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How Much Privilege Review is Required Under a Clawback Agreement?

An interesting dispute unfolding between business competitors highlights the practical and legal implications of clawback agreements. In Arconic, Inc. v. Novelis, Inc., et al, Civil Action 17-1434 (W.D. Pa. Feb. 25, 2019), one party produced privileged documents and requested their return relying on a clawback agreement entered in the case. The other party objected to clawback arguing that the documents were no longer privileged because there was limited effort to prevent disclosure of the information. Although the court ultimately granted the clawback request, it also suggested that even with a clawback agreement, some level of privilege review is advisable.

Evidence Rules Authorize Clawback Agreements

As discussed in other posts, we encourage the use of of clawback agreements. They permit litigants to request the return of privileged information produced during discovery and prevent waiver of the privilege.

Despite best efforts, the sheer volume of electronically stored information (ESI) in modern litigation increases the likelihood that an email between a lawyer and client, or a contract draft with attorney work product, will slip through the cracks and end up in the hands of a litigation opponent. Clawback agreements are one way to limit the adverse effect of the disclosure of privileged information.

State and federal evidence rules authorize clawback agreements. In federal courts, the default provision regarding the return of privileged information is Federal Rule of Evidence 502(b). That section states that if a party takes reasonable steps to prevent and rectify disclosure of privileged information, inadvertent production of that information does not waive its privileged nature.

However, a different section, Rule 502(d), permits litigants to draft their own “clawback” agreements and limit the effect of Rule 502(b). For instance, parties may agree that production of protected information may be clawed back regardless of inadvertence and regardless of reasonable steps taken to prevent disclosure.

Even with a Rule 502(d) clawback agreement, parties must still exercise effort to prevent the disclosure of privileged information. For instance, information may lose privileged status if it is used in litigation and the party trying to preserve the privilege did not object to its use before trying to claw it back, and it is possible to waive attorney-client privilege if insufficient steps are taken to prevent disclosure of the information.

Even With Liberal Clawback Agreements, Care Must be Taken to Prevent Disclosure of Privileged Information

In the Arconic case, the parties’ clawback agreement purported to “provide the maximum protection allowed by Federal Rule of Evidence 502(d)” and stated that privileged information could be clawed back regardless of whether it was inadvertently produced and regardless of any reasonable attempts to prevent its disclosure.

Despite the liberal clawback language in the agreement, a dispute arose when Arconic’s lawyers tried to claw back an email between the company and its patent lawyer. Novelis objected to clawback arguing that Arconic waived any privilege in the information because it did not take reasonable steps to prevent disclosure of the attorney client communication.

Novelis based its argument on the fact Arconic conducted no privilege review before production, but instead relied on the use of search terms to identify and withhold privileged information.

The parties’ dispute first ended up before a special master appointed by the judge to hear discovery matters. She permitted clawback of the documents and found no waiver of privilege in the documents.

However, the special master acknowledged that Arconic’s reliance on search terms rather than a comprehensive privilege review contributed to the release of protected information and imposed a burden on her to rule on issues that might have been avoided. The special master also pointed out that agreeing to more liberal clawback language under Evidence Rule 502(d) is “not intended to shift the burden of identifying privileged documents to the adversary, who is reviewing documents for use in the case….”

To limit future clawback disputes and to encourage Arconic to engage in a more thorough privilege review, the Special Master said going forward, the stricter requirements of Rule 502(b) would govern clawback disputes, but “with due consideration of Rule 502(d), where necessary and appropriate.”

Additionally, while finding that the clawed back documents were still privileged and could not be used as deposition or trial exhibits, the Special Master rejected Arconic’s argument that factual information learned from the privileged documents was “fruit of the poisonous tree” and subject to “use immunity”.

Ultimately, Arconic requested judicial review of the Special Master’s decision. The court agreed with some of the Special Master’s findings but concluded it needed clarification and scheduled a further hearing (which is still outstanding) to determine whether Rule 502(b) and not the parties’ clawback agreement would apply to future clawback requests.

The court agreed that clawed back documents themselves could not be used as evidence and counsel would not be permitted to probe into legal advice or attorney work product found in them.

However, the court noted that attorney-client privilege must be narrowly construed because it hinders the fact-finding process. As a result, privileged information should be redacted rather than completely withheld when possible and that facts underlying legal advice found in the documents were not protected by attorney-client privilege and could be used in the case.

Until it could conduct a hearing, the court postponed decision on what Rule 502 clawback standard applied to future disputes. But the court might have shown its hand noting that “parties in virtually all civil cases [are encouraged] to adopt Rule 502(d)” clawback orders because it “generally save[s] time and money and reduce[s] disputes.”

The court also pointed out that the Sedona Conference (a “think tank” focused on complex litigation and other legal issues) suggests that adoption of a Rule 502(d) order as a best practice to minimize cost, time and “laborious multi-tier document review.”

But, the court also pointed out that the Sedona Conference also “cautioned that a Rule 502(d) order should not be used as a cost-shifting tool allowing the producing party to make a ‘data dump’ and requiring the requesting party to identify privileged documents.”

Some Privilege Review is Always a Good Idea Because You Cannot “Unring the Bell”

Regardless of the legal implications of a clawback agreement, care should always be taken to prevent disclosure of privileged information because you cannot “unring the bell.” Once a litigation opponent sees the information, it will not likely be forgotten.

Indeed, as the Arconic court noted (again citing the Sedona Conference), “‘even though a Rule 502(d) order can require the return of such privileged documents and ensure there is no waiver, once it is produced, the opposing party knows its contents.’ That information cannot be unlearned. Rule 502(d) orders, therefore, may not eliminate the need for review. Technology tools may be utilized for performing reviews which minimize inadvertent productions.”

Privilege Reviews Need Not be Burdensome

It will be interesting to see how this dispute plays out because, as the judge noted, clawback agreements are intended to cut down on time and costs by permitting parties to rely less on comprehensive privilege reviews. Regardless, screening for and preventing the unwanted production or disclosure of privileged information or attorney work product need not be a painful or burdensome process. One of the main services we provide at Percipient is managed review and in almost every case, we help clients deal with privileged documents.

To lessen time and costs, we leverage both technology and human review to identify and withhold privileged information. We also assist clients with the redaction of privileged and other sensitive information. We also help create privilege logs when after the review is complete.

If you are interested in learning more about our services related to the review of privileged information, drop us a line using the green widget below on the right or contact us here!

Posted on March 6, 2019 in Attorney Client Privilege and Attorney Work Product, Court Rules, Document Review, E-Discovery, Electronically Stored Information (ESI), ESI Production, Evidence, FRCP, Scope of Discovery

About the Author

Chad Main is an attorney and the founder of Percipient. Prior to founding Percipient, Chad worked as a litigator in Los Angeles and Chicago. He is a member of the Seventh Circuit Electronic Discovery Pilot Program Committee and may be reached at cmain@percipient.co.
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