Federal Evidence Review

Inadvertent disclosure found for more than 800 e-mails which were ultimately placed on a privilege log; no inadvertent disclosure for documents which were not included on any privilege log, in Rhoads Indus., Inc. v. Bldg. Materials Corp. of Am., _ F. Supp. 2d _, 2008 WL 4916026 (E.D. Pa. Nov. 14, 2008)

The first published decision by a district court applying new FRE 502(b) highlights some useful issues for practitioners considering inadvertent disclosure under FRE 502(b).

The case involved a $5.5 million construction contract to build a plant. The plaintiff construction company filed a breach of contract action against the customer, along with other claims. The plaintiff produced more than 78,000 e-mails. Of these, 812 e-mails were considered to be privileged. The plaintiff then generated a new privilege log which included the 812 e-mails, which was provided on June 30, 2008. However, some other documents were not included in any privilege log. The defendant moved for a ruling that the documents had been waived.

Whether To Apply New FRE 502(b) Or Not

The first issue the district court considered was whether to apply new FRE 502(b) standard, which was enacted on September 19, 2008. The statute enacting the new rule provided that it “shall apply in all proceedings commenced after the date of enactment of this Act and, insofar as is just and practicable, in all proceedings pending on such date of enactment.” Pub.L. 110-322, § 1(c), 122 Stat. 3537 (2008). The district court “conclude[d] that it would be just and practicable to apply Rule 502 in the present case because it sets a well defined standard, consistent with existing mainstream legal principles on the topic of inadvertent waiver.” Rhoads, _ F. Supp. 2d at _.

Respective Burdens

The court noted the burdens on the parties on the privilege issues. First, the holder of the privilege had the burden to establish it applied to the communication. Second, the party asserting waiver had the burden to show waiver of the privilege.

Mandatory Privilege Log

The court noted that FRE 502(b) provides that the court consider whether “the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).” As the court summarized:

“Under Federal Rule 26(b)(5), when a party withholds information otherwise discoverable by claiming attorney-client privilege in the information, that party must “describe the nature of the documents, communications, or tangible things not produced or disclosed ... in a manner that ... will enable other parties to assess the claim.” Fed. R. Civ. P. 26(b)(5)(A)(ii). “[F]ailure to assert a privilege properly may amount to a waiver of that privilege.” Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass'n, 914 F.Supp. 1172, 1178 (E.D.Pa.1996).”

Consequently, the rule imposed a duty on the holder of the privilege to take reasonable steps to remedy the error upon discovery.

Reasonableness Factors

What factors should apply to assess whether the holder of the privilege “took reasonable steps to prevent disclosure”? In measuring reasonableness, the court noted that the ACN identified some non-exclusive factors that may be applied from prior cases. Reasonableness is to be measured objectively. The district court decided to apply the following five factors:

1. The reasonableness of the precautions taken to prevent inadvertent disclosure in view of the extent of the document production.
2. The number of inadvertent disclosures.
3. The extent of the disclosure.
4. Any delay and measures taken to rectify the disclosure.
5. Whether the overriding interests of justice would or would not be served by relieving the party of its errors.

Rhoads, _ F. Supp. 2d at _ (citing Fidelity & Deposit Co. of Md. v. McCulloch, 168 F.R.D. 516, 522 (E.D.Pa.1996) (applying same five factors)). Under these factors, the first four militated in favor of the defendant while the last weighed in favor of the plaintiff.

In considering all the factors, the district court nonetheless concluded the defendant had not met its burden to show waiver. The district court explained:

“I find that the fifth factor, the interest of justice, strongly favors [plaintiff] Rhoads. Loss of the attorney-client privilege in a high-stakes, hard-fought litigation is a severe sanction and can lead to serious prejudice. Although I have little knowledge of the content of Rhoads's privileged documents, I assume they contain candid assessments of the facts and strategy in this case, as to which Rhoads understandably has a high degree of proprietary interest.

“On the other hand, denying these documents to Defendants is not prejudicial to Defendants because, in the first place, they have no right or expectation to any of Rhoads's privileged communications, and further, because of my ruling on the privileged documents not logged by June 30, 2008, the Defendants will receive a significant number of privileged documents. Furthermore, there has been abundant discovery on the merits of this case, and expert depositions await completion.

“The other factor that I have considered in reaching this conclusion is that the Defendants, as the moving party challenging the assertion of privilege, have the burden of proof. Considering all of the factors, I find that the Defendants have not met that burden of proof as to the privileged documents logged by June 30, 2008…. Except for the privilege log issue, disturbance of these communications is not justified under all of the facts and circumstances of this case, as reviewed above.”

Rhoads, _ F. Supp. 2d at _ (footnotes omitted).

In sum, the documents which the plaintiff included on the privilege log were protected, and the documents which were not included on any privilege log were not.

No Recovery Of Fees

On the issue of recovery of fees, none were ordered. In a footnote, the district court observed:

“Rhoads's production of privileged documents, notwithstanding that it was inadvertent, has led to extensive briefing and preparation for hearings and argument, and Defendants have incurred considerable costs because of this production. Although I believe it would be equitable for Rhoads to reimburse Defendants for some portion of their attorneys fees in dealing with this issue, Defendants have not made such a request, and the rules do not specifically provide for the award of expenses in this situation.”

Rhoads, _ F. Supp. 2d at _ n.9.

FRE 502 Resource Page
The Federal Evidence Review has provided a FRE 502 Resource Page, which contains useful tools and direct links to many of the central documents concerning the new rule.

The Resource Page will be updated for significant cases and other developments concerning FRE 502.