Privilege waived by failing to object to deposition questions about the content of inadvertently produced documents

February 18th, 2009 | By Steve Puiszis

AHF Community Development, LLC v. City of Dallas, 2009 WL 348190 (N.D. Tex. Feb. 12, 2009).

The district court in AHF Community concluded that a party which had inadvertently produced privileged documents waived attorney-client privilege by failing to object to deposition questions which focused on the content of the privileged documents that were marked as exhibits at the deposition. The decision underscores the need for nonwaiver orders under Fed. R. Evid. 502(d), or if unavailable clawback agreements. Lurking behind the decision however, are several equally important ethical issues that should not be overlooked by attorneys when privileged information is inadvertently produced in discovery.

AHF Community involved the production of emails and documents that were labeled privileged, and were included in a privilege log. The privileged materials however, were inadvertently included in a CD of electronic documents produced to the plaintiff following the City’s conversion to a new litigation management software program. The plaintiff marked certain privileged documents as exhibits at a defendant’s deposition, and questioned the defendant about their content without drawing any objection. Following the deposition, the City’s attorney notified plaintiff that the defendants had inadvertently produced privileged documents. The defendants requested that plaintiff return the privileged documents, and refrain from further disclosing their content. The defendants also provided an updated privilege log that specified the Bates numbers of the various documents which they claimed were privileged.

Plaintiff disputed the claim of privilege as to certain documents and took the position that the defendants waived the privilege as to the remaining documents. Plaintiff’s waiver argument was based on the defendants’ failure to object during the course of the deposition questioning as well as the time that had elapsed between the inadvertent production of the privileged material, and the defendant’s assertion of privilege. Plaintiff claimed that it had relied on the disputed documents in developing its case and should not be made to suffer the effects of the defendants’ conversion to a new litigation management software program.

Attorney-Client Privilege Applies to Communications with In-house Counsel.

The privileged materials that were inadvertently produced included emails between city employees and an assistant city attorney. The district court ruled that the attorney-client privilege applies not only to communications with outside counsel, but also to communications between a corporation and its inside counsel. It recognized, however, that attorney-client privilege does not attach to every communication, regardless of its content, made to a corporation’s inside counsel to keep that attorney apprised of ongoing situations about which he or she may be asked to provide specific legal advice. The district court noted that because “in-house attorneys are not retained by the client for a specific matter, they often become involved in the broader goals of the organization” which blurs “the line between legal and non-legal communications.” In the court’s view, this factor called for “careful consideration of each communication” to determine whether it should be protected.

The district court in AHF Community readily concluded that a number of the communications were not privileged because they did not contain an attorney’s legal advice or confidential communications made to obtain that advice. Only those communications relating “to specific legal advice or services” sought from the assistant city attorney were held to be privileged.

F.R.E. 502 Not Considered.

The district court then examined whether the privilege had been waived as to the remaining documents. In passing, the district court noted that Fed. R. Evid. 502 went into effect on September 19, 2008, and provides that it shall apply “insofar as is just and practicable, in all proceedings pending on [the] date of enactment.” Without any explanation, the district court in AHF Community concluded that it did not have to address Rule 502’s impact in deciding the motion. While this aspect of the court’s decision is murky, it appears to be based on the fact that in the Fifth Circuit, an intermediate balancing approach is applied when addressing whether the inadvertent production of privileged documents triggers a waiver of privilege. That is the same approach taken under Fed. R. Evid. 502(b) to inadvertent productions of privileged information.

Failure to Object to Deposition Questions Waived the Privilege

The district court began its analysis of the waiver issue by noting that it was undisputed that the defendant’s production of allegedly privileged information was inadvertent. However, the court noted that the privileged materials were marked as exhibits at a deposition and served as the basis of the questioning of a city witness. No privilege-based objections were made at the deposition, and the witness answered deposition questions concerning the content of the privileged documents.

Nguyen v. Excel Corp., 197 F.3d 200, 206-07 (5th Cir. 1999), had previously held that the failure to object to questions asked at the depositions of corporate executives pertaining to confidential communications with their lawyers waived the attorney-client privilege. The district court in AHF Community applied Nguyen, and concluded that the defendants voluntarily waived attorney-client privilege by failing to object to the use of the privileged documents at the deposition and by not objecting to the deposition questions about their content.

In Lathem Equipment Co. v. Deere & Co., 2008 WL 4997932 (E.D. Mich. Nov. 21, 2008), another district court addressed the same scenario as in AHF Community. In Lathem, counsel first discovered that privileged documents were inadvertently produced at the deposition of his expert. However, unlike in AHF Community, the attorney in Lathem lodged an objection based on privilege at that deposition and sent a letter to opposing counsel demanding the return of the inadvertently produced information on the same day. The district court in Lathem concluded that under Rule 502(b), the inadvertent production did not result in a waiver of attorney-client privilege and ordered the privileged information be returned.

Thus, one obvious lesson to be learned from AHF Community, is that attorney-client privilege should be diligently guarded and that an attorney should always object when your opponent attempts to use inadvertently produced privileged information at any stage of a proceeding.

Enter into Clawback Agreements or Seek Rule 502(d) Non-Waiver Orders.

AHF Community provides an example why attorneys should always seek the entry of a non-waiver order under Fed. R. Evid. 502(d) or strive to reach an agreement with opposing counsel on the use of clawback agreements. Had either the district court entered a non-waiver order under Rule 502(d) or had a properly drafted clawback agreement been agreed to by the parties, the outcome in AHF Community would likely have been different.

A Rule 502(d) non-waiver order provides far greater protection than a clawback agreement, and should be an attorney’s preferred option to protect against the inadvertent waiver of attorney-client privilege. Fed. R. Evid. 502(e) provides that a clawback agreement is only binding on the parties to the agreement. A clawback agreement provides no protection against the claims of third parties in related proceedings seeking the inadvertently produced information.

Rule 502(d) on the other hand, states that when a federal court enters a non-waiver order providing that attorney-client privilege or work-product protection is not waived by any disclosure in the litigation pending before it, then the production of any privileged or protected documents does not constitute a waiver of privilege or work product in any other state or federal proceeding. While Rule 502(d) non-waiver orders are not a panacea, they should always be sought in document intensive cases.

Ethical Pitfalls to Avoid.

Finally, counsel must also be cognizant of any applicable Rules of Professional Conduct when an inadvertent production of privileged information has occurred. ABA Model Rule 4.4(b) provides: “A lawyer who receives a document relating to the representation of the lawyer’s client and knows or reasonably should know that the document was inadvertently sent shall promptly notify the sender.”

While a number of states have updated their professional conduct rules to mirror Rule 4.4(b)’s approach, other states have not. Don’t assume that various states’ rules of professional conduct are uniform in their content or consistent in their approach to inadvertently produced information. For example, the District of Columbia Bar in its Ethics Opinion No. 256, adopted the position that when a lawyer knows that privileged material was inadvertently produced, it constitutes a “dishonest act” under Rule 8.4(c) for the lawyer to review and use the material without consulting the sender. Additionally, some federal district courts, such as the Northern District of Illinois, have adopted their own rules of professional conduct applicable to proceedings filed therein.

While ethical and evidentiary rules serve different purposes, they can intersect when privileged information is inadvertently produced. If the applicable rules of professional conduct require the attorney receiving privileged information to notify the producing attorney and after having done so, the producing party fails to take prompt remedial action, an argument can be made that the party which inadvertently produced privileged information failed to take reasonable steps to rectify the error as required by Rule 502(b)(3).

Thus, when counsel receives documents that are either labeled as privileged as in AHF Community or realizes that unlabeled documents produced by opposing counsel contain privileged information, the receiving attorney should immediately consult the applicable professional conduct rules and with a knowledgeable ethics attorney in his or her firm. The last thing any attorney wants is to win a battle over privilege waiver and lose a war over the rules of professional conduct.

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