Despite the existence of a stipulated clawback agreement (that was never presented to the Court to be So Ordered) that provided “[i]nadvertent production of privileged documents does not operate as a waiver of that privilege,” the Court found defendants’ claim to privilege was waived by the inadvertent and “completely reckless” production of privileged materials.  In reaching its conclusion, the Court declined to conclude a clawback agreement always protects against waiver, regardless of its terms.  Rather, like the Second Circuit’s approach, the Ohio State Court held that the heightened protection provided to producing parties under a clawback agreement is lost when the party’s disclosure is “completely reckless.”

Background

Plaintiff, Irth Solutions, LLC (“Irth”) filed this lawsuit in state court alleging contract and fraud based claims.  Eventually, Defendant Windstream Communications, LLC (“Windstream”) removed the action to the District Court for the Southern District of Ohio, based upon diversity jurisdiction.  Shortly after removal, Windstream advised the Court there was a discovery dispute involving an inadvertent production of privileged electronic communications.

At the heart of the decision (Irth Sols. LLC v. Windstream Commc’ns LLC, No. 2:16-CV-219, 2017 WL 3276021 [S.D. Ohio Aug. 2, 2017]) is the parties’ agreement concerning the production of electronically stored information (“ESI”) and an email memorializing that agreement.  As is relevant here, the parties agreed that a formal court order under Federal Rule of Evidence 502 was not necessary given the size of the dispute but nonetheless agreed among themselves:

  • If a producing party discovers that it has inadvertently produced a privileged document, the producing party will promptly notify the receiving party of the inadvertent production;
  • The receiving party will promptly destroy or return all copies of the inadvertently produced document; and
  • The inadvertent production of privileged documents does not operate as a waiver of the asserted privilege.

(Docket 45-1).

Discovery began and eventually (twenty-seven days after Irth alleges production was due) Windstream made a partial production of documents.  According to Windstream, that production contained 43 inadvertently produced privileged documents.  Approximately 12 days later, Windstream’s counsel realized the production issue and contacted Irth’s counsel demanding return of the privileged materials.    Irth’s counsel refused to return the documents, but sequestered them pending decision by the Court.  Irth’s position was that any claim of inadvertence was far-fetched given the small total production size (2200 pages), the inordinate time Defendant took to make any production of documents (3 months) and the firm’s reputation for excellence.

At the hearing on the issue, the Court noted that many of the documents contained clear indicia of potential privilege (e.g., 14 of the 43 documents contained the word “legal” and several identified the author with a signature block making plain her role as counsel: “Counsel to Director of Government Contract Compliance”).  Notwithstanding these privilege flags, defense counsel reaffirmed at the hearing that the documents had been subject to a dual step review process intended to capture privilege concerns.

While the matter was pending before the Court, Windstream produced the at-issue privileged documents again. That’s right – counsel produced the very documents in dispute a second time!  In that instance, defense counsel claimed the production was the result of an attempt to re-produce the prior production set, excluding the privileged materials, in a searchable format and accidentally the Firm’s litigation support team included the privileged materials, despite counsel’s efforts to ensure they were withheld.

Discussion

Taking up the issue, the Court discussed the question of what constitutes inadvertence and ultimately indicated that it would assume arguendo that Defendant had established inadvertence.

The Court then turned to the “impact” of the parties’ clawback agreement on the question of waiver, citing three frameworks applied by other courts: “(1) if a clawback is in place, it always trumps Rule 502(b); (2) a clawback agreement trumps Rule 502(b) unless the document production itself was completely reckless [as embraced by the Second Circuit]; and (3) a clawback agreement trumps Rule 502(b) only if the agreement provides concrete directives regarding each prong of Rule 502(b).”

The Court rejected the first approach, reasoning in part that it “undermine[s] the lawyer’s responsibility to protect the sanctity of the attorney-client privilege” and “runs the risk of undermining contract principles.”

The Court, however, expressed approval of both the second and third frameworks and reasoned it need not choose between them because “taking into account the careless privilege review [conducted by defense counsel], coupled with the brief and perfunctory clawback agreement [the parties drafted], following either [the second or third] approach leads to the same result: Defendant has waived the privilege.”  Applying the framework in this Circuit, the Court noted that “[i]nadvertent disclosure provisions in stipulated protective orders are generally construed to provide heightened protection to producing parties.” (citations omitted).  However, this heightened protection is lost where a disclosure is completely reckless.

In analyzing what constitutes “complete recklessness” the Court stated that various considerations come into the calculus including: the number of privileged documents inadvertently produced, the number of documents ultimately reviewed, and the type of review process engaged in by the producing party.  Applying those factors to the facts before it, the Court ultimately concluded each demonstrated a level of recklessness that supported waiver.  Indeed, the number of privileged documents produced (>10% of the production), the time taken for the review (“Defendant had months to produce the first production”), and the fact that the mistake was not “the result of a technical error or mistake born from hours and hours of review” but instead was the result of critical and reckless mistakes of counsel (i.e., counsel reviewed a limited number of documents and more than 1/3 of the documents prominently featured “Counsel” and a legal signature block) each supported a determination of recklessness.*

Although the Court was sympathetic that privileged documents will inevitably fall through the cracks and be produced inadvertently in today’s world that is replete with emails, the Court in its Opinion reminded the Bar of our responsibility to safeguard the attorney-client privilege.  Indeed, the Court wrote, “as the “guardian” of the attorney-client privilege, it is a lawyer’s responsibility to minimize the cracks through which privileged material might slip. The Court believes the second approach adequately recognizes an attorney’s responsibility to guard that privilege, and holds an attorney accountable when normal cracks become chasms—as was the case here.” (Citation omitted.)

Conclusion

There are many critical lessons to be internalized from this decision not the least of which is the importance of entering a robust and unambiguous claw back agreement that is So Ordered by the Court.  However, it is equally important that any privilege review be undertaken in a deliberate and comprehensive fashion and performed by an attorney capable of assessing privilege – not necessarily the lowest billing attorney assigned to the specific matter.   As the Court made clear, it is the attorney’s responsibility to hold sacred their client’s privilege.  To this end, when devising a review protocol for ESI, it is imperative that a well thought out privilege protocol is designed and implemented.  And, once privilege review is complete that key words and other quality control mechanisms are put in place to avoid the inadvertent production of privileged materials.

Full decision can be located here: https://www.ediscoverylaw.com/wp-content/uploads/2017/08/Irth-Opinion.pdf

* And to make matters worse, Windstream then produced the exact same documents again while asking the Court to protect its privilege.

Electronic discovery (a/k/a ediscovery and e-discovery) is the process of identifying, preserving, collecting, preparing, reviewing and producing electronically stored information (“ESI”) in the context of a legal or investigative process.   In order that counsel may bring discovery issues (including e-discovery issues) to the forefront early on in the development of a case, the Federal Rules of Civil Procedure impose on counsel certain obligations.  These obligations include, but are not limited to, requiring counsel to participate in a Rule 26(f) conference, and requiring counsel to making certain initial disclosures pursuant to Rule 26(a).  Note that these obligations are imposed upon counsel irrespective of whether there is ESI relevant to the dispute.  However, competent counsel should be prepared to attend the 26(f) conference educated as to their client’s electronic data content and infrastructure, including any data that may be difficult or costly to produce, and should be further prepared to discuss issues like inadvertent production of privileged materials and phasing of discovery.

Rule 26(f) Conference

While the precise timing of the conference will depend on the individual Court’s scheduling orders and local practice, the 26(f) conference will inevitably give rise to one of the earliest opportunities for the parties to engage in comprehensive discussions regarding discovery, including issues relating to ESI.  Moreover, there is an expectation that the parties will exchange certain information, and reach agreement on many discovery-related topics.  Thus, it is critical that the attorney attending this conference be knowledgeable about his/her the client’s data, electronic storage systems and data retention.  

At the conference, counsel should discuss, among other things, the subjects on which discovery may be needed, when discovery will be completed, and whether discovery can and should be phased or limited to particular issues.  For example, as it relates to ESI, it may be most efficient to start with a discrete list of ESI sources (i.e., 5 custodians rather than 50), review fully that material, and agree to include additional sources at a later date if necessary. 

Relatedly, it is highly advisable to discuss the format of the eventual production(s) at this early stage. Even though production may not occur for many weeks / months, the ultimate format will aid in creating processing and review plans.  For example, without knowing the production format, one party may convert or otherwise manipulate its ESI in a way that is incompatible with the ultimately required production format.

Additionally, claw back agreements or protective orders dealing with inadvertent productions of privileged materials should be addressed at the 26(f) conference.  In almost all cases, the parties should agree to a process by which each side would have the right to identify and request the return of such material without the production resulting in a waiver. This agreement — commonly referred to as a claw back agreement—should always be incorporated into a court Order, either as part of the protective order or through another type of routine court order. The issuance of such an order should always precede any production in the case. Under Federal Rule of Evidence 502, if a court orders this kind of agreement, the order will protect the parties from claims of waiver if, among other things, the disclosure is inadvertent.  And, by creating this framework to resolve a potential inadvertent disclosure issue early on, it will inevitably reduce the potential for a dispute.

ESI and Rule 26(a) Disclosures

Rule 26 also imposes certain disclosure obligations on litigants.  Specifically, Rule 26(a)(1) requires each litigant to disclose to its opponent various types of information before any formal discovery requests are served in the case. The idea behind this “initial disclosure” is to require parties to be forthcoming with information relevant to the matter and to streamline the discovery process.  According to subsection (A)(ii) of the rule, each party must provide a copy — or a description by category and location — of all documents, ESI, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses. Identifying specific custodians and non-custodial sources of ESI (i.e., departmental share drives or database programs) that are expected to be searched for relevant data should also occur at this stage.  It is critical to note that if you plan to argue that certain data is  not reasonably accessible for production due to the burden and/or expense of restoring/producing that data (i.e., legacy data or backup media), it must be disclosed to your adversary.   In fact, Rule 26(b)(2)(B) includes a provision related to “not reasonably accessible” ESI, which anticipates possible cost-shifting under particular circumstances. Under this provision, a party need not produce any ESI from sources that it deems to be not reasonably accessible so long as the party identifies the source with particularity to its opponent.  A source can be considered not reasonably accessible on the basis of “undue burden or cost.”*

Notwithstanding the obligations Rule 26 imposes, many lawyers enter a lawsuit (specifically as it relates to ediscovery) without a detailed understanding of their client’s ESI or a specific execution plan in mind. That’s a mistake that often proves to be costly.  Educating one’s self as to one’s clients’ ESI will inevitably result in a more efficient process, and may also help reduce discovery disputes and—most importantly—get parties to the litigation’s most relevant information faster.

* Note, however, once the source is identified as “not reasonably accessible,” the requesting party may nevertheless move to compel production from the identified source, but will need to make a showing of “good cause” to require it. If the court determines that good cause has been shown, it may in addition require the requesting party to bear the reasonable costs of production under the proportionality rule.