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Court Enforces Clawback Agreement, Denies Motion to Compel

Posted in CASE SUMMARIES

Bro-Tech Corp. v. Thermax, Inc., 2008 WL 5210346 (E.D. Pa. Dec. 11, 2008)

On the eve of trial in this case in which plaintiffs alleged trade secret theft, the court granted an extension “on urgent party request” so that additional discovery could be accomplished.  The discovery proved to be complex, and the court appointed a special master to manage the electronic discovery issues.  Thereafter, the parties negotiated a stipulation, approved by the court, which included a clawback procedure (“the Clawback Agreement”) to handle the return of privileged documents.  The Clawback Agreement provided that in the event of disclosure of a privileged document, the document was to be returned upon written demand.  If the recipient of the document wished to challenge the privilege claim, they were required to do so in writing, within five days of receipt of the demand for the document’s return.  The special master would then resolve the dispute following an in camera review.

As discovery progressed, plaintiffs were permitted to search certain of defendants’ storage devices where they discovered several relevant documents not previously produced.  Those documents were produced to plaintiffs and included one document that defendants later claimed was privileged and demanded it be returned.  Pursuant to the stipulation’s Clawback Agreement, plaintiffs complied.

Plaintiffs then filed a motion to compel production of the document for use in the litigation.  Defendants opposed the motion arguing that the provisions of the Clawback Agreement governed and that the motion was “effectively barred as waived or untimely because Plaintiffs did not avail themselves of the challenge provision with respect to the Document [sic].”

The court ruled that the plaintiffs failed to properly object to the return of the document by filing a motion to compel, rather than a written objection with the special master, and stated:  “[T]he court considers that the parties will be bound by the rules and protocols they, in conjunction with the e-discovery master, devised, including the terms of the Clawback Agreement.  In the instant motion, such terms are dispositive…Plaintiffs’ Motion must be denied as untimely.”