponent's work product through highly suspicious circumstances; admitted he knew the notes were work product; provided the notes to his own expert; and then used the privileged material while deposing the other side's experts. Applying an abuse of discretion standard, the Rico court upheld disqualification of the plaintiff's lawyers and its experts (42 Cal. 4th at 819-820).
Simply being exposed to confidential or privileged material is not necessarily enough to warrant disqualification, but it may justify other sanctions. Key factors are the extent to which the lawyer used the privileged material and the damage caused by the prohibited use (42 Cal. 4th at 819). Although the Rico court provided no further guidance on alternative remedies, the appellate court in an earlier case reversed the trial court's monetary sanctions because the ethical standard was not clear at that time. (See State Compensation Insurance Fund v. WPS, Inc., 70 Cal. App. 4th 644, 655-56 (1999).)
The lawyer requesting sanctions bears the burden of demonstrating that disclosure was inadvertent. Even so, the receiving lawyer must proceed cautiously. For example, sanctions of $7,500 were upheld against one receiving lawyer who mailed copies of the privileged documents to an arbitration panel (Bak v. MCL Financial Group, 170 Cal. App. 4th 1118 (2009)). The arbitrators viewed that act as a violation of the State Fund rule, since no copies should have been made for any purpose. The lesson? Receiving counsel should have sought the panel's direction before making copies.
Prior to Rico, there was some appellate authority that a lawyer could take advantage of inadvertently disclosed documents under the rubric of "zealous advocacy." In Aerojet-General Corp. v. Transport Indemnity Ins. (18 Cal. App. 4th 996 (1993)), the court of appeal held that a lawyer could use an internal memorandum that was inadvertently produced during discovery (it identified a witness). But the Rico court distinguished Aerojet-General, pointing out that the mere identity of a witness is not itself privileged and that the identifying data was the only information used (Rico, 42 Cal. 4th at 817).
Of course, these rules do not apply to intentional disclosures - for example, when a lawyer obtains public filings that include privileged material (E-Smart v. Drizin, 2009 WL 35228 (N.D. Cal. 2009)).
The Rico decision arguably may ease compliance with the California rule of professional conduct that an attorney has the duty to "maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." (Cal. Bus. & Prof. Code § 6068(e).) An attorney who violates this duty faces possible discipline from the State Bar (Cal. Bus. & Prof. Code § 6103) and may be exposed to civil liability for malpractice or breach of confidence. (See Tele-Count Eng'rs, Inc. v. Pac. Tel. & Tel. Co., 168 Cal. App. 3d 455, 461 (1985).) But based on Rico, it would appear that inadvertent disclosure - even if negligently done - is not a violation of section 6068(e) and may not constitute malpractice.
If the producing attorney advises the receiving attorney that an inadvertent disclosure has occurred, the receiving attorney must refrain from looking through the material. Even without such notice, the recipient can examine the documents only enough to determine that they are privileged. The recipient then must immediately call the producing lawyer to inform him or her. If the materials may be privileged but are not obviously so, the receiving attorney still must notify the producing attorney. The point here is simple: When a dispute over privileged material arises, stop; speak with your adversary; and if you have a disagreement, present the question to the court.
And take note: Even in privileged situations, the receiving attorney may still be able to use the information in a number of ways. As the Aerojet court observed, once a lawyer acquires information through no fault of his own, "he cannot purge it from his mind." (Aerojet, 18 Cal. App. 4th at 1006.) Thus, the best way to preserve confidentiality is to carefully review material before producing it to the other side.
Rule 26(b)(5)(B) of the Federal Rules of Civil Procedure mandates that if information produced in discovery is subject to a claim of privilege, the party making the claim may notify any recipient and state the basis for the claim of privilege. After being notified, the recipient "must promptly return, sequester, or destroy" the information and any copies.
Rule 26 does not address whether production during discovery waives the attorney-client or work product privilege. This matter was resolved with the enactment of Federal Rule of Evidence 502, which was a response to concerns about the cost and burden of e-discovery. Rule 502 applies only to the attorney-client privilege and attorney work product. Subpart (a) of the rule limits the scope of a privilege waiver in most instances to the disclosed document, as opposed to all documents involving the same subject matter as the disclosed document. Subpart (b) of the rule codifies the majority view that inadvertent disclosure does not waive the privilege so long as the holder took reasonable steps to prevent disclosure and acted promptly to retrieve the information. Rule 502 (d) and (e) are also important. They provide that a disclosure agreement binds only the parties to it, unless the agreement is incorporated in a court order; under a court order, the protection can spread to any other federal or state proceeding.
However, unlike California law, under federal law nothing appears to require that the receiving attorney notify the producing attorney, stop reading the disputed documents or abstain from using them. Further, the protective cloak of rule 502 covers only attorney-client and work product privileges. Rule 502 does not protect against waiver of any other recognized privilege, such as spousal privilege or doctor-patient privilege; nor does it protect confidential information, such as personal or financial information, or any trade secrets.
Although the federal rules do not place the same burden on the receiving attorney, it is nonetheless best to adhere to the stricter standard when a receiving attorney realizes that privileged material has been inadvertently disclosed. In a recent case illustrating the federal rule, the plaintiff originally produced in excess of 200,000 documents. When the court subsequently ordered further production, the plaintiff produced additional items, including compact discs containing "227 attorney-client privileged emails." The plaintiff explained it had not completed a thorough internal review of the material, being "unable to view the files because of the substantial size of the folders containing e-mails in .pst form that needed to be viewed through ... [a] Microsoft Outlook application program." (Infor Global Solutions (Michigan) Inc. v. St. Paul Fire & Marine Ins. Co., 2009 WL 2390174 at * 1 (N.D. Cal. 2009).) Notably, the defendant realized that privileged documents had been produced, ceased reviewing the documents, and notified the plaintiff. The plaintiff then sought a protective order prohibiting use of the privileged materials, while the defendant - with ethics unquestionably intact - opposed it.
The magistrate judge invoked rule 502, ruled for the defendant, and ordered the plaintiff to produce the privileged documents. The court found that the plaintiff had not taken reasonable steps to prevent disclosure, specifically citing the plaintiff's failure to seek an extension of time upon experiencing trouble in opening emails stored on the compact disc. Furthermore, the plaintiff had not entered into a non-waiver agreement with the defendant; nor did the plaintiff notify the defendant of the difficulties encountered in attempting to review material before its disclosure. Finally, the plaintiff made no effort to open the emails on the disc to review their content after producing the disc and before being notified by the defendant. The court recognized that loss of the attorney-client privilege in a high-stakes, hard-fought litigation is a severe consequence that can lead to serious prejudice, and acknowledged that to protect the privilege, the "law does not require strenuous or Herculean efforts, only reasonable efforts." Nonetheless, using a "holistic reasonable analysis," the court found that the plaintiff had waived the privilege (Infor Global Solutions, 2009 WL 2390174 at *2).
The plaintiff in Infor Global Solutions would have benefited from a "clawback" agreement. Even before the enactment of rule 502, parties were using clawback agreements to deal with the risk of inadvertent disclosure. In a clawback, both parties agree that disclosure of privileged material will not automatically constitute a waiver. If the producing party realizes that it has inadvertently produced privileged material, the producing party can "claw back" the material; the receiving party cannot use the privileged material once the producing party requests its return. Attorneys need not use rule 502's "reasonable efforts" standard in determining when a privilege is waived; they can agree to their own standard.
In Ohio, a federal magistrate judge enforced a clawback agreement to protect against the defendant's inadvertent disclosure of an email protected by attorney-client privilege (Monguio v. Ohio State University, 2009 WL 1575277 (S.D. Ohio 2009)). The parties had filed a stipulated protective order with a clawback provision permitting the producing party 10 days after the actual discovery of inadvertently produced material to notify the opposing party. The plaintiff argued that the defendant was on notice that it had produced the privileged email because the plaintiff's counsel had referenced the inadvertently disclosed email to the defendant in a letter. However, the defense counsel argued he had not read the letter carefully and did not discover the inadvertent disclosure until 20 days after the plaintiff's letter referenced the privileged email. The court found the clawback provision to be enforceable, ordered plaintiff to return the document, and prohibited further use of the email. The court also noted that the plaintiff's counsel should have contacted defendant's counsel directly to ask whether the email was inadvertently disclosed.
The growing capability of technology will only increase the frequency with which inadvertent disclosures occur. Tim Sanders, the former chief solutions officer for Yahoo, estimates that email accounts for as much as 90 percent of recorded business communication. And because of their informality, email messages can easily be misconstrued or mischaracterized-or, alternatively, can be the best evidence of the writer's true state of mind. Email can be stored indefinitely and in enormous quantities; it is easily searched and reproduced and can be virtually impossible to erase permanently. E-discovery amendments to the Federal Rules of Civil Procedure add electronically stored information to the list of materials to be included in a party's initial disclosures under rule 26(a)(1)(A); permit the court to include provisions for discovery of electronically stored information in its scheduling order under rule 16(b)(3)(B); and add e-discovery to the issues that must be discussed in the meet-and-confer process under rule 26(f).
The Rico decision, and the development of new rules dealing with e-discovery on the federal front, indicate a movement toward providing more protection for inadvertently disclosed information and acknowledging the challenges of e-discovery. The volume of email communication alone makes privilege review one of the most expensive components of attorneys fees-and such review occurs in virtually every business case of any complexity.
With massive volumes of email and other electronically stored information floating about, inadvertent disclosure of at least some privileged material is inevitable. Planning to protect against that probability with a workable clawback arrangement will protect both sides. However, there is no substitute for a thorough review of documents before production occurs: Counsel should only rely on the law of inadvertent disclosure as a last resort.