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In document-intensive litigation, all attorneys live in fear that a client’s privileged documents will be inadvertently disclosed to the other side. These fears, alas, have become increasingly justified. The electronic age has lead to a huge increase in company documents, which exponentially increases the risk that, buried within the mountain of files handed over to the other side, some privileged documents will be inadvertently disclosed. Even the most heroic efforts on the part of a company’s counsel may not be sufficient to catch all privileged documents. To solve this problem, many businesses and their counsel are turning to a new method: so-called “clawback” agreements. These agreements allow producing parties to hand over documents without waiving any privilege claims. The producing party retains the right to specify that certain documents are privileged and to demand the other side return these documents or prove they have been destroyed. And, of course, the requesting party may not make use of any such privileged documents. But to ensure such an agreement is enforceable, companies and their counsel need to get some help from a court. Cases in recent years have repeatedly highlighted the dangers of inadvertent disclosure of privileged documents. The most recent notorious example is United States v. Rigas, No. 02 Cr. 1236, 2003 WL 22203721 (Sept. 22, 2003), a criminal fraud prosecution in the U.S. District Court for the Southern District of New York involving the production of hundreds of paper documents as well as hard drives with data capacity exceeding 50 million pages. In Rigas, the government inadvertently disclosed 130 privileged files to a defendant. The disclosure occurred because –unknown to the government — some software malfunctioned and copied the files onto a hard drive, which the government produced in discovery. The court found that this disclosure did not result in a waiver, emphasizing that the risk of inadvertent disclosure was not foreseeable here; the defendant’s expert admitted he had never heard of a similar software malfunction that resulted in files being inadvertently copied to a hard drive. COURTS DIVIDED In other jurisdictions, however, such inadvertent disclosure could constitute a waiver of the files — and the entire subject matter of the files. That’s because the courts are divided in how to deal with inadvertent disclosures. There are currently three different legal standards. The first, a strict standard, holds that any inadvertent disclosure results in a waiver. (See, for example, In Re Sealed Case, 877 F.2d 976, 980-82 (D.C. Cir. 1989) and Genentech Inc. v. United States International Trade Commission, 122 F.3d 1409, 1415-19 (Fed. Cir. 1997)). A second, lenient approach holds that an inadvertent disclosure results in a waiver only if the disclosure resulted from extreme negligence, which amounts to a knowing and intentional relinquishment of the privilege. (See Mendenhall v. Barber-Greene Co., 531 F. Supp. 951, 954-55 (N.D. Ill. 1982)). Most courts follow a middle approach that considers on a case-by-case basis whether the disclosure was negligent and applies a multiple-factor balancing test to determine if the disclosure constitutes a waiver. This balancing test considers (1) whether efforts by the disclosing party were reasonably designed to protect privileged documents; (2) the time taken to correct the disclosure; (3) the scope of the production; (4) the extent of the disclosure; and (5) fairness. (See, for example, Fleet Bus. Credit Corp. v. Hill City Oil Co., No. 01-02417, 2002 WL 31741282 (W.D. Tenn. Dec. 5, 2002)). Judges have expressed concern that under any of these tests, a court is required to second-guess the document review procedures followed by the producing party, who can never be sure what procedures will be sufficient to avoid a forfeiture if a mistake is made. One judge, in United States ex rel. Bagley v. TRW, Inc., 204 F.R.D. 170, 176 n.10 (C.D. Cal. 2001), summed up the courts’ increasing frustration about the impact of privilege reviews on society and the judicial system by noting, “The result may be socially wasteful behavior, such as the adoption of elaborate and expensive precautions to avoid the inadvertent production of privileged documents, the cost of which may far exceed the social cost of alternative ways of solving the problem.” These precautions may also lead to discovery delays clogging the judicial system. A BETTER SOLUTION But many companies and their counsel have found a better way to deal with the situation: clawback agreements. “[M]any parties to document-intensive litigation enter into so-called ‘claw-back’ agreements that allow the parties to forego privilege review altogether in favor of an agreement to return inadvertently produced privileged documents,” the U.S. District Court for the Southern District of New York ruled in Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (2003) (citing “The Sedona Conference, The Sedona Principles: Best Practices Recommendations & Principles for Addressing Electronic Document Production” (March 2003), available at www.thesedonaconference.org/publications). Unfortunately, both the Zubulake ruling and the Sedona paper cite no legal support for clawback agreements, other than a single Texas state procedural rule, Tex. R. Civ. P. 193.3(d). On the contrary, most courts will not enforce clawback agreements if they “essentially [immunize] attorneys from negligent handling of documents,” a federal court in New Jersey ruled in Koch Materials Co. v. Shore Slurry Seal, Inc., 208 F.R.D. 109, 118 (D.N.J. 2002). And in jurisdictions following the traditional, strict view, documents produced under these agreements could be deemed de facto voluntary disclosures that waive the privilege in other suits. (See, for example, Navajo Nation v. Peabody Holding Co., 209 F. Supp. 2d 269, 284-86 (D.D.C. 2002); Permian Corp. v. United States, 665 F. 2d 1214, 1221-23 (D.C. Cir. 1981) (party cannot enter into a conditional disclosure agreement in one forum for tactical convenience and then claim the privilege in another forum)). But there is a way to get around this difficulty. Courts agree that a disclosure compelled by a court order is involuntary and therefore cannot result in a waiver. (See, for example, SEC v. Lavin, 111 F.3d 921, 929-30 (D.C. Cir. 1997) (discussing compelled disclosure in attorney-client context and applying it to marital and spousal communications privileges)). Accordingly, any litigation considering a clawback agreement should obtain a court order compelling a clawback process and establishing sufficient factual grounds in the order so that another court can subsequently find that any inadvertent disclosure pursuant to the order was voluntary. ‘TRANSAMERICA’ In drafting such an order, counsel would be well-served by studying the 9th Circuit’s decision in Transamerica Computer Co. v. Int’l Bus. Machines, 573 F.2d 646 (1978), the rationale of which seems to have been approved by the District of Columbia Circuit in SEC v. Lavin. In Transamerica, IBM sought to protect from disclosure some 1,100 pages of privileged documents that had been produced in prior litigation pursuant to an order requiring the production of some 17 million pages in three months. This disclosure occurred despite what the court suggested were “Herculean” efforts by IBM’s counsel — the attorneys reviewed each page produced, marked any document believed to be privileged, and placed an “interceptor” in the production room to review all documents selected by the opposing party for copying. During discovery, the district court ordered removal of the interceptor, but ruled that “henceforth the inadvertent production of allegedly privileged material by either party would not constitute a waiver of that party’s right to claim the attorney-client privileged provided that the party disclaiming waiver had continued to employ procedures reasonably designed to screen out privileged material.” Based on this order, the court concluded, production was “in effect, ‘compelled,’ and therefore no waiver of the privilege could be predicated upon such involuntary production.” A recent case illustrates the type of claw-back order that should shield parties from privilege waiver claims in subsequent litigation. In Medtronic Sofamor Danek, Inc. v. Michelson, No. 01-2373-M1V, 2003 WL 21212601, (W.D. Tenn. May 13, 2003), where the plaintiff was ordered to produce relevant information from approximately 124 network backup tapes, the magistrate judge dictated a privilege review and production process, and amended the protective order to provide that the plaintiff “waives no privilege for documents or subject matter produced through any of the discovery protocols in this order.” The protective order also required the defendants “immediately to notify [plaintiff] of any document that comes to their attention and appears to be privileged or potentially privileged.” Importantly, the magistrate judge found that “[g]ood cause exists for these amendments because the volume of data that will be produced by electronic discovery will make it difficult for the producing party to identify with certainty every potentially privileged document prior to production.” This statement did not merely recognize the real problem confronting the plaintiff, it helped ensure that other courts would uphold this court’s clawback order. Whitney Adams is general counsel for Cricket Technologies, an e-discovery firm in Reston, Va. Mark Tuohey is a partner at Vinson & Elkins (www.vinson-elkins.com) in Washington, D.C. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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