Applying Evidence Rule 502 and Five Factor Test, Court Determines No Waiver

Rhoads Indus., Inc. v. Bldg. Materials Corp. of Am., 254 F.R.D. 216 (E.D. Pa. 2008)

In this breach of contract case, plaintiff Rhoads Industries, inadvertently produced over eight hundred privileged, electronic documents.  Defendants filed a motion to deem the claim of privilege waived arguing that plaintiff’s production was careless, that its response in seeking the return of the documents was delayed, and that it failed to produce complete and accurate privilege logs as to those documents.

In February 2007, Rhoads began preparing for its anticipated litigation against Building Materials Corporation of America.  Realizing the likelihood of extensive electronic discovery, Rhoads directed its IT consultant to research software to assist with the electronic discovery effort.  The IT consultant eventually purchased Discovery Attender (or “Sherpa”) to perform the necessary electronic data searches.  Shortly thereafter, the IT consultant and his team began work to identify locations of potentially relevant information.

Shortly after discovery began, Rhoads’s counsel met to discuss the scope of discovery and the search terms to be used.  Using terms received from Rhoads’s attorneys, the IT consultant identified a large volume of potentially responsive documents.  He then ran a keyword search intended to filter the privileged material and removed those documents from the group.  The search was run a second time to verify its accuracy.  The documents identified by the search were not placed on a privilege log.

Given the large volume of documents remaining even after removing materials hit by the privilege search, Rhoads’s counsel modified the original search terms and reduced the volume of potentially responsive documents to 78,000.  Because of the prior privilege keyword search, Rhoads believed there were no privileged materials in that remaining group.  Rhoads’s counsel then manually reviewed a separate group of emails from specific accounts, as well as 22 boxes of hard copy documents, to identify and remove privileged documents, which were then added to separate privilege logs.

On May 13, 2008 three hard drives of documents were produced to defendants, including the 78,000 documents identified by the Sherpa search.  In response to a court order, Rhoads produced two separate privilege logs on June 6, 2008, one containing entries for the documents identified during the manual email review and one containing entries from the hard copy review.

On June 5, 2008, defense counsel notified Rhoads’s counsel that Rhoads had produced what appeared to be privileged documents.  Rhoads responded that the production was inadvertent and asserted that no privilege had been waived.  Rhoads then proceeded to conduct nine depositions and engage in motions practice over the next two and a half weeks before turning to the issues of privilege.  Rhoads then re-reviewed the 78,000 documents and identified 812 privileged documents that it placed on a new privilege log.  The log was produced to defendants on June 30, 2008.  Nevertheless, the defendants thereafter sought an order finding the privilege had been waived.

At hearing on the issue of waiver, Rhoads revealed that the 2,000 privileged documents originally identified by the Sherpa search had not been entered on any privilege log.  Rhoads’s counsel indicated though, that she believed her manual review of particular email accounts would have captured those documents and they would therefore have appeared on the log produced June 6th.  The court ordered any documents not on a privilege log at the time of the hearing should be produced and took the issue of inadvertent production under advisement.  At a second hearing to address Rhoads’s failure to properly log the 2,000 documents, the court once again affirmed that any privileged documents not placed on a privilege log as of June 30th should be produced.

In its written opinion, the court first acknowledged the applicability of recently enacted Evidence Rule 502 establishing standards for determining waiver by inadvertent disclosure.  In its discussion, the court noted that the Committee Notes to the rule acknowledge the traditional factors commonly employed by a majority of courts in determining waiver but that the rule stops short of explicitly codifying any test in light of the need for flexibility.  The traditional factors, were:  1) the reasonableness of the precautions taken to prevent inadvertent disclosure in view of the extent of the document production, 2) the number of inadvertent disclosures, 3) the extent of the disclosure, 4) any delay in measures taken to rectify the disclosure, and 5) whether the overriding interests of justice would be served by relieving the party of its errors.  The court then turned to a discussion of those factors and their application by other courts.

In its ruling, the court indicated its belief that “the most appropriate approach is to first determine whether the producing party has at least minimally complied with the three factors stated in Rule 502, i.e., that the waiver was inadvertent, the party took reasonable steps to prevent disclosure, and attempted to rectify the error.”  Acknowledging that the reasonableness of Rhoads’s review was the crux of the dispute, the court then concluded, “that once the producing party has shown at least minimal compliance with the three factors in Rule 502, but ‘reasonableness” is in dispute, the court should proceed to the traditional five factor test.”

The court found that the first four factors favored the defendants.  Most significant, according to the court, was Rhoads’s failure to adequately prepare for the review of privileged documents in light of the inevitable production of a large volume of documents.  The court stated: “An understandable desire to minimize costs of litigation and to be frugal in spending a client’s money cannot be an after the fact excuse for a failed screening of privileged documents…”

However, the fifth factor, the interest of justice, strongly favored Rhoads in light of the severity of the sanction of waiver.  The court also determined that no prejudice would result where defendants had no expectation of receiving the privileged communications and because some of the documents would be produced anyway in light of the court’s ruling that Rhoads must produce any documents not appearing on a privilege log before June 30, 2008.  Having also considered that the burden lay with the defendants,  the court found that defendants had not met their burden as to any documents that had been appropriately logged prior to June 30, 2008 and entered its order accordingly.

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