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Complex Litigation: Attorney-Client Privilege,

March 3, 2003New Jersey Law JournalAttorneys: James T. Kim and Michael S. Meisel

“A gentleman does not read another gentleman’s mail.” ~ Henry L. Stimson, 1937

“If a gentleman doesn’t open another gentleman’s mail, then he shouldn’t be accessing his database.” ~ The Washington Post, Feb. 11, 1990, “Revenge on the Nerds; Sure, Jail Our Hackers - Who Needs Software Stars Anyway?”

No one doubts technological advancements have radically accelerated the speed with which attorneys now communicate with their clients. E mails and faxes allow information to be exchanged instantly. In these quick and casual means of sending privileged information, however, lies the danger.

Just seven years ago, experts predicted e mail volume would skyrocket in the year 2000 to 5 billion per month. See Scott Dean, “E mail Forces Companies to Grapple With Privacy Issues,” Corp. Legal Times, Sept. 1993.

This year, the actual average of e mails is about 3.5 billion per day, and current estimates predict e mail traffic will exceed 8 billion per day by the end of 2002. See Fred Moore, “Storage Changing So Fast it Even Obsoletes the Future,” 21 Computer Technology Review 28 (Jan. 1, 2001).

E mail often is not regarded as permanent and is frequently used to send messages that may be inappropriate to “put in writing.” And although faxing is not as quick and easy as e mailing, it is less formal than writing, signing, posting and mailing a letter.

With the increasing use of e mail combined with the informality and ease of use of both e mail and faxing, the wrong push of a speed dial button or click of a mouse can result in the inadvertent loss of the attorney client privilege.

Imagine the following scenarios:

  • Example 1. Law Firm A wants to send a confidential memorandum by fax to its client, discussing litigation strategies and a recommended settlement figure. Law Firm A’s secretary dials the wrong fax number, accidentally sending the fax to opposing counsel in the case.

Realizing the error, Firm A calls opposing counsel and asks him to destroy the fax. Opposing counsel refuses, reads the fax and learns the confidential details of the case strategy and proposed settlement.

Has Firm A waived the attorney-client privilege, even though the fax was accidently sent to the wrong number? Would a “confidential - please do not read if received in error” message make a difference in determining whether the privilege is lost?

  • Example 2. Company A e mails its attorney about an upcoming contract with Company B. The attorney reads the e mail and sends a return e mail, providing advice regarding the contract negotiations. Company A “ccs” both e mail messages to its potential investor advising him of the proposed deal.

Although communications between Company A and its attorney are normally privileged, by sending a copy of the communication to the investor - a person outside of the privilege - Company A has jeopardized the privilege. Would it have made a difference if Company A had accidentally sent the email to the investor, or is any disclosure a waiver of the privilege?

Depending on the jurisdiction, some courts would find that an accidental or inadvertent disclosure of confidential information is not a waiver of the privilege, while other courts hold that any disclosure, accidental or not, waives the privilege. With today’s complex litigation and transactions frequently crossing geographic borders and time zones, our understanding and advice must encompass how the courts treat these issues in New Jersey and beyond. On similar facts, courts throughout the United States have come to opposite conclusions.

Automatic Waiver of Privilege

In some jurisdictions, courts have held that any disclosure, even if it is accidental, constitutes a waiver of the privilege. In Federal Deposit Insurance Corp. v Singh, 140 F.R.D. 252 (D.Me. 1992), an attorney’s secretary inadvertently faxed a privileged memorandum to opposing counsel. The attorney had given the privileged document to his secretary to fax to the client. The court held that a disclosure of privileged documents to a person outside the privilege constitutes automatic waiver of the privilege, even if the disclosure is inadvertent. The court in Maine concluded “once persons not within the ambit of the confidential relationship have knowledge of the communication, that knowledge cannot be undone. One cannot ‘unring’ a bell.”

In Underwater Storage, Inc. v. United States Rubber Co., 314 F Supp. 546 (D.D.C. 1970), the plaintiff’s counsel inadvertently turned over to the defense a confidential letter written to his client regarding patent applications in response to a document demand. The court in the District of Columbia refused to consider whether the plaintiff really intended to disclose the privileged information. The court held that the voluntary act of disclosure was sufficient to destroy the privilege.

In W.R. Grace & Co. v. Pullman, 446 F.Supp. 771 (W.D.Okla. 1976), where an attorney inadvertently disclosed privileged documents in a document production demand, the court in Oklahoma held that the privilege had been automatically waived. The documents inadvertently produced included a patent application file and various proposals for the development of ammonia plants. The court reasoned that once the information has been disclosed, there is nothing left to protect, stating “one cannot produce documents and later assert a privilege which ceases to exist because of the production.”

Another example of the “you can’t unring the bell” approach is found in Golden Valley Microwave Foods, Inc. v. Weaver Popcorn Co., 132 F.R.D. 204 (N.D.Ind. 1990). In that case, a company inadvertently disclosed, to opposing counsel in response to a document demand, a privileged letter from outside counsel to in house counsel detailing the potential infringement problems of a microwave device. The court in Indiana held that the privilege had been waived. The court stated: “when inadvertent disclosure occurs the court should not be consumed in searching for the true intention of the disclosing party nor should it utilize its crystal clear hindsight to determine the adequacy of the precautions taken.”

Thus, under the automatic waiver theory, any disclosure will result in a loss of the attorney client or work product privilege. Even if the production was accidental or inadvertent, the confidentiality of the document has been breached by the disclosure, thereby destroying the basis for the continued existence of the privileged.

In these jurisdictions and others where the courts adopt similar approaches, we can expect errant e-mails and faxes to be treated with the same judicial “shrug of the shoulders.”

Client’s Intent To Waive the Privilege

A few jurisdictions have adopted the view that a waiver must be intentional and, therefore, the mere accidental or inadvertent disclosure of a privileged document by the attorney does not waive the client’s privilege. New Jersey is one of the jurisdictions that has adopted this view.

The leading case in New Jersey on this issue is Trilogy Communications v Excom Realty, 279 N.J. Super. 442, (Law Div. 1994), where the defendant inadvertently produced a confidential draft letter to the plaintiff along with 5,500 pages of other documents in response to a document demand. The trial court analyzed the different lines of authority on this issue and adopted the rule that mere inadvertent production of a privileged document does not waive the privilege. The court noted that New Jersey has long recognized the important public policy reasons favoring the confidentiality of attorney client communications. The court concluded:

to hold that the inadvertent production of a privileged document is a waiver of the lawyer client privilege would render nugatory this state’s strong public policy favoring the confidentiality of lawyer client communications embodied in statute, rules of evidence, rules of professional ethics, and case law.

The Appellate Division in 1998 reaffirmed Trilogy Communications. In Schillaci v First Fidelity Bank, 311 N.J. Super. 396 (App. Div. 1998), the court determined that the mere inadvertent release of a privileged document to an adversary does not constitute waiver of the attorney client privilege under New Jersey case law and New Jersey’s Rules of Evidence. The court held that under N.J.R.E. 530, waiver of the privilege must be made “with knowledge of the right or privilege.” New Jersey remains one of the few jurisdictions that has adopted this view.

Similarly, the District Court in Illinois in Mendenhall v Barber Greene Co., 531 F.Supp. 951 (N.D. I11. 1982), concluded the attorney client privilege was not waived where an attorney inadvertently allowed opposing counsel to review both confidential and nonconfidential files in response to a document production request. Because the innocent client had no intention of allowing his attorney to expose confidential material, the court held that the privilege had not been waived, explaining:

the better reasoned rule is that mere inadvertent production does not waive the privilege ... [I]f we are serious about the attorney client privilege and its relation to the client’s welfare, we should require more than such negligence by counsel before the client can be deemed to have given up the privilege.

However, even in New Jersey and those other jurisdictions where accidental disclosure is not a waiver of privilege, the inadvertent disclosure of, for example, a settlement position obviously can be devastating.

The Balancing Test

A third line of cases applies a conventional balancing test to determine if inadvertent disclosure triggers a waiver of the privilege depending on the circumstances surrounding the disclosure. For example, in Zapata v IBP, Inc., 175 F.R.D. 574 (D. Kan. 1997), defense counsel’s secretary inadvertently sent a copy of an expert report containing the counsel’s handwritten notes to the plaintiff’s counsel. Defendant moved for a protective order preventing any use by plaintiff of defense counsel’s handwritten notes on the grounds of attorney work product.

The court in Kansas employed a five factor test to determine if inadvertent disclosure of documents effects a waiver of the privilege. The factors were (1) the reasonableness of the precautions taken to prevent inadvertent disclosure; (2) the time taken to rectify the error; (3) the scope of discovery; (4) the extent of disclosure; and (5) the overriding issue of fairness. The court held that the defendant’s inadvertent disclosure did not amount to a waiver of its work product, because the defendant’s attorney diligently attempted to protect confidential documents by carefully screening documents and immediately attempted to rectify the error by requesting return of the documents.

Similarly, in Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 104 F.R.D. 103 (S.D.N.Y. 1985), the defense reviewed 30,000 pages of documents in preparation for a document production demand. In the course of assembling the documents for production, defense counsel inadvertently disclosed 22 documents that were considered work product. The court in New York, applying the balancing test, focused on the scope of the discovery and found the limited disclosure to have been by mistake, rather than a knowing waiver.

In In re Grand Jury Investigation, 142 F.R.D. 276 (M.D.N.C. 1992), a company served with a grand jury subpoena was required to produce 300,000 documents in a two month period. The company developed a multiscreening procedure to identify and separate privileged documents and hired senior and junior attorneys and a paralegal to handle the screening process. Despite these controls, 18 privileged documents were disclosed to the opposing counsel. Using the balancing test, the court in North Carolina found that the privilege was intact because of the limited nature of the disclosure and the efforts the company had made to protect the information.

A most extreme case of inadvertent disclosure is found in Suburban Sew `N Sweep Inc. v. Swiss Bernina, Inc., 91 F.R.D. 254, (N.D. I11. 1981), where the client threw away privileged documents and they were later retrieved from the trash by an adverse party in the action. The court viewed the modern trend as requiring consideration of the circumstances surrounding the disclosure, including the precautions taken by the attorney and client to preserve the privilege and the overriding issue of fairness. The court reasoned that a person does not have a reasonable expectation of privacy in his trash, and that by placing otherwise confidential and privileged documents in the trash, the client had waived the privilege by not taking sufficient precautions to protect the privilege.

With e mails and faxes, the inadvertent disclosure happens in an instant, without the precautions that usually surround a formal document production. Should the result depend on after the-fact determinations such as reasonableness of precautions, timing of discovery and efforts to rectify, and the volume of the communications? Or should the overriding issues of intent and fairness determine the outcome?

ABA Opinion

With respect to a lawyer’s professional duty, the ABA Commission on Ethics and Professional Responsibility issued a formal opinion in 1992 regarding inadvertent disclosures. See ABA Commission on Ethics and Professional Responsibility, Formed Op. 92 368 (1992). The ABA determined if an attorney received by mistake documents protected by the attorney client privilege or the work product privilege, the attorney should “refrain from examining the materials, notify the sending lawyer and abide by the instructions of the lawyer who sent them.”

The opinion states the view in the case of inadvertent disclosure that “the loss of confidentiality is a very high penalty to pay for a mere slip.” Thus, the ABA’s opinion shifts the focus from the efforts made by the inadvertent sender of the privileged information to the duties of the receiving attorney. Although this approach may save inadvertent disclosures received by attorneys, it does not protect disclosures received by non lawyers. Moreover, courts are not bound to follow the ABA position.

Hypothetical Analysis

Is the fax accidentally sent to opposing counsel in Example 1 a waiver of the privilege? Law Firm A inadvertently disclosed its strategy and settlement assessment to opposing counsel. Most courts would be willing to maintain the privilege by looking at the intent of Law Firm A to keep the information in the facsimile confidential.

If Law Firm A utilized a “confidential” notation on the cover sheet, the court would use this as a factor to show Law Firm A’s intention to keep the privilege. Based on the principles outlined in the ABA Opinion, a court may find that the attorney who received the facsimile has a duty to abide by Firm A’s instructions to destroy or return the facsimile. (Of course, if opposing counsel already has seen the settlement figure, remedial efforts are useless, except as to the potential evidentiary use of facts that could be regarded as party admissions and the like.)

In Example 2, if Company A purposely “ccs” both e mail messages to its investor advising him of the new deal, this would constitute a waiver of the attorney client privilege. Under all of the approaches, an intentional disclosure to a person outside of the privilege constitutes a waiver of the privilege. But what if the disclosure were accidental? Although Company A would still lose the privilege under the automatic waiver approach, in the remaining jurisdictions, including New Jersey, Company A would have a chance of keeping the privilege intact. A court would examine the efforts taken by the company to protect the privilege, how quickly the company acted to repair the damage and whether a loss of the privilege would comport with basic principles of fairness.

Protect the Privilege

Many people view e mails as casual and ephemeral communications, forgetting they can be printed out or stored in computer memory for an indefinite time. With the tremendous volume of email communications, we need to constantly keep in mind that e mails should be treated the same as any other paper correspondence.

In protecting the privilege, the attorney and client should develop a consistent method for establishing what they want to keep privileged. On every e mail, a “Confidential & Privileged” heading should appear above the message just as it would on a written document. This will provide a “heads up” to the recipient of the e mail not to unthinkingly forward the message to people outside the privilege. The “Confidential & Privileged” heading should also provide protection from compelled disclosure if e mail messages are later subject to a document production demand in litigation.

In screening e mail messages during voluminous document productions, the “Confidential & Privileged” notation would also help prevent inadvertent disclosure to opposing counsel. Even if a document is inadvertently sent to opposing counsel, the fact that efforts were made to protect the communication as privileged may convince a court to prevent its use as evidence in the case.

Sound office policy should include “erasing” e mails from computer memory after a fixed time period. A retention policy and system also should be employed to remove e mail messages from backup or archive files rather than storing unnecessary messages indefinitely.

The nature of facsimile transmittals and their handling also creates many dangers of inadvertent disclosure. Merely affixing a “Confidential” warning on a fax does not prevent unauthorized persons from reading or using the contents of the fax. Therefore, it is important for attorneys or their secretaries, before sending the document, to double check the fax number to prevent the fax from going to the wrong location. Additionally, it is inadvisable to put confidential information directly on the cover sheet itself.

Prudent office policy should be put in place to identify what documents might be too sensitive to travel via fax. In most instances, e mail is a more secure delivery system than fax. Messenger services, express priority mail and other delivery services can also deliver highly sensitive and privileged documents quickly.

The legal and business worlds are being put to the test: Will we be “honorable gentlemen,” refusing to read each other’s mail. It seems that the ABA and New Jersey approach fully comports with traditional professional conduct. As the ABA Opinion noted:

many difficult issues of professional discretion ... must be resolved through the exercise of sensitive and moral judgment ... [T]he Rules of Professional Responsibility] do not exhaust the moral and ethical considerations that should inform a lawyer, for no worthwhile human activity can be completely defined by legal rules.

These time honored principles can help guide attorneys when they are faced with an adversary’s potential inadvertent disclosure. However, even under the ABA approach, inadvertent disclosure to nonlawyers may produce varying degrees of protection, or none at all. Although the ultimate answers will come from the courts, commonsense precautions, consistently followed, are the best protection.

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This article is being reprinted with permission from the April 23, 2001 issue of the New Jersey Law Journal.  ©2001 NLP IP Company.

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