Sale of Seized Computer at Public Auction did not Waive Privilege where Steps were Taken to Prevent Disclosure

Kyko Global Inc. v. Prithvi Info. Solutions Ltd., No. C13-1034 MJP, 2014 WL 2694236 (W.D. Wash. June 13, 2014)

In this case, the court addressed the question of whether privilege was waived by the sale of a seized computer at public auction.  Balancing the relevant factors under Washington law, the court determined that the prior owner’s steps to protect her information by reformatting the computer and installing a new operating system coupled with defendants’ prompt efforts to remedy the error and considerations of fairness weighed against waiver.

Following settlement and confession of judgment by a number of named defendants in this case, plaintiffs obtained a Writ of Execution resulting in the seizure of one such defendant’s personal property, including her computer.  An attorney for the plaintiffs then purchased that computer at public auction—outbidding a representative sent by defendants.  Plaintiffs sent the computer to a third party for analysis.  Defendants contend that this action violated ethical rules, that plaintiffs must return the computer, and that counsel should be disqualified from further representation of plaintiffs.  Seeking resolution of these issues, plaintiffs moved for a determination of the admissibility of the materials on the at-issue computer.  Defendants moved for plaintiffs’ counsel to be disqualified.

Summarizing broadly, the court determined that plaintiffs’ acquisition of the computer was not “inherently wrongful” and also noted plaintiffs’ claim that they had not reviewed the materials on the computer at the time of the motion (indeed, it is not clear that the presence of privileged materials on the computer had actually been confirmed).  The court also concluded that the use of forensic analysis did not violate Washington’s RPC 4.4(a) and was “not equivalent to metadata mining of documents produced through the normal discovery process . . . .”

Addressing the question of waiver, the court applied the balancing test used by Washington courts “that is similar to Rule 502(b)” and considers: “(1) the reasonableness of precautions taken to prevent disclosure, (2) the amount of time taken to remedy the error, (3) the scope of discovery, (4) the extent of the disclosure, and (5) the overriding issue of fairness.”  The court then analogized the facts of this case to instances in which one party discovers privileged documents in the other party’s trash, which “can lead to waiver if the opposing party can show that the person who discarded the material was unconcerned with maintaining its confidentiality.”  Thus, “the precautions taken by the discarding party are a paramount concern.” 

In the present case, the prior owner of the computer stated that “she had ‘someone at her office’ reformat the hard drive on the computer and install a new operating system” and that she “believed her documents had been erased and were not readily accessible.”  There was also some dispute regarding whether the hard drives were password protected at the time of the sale.  In any event, the court reasoned that it was “not inconceivable” that the prior owner believed that no one could access her documents and, returning to its trash analogy, further reasoned that the facts bore “closer resemblance to the memo torn into 16 pieces than a document simply placed in a trash can without alteration.”  Thus, the court concluded that “[a]long with Defendants’ prompt efforts to remedy the error by filing a motion with the Court and the general sense that parties should not be able to force waiver of attorneyclient [sic] privilege through investigative activities outside the discovery process and a superior understanding of the relevant technology, the Washington balancing test weighs against waiver.”  Plaintiffs’ Motion to Disqualify counsel was also denied. 

Accordingly, plaintiffs were ordered to provide defendants with a copy of the hard drive and defendants were ordered to review the hard drive for privileged documents and to provide plaintiffs with a privilege log. (Note: the court’s opinion appears (in several places) to have mistakenly referenced plaintiffs as defendants and vice versa, an oversight that was corrected in this summary.)