1 0 O R A N G E C O U N T Y L AW Y E R

by Gareth T. Evans andFarrah Pepper

CONGRESS ENACTED FEDERAL RULEof Evidence 502, which addresses themechanics of privilege waiver for docu-ments subject to attorney-client privilege

and work product protection, in September2008. Surprisingly, relatively few attorneys arefamiliar with Rule 502, even though it wasexpressly designed to protect their clients. Rule502’s purpose was to give producing parties toolsand protections that could save them substantialcosts and avoid waiver of the attorney-clientprivilege and work product protection for inad-vertent or even knowing productions of privi-leged information. Critics of the rule say that theprotections are illusory, and that prudent partiesought not count on it to protect their disclosuresof privileged information in all situations.

It is too soon to tell whether Rule 502 willultimately be considered a success or a failure,given that only a handful of cases applying Rule502 have been decided in the past year. As a resultof this dearth of case law, there is still some hesi-tancy among counsel and their clients to dispensewith the classic page-by-page document reviewmodel. This landscape is starting to change, how-e v e r, as courts have begun to order parties to incor-porate Rule 502 agreements into their discoveryplans. (See, e.g., Spieker v. Quest Cherokee, LLC,

tent disclosure results in a privilege waiver. FRCP26(b)(5)(B) was enacted in December 2006, sothere was a considerable time lag between thenand the enactment of Rule 502 last September,during which the precise state of play regardingwaiver was left a bit murky.

Whether an inadvertent disclosure acted asa waiver was left to the substantive law of thecontrolling jurisdiction and, even if the privi-leged information was protected within that par-ticular litigation, there might still be waiver v i sa vis third parties in other actions. In fact, onejudge went so far to warn litigants that“[a]bsent a definitive ruling on the waiver issue,no prudent party would agree to follow the pro-cedures in the [then-] proposed rule.” (H o p s o nv. Mayor & City Council of Baltimore, 232F.R.D. 228, 234 (D. Md. 2005).) Rule 502 wasdesigned to be the “definitive ruling” on thewaiver issue. The following is an overview ofRule 502’s key provisions.

2009 WL 2168892, at *2 (D. Kan. July 21, 2009)(revisiting court’s earlier instruction to parties todiscuss “utilizing Rule 502 to minimize theexpense of a detailed privilege review”).)

It remains to be seen if the upcoming yearwill usher in a new era of privilege review thatachieves the dual intent of Rule 502’s drafters—namely, to create consistency in the realm ofprivilege waiver and to contain the rising tide ofdiscovery costs.

Rule 502 in a NutshellAlthough attorneys usually look to the

Federal Rules of Civil Procedure for guidanceregarding discovery, Rule 502 is part of theFederal Rules of Evidence. Rule 502 is designedto be read in tandem with Federal Rule of CivilProcedure (“FRCP”) 26(b)(5)(B), whichaddresses procedurally how to seek a “claw-back” of inadvertently disclosed privileged docu-ments, but does not discuss whether the inadver-

SPECIAL FEAT U R E

Federal Rule of Evidence 502:Getting to Know an Important E-Discovery Tool

Spotlight on E-Discovery: The Cutting Edge

This article first appeared in Orange County Lawyer

magazine in November 2009, Vol. 51 No. 11

(page 10). © Copyright 2009 Orange County Bar

Association. The views expressed herein are

those of the author(s). They do not necessarily

represent the views of the Orange County Lawyer

magazine, the Orange County Bar Association or

its staff. All legal and other issues should be

independently researched.

1 1

Rule 502(a): No More Subject-Matter WaiverRule 502(a) does away with subject-matter

w a i v e r. It therefore frees parties from having toi d e n t i f y, segregate and log massive numbers oftechnically privileged, yet innocuous, communica-tions simply to avoid a subject-matter waiver. Rule502(a) provides that in a federal proceeding or ina production to a federal agency (for example, theSEC or DOJ) the waiver is limited to the actualcommunications or information produced.

I m p o r t a n t l y, this protection extends to allsubsequent proceedings, including state court liti-gation. Subject-matter waiver is reserved for theclassic “sword and shield” scenario—where aparty would gain an unfair advantage by inten-tionally and selectively producing favorable privi-leged documents while simultaneously seeking toprotect damaging documents on the same subject.

Rule 502(b): Worry Less About Waiver If You Take “Reasonable” S t e p sIt appears to be a law of nature that no

matter how careful a party is, and no matter howmuch it spends on document review, inevitably itinadvertently produces some privileged informa-tion. Before Rule 502, some jurisdictions heldthat a n y disclosure—even where inadver-tent—constituted a waiver. (See, e.g., In reSealed Case, 877 F.2d 976 (D.C. Cir. 1989) (citedin Rule 502 Advisory Committee’s Notes).) Now,Rule 502(b) provides that an inadvertent disclo-sure in a federal proceeding or to a federalagency is not a waiver if the producing partytook “reasonable steps” to prevent disclosureand “promptly” took reasonable steps to rectifythe error.

Because of the inherent subjectivity of theterm “reasonable,” however, Rule 502(b) is not apanacea. Even if the threshold for “reasonable-ness” was meant to be relatively low—for exam-ple filtering with search terms and applying ana-lytic software programs—at least one court hasapplied more stringent requirements, such asrequiring not just reasonable steps but “a l l” rea-sonable steps available. (ReliOn Inc. v. HydraFuel Cell Corp., No. 06-607-HU, 2008 WL5122828, at *3 (D. Or. Dec. 4, 2008).) One of thedangers of the latter approach is that it can lead toperipheral litigation, including expert testimonyin evidentiary hearings, over whether the produc-ing party did everything possible, including takingthe most state-of-the-art methods to prevent dis-

c l o s u re. This so-called “discovery about discov-ery” can be a costly and perilous detour for anyparty to take away from the substantive issuesof the case.

Rule 502(c): Prior Disclosure in a State Court ProceedingRule 502(c) provides a potential solution

if privileged information was previously pro-duced in a state court proceeding. If the disclo-sure was not the subject of a state court orderregarding waiver and would not have been awaiver if made in a federal proceeding (forexample, an inadvertent disclosure despite rea-sonable steps) or was not a waiver under the lawof the state where the disclosure occurred, thenit does not operate as a waiver in the federal pro-ceeding.

Rule 502(d): No Fault Privilege ProtectionRule 502(d) provides that if a federal court

enters a protective order that a disclosure ofprivileged or protected information will notconstitute a waiver, that order is enforceableagainst all persons and entities in any federalor state proceeding. Rule 502(d) thus provides amechanism to claw back protected informationwithout worrying about a fight over whether theproducing party took “reasonable steps,” asrequired under Rule 502(b). It also provides amechanism for avoiding the costs of reviewing alarge set of electronically stored information forprivilege and allowing the other side a “sneakpeak” to narrow the scope of production.

As a practical matter, most producing par-ties will not want to rely solely on a Rule 502(d)protective order to prevent waivers, as disclosureof certain privileged materials can be highlydetrimental even if subsequently returned.Instead, in most cases having any degree ofcomplexity and risk, the producing party willwant to use at least some safeguards. Rule502(d) is still important in these cases, howev-er, as it provides predictability—i.e., that therewill not be a waiver if privileged information isdisclosed—in contrast with the potential lackof predictability under the “reasonable steps”standard of Rule 502(b).

Rule 502(e): Effect of Agreements without an OrderEmphasizing the desirability of a Rule

502(d) protective order, Rule 502(e) provides thatan agreement between the parties on the effect of

disclosure in a federal proceeding is binding onlyon the parties to the agreement. A Rule 502(d) pro-tective order, by contrast, is enforceable against allpersons in any federal or state proceeding.

Potential Pitfalls of the Rule502(b) Reasonableness Standard

If the parties have not agreed to a Rule502(d) protective order, then Rule 502(b) governswhether a disclosure of privileged or protectedinformation constitutes a waiver. Rule 502(b)has three requirements for a non-waiver finding:(1) that the disclosure was inadvertent—i.e., theproducing party did not mean to disclose it; (2)that the producing party took “reasonable steps”to prevent disclosure; and (3) that upon discover-ing the disclosure, the producing party wasprompt in rectifying it.

The key issue under Rule 502(b) in mostcases will be whether the disclosing party tookreasonable steps to prevent disclosure. The Ruleitself does not set forth criteria for what is reason-able, opting instead for a “flexible” approach,according to the Rule’s Advisory Committee Note.

The Advisory Committee Note refers to thefive-factor test previously used by a majority ofcourts to determine whether an inadvertent disclo-sure is a waiver: (1) the reasonableness of the pre-cautions taken; (2) the time taken to rectify theerror; (3) the scope of discovery; (4) the extent ofdisclosure; and (5) the “overriding issue” of fair-ness. (S e e Rule 502 Advisory Committee’s Note ( c i t-ing Lois Sportswear, U.S.A., Inc. v. Levi Strauss &C o ., 104 F.R.D. 103, 105 (S.D.N.Y. 1985) andH a r t f o rd Fire Ins. Co. v. Garvey, 109 F.R.D. 323,332 (N.D. Cal. 1985)).) Although the Rule did notcodify this test, the Note states that it is fle x i b l eenough to accommodate any of these factors. TheNote adds that the number of documents to bereviewed and the time constraints for productionare also factors that should be considered. Finally,it states that a party that uses “advanced analyticalsoftware applications and linguistic tools” inscreening for privilege and work product may befound to have taken reasonable steps to preventinadvertent disclosure.

Although Rule 502(b) was intended to pro-vide a uniform standard for determining inad-vertent waiver, because of its “flexible” approachthis has not been the result in practice. Courtshave selected the factors upon which to judgereasonableness and chosen which factors toweigh heaviest.

Cases applying Rule 502(b) illustrate the

N O V E M B E R 2 0 0 9

O R A N G E C O U N T Y L AW Y E R1 2

requires at least some affirmative action to pro-tect privileged documents. For example, Rule502(b) does not relieve the producing partyfrom conducting a n y type of privilege review.(See Spieker v. Quest Cherokee, LLC, 2009 WL2168892, at *3 n. 6 (D. Kan. July 21, 2009)(“simply turning over a l l ESI . . . without someeffort to protect privileged material does not riseto the level of ‘reasonable steps’ set forth in Rule502(b).”) (emphasis in original).) In S p i e k e r,the court rejected the requesting party’s“ flawed” proposal that the producing party sim-ply hand over all their documents in native formand rely on Rule 502’s protection against waiv-e r. (I d . at *3.) Even though the intent of Rule502(b) was to cut down on costs related to priv-ilege review, courts may not be sympathetic tothose who go too far in the name of cost-cutting.(R h o a d s, 254 F.R.D. at 227 (“An understandabledesire to minimize costs of litigation and to befrugal in spending a client’s money cannot bean after the fact excuse for a failed screening ofprivileged documents . . .”).)

Courts generally have been inclined toprotect inadvertently disclosed privilegedmaterials from waiver of the privilege whenthe producing parties have developed someform of processes and procedures to weed outprivileged information before a production ismade. (See, e.g., Heriot v. Byrne, No. 08-C-2272, 2009 WL 742769, at *14 (N.D. Ill. Mar.20, 2009) (holding that there was no waiverand that producing party took reasonable stepsto protect inadvertent disclosure of privilegeddocuments by using a multi-step process toidentify responsive information, even thoughvendor processing the data made an error thatled to disclosure of privileged information); B -Y Water Dist. v. City of Ya n k t o n, No. 07-4142,2008 WL 5188837, at *2 (D.S.D. Dec. 10, 2008)(granting the producing party’s request to baruse of inadvertently produced privileged docu-ments by opposition at trial and noting thatproducing party took reasonable steps to pre-vent their disclosure by redacting the privi-leged portions of documents, even though theyultimately produced the unredacted versions);Laethem Equip. Co. v. Deere & Co., No. 05-10113, 2008 WL 4997932, at *9 (E.D. Mich.N o v. 21, 2008) (holding that there was nowaiver of privilege and noting that the produc-ing party took reasonable steps to preventinadvertent disclosure of privileged documentsby using an “inspect and copy” procedure to

review documents after a vendor copied thembut before they were produced). Accordingly,counsel would be well advised to develop soundand repeatable processes to protect theirclients’ privileged information, in the eventthat they are called upon to explain the “rea-sonable steps” they took.

Potential Issues With a Rule502(d) Protective Order.

The rule’s drafters intended Rule 502(d)to make an agreement between the partiesregarding waiver binding on third parties bymeans of a court order, and to allow the courtto enter such an order even where the partiescannot or will not agree. Additionally, thedrafters intended Rule 502(d) to allow the par-ties and the court to protect against waiver notjust for inadvertent (i . e ., unintended) disclo-sures, but also for knowing disclosures of priv-ileged information. For example, it was meantto facilitate “quick peek” and “claw-back”a r r a n g e m e n t s .

Although Rule 502(d) provides substantialbenefits, it is not without potential problems.Some have expressed a concern that courtsmight unilaterally compel parties to produce alltheir documents—both non-privileged andprivileged—because either the parties haveagreed to or the court has unilaterally imposeda Rule 502(d) protective order. There are noknown real-life examples of such “compelledquick peeks,” however, and nothing in the Rulesays that a court can (or cannot) do it.

Additionally, some have expressed a con-cern that the existence of a Rule 502(d) protec-tive order will encourage producing parties to“dump” documents on their opponents, shiftingthe burden of relevance and privilege reviewonto the receiving party. Courts could attempt toremedy and deter such conduct through theirpowers to control discovery under the FederalRules of Civil Procedure. There is also the inher-ent problem that you cannot “unring the bell”after producing privileged and potentially sensi-tive documents to the other side, even if you getthem back. The information learned by thereceiving party could inform its strategy in thelitigation and make its work much easier.

The Privilege Log After Rule 502Because of the sheer volume of electronical-

ly stored information, privilege logs have becomeincreasingly burdensome for producing parties to

resulting lack of predictability. In R h o a d sIndustries, Inc. v. Building Materials Corp.(254 F.R.D. 216 (E.D. Pa. 2008)), for example, thejudge acknowledged that Rule 502 was recentlyenacted and established the standard for determin-ing if waiver of inadvertently produced privilegeddocuments applies. (Id. at 226.) In the course ofapplying the “reasonable steps” standard of Rule502, however, the court also applied the traditionalfive-factor test listed in the Advisory Committee’sNotes. It found that four of the five factors weighedin favor of waiver, but nevertheless held there wasno waiver based solely on the fifth factor, the inter-ests of justice. The court explained that factor“strongly favor[ed]” the producing party becausethe requesting party had no right to expect toobtain privileged information and waiver is a sig-n i ficant sanction. (I d . at 227.) Although R h o a d sultimately favored the producing party, it should betroublesome for all litigants because of its apparenta r b i t r a r i n e s s .

In ReliOn Inc. v. Hydra Fuel Cell Corp. ( N o .06-607-HU, 2008 WL 5122828, at *3 (D. Or. Dec. 4,2008)), the court held that the producing party’sproduction of two privileged e-mails constituted awaiver because the producing party did not pursue“a l l reasonable means” of protecting against dis-closure of privileged information. R e l i O n i sarguably incorrect, as Rule 502(b) requires “rea-sonable steps” rather than “all reasonable steps.”Even though the producing party’s counselclaimed that the first time they became aware ofthe inadvertent production was when the docu-ments were raised in a letter from the requestingparty (four months after production), the courtwas not sympathetic. (I d . at *3.) Rather, the courtobserved that the producing party had a total ofthree opportunities to review the documents inquestion—before they were provided to requestingparty for inspection, and then subsequently oncethe requesting party provided both hard copies andelectronic versions of the documents they selectedback to the producing party. (I d .)

ReliOn illustrates the danger that underRule 502(b) courts will require the producingparty to show that it took the best precautionsavailable, inviting time-consuming and expen-sive evidentiary hearings involving expert testi-mony. Consequently, producing parties may wishto obtain a 502(d) protective order that does notrequire that reasonable steps must have beentaken to preserve privilege.

Despite these varying approaches, it isapparent that the test for “reasonable steps”

1 3N O V E M B E R 2 0 0 9

to state court proceedings is unconstitutional, anas-yet-untested argument that has both support-ers and detractors. (S e e Noyes, Henry S., “FederalRule of Evidence 502: Stirring the State Law ofPrivilege and Professional Responsibility with aFederal Stick,” 66 Wash. & Lee L. Rev. 673(2009).) For that reason, it is still a good idea toconduct some privilege review even if a 502(d)protective order is in place.

______________________________Gareth T. Evans is a litigation partner i n

the Orange County and Los Angeles offices ofGibson, Dunn & Crutcher LLP. He is a memberof the fir m ’s Electronic Data Discovery Initiative,a task force devoted to issues of electronic dis-covery and records management. Mr. Evanscan be reached at gevans@gibsondunn.com.

Farrah Pepper is a senior litigation associ-ate in the New York office of Gibson Dunn. Ms.Pepper is a founder and chairperson of thefir m ’s Electronic Data Discovery Initiative. Ms.Pepper can be reached at fpepper@gibson-dunn.com.

Q: Do Rule 502 Protections Apply toProductions to the SEC Or DOJ? A:Yes, for the most part.

Both the Rule 502(a) limitation of the scopeof waiver to information actually disclosed andthe Rule 502(b) protection for inadvertent disclo-sures where the producing party took reasonablesteps expressly apply to productions to federala g e n c i e s. The Rule 502(d) protective order ist r i c k i e r, however, as it requires litigation in a fed-eral court and that the disclosure be connected tothe litigation. One possible way for a producingparty to trigger this protection might be to initi-ate a proceeding in federal court to quash an SECor DOJ subpoena solely for the purpose of obtain-ing a Rule 502(d) protective order.

Q: Does Rule 502 Apply toProductions to State LawEnforcement Agencies? A: No.

Although Rule 502 provides protections forinadvertent disclosure of privileged informationto a federal agency, it does not do so for produc-tions to state agencies outside of litigation.Q: Does Rule 502 Allow “SelectiveWaiver”? A: No.

Rule 502 does not provide for selectivewaiver—i.e., disclosing privileged informationin an effort to cooperate with governmentalenforcement agencies while seeking to keep theinformation protected from all others. A selec-tive waiver rule was proposed as part of Rule502, but ultimately was not adopted.

Q: Do You Need the Other Side’sAgreement to a Rule 502(d)Protective Order? A: No.

While it is generally best to present anagreed upon proposed protective order to thecourt, the other side’s agreement is not requiredunder Rule 502(d). Parties can unilaterally seekto have the court enter the protective order. Thecourt could also enter such an order sua sponte.

Q: Am I Really Protected in StateCourt from a Disclosure in FederalLitigation? A: The Rule Says So, ButWe Don’t Know for Sure.

The protections of Rule 502(a), (b) and (d)by their terms extend to state court proceedings.Whether they actually do so depends on the will-ingness of state court judges to enforce a federalrule and federal court orders. At least one lawreview article argues that Rule 502’s application

create and for receiving parties and courts to evalu-ate. Rule 502, however, allows for more effic i e n tprivilege log creation. For example, parties used tocommonly put transmittal letters and otherinnocuous documents on privilege logs due to thefear of subject-matter waiver if they did not do so.Due to Rule 502(a), which ends subject-matterw a i v e r, that is no longer a concern, and over- d e s i g-nation can be reduced. Parties also can agree thatcertain categories of documents whose privilegecannot reasonably be questioned need not belogged, for example, the client’s communicationswith litigation counsel. Similarly, parties can agreeto log certain types of documents by category toavoid document-by-document log entries.

In sum, Rule 502 provides important toolswith the potential to dramatically reduce the bur-dens and costs of electronic discovery with whichall litigators in federal proceedings should befamiliar.

Frequently Asked Questions AboutRule 502

Sorting through Rule 502’s provisions andparsing out where its protections begin and end isno simple task. Below is a practitioner’s guide tosome of the nuances to keep in mind.Q: Does Rule 502 Apply to OtherEvidentiary Privileges? A: No.

Rule 502 applies only to attorney-client priv-ileged and attorney work product communica-tions and information. As applied to other eviden-tiary privileges, waiver due to disclosure remainsthe subject of federal common law.

Q : Can I Produce and Use PrivilegedDocuments that Help Me, ButWithhold Those that Don’t? A : No.

Rule 502 applies to disclosure rather thanuse, and you cannot use the privilege as both asword and a shield.

Q : Does Rule 502(b) Require theProducing Party to Review ItsProductions Afterwards to DetermineWhether Privileged Information HasBeen Produced? A : No.

The Explanatory Note accompanying therule makes clear that Rule 502(b) does notrequire the producing party to engage in a post-production review to determine whether any pro-tected information has been produced by mistake.However, upon discovering an inadvertent pro-duction, the producing party must act promptly.