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Case Summary: Heriot; Vendor Error resulting in Production of Privileged Documents did not Waive Privilege

Posted by rjbiii on April 1, 2009

Heriot v. Byrne, 2009 U.S. Dist. LEXIS 22552 (N.D. Ill. Mar. 20, 2009)

To assist them in complying with a production request, responding party hired a vendor to provide scanning and other services associated with discovery. The Vendor created a “master database” that responding party used to conduct their document review. Documents designated for production were then copied to a “production database,” where they would be “marked” with an appropriate confidentiality designation.

Responding party sent hard copy versions of immigration documents to the vendor with instructions to digitize the documents, load them into the Master Database, copy them to the Production Database, apply the appropriate confidentiality legend and bates numbers, and include them in the next production. The vendor, however, mistakenly exported not only the requested documents, but other, privileged documents as well. This resulted in the inadvertent production of privilege. The error was not in the instructions given to the vendor, but was in the vendor’s execution of those instructions. Requesting party then filed a motion

During the production, requesting party asked the responding party if any documents had been withheld due to privilege. Responding party answered in the negative. Responding party subsequently learned of the error, and informed opposing counsel while requesting the documents be destroyed. Opposing counsel destroyed all documents but one set, which it filed under seal with the court. They then filed motions with the court requesting, inter alia, that the court prevent the “claw back” of the documents and instead compel their production. Responding party asserted that the documents were privileged.

The court began its analysis by determining that FRE 502 applied to the case, and crafting a new protocol for deciding whether inadvertent production necessitates the waiver of privilege (see our case blurb here).
Based on the results of an in camera review, the court decided that the documents at issue were privileged, and that the crime-fraud exception does not apply.

The court applied FRE 502(b) by considering: 1) whether disclosure was inadvertent; 2) whether responding party took reasonable steps to prevent disclosure; and 3) whether responding party took prompt steps to rectify the inadvertent disclosure. The court noted that prior to the promulgation of the new rule, the burden rested with the party claiming privilege to prove its contentions. The court saw no reason to shift this burden.

In determining whether a production was inadvertent, the court weighed such factors as: the total number of documents reviewed, the procedures used to review the documents before they were produced, and the actions of producing party after discovering that the documents had been produced.

Additionally, the court examined “the extent of the disclosure” and “the scope of discovery,” while commenting that these two factors operated on a sliding scale: the broader the scope of the discovery, the more extensive a party’s disclosure of confidential materials may be without waiving the privilege, and vice versa. The court noted that the privileged documents comprised 5% of the volume of pages produced, and 13% of the volume of the documents produced, labeling these figures neither apoplectically large nor astonishingly small. The court described the extent of the disclosure as being “broad” and the magnitude of the percentages as “not insignificant.” Nevertheless, the court found other factors more significant for the purpose of its analysis, particularly the actions of the producing party upon discovering the mistake. Because the responding party took immediate action, the court decided that the first factor weighed in favor of responding party, concluding that the production was inadvertent. The court then addressed the second factor of its test, the party’s steps to remedy the inadvertent disclosure. Therefore, as long as reasonable procedures were in place prior to “turning the documents over to the vendors,” the responding party met its obligations. The court concluded, therefore, that responding party did take reasonable measures to prevent inadvertent production.

In beginning the second part of its three-step analysis, the court cited the advisory committee’s notes that it may, in making this determination, consider several factors, including “the number of documents to be reviewed and the time constraints for production”; whether “a party that use[d] advanced analytical software applications and linguistic tools in screening for privilege and work product”; and whether “[t]he implementation of an efficient system of records management before litigation.” The court emphasized that the producing party was not required to engage in a post-production audit, although it was required to follow up on any obvious indications that a protected communication or information has been produced inadvertently.

In the third and final part of its analysis, the court stated that case law it unearthed stood for the proposition that how the disclosing party discovers and rectifies the disclosure is more important than when after the inadvertent disclosure the discovery occurs. In the case at bar, responding party discovered the error earlier than had the responding parties in the cases examined by the court, and were as diligent. In those cases, the disclosing parties were found to have acted appropriately. Therefore, the court found that Plaintiffs took prompt steps to rectify their inadvertent disclosure.

The court concluded that the responding party’s disclosure was inadvertent and that they did not waive the attorney-client privilege as to the Sequestered Documents.

Posted in 7th Circuit, Case Summary, EDD Vendors, FRE 502, Magistrate Judge Martin C. Ashman, Privilege, Waiver of Privilege | Leave a Comment »

Case Blurb: Herriot; Court re-crafts protocol for privileged waiver on inadvertently produced documents (7th Cir.)

Posted by rjbiii on March 30, 2009

Ordinarily, disclosure of confidential information to an unprotected third party operates as a waiver. Under FRE 502, however, disclosure of privileged information will not operate as a waiver when “(1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and (3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).” All three elements described in FRE 502 must be satisfied to prevent a waiver.

Plaintiffs argue that “[FRE] 502 is applicable to this case[,] and Defendants offer no reason why it would not be ‘just and practicable’ to apply [FRE] 502 to this case as in every other case.” Defendants argue that this Court should apply the three-part inquiry quoted in Judson. The Judson test requires the court to decide (1) whether the disclosed material was privileged, (2) whether the disclosure was inadvertent, and (3) whether the privilege was waived.

There is no question that FRE 502 applies to this case. The 2008 Amendment clearly stated that FRE 502 applies to matters pending on September 19, 2008, “insofar as is just and practicable.” This matter was pending on that date, and this Court finds no reason, and Defendants have pointed to none, that precludes the application of FRE 502.

[…]

To properly assess whether FRE 502(b) overrides Judson, this Court examines each step of the Judson test.

The first step of the Judson test requires the court to determine whether the documents at issue are privileged. This step must remain in place under FRE 502(b), which applies only to privileged information that was inadvertently disclosed. Prior to addressing any of the elements stated in FRE 502(b), therefore, the court must determine whether the documents are privileged. If the documents are not privileged, the inquiry ends. If the documents in question are privileged, then FRE 502(b) applies, and the court must determine whether each of FRE 502(b)’s elements was satisfied. The first element of FRE 502(b), which also is the second step of the Judson test, requires the court to assess whether the party’s disclosure was inadvertent. Therefore, this Court will assess whether a disclosure is inadvertent. FN6

FN6: Inadvertence under FRE 502(b) is not necessarily the same as, and does not necessarily mirror the case law describing, inadvertence under Judson.

Defendants also urge this Court to adopt Judson’s third step, which requires the court to determine, using a “balancing approach,” whether a waiver occurred despite the inadvertent disclosure of privileged information. The balancing approach requires the court to consider “(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.”

That tack, however, has been at least partially foreclosed by Congressional action. FRE 502 specifically states that inadvertent disclosure “does not operate as a waiver in a Federal . . . proceeding.” In other words, the second and third steps of the Judson test have been folded into the entire FRE 502(b) inquiry. FRE 502 does not, however, prohibit the use of the Judson factors. FED. R. EVID. 502(b) advisory committee’s note (noting that the non-dispositive factors a court may consider “are the reasonableness of precautions taken, the time taken to rectify the error, the scope of discovery, the extent of disclosure and the overriding issue of fairness”). Thus, while “[FRE 502(b)] is flexible enough to accommodate any of those listed factors,” it “does not explicitly codify [the Judson] test[] because [the factors it uses are] a set of non-determinative guidelines that vary from case to case.” Therefore, the court may, but need not, use some or all of the Judson factors to assess whether FRE 502(b)’s requirements have been satisfied.

This Court therefore adopts the following test. 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. FN7.

FN7: One court has applied FRE 502(b) in a rather peculiar fashion, choosing to adopt the factors articulated in the committee’s note as a wholesale test of inadvertent disclosure. Rhoads Indus., Inc. v. Bldg. Materials Corp. of Am., 254 F.R.D. 216, 218-27 (E.D. Penn. 2008). Strangely, using only the Judson factors to determine the waiver question eliminates any need to consult the elements required under FRE 502. Such an approach would ignore a Congressional mandate and substitute judicial holdings for legislation. Therefore, this Court concludes that a better approach focuses on the elements required by FRE 502 and uses the Judson factors, where appropriate, to supplement this analysis.

Heriot v. Byrne, 2009 U.S. Dist. LEXIS 22552 at *16-(N.D. Ill. Mar. 20, 2009) (internal citations removed)

Posted in 7th Circuit, Case Blurbs, FRE 502, Magistrate Judge Martin C. Ashman, N.D. Ill., Privilege, Waiver of Privilege | 1 Comment »

Case Blurb: APC Filtration; Parties held culpable for violating court order before it was ever issued

Posted by rjbiii on October 23, 2007

Becker and SourceOne failed to comply with [the court’s] order to produce documents because Becker had earlier discarded the computer. Becker and SourceOne’s own answers to APC’s interrogatories indicate that Becker communicated by email with Zehua but that “[t]he dates and times of these e-mail exchanges are unknown” because “Becker no longer is in possession of the e-mails.” (Defs.’ Answer to Pl.’s Interrog. No. 5.) Becker and SourceOne provided a similar answer with respect to Becker’s communications with AmSan. (Defs.’ Answer to Pl.’s Interrog. No. 15.) It is now clear that there must have been some communications between Becker, Zehua, and AmSan during Becker’s period of employment with APC because, as the parties agreed at oral argument, Becker and SourceOne had established contractual relationships with both of these companies prior to his termination in January 2007. Furthermore, the parties now agree that AmSan has responded to a subpoena by producing over 300 pages of e-mail correspondence, containing approximately 60 messages. Whether these represent the entirety of Becker’s communications in furtherance of his plan to compete with APC or merely the tip of the iceberg is impossible to tell, since the computer no longer exists. This is precisely the situation that the rules governing discovery are intended to prevent.

The Court specifically finds, in light of what Becker did (traveling 20 miles to dispose of the computer in a construction site Dumpster) and when he did it (within days of receiving notice of APC’s lawsuit), that Becker acted in bad faith in order to prevent APC from discovering potentially damaging evidence. See Langley, 107 F.3d at 514 (Rule 37 sanctions may only be imposed where a party displays willfulness, bad faith, or fault). Although this conduct occurred prior to the Court’s order, it is enough that Becker’s culpable conduct “eventually culminated in the violation.” Id. (quoting Marrocco v. Gen, Motors Corp., 966 F.2d 220, 224 (7th Cir. 1992)). Therefore, because Becker acted in bad faith and violated a discovery order issued by this Court, Becker and SourceOne are subject to sanctions under Rule 37(b).

(emphasis added)

APC Filtration, Inc. v. Becker, 2007 U.S. Dist. LEXIS 76221 (N.D. Ill. Oct. 12, 2007)

Posted in 7th Circuit, Case Blurbs, Duty to Preserve, FRCP 37(b), Magistrate Judge Martin C. Ashman, N.D. Ill., Sanctions | Tagged: , | Leave a Comment »

Case Blurb: APC Filtration; Court explains why disposal of a computer containing discoverable information was improper

Posted by rjbiii on October 23, 2007

In order for [the] duty [to preserve the computer] to exist, the computer and its contents must have been discoverable under Rule 26 and [possessors of the computer] Becker and SourceOne must have had reasonable notice that the computer or its contents could be the subject of future discovery requests. In this case, both conditions are met.

Under the liberal standard of discovery relevance, material is discoverable if it is admissible or “reasonably calculated to lead to admissible evidence.” Fed. R. Civ. P. 26(b)(1). In this case, the allegations that support APC’s claims center on Becker’s conduct in communicating with various suppliers and customers within the vacuum filter and bag industry as well as his alleged misappropriation of proprietary information that was stored in computerized form. Becker stated in his affidavit that he used the computer for both business and personal reasons. Given the nature of the allegations and Becker’s use of the computer for business purposes, the contents of the computer were clearly discoverable.

Furthermore, Becker and SourceOne had reasonable notice that the computer could become the subject of discovery requests at the time that Becker threw the computer away. APC’s complaint was filed on March 15, 2007, and counsel for Defendants made his initial appearance on March 19, 2007. Becker admits to throwing the computer away sometime after March 21, 2007. As discussed above, notice of a complaint can put a litigant on notice that evidence is likely to be requested, triggering the duty to preserve. Cohn, 1995 WL 519968 at *5. In this case, Becker had notice based on the nature of APC’s allegations that the computer could become part of the discovery process. Because the computer’s contents were discoverable and Becker had reasonable notice that the computer could become the subject of a discovery request, Becker had a duty to preserve the computer as evidence prior to the date on which he discarded it. Therefore, this Court may impose sanctions pursuant to its inherent power.

APC Filtration, Inc. v. Becker, 2007 U.S. Dist. LEXIS 76221 (N.D. Ill. Oct. 12, 2007)

Posted in 7th Circuit, Case Blurbs, Data Management, Document Retention, Duty to Preserve, FRCP 26(b), Magistrate Judge Martin C. Ashman, N.D. Ill. | Tagged: , | Leave a Comment »