A primer on ediscovery ethics

March 29th, 2010 | By Steve Puiszis

Lawson v. Sun Microsystems, Inc., 2010 WL 503054 (S.D. Ind. February 8, 2010)

Lawson is an ediscovery decision that has flown under the radar of most bloggers and legal commentators. It is a relatively short opinion, addressing whether sanctions should be imposed on the plaintiff and his former attorneys after the plaintiff unlocked certain password-protected documents produced by defendant in discovery that were privileged. The decision, however, implicates a number of ethical issues and the case could be used in teaching a course on ediscovery ethics. Because of the brevity of the district court’s opinion, many of the facts discussed below are taken from the Magistrate’s Report and Recommendation which can be read here.

The Magistrate, in addressing the defendant’s sanctions motion, described the issues presented by that motion as:

[T]he perfect storm of problems that can arise from voluminous electronic discovery in high stakes litigation. As with the storm of any magnitude – and this one might qualify as a Category 5 from the National Hurricane Center – the damage can be severe. Such is the case in the wake of this maelstrom.

The defendant claimed in its motion for sanctions that the case was an “ediscovery version of Watergate,” with the plaintiff acting as “the henchman who broke into the password-protected documents” and his counsel engaging in the “cover-up.” The district court, however, was not persuaded. While a relatively modest monetary sanction was imposed upon the plaintiff, the district court ultimately vacated the Magistrate’s recommended monetary sanction on plaintiff’s former counsel. Even when the defendant’s hyperbole is ignored, Lawson presents a number of knotty ethical issues that practitioners must be ready to recognize and properly address.

Password protected privileged information produced in discovery.

The plaintiff, David Lawson, filed suit claiming that he was owed several million dollars in incentive compensation for his efforts in securing a contract between Sun Microsystems and IBM. Plaintiff sought the production of a massive amount of ESI in discovery. After production of the requested ESI was delayed, plaintiff filed a motion to compel. That motion prompted the parties to enter into an agreement to expedite the ESI production. Under the parties’ agreement, the defendant agreed to produce its ESI with the understanding that plaintiff would provide the defendant with 14 days’ notice prior to using any of that information and defendant would have seven days to object to its use.

Subsequently, the defendant produced its ESI with a transmittal letter explaining that it had password protected certain privileged information that counsel had been able to review prior to production but had withheld data from certain custodians that it had not yet reviewed. The defendant indicated that it intended to review that additional ESI, password protect it and add references to privileged documents to its privilege log. One of the puzzling aspects of this case is the defendant withheld certain privileged information which it listed on the privilege log. The Magistrate never received a satisfactory explanation why some of the defendant’s privileged information was withheld and other privileged information was produced in a password protected format. Defendant’s privilege log explained that it produced the ESI in its native state without any review, but with the understanding that the plaintiff would provide 14 day advance notice of his intent to use any of the information and allow the defendant 7 days to raise an objection to that proposed use.

Because of the amount of ESI defendant produced, plaintiff’s counsel relied on his client to make an initial review of the defendant’s ESI to highlight and prioritize any information important to plaintiff’s claim. Subsequently, plaintiff sent his attorneys an email with a subject line: “Password protected files – Unlocked!” In that email, plaintiff explained that he had successfully unlocked most of the password protected files and wrote: “I suspect it remains to be seen if these will be considered ‘privileged’ with respect to our current situation or not.” Two days later, plaintiff sent a second email to his counsel referencing “unlocked documents.” The law firm which was then representing plaintiff withdrew several months later and another firm took over the prosecution of plaintiff’s claim.

Plaintiff’s successor counsel subsequently designated under the 14/7 day agreement information they intended to use in a deposition which included documents that had been password protected and listed by the defendant on its privilege log. And, as one might expect, accusations of misconduct by plaintiff and his former counsel then began to fly. Defendant requested, and was allowed to depose not only the plaintiff, but also plaintiff’s prior counsel about how the plaintiff obtained access to the password protected privileged information.

Plaintiff admitted in his deposition that he was able to unlock the password and gain access to the protected documents by using a utility that he downloaded from the internet. Plaintiff claims that he flagged for his attorney the fact that some of the documents were password protected and asked whether his counsel wanted plaintiff to try and open the documents. Plaintiff testified that his lawyer told him to not waste a lot of time, but to go ahead and try to open them.

Prior counsel for the plaintiff did not recall that conversation with his former client nor did he recall receiving the emails from plaintiff indicating he had unlocked the password protected documents. In an affidavit, counsel further affirmed that he never read or responded to the client’s email concerning unlocking the password. In his factual findings, the Magistrate pointed to several inconsistencies in the plaintiff’s testimony and concluded there was no basis to believe that plaintiff’s former counsel had actual knowledge of what the plaintiff had done.

Sanctions sought against plaintiff and his former counsel.

Defendant brought a motion for sanctions against the plaintiff for unlocking the password protected documents and reviewing the privileged information. Sanctions were also sought against plaintiff’s former counsel. Defendant accused counsel of violating Rule 1.2 of the Indiana Rules of Professional Conduct, which prohibits assisting a client in criminal conduct, and of violating Rule 4.1, which prohibits the failure to disclose a material fact to a third person when such disclosure is necessary to avoid assisting a criminal or fraudulent act by the client. The defendant further accused counsel of failing to properly monitor and supervise the actions of the former client and of violating Rule 1.4, which requires an attorney to have reasonable communications with the clients. Defendant requested monetary sanctions be imposed and that the case be dismissed under Fed. R. Civ. P. 37, the district court’s inherent powers, and pursuant to 28 U.S.C. §1927, which permits sanctions on an attorney who unreasonably and vexatiously “multiplies the proceedings in any case.”

The Magistrate’s imposition of monetary sanctions.

The Magistrate concluded that terminating sanctions under either Rule 37 or the court’s inherent power were not warranted, in part, because of the role which the defendant and its counsel “played in creating this perfect storm of a disaster.” The Magistrate pointed to the defendant’s delay in producing its ESI until ordered by the court and then “dumping” a massive production on the plaintiff without any review, relying instead on the 14/7 day agreement. The Magistrate questioned why the defendant decided to password protect certain privileged information rather than withhold it, and was critical of defense counsel’s failure to discuss this approach to handling privileged information with the plaintiff, noting that defendant made only one short mention of the password protected documents on the third page of a transmittal letter. The fact that defendant pulled and redacted other privileged documents in its production, led the Magistrate to reject defendant’s suggestion that password protecting privileged documents was an agreed upon protocol between the parties. After reviewing the password protected documents, the Magistrate further concluded that most of that information either had been or could be obtained through other discovery.

Determining that monetary sanctions were appropriate, the Magistrate nonetheless rejected defendant’s request for a six figure sanction, finding the defendant could have avoided most of the expense it incurred in investigating the plaintiff’s misconduct and in briefing the sanctions motion had it originally proceeded differently with its discovery. Noting the defendant and its counsel “could not escape several nagging questions,” the Magistrate again wondered why a party “would produce privileged documents at all,” and why the defendant provided documents “it now claims are so significant with such little notice that they were password protected?”

The Magistrate determined that a reasonable monetary fee for taking the deposition of plaintiff and his prior counsel and then briefing a “properly focused sanctions motion” should amount no more than $54,500. Fifty percent (50%) of that sanction was imposed on the plaintiff for intentionally accessing the password protected documents and for lying at his deposition. Twenty five percent (25%) was attributed to the defendant and its counsel for contributing to the “problem at hand,” and twenty five percent (25%) of the monetary sanction was imposed on plaintiff’s former counsel.

Finding it incredible that plaintiff’s former counsel had not noticed the subject line of the client’s email—“Password protected files – Unlocked!”—the Magistrate concluded that counsel’s failure to read or review the plaintiff’s emails was not without consequence. The court concluded that counsel’s actions were unreasonable and implicated Rule 1.4 of the Indiana Rules of Professional Conduct, which requires an attorney to reasonably communicate with a client. The Magistrate pointed to the fact that counsel had devised a discovery plan, which involved the client’s review of defendant’s discovery responses, but failed to supervise and communicate with the client during the process, an approach he found to be “blatantly careless.” The Magistrate ruled, however, that counsel had not vexatiously multiplied the proceedings so §1927 sanctions were not warranted. He recommended that sanctions be imposed on plaintiff’s former counsel under the court’s inherent power.

The district court’s rationale for vacating the sanctions upon plaintiff’s former counsel.

Counsel timely objected to the Magistrate’s recommendation under Fed.R.Civ.P. 72(b), arguing that because the Magistrate concluded that counsel did not engage in wilful misconduct or had acted in bad faith, the imposition of monetary sanctions under the court’s inherent power was improper. The district court agreed, citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980). In Roadway Express, the Supreme Court required that a finding be made that counsel’s conduct “constituted or was tantamount to bad faith” before the entry of “any sanctions under the court’s their inherent powers.” The Seventh Circuit reached a similar conclusion in Maynard v. Nygun, 332 F.3d 462, 470 (7th Cir. 2003), explaining “the assessment of fees against counsel under the inherent powers in the court is permitted only when there is a finding of wilful disobedience or bad faith.” Maynard further observed that “mere negligence” will not support a sanction under a court’s inherent power.

While recognizing defendant’s frustration with this conclusion, the district court noted that the defendant was not significantly harmed by plaintiff’s misconduct because many of the password protected documents contained factual information that could be otherwise obtained in discovery.

Ethical and privilege issues presented in Lawson.

The preamble to Illinois’ Rules of Professional Conduct, which are now based on the Model Rules, notes that one of an attorney’s primary responsibilities is to properly advise a client and explain the practical implications of the client’s legal rights and obligations.

The duty to reasonably communicate under Rule 1.4 – Given the complexities frequently encountered in ediscovery, Model Rule 1.4’s obligation to “reasonably consult with the client about the means by which he client’s objectives are to be accomplished,” plays a more prominent role in an ediscovery context than in many other aspects of an attorney’s representation. The failure to advise a client about the need to impose a litigation hold, and what the hold process should reasonably entail can result in the imposition of significant sanctions on both the client and the attorney. Failing to advise a client to identify and alert key custodians about the preservation obligation or to discuss with the client basic issues such as the format in which the client’s electronic information is generated and preserved and how long it is preserved can lead to missteps that will also result in sanctions.

Comment 5 to Rule 1.4 recognizes: “The client should have sufficient information to participate intelligently in decisions concerning the objectives of the representation and the means by which they are to be pursued, to the extent the client is willing to do so.” Comment 5 further explains this requires the attorney to consult with the client about “tactics that are likely to result in significant expense.” Given the skyrocketing costs of ediscovery, a disgruntled client could claim that he should have been consulted on any significant ediscovery decision an attorney made during the course of the representation. Whether that is true is debatable, but communication about ediscovery issues can be critical, and a close working relationship between the attorney and the client can avoid claims that Rule 1.4’s obligations were not fulfilled.

The duty to abide by a client’s decision – Rule 1.2 – Once the client has been properly advised and made a decision concerning how the objectives of the representation are to be accomplished, Model Rule 1.2 requires the attorney to abide by the client’s decision. While the Rule is not without its limitations such as where fraudulent or criminal conduct by a client may be at play, Comment 1 to Rule 1.2 states that the Rule “confers upon the client the ultimate authority to determine the purposed to be served by legal representation, within the limits of the law and the lawyer’s professional obligations.”

Various district court ediscovery decisions such as Zubulake, extend the client’s duty to preserve electronic information to the attorney, and have created a tension between the attorney and his client in light of Rule 1.2. The imposition of a duty to preserve on the attorney had also created new ethical pitfalls that have to be avoided. Where the client chooses not to follow an attorney’s advise about how the litigation hold process should be implemented or how information should be preserved or produced and sanctions could result, potential adversity between the attorney and the client may be triggered if a motion for sanctions is later filed which involves the issue on which the attorney and client disagreed. Comment 2 to Rule 1.2 acknowledges that when a lawyer has a fundamental disagreement with the client, the attorney may withdraw from the representation. Withdrawal by the attorney may be the only viable alternative to avoid drawing a sanctions motion stemming from the client’s refusal to abide by the attorney’s advise in this context. And, should the attorney be drawn into a sanctions battle stemming from the client’s decision not to follow the attorney’s advise, the potential for having to disclose information about the representation of the client in order to defend against the imposition of sanction may have to be considered by the attorney.

Duty to maintain confidentiality of information – Rule 1.6 – While the attorney-client privilege and an attorney’s ethical duty under Rule 1.6 of the Model Rules are related concepts, an attorney’s ethical duty under Rule 1.6 is far broader than the attorney-client privilege. Absent the client’s informed consent, an attorney may not reveal any information from any source relating to that representation subject to Rule 1.6’s limited exceptions discussed below. The duty imposed by Rule 1.6 is also not limited to judicial or adjudicatory proceedings like the attorney-client privilege. It must also be remembered that an attorney’s ethical duty of confidentiality survives the termination of the attorney client relationship under Model Rule 1.9(c).

Comment 16 to Rule 1.6 also notes that the rule imposes a duty to competently safeguard information relating to the representation of a client against inadvertent or unauthorized disclosure by an attorney or others participating in the representation who are subject to the lawyer’s supervision. Comment 17 explains that this requires reasonable precautions and does mandate that a lawyer employ special security measures if the method of communication affords a “reasonable expectation of privacy.” It further provides: “Special circumstances, however, may warrant special precautions. Factors to be considered in determining the reasonableness of the lawyer’s expectation of confidentiality include the sensitivity of the information and the extent to which the privacy of the communication is protected by law or by confidential agreement.”

Lawson demonstrates the relative ease with which password protected documents can be unlocked. The plaintiff in Lawson simply employed a utility which he downloaded from the internet in order to unlock the documents. Consequently, after reading Lawson, it is uncertain whether any tribunal in the future would find that adequate measures were taken to safeguard the client’s privileged information simply by password protecting the documents. Withholding the documents and disclosing their existence through a properly protected privilege log will avoid any question that adequate measures were not taken to maintain the security of the client’s information.

Another aspect of Lawson bears mentioning at this point. We would not recommend entering into the type of 14/7 agreement involved in Lawson. The Magistrate noted that defendant did not review the documents before they were produced in discovery under that agreement. The defendant relied on the right to object to the use of those documents within 7 days as provided in that agreement, as an adequate means to protect its client’s interests. However, it appears doubtful that a party producing documents under such an arrangement could claim reasonable precautions were taken prior to production as required under F.R.E. 502(b) when it never reviewed the documents prior to their production. This could result in a court concluding that F.R.E. 502(b)’s protection was unavailable and in a finding that the attorney-client privilege or work product protection had been waived. Additionally, other entities who were not parties to such an agreement could seek to obtain any documents produced pursuant to the agreement without having to overcome the hurdle of attorney-client privilege or work product protection. Remember that clawback, quickpeek and other types of non-waiver agreements are not enforceable against third parties under F.R.E. 502(e) unless they are incorporated into a court order.

Duty upon receiving inadvertently produced information – Rule 4.4 - Typically, when an attorney receives privileged information from his opponent, it was inadvertently produced by opposing counsel. The duty of the attorney receiving inadvertently produced information under these circumstances is relatively straightforward and is outlined in Model Rule 4.4(b). Rule 4.4 requires a lawyer who receives a document and knows it was inadvertently produced to promptly notify the sender. Comment 3 to Rule 4.4 permits a lawyer to return the document after learning it was inadvertently sent.

When a lawyer is not required by applicable law to return an inadvertently produced document, the decision whether or not to voluntarily return such a document is reserved to the professional judgment of the attorney. When an attorney chooses not to return an inadvertently produced document containing privileged information, F.R.E. 502 may be implicated. Determining if the privilege was waived will turn on whether the production was inadvertant, whether the party that produced the information took reasonable precautions before the production occurred and whether it took reasonably prompt steps to seek its return upon determining that an inadvertent production had occured.

Duty upon receiving improperly obtained information from the client or a third party – Multiple Rules – When an attorney receives information from the client or a third party that may have been obtained by an improper or unauthorized means as in Lawson, the issues presented are far more complex and far more ethically dangerous than when the attorney receives inadvertently produced information from opposing counsel.

Rule 1.2(d) prohibits a lawyer from counseling, engaging or assisting a client in conduct that a lawyer knows is “criminal or fraudulent.” Rule 1.0(d) defines the terms “fraud” or “fraudulent” as “conduct that is fraudulent under the substantive or procedural law of the applicable jurisdiction and has a purpose to deceive.” Comment 9 to Rule 1.2(d) explains: “This prohibition does not preclude the lawyer from giving an honest opinion about the actual consequences that appear likely to result from the lawyer’s conduct.” Comment 10 addresses what an attorney should do under the Rules when the client’s fraudulent activities has commenced:

When the client’s course of action has already begun and is continuing, the lawyer’s responsibility is especially delicate. The lawyer is required to avoid assisting the client, for example, in drafting or delivering documents that the lawyer knows are fraudulent or by suggesting how the wrongdoing might be concealed. The lawyer may not continue assisting the client in conduct the lawyer originally supposed was legally proper but then discovers is criminal or fraudulent. The lawyer must, therefore, withdraw from the representation of the client in the matter. See Rule 1.16(a). In some cases, withdrawal alone might be insufficient. It may be necessary for the lawyer to give notice of the fact of withdrawal and to disaffirm any opinion, document, affirmation or the like. See Rule 4.1. In such situations, the lawyer should consider whether disclosure of information relating to the representation is appropriate. See Rule 1.6(b).

Illinois’ recently adopted version of Rule 1.6 permits an attorney to disclose information when necessary in order to prevent the client from committing a crime or a fraud “that is reasonably certain to the result in substantial injury to the financial interests or property of another.” It also permits an attorney to reveal information when it would “mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client’s commission of a crime or fraud in furtherance of which the client has used the lawyer’s services.” A lawyer is further permitted under the Illinois version of Rule 1.6 to secure legal advice about compliance with his duties and responsibilities under the Rules or when necessary to establish a lawyer’s “claim or defense” in (1) any “controversy between a lawyer and the client,” (2) or when necessary “to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved,” or (3) when required “to respond to allegations in any proceeding concerning the lawyer’s representation of the client,” or (4) “to comply with other law or a court order.”

Where the attorney represents an organizational client and learns that an officer, employee or another person associated with the organization, either “intends to act or refuses to act in a matter related to the representation” which violates “a legal obligation to the organization,” or who may be engaging “in a crime, fraud or other violation of the law which may be imputed to the organization,” Model Rule 1.13 should be consulted. It permits the attorney to bring the matter to the attention of a “higher authority” within the organization. Where an alleged crime or fraud is involved, Rule 1.13(c) permits the attorney, in certain instances, to reveal information to others outside the organization, “but only if and to the extent the lawyer reasonably believes necessary to prevent substantial injury to the organization.”

Turning back to Lawson, while an argument can be made that the client’s unlocking password protected documents might not qualify as “fraudulent” conduct under a state’s substantive or procedural laws, it clearly undermines the integrity of the adjudicative process and violates at least the spirit, if not the letter of the rules. Improperly accessing privileged documents undermines the notion of fair competition embodied in Model Rule 3.4. Clearly a lawyer could not engage in that behavior, and as noted below, under Rule 5.3, supervising attorneys can be held liable in certain circumstances for the acts of non-lawyer assistants that would violate the Model Rules if performed by the attorney.

In this context, Model Rule 3.3 may also be implicated. Rule 3.3 prohibits a lawyer from knowingly making “a false statement of fact or law to a tribunal” and requires the attorney “to correct a false statement of material fact or law previously made to the tribunal by the lawyer.” Rule 3.3(b) further mandates that a lawyer who represents a client in an adjudicative proceeding who knows that a person has engaged, is engaging, or intends to engage “in criminal or fraudulent conduct related to the proceeding” to take “reasonable remedial measures, including, if necessary disclosure to the tribunal.”

Comment 10 to Rule 3.3 explains that a lawyer should advise the client about the attorney’s duty of candor and seek the client’s consent to withdrawing or correcting the false statement(s) or evidence. If the client does not consent, the attorney’s withdrawal from the representation is permitted. However, where withdrawal is either “not permitted or will not undo the effect” of the false statement or evidence, the attorney “must make such disclosure to the tribunal as is reasonably necessary to remedy the situation, even if doing so requires the lawyer to reveal information that otherwise would be protected by Rule 1.6.”

Obtaining legal advise on compliance with the Rules – Rule 1.6 - Perhaps the most critical of all the exceptions recognized to the Rule 1.6’s duty of non-disclosure is the attorney’s right to consult with counsel as to how to comply and if his or her professional obligations under the rules. Whenever an attorney is confronted with these type of tough ethical questions, the safest course of action is to consult with another lawyer who has significant expertise in navigating your states ethics rules. As this brief outline demonstrates, the answers to an attorney’s questions are not always clear, which is why seeking out advice can be critical for the lawyer.

However, when considering the proper course of action, consider which type of ethical violation you would rather defend – one in which you are accused of conspiring with a client to perpetrate a fraud upon the court and/or your opponent, or one in which you are alleged to have improperly disclosed information stemming from your representation of the client in order to prevent a fraud from being perpetrated upon the court or your opposing counsel or in an attempt to mitigate the damage flowing from the fraud? While attorneys want to avoid any ethical challenge, I would rather to err on the side of caution and defend the latter charge rather than the former.

Duty to supervise non-lawyer assistants – Rule 5.3 - Lawson also implicates Model Rule 5.3 That rule requires any lawyer having direct supervisory authority over a non-lawyer to make reasonable efforts to ensure that the non-lawyer’s conduct is compatible with the professional obligations of the supervising attorney. Rule 5.3(c) further makes the supervising lawyer responsible for any misconduct of the non-lawyer assistant which violates the rules of professional conduct, where the lawyer either orders or knowingly ratifies the non-lawyer assistant’s conduct or where a supervising attorney knows of the conduct at a time when its consequences can be avoided or mitigated and fails to take reasonable remedial measures to limit that harm. Model Rule 5.1 contains similar provisions relating the duties to supervise the activities of other lawyers involved in the representation of the client.

Accordingly, had the Magistrate in Lawson concluded that counsel authorized the client’s attempt to unlock the password or had reviewed the client’s emails and failed to instruct the client to stop and not review the documents, an argument could be made that Rule 5.3 was arguably violated.

Conclusion – The ethics of ediscovery is not simply “putting new wine into old skins,” rather it requires addressing issues that were not even imaginable as recently as a decade ago. Given the rapidity of technological change in today’s digital era, attorneys will have to keep abreast of those changes because the ethical issues now being presented will continue to evolve and new issues will emerge as the technology used by attorneys and their clients evolves and changes over time.

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