New Rule 502 Standardizes Law on Waiver, Seeks to Control Privilege Review Costs

Last September, Congress enacted a new Federal Rule of Evidence that standardizes the law governing attorney-client privilege and work product waivers. Rule 502 is immediately effective in all new cases and is effective in pending cases "insofar as is just and practicable."

Rule 502 was passed in response to the skyrocketing cost of conducting page-by-page preproduction reviews of electronically stored information (ESI) for documents that are protected by the attorney-client privilege or work product protection. It is intended to help parties control the cost of privilege review in a few key ways.

One Test Determines Effect of Inadvertent Waiver

Because e-discovery can encompass millions of pages of documents, the cost of privilege review has grown dramatically in recent years. Courts have warned that page-by-page review imposes costs that bear no proportion to what is at stake in the litigation. In one striking example, a Verizon representative testifying at a Rule 502 advisory committee hearing in January 2007 described how the company recently spent $13.5 million on a privilege review.

To help parties control the cost of reviewing documents for privilege and work product, Rule 502 sets forth a codified test for determining the effect of an inadvertent waiver of attorney-client privilege and work product protection, and a test for determining when a party has triggered a subject matter waiver through an intentional disclosure. Rule 502 thus resolves splits among federal jurisdictions and creates one rule for analyzing both privilege and work product waiver issues. Rule 502 also increases the utility of non-waiver agreements that are adopted by court order, giving those agreements controlling effect in subsequent federal and state proceedings.

The application of the Rule to state court proceedings is its most controversial aspect, and one that is sure to lead to constitutionality challenges.

Approaches to Inadvertent Disclosure and Scope of Waiver Revised

Rule 502 eliminates the strict approach to inadvertent waiver previously followed by some courts (i.e., even if a document was produced inadvertently and the mistake was reasonable, privilege was nonetheless waived in some jurisdictions). Instead, under Rule 502, a disclosed document retains its privileged or protected status if (1) the disclosure was "inadvertent," (2) the holder of privilege took "reasonable steps to prevent disclosure," and (3) the holder took "reasonable steps to rectify the error." The Rule intimates that for a disclosure to be "inadvertent," it must have been made in "error."

The new Rule also addresses the scope of waiver and, again, rejects the strict approach previously followed by some courts, which had interpreted a waiver of privilege on one document—even if inadvertent—to be a waiver of privilege for all documents pertaining to that subject. Instead, Rule 502 provides that a waiver extends to undisclosed communications or information only if (1) the waiver was "intentional," (2) the disclosed and undisclosed communications or information all "concern the same subject matter," and (3) the document for which privilege was waived and the undisclosed information "ought in fairness to be considered together."

Notably, Rule 502 uses the higher threshold of "intentional" waiver, rather than the "voluntary" standard often used in prior case law. However, it is likely that courts will continue to look to those prior "voluntary" cases as useful precedent.

Parties Should Use Caution in Opting Out of Substantial Review

Parties must be mindful that courts will, to a degree, vary in how they interpret "reasonable steps" and what constitutes "ought in fairness." For instance, although the notes of the Advisory Committee that developed Rule 502 suggest that use of analytical software applications to screen for privilege (e.g., search terms) may constitute reasonable steps, courts have previously disagreed that such steps were "reasonable." Given the inherent uncertainty built into the new Rule, parties should be extremely cautious before undertaking anything less than a substantial review of documents. Further, the Rule does not address the many other reasons that parties undertake page-by-page reviews, including a search for confidential and trade secret documents, to cull for relevant materials, and to search for key or "hot" documents in a case.

Rule 502 also attempts to control waiver rulings in subsequent state actions—even if state law provides the rule of decision. If upheld as a constitutional exercise of the commerce clause, this provision would eliminate the real risk that a disclosure that did not result in a waiver in a federal proceeding might nonetheless operate as a waiver in a subsequent state action. Regardless, because Rule 502 standardizes the federal law on waiver, it should eliminate the real prior risk that a disclosure without a waiver of privilege in one federal jurisdiction would operate as a waiver in another federal jurisdiction.

Controlling Effect of Confidentiality Orders Addressed

Both case law and Federal Rules governing evidence and civil procedure encourage parties to enter into non-waiver agreements to control litigation costs (i.e., agreements saying the parties are not waiving the right to claim privilege). Previously, parties had been hesitant to employ such agreements because they were not binding on those who did not sign the agreement, or in subsequent proceedings. Rule 502(d) directly addresses this concern by making these agreements controlling—so long as they are incorporated into a federal court order. Whether courts will ultimately find that the Rule's intended application to state court is constitutional remains to be seen.

Parties may use non-waiver agreements such as a "clawback" or "quick peek" to help limit the cost of production by reducing the volume of documents that must be reviewed for privilege. A clawback agreement allows the return of documents that were produced inadvertently but are privileged or protected as work product. The parties agree that such inadvertent production will not waive privilege or work product protection. With passage of Rule 502, there is almost no reason for parties to forgo a clawback agreement where large volumes of materials will be produced. When millions of pages are being exchanged, the risk that a piece of privileged information will slip through even the most careful of reviews is real. Because the risk of a resulting waiver can be controlled, it should be. On the other hand, under a "quick peek" agreement, the requesting party reviews and selects documents for production prior to any review whatsoever—whether for privilege, confidentiality, trade secrets or even relevancy. Even though, in theory, the party that produced such documents might later be able to claim privilege, they have already been disclosed. Obviously, such agreements are rarely appropriate.

Rule Viewed as Step in Right Direction

Rule 502 does nothing to alter the reality that there is no way to "un-ring the bell." Even though a privileged document produced under a non-waiver agreement may not be used in depositions or entered into evidence at trial, the information in that document has been revealed.

It is doubtful that Rule 502 will substantially reduce the cost associated with privilege review, but it is a step in the right direction. By standardizing the law on waiver and encouraging parties to enter into clawback agreements, the Rule does lessen the risk of waiver and perhaps the cost of litigating waiver issues.