A proposed new rule of evidence for federal courts that was intended to limit disclosure of privileged corporate information may be more of a mixed bag than originally anticipated.
Rule 502 would for the first time expressly provide that information disclosed to a government agency does not lose its privileged nature and could not be used in the future by private plaintiffs in civil lawsuits or by others. But this “selective waiver” provision of the rule has been panned by the Association of Corporate Counsel and others, who believe that it will give the government more impetus to demand waivers—despite a new policy from the Justice Department attempting to limit waiver requests.
Greenwald
David Greenwald, a litigation partner with the law firm Jenner & Block, says companies that are forced to provide privileged material to the government don't believe that information should be used against them later in civil suits. They fear that the ability to waive privilege selectively will make prosecutors even more likely to seek privileged material in the first place. The Justice Department did issue a new policy in December—the so-called McNulty Memo—promising that all prosecutors would need to seek permission from the brass in Washington before seeking a privilege waiver, but corporate counsels still suspect prosecutors will informally pressure them to waive privilege anyway.
“[The rule] would have the effect of emboldening prosecutors and regulators,” Greenwald says. “The McNulty Memo helps to mitigate the problem. But human nature being what it is, a prosecutor would likely refer to [the rule] and point out that a company wouldn’t be risking the use of that information [in other contexts] by providing it to the government.”
In a letter to the Judicial Conference of the United States, which is responsible for promulgating new rules of evidence, ACC General Counsel Susan Hackett said selective waiver is not a solution to the underlying problem of routine government demands for privileged information.
“[W]e believe that the ‘solution’ of offering protections for those who’ve waived addresses the collateral impact of the government’s inappropriate waiver practices, but does nothing to encourage the necessary abstention from engaging in the underlying practice in the first place,” Hackett wrote.
Breaking Down Rule 502
Rule 502, as currently written, has four major components:
Section (a) provides that “the waiver by disclosure of an attorney-client privilege or work product protection extends to an undisclosed communication or information concerning the same subject matter only if that undisclosed communication or information ought in fairness to be considered with the disclosed communication or information.”
Section (b) states that a “disclosure of a communication or information covered by the attorney-client privilege or work product protection does not operate as a waiver in a state or federal proceeding if the disclosure is inadvertent and is made in connection with federal litigation or federal administrative proceedings—and if the holder of the privilege or work-product protection took reasonable precautions to prevent disclosure and took reasonably prompt measures, once the holder knew or should have known of the disclosure, to rectify the error.”
Section (c), the selective waiver provision, says that “a disclosure of a communication or information covered by the attorney-client privilege or work product protection—when made to a federal public office or agency in the exercise of its regulatory, investigative, or enforcement authority–does not operate as a waiver of the privilege or protection in favor of non-governmental persons or entities. The effect of disclosure to a state or local government agency, with respect to non-governmental persons or entities, is governed by applicable state law.”
Section (d) establishes the controlling effect of court orders. It says that a “federal court order that the attorney-client privilege or work product protection is not waived as a result of disclosure in connection with the litigation pending before the court governs all persons or entities in all state or federal proceedings, whether or not they were parties to the matter before the court, if the order incorporates the agreement of the parties before the court.”
Good Intentions, Bad Results
Dwyer
Selective waiver—the most hotly contested provision of Rule 502—has been endorsed by the Securities and Exchange Commission and was initially viewed as something that corporations would embrace. Sean Dwyer, a litigator with the law firm Havkins Rosenfeld Ritzert & Varriale, says the current state of the law—under which selective waiver is generally not permitted except in a few jurisdictions—makes life difficult for lawyers and compliance officers because they don’t know where privileged information will end up once it’s turned over to a government agency. Plaintiff lawyers often contend that once the information is in government hands, it should be public record and thus can become ammunition in a civil lawsuit.
NOTES
An excerpt follows from the committee notes discussing the proposed amendments to Rule 502.
Committee Note
This new rule has two major purposes:
It resolves some longstanding disputes in the courts about the effect of certain disclosures of material protected by the attorney-client privilege or the work product doctrine—specifically those disputes involving inadvertent disclosure and selective waiver.
It responds to the widespread complaint that litigation costs for review and protection of material that is privileged or work product have become prohibitive due to the concern that any disclosure of protected information in the course of discovery (however innocent or minimal) will operate as a subject matter waiver of all protected information. This concern is especially troubling in cases involving electronic discovery. See, e.g., Rowe
Entertainment v. William Morris Agency (finding that in a case involving the production of email, the cost of pre-production review for privileged and work-product material would cost one defendant $120,000 and another
defendant $247,000, and that such review would take months). See also Report to the Judicial Conference Standing Committee on Rules of Practice and Procedure by the Advisory Committee on the Federal Rules of Civil Procedure, September 2005 at 27 (“The volume of information and the forms in which it is stored make privilege determinations more difficult and privilege review correspondingly
more expensive and time-consuming yet less likely to detect all privileged information.”); Hopson v. City of Baltimore, (electronic discovery may encompass
“millions of documents” and to insist upon “record-by-record pre-production privilege review, on pain of subject matter waiver, would impose upon parties costs of production that bear no proportionality to what is at stake in the litigation”).
The rule seeks to provide a predictable, uniform set of
standards under which parties can determine the consequences of a disclosure of communications or information covered by the attorney-client privilege or work product protection. Parties to litigation need to know, for example, that if they exchange privileged information pursuant to a confidentiality order, the court’s order will be enforceable. For example, if a federal court’s confidentiality order is not enforceable in a state court then the burdensome costs of privilege review and retention are unlikely to be reduced.
The Committee is well aware that a privilege rule proposed
through the rulemaking process cannot bind state courts, and indeed that a rule of privilege cannot take effect through the ordinary rulemaking process. It is therefore
anticipated that Congress must enact this rule directly, through its authority under the Commerce Clause.
The rule makes no attempt to alter federal or state law on
whether a communication or information is protected as attorney-client privilege or work product as an initial matter. Moreover, while establishing some exceptions to waiver, the rule does not purport to supplant applicable waiver doctrine generally.
The rule governs only certain waivers by disclosure. Other
common-law waiver doctrines may result in a finding of waiver even where there is no disclosure of privileged information or work product. See, e.g., Nguyen v. Excel Corp., (reliance on an advice of counsel defense waives the privilege with respect to attorney-client communications pertinent to that defense); Ryers v. Burleson,
(allegation of lawyer malpractice constituted a waiver of confidential communications under the circumstances). The rule is not intended to displace or modify federal common law concerning waiver of privilege or work product where no disclosure has been made.
Source
Report Of The Advisory Committee On Evidence Rules (Committee On Rules Of Practice And Procedure; Revised June 30, 2006)
“It’s kind of like the cliff diver ready to dive head first into the ocean,” Dwyer says. “He doesn’t know whether he’s diving into the deep or rocky shallow.”
Geneson
David Geneson, of the Sheppard, Mullin, Richter & Hampton law firm, says companies might initially believe that cooperating with an investigating agency without waiving privilege is “a great idea.” But, he cautions, “things are not that simple.”
For example, he says, selective waiver leaves a company no excuse to refuse to turn over information to the government; the company essentially has an obligation to investigate itself and hand over the findings to the government whenever regulators or investigators ask. “All of a sudden, you’ve become the government’s errand boy,” Geneson says.
William Sullivan, a lawyer with the firm Winston & Strawn, calls the situation a Catch-22. “The good intentions of the rule would limit or actually prohibit the disclosure to third parties of [privileged] information. That’s the good news,” he says. “The down side is that, with the protection afforded by Rule 502, government requests would become the norm.”
Sullivan
Although Sullivan says the McNulty Memo could help in that respect, he notes that the Justice Department has changed its position on privilege waivers more than once, and may do so again: “They can change policies whenever they see fit. Nothing prevents the DoJ from modifying the McNulty Memo.”
In addition to sharing such concerns about the selective waiver provision, Greenwald is also less than enthusiastic about two other parts of Rule 502.
The section that deals with the scope of waivers risks expanding the scope of work-product protection by mixing work-product with attorney-client privilege, which he says “protect two different things.” And the clause concerning inadvertent waivers, by basically codifying the current state of law, “could stifle further development of the common law in this area,” he says. Greenwald calls that latter provision “unnecessary.”
Uncertain Future
Whether Rule 502, in its current or an amended form, will become part of the Federal Rules of Evidence is unclear. If the Judicial Conference were to decide to adopt some form of Rule 502, it would then be sent to the U.S. Supreme Court for approval. Normally the rule would then automatically take effect, perhaps in December 2008, in the absence of contrary congressional action.
Because of the intense nature of the debate over the disclosure of privileged materials, however, some think that Congress might not take its typical hands-off approach to proposed court rule changes.
“Congress might very well weigh in on this issue,” Greenwald says. “There are a number of people in the government who are interested in this.”
Mack
Mary Mack, technology counsel for Fios, an electronic discovery consulting company, says that—despite the mixed reviews for Rule 502—modifications to the Sentencing Guidelines, the McNulty Memo, and other developments suggest that things are generally going in the right direction for those who worry about efforts to undermine corporate privileges.
“The glass is half full,” she says. “It’s difficult to do everything all at once. These are big steps forward in protecting privilege that’s been pretty consistently eroded over the last 10 years.”
Comments are being accepted on Rule 502 until Feb. 15. They can be submitted via email at Rules_Comments@ao.uscourts.gov.
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