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Editor: Colin Miller
Univ. of South Carolina School of Law

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Saturday, June 11, 2011

The Power Of The Claw: What Are Clawback Agreements And How Popular Are They?

Enacted in 2008, Federal Rule of Evidence 502(b) provides that

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).

Meanwhile, Federal Rule of Evidence 502(d) indicates that

A Federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court—in which event the disclosure is also not a waiver in any other Federal or State proceeding.

Moreover, the Advisory Committee's Note to Rule 502(d) states that

Confidentiality orders are becoming increasingly important in limiting the costs of privilege review and retention, especially in cases involving electronic discovery. But the utility of a confidentiality order in reducing discovery costs is substantially diminished if it provides no protection outside the particular litigation in which the order is entered. Parties are unlikely to be able to reduce the costs of pre-production review for privilege and work product if the consequence of disclosure is that the communications or information could be used by non-parties to the litigation.
There is some dispute on whether a confidentiality order entered in one case is enforceable in other proceedings. See generally Hopson v. City of Baltimore, 232 F.R.D. 228 (D. Md. 2005), for a discussion of this case law. The rule provides that when a confidentiality order governing the consequences of disclosure in that case is entered in a federal proceeding, its terms are enforceable against non-parties in any federal or state proceeding. For example, the court order may provide for return of documents without waiver irrespective of the care taken by the disclosing party; the rule contemplates enforcement of “claw-back” and “quick peek” arrangements as a way to avoid the excessive costs of pre-production review for privilege and work product. See Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (S.D.N.Y. 2003) (noting that parties may enter into "so-called 'claw-back' agreements that allow the parties to forego privilege review altogether in favor of an agreement to return inadvertently produced privilege documents"). The rule provides a party with a predictable protection from a court order--predictability that is needed to allow the party to plan in advance to limit the prohibitive costs of privilege and work product review and retention.
Under the rule, a confidentiality order is enforceable whether or not it memorializes an agreement among the parties to the litigation. Party agreement should not be a condition of enforceability of a federal court's order. (emphasis added).

I have two goals in this post: (1) to discuss the effect of clawback requests and clawback agreements; and (2) to call attention to a blog post with some anecdotal evidence concerning the (in)frequency of clawbacks.

So, let's start by defining the relevant terms. The Advisory Committee's Note to Federal Rule of Civil Procedure 26(f) notes that parties in discovery

may agree that the responding party will provide certain requested materials for initial examination without waiving any privilege or protection -- sometimes known as a "quick peek." The requesting party then designates the documents it wishes to have actually produced. This designation is the Rule 34 request. The responding party then responds in the usual course, screening only those documents actually requested for formal production and asserting privilege claims as provided in Rule 26(b)(5)(A).

Meanwhile,

On other occasions, parties enter agreements -- sometimes called "clawback agreements" -- that production without intent to waive privilege or protection should not be a waiver so long as the responding party identifies the documents mistakenly produced, and that the documents should be returned under those circumstances. Other voluntary arrangements may be appropriate depending on the circumstances of each litigation. In most circumstances, a party who receives information under such an arrangement cannot assert that production of the information waived a claim of privilege or of protection as trial-preparation material.

So, what is the interplay between a clawback request or agreement and Federal Rule of Evidence 502? Well, first, let's say that the parties don't reach a clawback agreement before disclosing documents during discovery. And then, let's say that soon after a party discloses documents, it requests a clawback of an inadvertently disclosed document. The court will use this prompt request for a clawback as evidence that the disclosing party "promptly took reasonable steps to rectify the error" under Federal Rule of Evidence 502(b)(3). See, e.g., Martin v. State Farm Auto Ins. Co., 2011 WL 1297819 (S.D.W.Va. 2011). The court then must decide whether this step, among other things, was sufficient to prevent privilege from being vitiated.

Now, let's say that the parties reach a clawback agreement before disclosing documents. If they reach such an agreement, the court will issue a court-ordered clawback agreement under Federal Rule of Evidence 502(d), ensuring that inadvertently disclosed documents will not be admissible in the subject case or later cases. See, e.g., Capitol Records, Inc. v. MP3tunes, LLC, 261 F.R.D. 44 (S.D.N.Y. 2009). Indeed, a court can issue a court-ordered clawback agreement even if one party requests such an agreement and the other party opposes it. See, e.g., Rajala v. McGuire Woods, LLP, 2010 WL 2949582 (D. Kan. 2010). Finally, some courts have even encouraged parties to enter into clawback agreements without a motion by either party. See, e.g., Doe v. Nebraska, 2011 WL 1480483 (D. Neb. 2011).

Given this, you might think that clawback agreements are pretty popular. Not so according to Mark Herrmann, the Vice President and Chief Counsel - Litigation at Aon Corp. insurance brokerage. He sent me a link to this blog post of his, in which he notes that

I recently heard a panel of judges speak about e-discovery issues. Their opinions on several subjects varied, but on one subject they agreed unanimously: Clawback provisions under Federal Rule of Evidence 502 are valuable tools in most significant litigation, but they remain rarely used.

This piqued my interest, so I asked several in-house litigators (not necessarily at the place where I work) whether they routinely seek FRE 502 clawback provisions in their cases. The in-house lawyers do not. And I asked whether outside counsel routinely recommend seeking those provisions. Not surprisingly (because the in-house folks aren’t using them), outside counsel do not.

He then gives several reasons why clawback agreements might not be very popular, and I direct readers to check out his post for his full analysis. Undoubtedly, there are a variety of reasons why attorneys don't enter into clawback agreements, and I'm certainly no expert about all of these motivations. If I had to guess, though, I might agree with one of the commenters on Herrmann's post, who contended that every attorney thinks that he won't make a disclosure mistake and that the other attorney might.

-CM

http://lawprofessors.typepad.com/evidenceprof/2011/06/enacted-in-2008-federal-rule-of-evidence-502bprovides-that-when-made-in-a-federal-proceeding-or-to-a-federal-office-or.html

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