Myriad Newsbyte Article (February 1, 2009 / Volume 1)

Will new Federal Rule of Evidence 502, signed into law on September 19, 2008, significantly reduce costs of reviewing documents prior to production?

On September 19, 2008, President Bush signed into law new Federal Rule of Evidence (FRE) 502. According to the Advisory Committee Note accompanying the new Rule, FRE 502 was intended to accomplish two salient purposes: (1) resolve longstanding disputes among the courts about when and to what extent certain disclosures of protected information waive the attorney-client privilege and work product protection; (2) address the issue of rising costs of pre-production review of documents for privilege, especially in the advent of the increased volume of electronically stored information.

Pre-Production Review Costs:

In formulating the new Rule, The Evidence Rules Committee found that congressional action was required to address the significant amounts of time and effort expended in reviewing documents to extract privileged or protected documents. As an example, the Committee cited one case, Rowe Entertainment, Inc. v. William Morris Agency, 205 F.R.D. 421, 425-426 (S.D.N.Y. 2002), which involved the production of email, in which it was estimated that pre-production review for privilege and work-product would cost one defendant $120,000 and another defendant $247,000 and take several months to complete.

The Committee noted the increasing potential that pre-production review costs were disproportionate to the need to protect privileged information in particular proceedings. In many instances, the danger of “subject matter waiver” by disclosure of a privileged document was far greater than the producing party’s concern about or need to protect a particular document’s disclosure. Because some federal cases viewed intentional disclosure of privileged documents as resulting in a “subject matter waiver” (i.e., disclosure would waive the privilege as to any other documents on the same subject matter), it was incumbent on a producing party to identify and cull out all privileged information prior to production no matter whether the party was concerned about disclosing the particular document in a given situation.

FRE 502 Provides a Framework for the Disclosure of Documents and Information Without Waiver of the Attorney-Client Privilege or Work Product Protection:

FRE 502 generally sets up a framework by which parties can disclose privileged and protected documents without fear of waiving those protections as to undisclosed information involving the same-subject matter. Parties can do this by entering into confidentiality agreements amongst each other and may make those agreements binding on third parties in other federal and state courts by requesting entry of those agreements as federal court orders in their particular proceedings. In summary, Rule 502 provides as follows:

Rule 502(a) - limits the scope of a waiver of the attorney-client privilege or work product protection when such matter is disclosed in a federal or state proceeding. The Rule provides that a disclosure of attorney-client privileged matter or work product will result in a waiver of undisclosed communications only if the disclosure is intentional, the disclosed and undisclosed communications or information concern the same subject matter, and the communications ought in fairness to be considered together. Accordingly, a waiver by disclosure extends only to the particular communication or information disclosed, and not to the entire subject matter of the disclosed communication or information. A subject matter waiver will occur only in situations where fairness requires a further disclosure of undisclosed information.

Rule 502(b) - provides that inadvertent disclosure of attorney-client privileged information or work product in connection with any federal or state proceeding does not constitute a waiver in the proceeding if the holder of the privilege took reasonable steps to prevent disclosure and took reasonable and prompt steps to rectify the error.

Rule 502(c) - provides that when the disclosure of protected information is made in a state proceeding and is not the subject of a state court order concerning waiver, the disclosure does not operate as a waiver in any federal proceeding if the disclosure would not constitute a waiver under Rule 502 had the disclosure been made in a federal proceeding, or if the disclosure is not a waiver under the law of the state where the disclosure occurred.

Rule 502(d) - provides that a federal court may enter an order providing that information disclosed in the litigation in the federal proceeding may be disclosed without waiver of the privilege or work product protection. In the event of entry of such an order, the disclosure of such information is also not a waiver in any other federal or state court proceeding.

Rule 502(e) - provides that parties may enter into a confidentiality agreement concerning the effect of disclosure of attorney-client privileged or work product information, but the agreement is binding only on the parties in the proceeding unless entered as an order of the court pursuant to Section 502(d), in which case it is binding on third parties as well.

Rule 502(f) - provides that Rule 502 is the controlling rule in any state proceeding and any federal arbitration and shall control even if a state law provides the rule of decision.

Will FRE 502 Meet its Intended Promise of Reducing Pre-Production Review Costs?

The question of whether FRE 502 will significantly reduce pre-production review costs depends ultimately on whether it induces change in how practitioners approach the production of information and on how the courts will interpret the new Rule. The Rule aims to reduce pre-production privilege costs by reducing the need to review large amounts of information to cull out privileged or protected documents. It does primarily by providing that: (1) inadvertent disclosures do not necessarily result in a subject matter waiver; (2) parties can agree in advance that production of privileged documents will not result in any waiver of protection; (3) parties can make their agreements about the effect of disclosure binding on third parties in other state and federal proceedings.

But will practitioners be willing to change their approach to pre-production review? One immediately observable problem is that although FRE 502(b) provides that inadvertent disclosure is not a waiver of the privilege, in order not to waive the privilege through inadvertence, the holder must take “reasonable” precautions to prevent disclosure and, in the event of inadvertent disclosure, must take reasonable and prompt steps to rectify the error. But the Rule begs the question of what constitutes “reasonable” steps? Given the generally risk-averse and precautionary nature of legal practitioners, it seems unlikely, at least initially, that many will be willing to forego a thorough pre-production review. At least until the courts flesh out what constitutes “reasonable” steps to prevent inadvertent disclosure, it seems certain that practitioners will continue thorough privilege reviews to ensure having taken “reasonable” steps to prevent inadvertent disclosure. In that case, it seems it will be business as usual for the need for pre-production review.

Moreover, many practitioners are likely to believe that disclosure of privileged information, even in the context of a confidentiality agreement and court order, would hurt rather than help their cause. The underpinning of the attorney-client privilege and work product protection is that such information is developed confidentially without the expectation of its disclosure. Thus, the Rule may have the unintended effect of inhibiting open and honest communications between lawyers and their clients if it is believed that such information will more often be disclosed, even if such disclosure would not result in actual waiver of the privilege. Moreover, many observers have suggested that disclosure of privileged information may be helpful to an adversary in various foreseen and unforeseen ways and could give the adversary helpful insights into the other party’s case. Moreover, although even if the disclosed privileged information is made subject to a non-waiver agreement or order, the information may nevertheless be useful to the adversary at trial for possible use as impeachment. For these reasons, many practitioners are likely to continue keeping the horse in the barn than to try and round it up later.

Finally, it remains to be seen whether provisions making FRE 502 binding on state courts will ultimately pass constitutional muster. The Advisory Committee believed that in order to effectively reduce pre-production review costs, it was imperative that the Rule be binding on third parties and on other federal and state courts. Otherwise, it is believed parties would not be motivated to utilize the tools envisaged by the Rule to reduce such costs. However, there is an open question as to whether Congress properly relied on its Commerce Clause authority for regulation of commerce to impose a rule of evidence on state courts where, arguably, FRE 502 does not regulate commerce. Some commentators have stated that this is an area of “non-economic activity …traditionally subject to state law.” See, e.g., Thomas F. Munno and Benjamin R. Barnett, Rule 502 May Not Deliver Promised Cost Relief, New York Law Journal, Dec. 3, 2008. If the Rule 502 provisions binding state courts turn out to be unconstitutional, the result will be to remove a major incentive of dispensing with comprehensive pre-production privilege reviews and would seriously impair the ability of the Rule to reduce pre-production review cost.