June 2012 - Rule 502 and Clawback Agreements

by Lisa Glasser and Rebecca Clifford

In 2008, practitioners welcomed the enactment of Federal Rule of Evidence 502, anticipating that it would relieve some of the pressures associated with complex document productions. Rule 502(b) states that an “inadvertent” disclosure of privileged material does not effect a waiver so long as the holder of the privilege “took reasonable steps” to both prevent disclosure and rectify the error. See FRE 502(b).

As the Advisory Committee Notes explain, the Rule 502(b) standard is intentionally “flexible,” permitting district courts to address privilege issues on a case-by-case basis. However, this flexibility has resulted in a lack of predictability. Many practitioners seek to achieve greater consistency by negotiating “clawback” agreements as part of a protective order or discovery plan. Clawback agreements attempt to agree in advance to allow attorneys to recover inadvertently produced privileged material. As discussed herein, however, this approach often results in the same consistency problems as the Federal Rule itself because seemingly broad clawback provisions have not been interpreted as the parties hoped. Nevertheless, attorneys who are armed with knowledge regarding the default requirements of Rule 502(b), as well as the potential pitfalls one might encounter when trying to negotiate around those requirements, can use the rule to their advantage and achieve predictable results.

How Courts Interpret Clawback Agreements
Many clawback agreements merely parrot the language of Rule 502(b); others address only pre-production procedures or post-production procedures, but not both. These types of agreements can have unintended consequences.

For example, where an agreement includes a reference to “inadvertent” disclosures, courts likely will interpret it in accord with the Rule 502(b)(1) “inadvertence” requirement. Many courts interpret this limitation—consistent with how parties drafting such clauses no doubt intend it—as a low bar merely intended to prevent the opposing party from using privilege as both a sword and a shield. See, e.g., Coburn Grp., LLC v. Whitecap Advisors, LLC, 640 F. Supp. 2d 1032, 1038 (N.D. Ill. 2009) (production inadvertent unless “party intended a privileged or work-product protected document to be produced”). That expectation, however, has not always been the reality. The line between “inadvertence” and “reasonableness” becomes blurred in some jurisdictions, where courts consider factors such as “the number of documents produced in discovery, the level of care with which the review for privilege was conducted, and the actions of the producing party after discovering that the document had been produced” in determining whether the disclosure qualifies as “inadvertent.” See, e.g., Silverstein v. Fed. Bureau of Prisons, 2009 U.S. Dist. LEXIS 121753, at *30 (D. Colo. Dec. 14, 2009) (applying factors to determine that “mistaken” disclosure did not qualify as “inadvertent”). Thus, including the “inadvertent” limitation in a clawback agreement may not always result in the low threshold for which the parties think they bargained.

Relatedly, where an agreement is silent regarding the degree of care that must be exercised by the producing party prior to production, courts sometimes impose the same multi-factor test used to determine “reasonableness” under Rule 502(b)(2) to determine whether the relevant documents are covered by the agreement. See, e.g., United States v. Sensient Colors, Inc., 2009 WL 2905474 at *7-10 (D.N.J. Sept. 9, 2009) (applying Rule 502(b) requirements where “Discovery Plan” did not explicitly excuse the parties from the “reasonableness” requirement). And, courts’ evaluations of “reasonableness” have been all over the map. For example, in Heriot v. Byrne, 257 F.R.D. 645 (N.D. Ill. 2009), the court found “reasonableness” where a privilege review was conducted by non-attorneys and the disclosure resulted from failure to catch a discovery vendor error. Id. at 660–61. By contrast, in Mt. Hawley v. Felman, 271 F.R.D. 125 (S.D. W. Va. 2010), the court failed to find “reasonableness” even though the plaintiff had employed a number of fairly standard pre-production procedures, including (1) hiring vendors to collect and process the ESI, (2) using relevance and privilege search terms, and (3) conducting an “eyes on” review of all documents identified by the search terms. Id. at 135-136.

Similarly, courts interpreting agreements that are silent or ambiguous as to the diligence required of a producing party post-production also may read into the agreement the Rule 502(b)(3) “reasonableness” standard. This can have unintended consequences, as courts interpret “reasonableness” in widely divergent ways.

The recent case of Jacob v. Duane Reade, Inc., 2012 U.S. Dist. LEXIS 25689 (S.D. N.Y. Feb. 28, 2012) is particularly sobering because it involved the classic situation for which Rule 502(b) was designed—a large scale document production and review designed for efficiency. The plaintiff reviewed more than two million documents in less than a month, using an outside vendor and document review team. Despite employing various measures to guard against production of privileged materials, including using attorney names as search terms and employing other filters and quality controls, the defendant produced an email that referenced by first name (“Julie”) one of its in-house counsel, and described legal advice that she had given the company. However, a day after the email was produced, plaintiff’s counsel used it at a deposition. Defendant’s counsel did not appreciate that the email referred to in-house counsel until approximately two months later, when preparing for another deposition. The court held that the privilege thus was waived for lack of diligence.

Using Rule 502 to Your Advantage
Prior to the start of discovery, practitioners should assess the pros and cons of sticking with the default provisions of Rule 502(b) versus negotiating for different standards. As an initial matter, attorneys who decide to negotiate additional protections should note that, while Rule 502(e) allows the parties to enter into written clawback agreements, the binding effect is limited to the parties, and therefore does not protect against third-party waiver claims. As such, a Rule 502(d) order will likely be preferable in most circumstances.

To the extent your client’s document production obligations are relatively narrow, or are less complicated than your opponent’s, the Rule 502(b) standards may be more than adequate. In such cases, a thorough document-by-document privilege review (which would likely qualify as “reasonable”) may be financially and logistically workable. Moreover, in such a scenario, your opponent may be less likely to argue for a stringent application of Rule 502(b).

On the other hand, if you face a large production or tricky privilege issues, the default requirements might result in excessive costs, and you should consider advocating for a provision under Rule 502(d) that eliminates some or all of the Rule 502(b) requirements. For example, an agreement could expressly state that it applies to all instances in which a producing party requests return of a document on privilege ground, omitting the term “inadvertent.” Similarly, the parties could agree on specific pre- or post-production conduct that qualifies as “reasonable,” to reduce the court’s discretion in applying the agreement. In some cases, parties may even agree to forego privilege review altogether and allow clawbacks unconditionally. See Advisory Committee Note to Rule 502(d) (courts may enter an order “provid[ing] for return of documents without waiver irrespective of the care taken by the disclosing party”). Even where you are unable to agree on such a provision, it may make sense to move the court for a Rule 502(d) order, particularly where your opponent is not similarly situated. See, e.g., Rajala v. McGuire Woods LLP, 2010 U.S. Dist. LEXIS 73564, at *14-15 (D. Kan. July 22, 2010) (court has authority to enter an order under Rule 502(d), even if the parties do not agree on the provision).

Balancing the various obligations, risks, and benefits attendant to the various options to temper ever-increasing discovery costs is a tricky task for both parties and courts alike. With knowledge about the relevant rules, decisions, and implications, however, parties can educate their clients and arrive at workable solutions on a case-by-case basis.


Lisa Glasser and Rebecca Clifford both practice at Irell & Manella LLP and specialize in intellectual property and general business litigation. They can be reached at lglasser@irell.com and rclifford@irell.com, respectively.