The Southern District of Ohio recently clarified the relationship between FRE 502 and clawback agreements in its finding that a party’s counsel was “completely reckless” in producing the same privileged documents on two separate occasions.
In Irth Sols., LLC v. Windstream Commc’ns LLC, the parties entered into a clawback agreement that was memorialized in three bullet points in an email exchange between counsel. The agreement provided that an inadvertent disclosure (a term not defined in the agreement) would not waive the attorney-client privilege. The parties further agreed that, “based on the scale of the case,” it was unnecessary to ask the court to enter an order under Rule 502(d), whereby the court may order “that the privilege or protection is not waived by disclosure connected with the litigation pending before the court.” Defendant then produced documents, 43 of which defendant later discovered were privileged. Defense counsel argued the reviewing defense attorney failed to designate the documents privileged because he was not familiar with the name of defendant’s in-house counsel and the second level review neither caught this error nor flagged search words such as “legal.” Upon discovering the error, defense counsel requested a clawback of the 43 documents.
Plaintiff’s counsel sequestered the 43 documents but challenged the clawback agreement’s application, arguing the disclosure resulted from more than mere inadvertence. While the dispute was pending before the Magistrate Judge, Defendant reproduced the documents in text-searchable format – again including the privileged documents – this time, allegedly as the result of a miscommunication between defense counsel and its litigation support staff. Counsel jointly notified the court of the second production, and the Magistrate Judge conducted an evidentiary hearing. The Magistrate Judge found that the documents were privileged, but that Defendant had waived the privilege, and Defendant objected to the order.
Adopting the Magistrate Judge’s reasoning, the District Judge overruled Defendant’s objections. The court agreed that the documents were privileged and that both productions were inadvertent because the record did not contain concrete evidence showing that Defendant intended to produce privileged documents. The court next addressed the interplay between Rule 502(b) and the parties’ clawback agreement, an issue not yet addressed by the Sixth Circuit. The court observed that, under Rule 502(e), parties may “contract away from” Rule 502(b)’s waiver test and considered the three different approaches taken on the matter:
- “that a clawback arrangement (no matter how cursory) requires the return of inadvertently produced documents, regardless of the care taken by the producing party”;
- “that where there is a protective order with a clawback provision, inadvertent production of a document does not constitute waiver unless the document production process itself was completely reckless”; and
- that “the requirements of Rule 502(b) can be superseded by a clawback agreement only to the extent such an order or agreement provides concrete directives regarding each prong of Rule 502(b) i.e., (1) what constitutes inadvertence; (2) what precautionary measures are required; and
- what the privilege holder’s post-production responsibilities are to escape waiver.”
The court rejected the first approach on the grounds that “allowing attorneys to agree to a clawback irrespective of the care they took during production ‘would undermine the lawyer’s responsibility to protect the sanctity of the attorney-client privilege.’” Thus, the court explained that a clawback agreement must reflect an understanding to remove the protection of Rule 502(b), and that the clawback agreement here lacked any language to support a finding that the parties came to an understanding that there would be no pre-production review. Further, the email clawback agreement here also contained a provision requiring privilege logs, which demonstrated that the parties did in fact contemplate a meaningful pre-production privilege review.
The court then found that waiver had occurred under both the second and third approaches. Under the second approach, the court determined that defense counsel was “completely reckless” because he failed to identify in-house counsel, failed to conduct a simple search for obvious terms that would be found in privileged communications, the production was relatively small, the “spot check” of the production was insufficient, and the same privileged documents were produced twice. Under the third approach, the court found that the parties’ clawback agreement was “cursory” because the agreement, while stating that inadvertent disclosure would not waive the privilege, did not define what constitutes inadvertence or state what precautionary measures, if any, should be taken to prevent disclosure, and regardless, defense counsel did not take “reasonable steps” to prevent disclosure.
This scenario presents a litany of unintentional missteps that, taken together, proved fatal to arguments of unintentional waiver. As the court observed, parties may specifically avoid the impact of the Rule 502(b) waiver analysis with a specific clawback agreement under Rule 502(e). Thus, in addition to proceeding carefully with document productions, practitioners should specifically define terms in clawback agreements (i.e. what constitutes inadvertence, what precautionary measures are required, and what the producing party’s post-production responsibilities are to escape waiver) to avoid judicial invalidation of those agreements. Moreover, in order to achieve maximum protection, counsel should also specifically disclaim in the clawback agreement the applicability of the Rule 502(b) waiver analysis and, where possible, ask the court to so order the agreement under Rule 502(d).