Federal Evidence Review

While vendor was responsible for inadvertent disclosure of privileged materials, application of FRE 502(b) factors avoided waiver of the privilege; court also noted “the unfairness of penalizing Plaintiffs for an error that it neither caused nor anticipated,” in Heriot v. Byrne, 257 F.R.D. 645 (N.D. Ill. March 20, 2009)

When counsel relies on a vendor to assist in producing electronic discovery, how does a court consider the inadvertent disclosure of privileged documents by the vendor, not counsel? How does new FRE 502 apply to this situation? This issue was considered in a case involving a copyright infringement action over a made-for-television documentary known as “The Secret.”

During the litigation, the defendants requested “[a]ll documents relating to United States visa applications filed by or on behalf of” plaintiff Drew Heriot, an Australian citizen and director of “The Secret.” The plaintiffs hired a document vendor to assist with electronic scanning and other discovery services. The plaintiffs obtained a paper copy of the visa which was scanned by the document vendor. In error, the vendor included the scanned visa materials and other e-mails marked “Highly Confidential” in the discovery production, which totaled nearly 7,000 pages consisting of nearly 1500 documents. The plaintiffs discovered the inadvertently disclosed materials in preparing for a deposition. The next day, the plaintiffs identified documents they believed were protected by the attorney-client privilege and asked that they be destroyed. The defendants kept on copy for filing under seal with the court and destroyed and “sealed off” access to the documents. The defendants moved to compel production of the contested documents.

In considering the issue, the court initially determined that FRE 502 applied to the case. In deciding whether the inadvertent waiver bar under FRE 502(b) would apply, the parties argued whether prior precedent governed the waiver issue, relying on Judson Atkinson Candies, Inc., v. Latini-Hohberger Dhimantec, 529 F.3d 371, 387-88 (7th Cir. 2008) (applying three factors including (1) whether the disclosed material was privileged, (2) whether the disclosure was inadvertent, and (3) whether the privilege was waived under a balancing approach; the balancing approach factor included consideration of “(1) the reasonableness of the precautions taken to prevent disclosure; (2) the time taken to rectify the error; (3) the scope of the discovery; (4) the extent of the disclosure; and (5) the overriding issue of fairness”).

The court concluded the Judson factors did not displace or override FRE 502(b) but were folded into the FRE 502(b) analysis. The flexible approach under FRE 502(b) permitted but did not require the court to apply “some or all” of the Judson factors. Alternatively, the court held that application of the Judson factors would not change the result. See Heriot, 257 F.R.D. at 654 n.5. The test adopted by the court included:

“First, a court determines whether the disclosed material is privileged. If it is not, the inquiry ends. If the material is privileged, the court applies FRE 502(b). If the court concludes that disclosing party satisfied all of the elements in FRE 502(b), the privilege is not waived. If, however, the disclosing party fails to satisfy any of the FRE 502 elements, the privilege is waived. In applying FRE 502(b), the court is free to consider any or all of the five Judson factors, provided they are relevant, to evaluate whether each element of FRE 502(b) has been satisfied.”

Heriot, 257 F.R.D. at 655 (footnote omitted).

First, the court concluded that the plaintiffs had met their burden to show that “nearly all of the Sequestered Documents” were protected by the attorney-client privilege. See Naik v. BoehringerIngelheim Pharms., Inc., No. 07 C 3500, 2008 WL 4866015, at *1 (N.D.Ill. June 19, 2008) (the attorney-client privilege applies “(1) where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the protection be waived.”) (citing United States v. White, 950 F.2d 426, 430 (7th Cir. 1991)).

The court found unpersuasive the defendants’ claim that the crime-fraud exception applied. See, e.g., United States v. BDO Seidman, LLP, 492 F.3d 806, 818 (7th Cir. 2007) (“The crime-fraud exception places communications made in furtherance of a crime or fraud outside the attorney-client privilege.”) (citing United States v. Zolin, 491 U.S. 554, 563 (1989)).

The court concluded that the plaintiffs met their burden to show the waiver was inadvertent under FRE 502(b)(1). As the court explained:

“[A]lthough Plaintiffs disclosed 13 percent of their privileged documents, the weight of the factors tips the balance in favor of inadvertent disclosure. First, Plaintiffs used reasonable procedures to review the Sequestered Documents and, after this review, the Vendor erroneously disclosed privileged documents. Plaintiffs had no reason to suspect the Vendor would inadvertently produce documents that Plaintiffs had already designated as privileged. Furthermore, there were no signs or indications after production that the Vendor made any inadvertent disclosure. Finally, upon learning of the disclosure, Plaintiffs immediately contacted Defendants, claimed attorney-client privilege, identified the privileged documents, and requested their destruction.”

Heriot, 257 F.R.D. at 660.

Second, the court concluded that the plaintiff took reasonable steps to prevent disclosure under FRE 502(b)(2). There was no obligation for further review of the documents after they were produced. The steps to review the documents for production were reasonable, including the review process and assignment of codes. It was the vendor who inadvertently disclosed the privileged materials.

Finally, the plaintiffs acted promptly to rectify the inadvertent disclosure under FRE 502(b)(3). The discovery of the inadvertent disclosure occurred before a deposition. Counsel then promptly requested destruction of the privileged materials.

Because all three FRE 502(b) factors were satisfied, waiver of the privilege from the inadvertent disclosure did not result. The court also noted “the unfairness of penalizing Plaintiffs for an error that it neither caused nor anticipated.” Heriot, 257 F.R.D. at 662. The defendants were ordered to destroy or return the privileged documents.

The Heriot case provides an interesting illustration of how one court addressed the issue of inadvertent disclosure caused by a vendor. Because the parties acted promptly and reasonably in responding to the disclosure, they received the protection from waiver offered under new FRE 502(b).