On September 19, 2008, President Bush signed into law a bill intended to ease certain burdens of electronic discovery. The statute creates a new Federal Rule of Evidence (Rule 502) to address potential waivers of attorney-client privilege and attorney work product protection. Waivers of privilege have become an increasingly important issue because of the large volume of documents produced under the modern regimes of electronic discovery. As Senator Patrick Leahy (D-VT), Chairman of the Judiciary Committee, stated when introducing the bill, the discovery process “has been made increasingly difficult with the growing use of email and other electronic media.”
As our December 2006 Client Alert explained, the federal courts attempted to address many of the new issues raised by the increased use of electronic media with the 2006 amendments to the Federal Rules of Civil Procedure (“FRCP”). Nevertheless, concerns remained with respect to potential waivers. In fact, some commentators and judges noted that the procedures proposed by the 2006 FRCP amendments could actually result in an increased risk of waiver of privilege and work product protections. New Rule 502 attempts to remedy this unintended consequence.
Of course, even prior to Rule 502’s passage, many parties were already taking steps to make electronic discovery more efficient or to minimize the potential for waiver. Some parties have used such techniques as electronic searching and private agreements among the parties. (Such private agreements are often called “clawback” or “quick peek” agreements, and are sometimes embodied in the form of court orders.)
In concert with these practical steps, Rule 502 attempts to provide legal relief by codifying, clarifying and harmonizing waiver rules and by giving parties peace of mind that protective orders governing the disclosure of confidential or privileged information cannot be challenged by third parties or in subsequent state court proceedings. Rule 502 also seeks to harmonize waiver rules in state and federal courts. New Rule 502 will apply immediately in all federal actions commenced after the date of enactment, as well as in all pending proceedings “insofar as is just and practicable."
For example, Rule 502 establishes standards for both “inadvertent” waiver and “subject matter” waiver:
- New Rule 502 codifies the majority rule that, if privileged material is disclosed “inadvertently” in a federal proceeding, the disclosure does not operate as a waiver of privilege in a federal or state proceeding if: the disclosure is “inadvertent;” the holder of the privilege or protection took “reasonable steps” to prevent disclosure; and the holder promptly took “reasonable steps” to rectify the error.
- New Rule 502 articulates the law of “subject matter” waiver for disclosures in federal courts and to federal agencies. The rule requires that subject matter waiver applies only if the waiver is intentional. Thus, Rule 502 provides a more uniform federal standard that unintentional disclosures in federal matters do not lead to subject matter waiver, even if they would do so under state law.
- Rule 502 also seeks to harmonize the treatment of waiver for attorney work product. For example, Rule 502 codifies that subject matter waiver of work product does apply if the waiver was intentional and it would be unfair not to consider the disclosed and undisclosed communications together.
New Rule 502 also identifies means for imposing consistency on complex situations involving multiple lawsuits implicating the same privileged documents. To address these complex situations, the new rule validates the utility of obtaining court orders:
- For example, whereas private agreements (such as the “clawback” and “quick peek” agreements mentioned above) potentially gave rise to waivers as to entities not parties to those agreements, Rule 502 now provides for court orders to authorize such practical solutions without waiver as to non-parties. This option may encourage some parties to propose or consider using innovative methods for discovery.
- Moreover, under Rule 502, when a federal court enters an order providing that a disclosure does not constitute a waiver, that order controls any other federal or state proceedings. This provides for enhanced continuity and consistency between federal and state judicial systems.
Dangers of Mismanaging Electronic Discovery Remain
Legal clarifications notwithstanding, there may be no way to “put the genie back in the bottle.” As a practical matter, once confidential documents have been produced and reviewed by opposing counsel, it may be difficult to undo the damage.
Indeed, the intrusive and expansive nature of contemporary electronic discovery dramatically increases the risks that sensitive and privileged communications may be exposed. The volume of electronic documents in use today makes their collection, review and production in litigation a complex, time-consuming and expensive process. In addition, the need for expert data retrieval, the relative permanency of electronic data, and the existence of electronic metadata can also make navigating electronic discovery a far more difficult (and costly) task. It also poses the danger of exposing far more sensitive information.
Furthermore, the consequences of failing to manage electronic discovery can be significant. Where parties have improperly managed electronic discovery by failing to disclose the existence of backup tapes, or failing to disclose technical production problems (or even by willfully destroying relevant information), some courts have awarded monetary sanctions that have reached tens of millions of dollars, or even entered findings adverse to the party failing to meet its discovery obligations. In the past year, for example, in Qualcomm v. Broadcom, six attorneys were sanctioned for failing to find and produce thousands of documents that were responsive to a discovery request.
An Opportunity to Revisit Document Retention Policies and Practices
Companies can and should use the enactment of the new rule as an opportunity to ensure that they are properly prepared to manage the challenges of electronic discovery. Specifically, companies should consider taking the following steps now to ensure they are in the best position to comply with discovery obligations:
- Evaluate document retention policies and practices, including steps to ensure that the company is retaining only the documents, information and electronic information systems needed to manage the business. While companies must maintain certain records because of a valid business purpose, under regulations, or because of potential or actual litigation, many companies maintain voluminous amounts of unnecessary documents with no business, legal or regulatory purpose. In the event of litigation or government investigations, managing, reviewing, collecting and producing these documents can be extremely burdensome.
- Appoint a “records retention officer” or equivalent who will work with people from multiple departments, such as Legal, Information Technology and Human Resources. Creating a standing “document management team” will help the company respond to electronic discovery obligations in a way that minimizes disruption and expense. Effective management of the categories and locations of electronic documents creates easier management of the cost associated with the process of obtaining and reviewing any of the information in the litigation context.
- Prepare to preserve documents via a “Litigation Hold.” Once litigation or an investigation is reasonably anticipated, parties are required to preserve relevant documents. Companies should be prepared and able to modify some of their document retention practices via a “litigation hold” process on short notice if needed.
- Fully understand the scope, extent and accessibility of electronic information. The Federal Rules now require automatic disclosure of a description by category and location of electronically stored information that each party may use to support its claims or defenses. In order to best manage the information disclosed and keep electronic discovery obligations generally cost-effective, the company will need to brief litigation counsel quickly on its electronic information systems, potentially including emails, instant messages, network data, non-networked computers, laptops and other places that information is stored. Companies will also need to have a good understanding of the scope, extent and accessibility of the backups of their electronic information.
Many companies will confront litigation at some point – often without warning. In view of the potentially catastrophic consequences of improper handling of electronic documents, companies should ensure that proper steps, such as those outlined above, are taken to minimize the disruptions and costs of litigation.