Protect Your Privilege With Federal Rule of Evidence (FRE) 502(d): Lessons From Great-West Life & Annuity Ins. Co. v. Am. Econ. Ins. Co.
This week, the U.S. District Court for the District of Nevada upheld a Federal Rule of Evidence (FRE) 502(d) claw back agreement intended to protect against the waiver of privilege upon the inadvertent disclosure of privileged material. Great-West Life & Annuity Ins. Co. v. Am. Econ. Ins. Co., 2013 U.S. Dist LEXIS 135750, Case No. 2:11-cv-02082-APG-CWH (D. Nev. September 23, 2013). Great-West is an example of how FRE 502(d)’s powerful protection can be utilized.
FRE 502 protects against the waiver of privilege or other protections upon the disclosure of protected information in discovery. Despite this, it is underutilized because its protections are not widely known. We recommend the inclusion of an FRE 502(d) order in every federal case.
FRE 502 was introduced in 2008 to (1) resolve a longstanding circuit split concerning the effect of the inadvertent production of privileged material and (2) to respond to widespread complaints that protecting against waiver of privilege through exhaustive document review had become cost prohibitive in a regime where any disclosure may effect a subject matter waiver. Under FRE 502, the disclosure of privileged material does not automatically effect a waiver under certain circumstances. The protection of FRE 502 can be secured through subsections (b) or (d). FRE 502(d) protection is by far the better means.
Discovery in every federal case automatically gets the protection of FRE 502(b), which lays out factors a court should consider in determining whether the production effects a waiver when a party inadvertently produces privileged or protected information. The factors are:
(b) Inadvertent Disclosure. When made in a federal proceeding or to a federal office or agency, the disclosure does not operate as a waiver in a federal or state proceeding if:
(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).
While FRE 502(b) provides some protection, that protection is in the hands of the court who determines whether the producing party’s conduct regarding the production and subsequent actions were reasonable. And, courts have differed widely in determining what constitutes reasonableness. In this age of voluminous document productions, it is common to overlook privileged documents during review and subsequently produce them. As a result, parties run a significant risk of waiving privilege because the court deems the party’s conduct in preventing such a production unreasonable.
FRE 502(d) provides a much better method of protection than FRE 502(b). Under FRE 502(d), a properly-worded agreement between or among the parties governing the effect of the disclosure of privileged material, entered as an order of the court, protects such disclosure from effecting a waiver of the privilege or protection in that matter, or in any subsequent state or federal proceeding.
A properly crafted FRE 502(d) claw back agreement can supplant the “reasonableness” determination required by FRE 502(b). In other words, an FRE 502(d) order can prevent the waiver of privilege regardless of whether the documents were produced reasonably, because of abject errors in the production process, or even if the disclosure was purposeful.
Great-West is a good example of how FRE 502(d) orders can protect against the possible adverse effects of the disclosure of privileged information, even when the party to whom it was disclosed later seeks to get out of the agreement. In Great-West, the party who received the privileged documents brought a motion asserting that the production effected a waiver of privilege. In its argument it sought to convince the court to interpret the FRE 502(d) agreement as a general non-waiver provision written to express the parties’ intent not to subject themselves to strict waiver. Id at 30. In other words, the receiving party argued that the waiver agreement simply incorporated the protection of FRE 502(b), and so the court should undertake a reasonableness determination. Id. The disclosing party argued that if that was the intent, no agreement was needed because FRE 502(b) applies to all federal cases. Therefore, it argued, the agreement protects against all accidental disclosure and was intended to supplant the FRE 502(b) analysis by the court. Id at 29-30.
In part, the dispute stemmed from the use of the term “inadvertent” in the language of the claw back agreement itself. Id at 42. By incorporating that term into the agreement, it opened the parties to a dispute over just what “inadvertent” means, leaving the parties vulnerable to the court’s interpretation, which is what an FRE 502(d) agreement should be used to avoid in the first place. Fortunately for the disclosing party, the court disagreed with the receiving party. It noted that FRE 502(b) operates by default and need not be preserved in an agreement, and so the agreement must have an independent purpose and, therefore, should be interpreted under contract interpretation principles. Thus, the term “inadvertent” should be given its plain meaning: an act done by mistake or error. Id.
The court in Great-West keenly summarized the reasons why FRE 502(d) orders are useful, necessary, and enforced:
Well crafted claw back agreements are a critical tool utilized, in large part, to avoid excessive costs and avoid unnecessary disputes. The undersigned is not willing to permit a party that has entered into such an agreement to use a linguistic scalpel to excise itself from provisions of an agreement willfully entered that the party no longer viewed as beneficial. Such agreements are intended to benefit all parties thereto and should not be casually cast aside.
Id at 43-44.
We recommend employing carefully crafted FRE 502(d) claw back agreements, incorporated into a court order, in every case involving more than paltry discovery. In this age of voluminous document productions, inadvertently producing privileged information is a constant risk. An FRE 502(d) order can offer powerful protection in such situations.
We recommend language in the claw back agreement that avoids any reference to FRE 502(b) and its reasonableness analysis. That also means avoiding the use of the term “inadvertent.” This obviates any inquiry by the court into the circumstances of the production. We recommend language similar to the following:
The production or disclosure of an attorney-client privileged, attorney work product, or other protected document or information medium (Protected Material) shall not be deemed a waiver of the privilege, work product, or other protection or immunity from discovery by the producing party in this or any subsequent state or federal proceeding pursuant to Federal Rule of Evidence 502 regardless of the circumstances of disclosure. If any party becomes aware of the production or disclosure of Protected Material by any other party, that party shall provide written notice of such production or disclosure within [insert procedures for the timing of notification and response, and for the resolution of disputes concerning the agreement.]
Protecting Privilege When Disclosure is Purposeful
Another key protection of an FRE 502(d) order comes into play when a party wishes to disclose privileged information in the current proceeding but fears a waiver of privilege in a subsequent proceeding. For example, suppose a company is involved in an SEC and/or DOJ investigation and wishes to defend its actions or subsequent investigation and remediation, but to do so would require the disclosure of information protected by privilege or work product protection. The company is rightfully concerned that in a subsequent litigation, such as a shareholder suit, the plaintiffs might seek all documents produced in the government investigation, which would include the privileged documents. With a properly-worded FRE 502(d) agreement in place and entered as an order of the court, the documents are protected from discovery in the subsequent proceeding.
An FRE 502(d) claw back agreement, when entered as an order of the court, offers powerful protection in preventing the waiver of privilege or protection upon the disclosure of protected information in the course of discovery.
FRE 502(d) claw back agreements should be carefully crafted to avoid any reference to an FRE 502(b) reasonableness analysis and to avoid the use of the term “inadvertent.”
FRE 502(d) claw back agreements and orders can be crafted to allow even the purposeful disclosure of privileged material without waiving privilege in subsequent proceedings.
 Under FRCP 26(b)(5)(B) the disclosing party must notify the receiving party that information produced is subject to a claim of privilege or protection and the basis for that claim.
 Unfortunately for the producing party, it also provided the privileged documents in question to its testifying expert. Because this provision of the documents was not in the course of discovery, the Court ruled the claw back agreement and order did not apply and the privilege was waived. While this is of cautionary note, it does not belie the importance of FRE 502(d) orders.
 Brookfield Asset Mgmt. v. AIG Fin. Prods. Corp., 2013 U.S. Dist. LEXIS 29543 (S.D.N.Y. Jan. 7, 2013)