Automated Solutions Corporation, Plaintiff, v. Paragon Data Systems, Inc., Defendant CASE NO. 1:05 CV 01519 United States District Court, N.D. Ohio, Eastern Division Signed January 25, 2011 Filed January 26, 2011 Counsel David A. Kunselman, Drew A. Carson, Miller Goler Faeges Lapine, Cleveland, OH, Patrick J. Milligan, Lakewood, OH, for Plaintiff. Christine M. Garritano, Richard S. Mitchell, Roetzel & Andress, Cleveland, OH, for Defendant. Wells, Lesley, United States District Judge ORDER DENYING AUTOMATED'S REQUEST FOR IN CAMERA REVIEW AND GRANTING PARAGON'S MOTION TO STRIKE Automated Solutions Corporation (“Automated”) seeks an Order from this Court for an in camera review of a series of 32 documents produced subsequent to a Court-ordered forensic examination of Paragon Data Systems, Inc's. (“Paragon”) electronically stored information. (Doc. 295). Automated maintains Paragon waived any attorney-client privilege now asserted due to Paragon's lack of care in the production of the documents. Automated, further, contends that the documents it seeks are not covered by the attorney-client privilege because they fall under the crime-fraud exception to the privilege. Paragon opposes both the notion that it waived an assertion of attorney-client privilege over the documents, and that the documents fit within the crime-fraud exception to the privilege. (Docs. 297, 291, 296). In so arguing, Paragon incorporates its separate motion to strike specific exhibits within the purview of Automated's in camera review request. (Doc. 291, Motion to Strike Exhibits 3 and 4 of Supplemental Appendix of Exhibits to Plaintiff Automated Solutions Corporation's Reply Memorandum in Support of Motion for Sanctions; Doc. 296; Doc. 293, Automated's Responsive Brief to Paragon's motion to strike). Automated has submitted a brief in reply to its request for in camera review of the privileged documents. (Doc. 299). Automated predicates its in camera review request on the alternative positions that, either Paragon waived its attorney-client privilege over the 32 documents produced during the Court ordered forensic evaluation of Paragon's electronic database, or that Paragon cannot exercise its attorney-client privilege over the documents in the face of the crime-fraud exception. Because the Court finds neither of these arguments sustainable, and because Paragon carries its necessary burden of proof under Fed. R. Evid. 502, the Court will deny Automated's motion for in camera review and will grant Paragon's motion to strike exhibits 3 and 4 attached to Automated's supplemental appendix in support of the Plaintiff's Motion for Sanctions. (Doc. 289). The Court will deny Paragon's request for attorney fees. (Doc. 291). A. Waiver of Attorney-Client Privilege Through Inadvertent Disclosure Federal Rule of Evidence 502 addresses the waiver of evidentiary privileges in cases of inadvertent disclosure as follows: The following provisions apply, in the circumstances set out, to disclosure of a communication or information covered by the attorney-client privilege or work-product protection. When made in a Federal proceeding or to a Federal office or agency, the disclosure does not operate as a waiver in a Federal or State proceeding if: (1) the disclosure is inadvertent; (2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and (3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B). Fed. R. Evid. 502(b). *2 The Rule 502 responds to “the widespread complaint that litigation costs necessary to protect against waiver of attorney-client privilege or work product have become prohibitive due to the concern that any disclosure (however innocent or minimal) will operate as a subject matter waiver of all protected communications or information. This concern is especially troubling in cases involving electronic discovery.” See Explanatory Note to Fed. R. Evid. 502 (citing Hopson v. City of Baltimore, 232 F.R.D. 228, 244 (D. Md. 2005) (electronic discovery which may encompass “millions of documents” and insists upon “record-by-record pre-production privilege review, on pain of subject matter waiver, would impose upon parties costs of production that bear no proportionality to what is at stake in the litigation”)). “When a producing party claims inadvertent disclosure, it has the burden of proving that the disclosure was truly inadvertent.” Fox v. Massey-Ferguson, Inc., 172 F.R.D. 653, 671 (E.D. Mich. 1995). Although Rule 502 does not contain any factors to determine whether the disclosure should constitute a waiver, the Advisory Committee Notes to the rule suggest a flexible test that considers “the reasonableness of precautions taken, the time taken to rectify the error, the scope of discovery, the extent of disclosure and the overriding issue of fairness[,] ... the number of documents to be reviewed and the time constraints for production[,] ... [the] use ... [of] advanced analytical software applications and linguistic tools in screening for privilege and work product,” and “implementation of an efficient system of records management before litigation.” Explanatory Note to Fed. R. Evid. 502, at Federal Civil Judicial Procedure and Rules (2010 Ed.), at 434; see also Fox, 172 F.R.D. at 671 (which considers “(1) the reasonableness of precautions taken in view of the extent of document production, (2) the number of inadvertent disclosures, (3) the magnitude of the disclosure, (4) any measures taken to mitigate the damage of the disclosures, and (5) the overriding interests of justice”). The Explanatory Note to Rule 502 also states that although the rule “does not require the producing party to engage in a post-production review to determine whether any protected communication or information has been produced by mistake,” the “rule does require the producing party to follow up on any obvious indications that a protected communication or information has been produced inadvertently.” The burden of proving that disclosure was truly inadvertent lies with the party producing the document. Golden Valley Microwave Foods, Inc. v. Weaver Popcorn Co., 132 F.R.D. 204, 207 (N.D. Ind. 1990). Rule 502 also contemplates separate protective orders fashioned by the court or by agreement of the parties. Fed. R. Evid. 502(d) & (e). As explained in the Explanatory Note: [T]he court order may provide for return of documents without waiver irrespective of the care taken by the disclosing party; the rule contemplates enforcement of “claw-back” and “quick peek” arrangements as a way to avoid the excessive costs of pre-production review for privilege and work product. See Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (S.D.N.Y. 2003) (noting that parties may enter into “so-called ‘claw-back’ agreements that allow the parties to forego privilege review altogether in favor of an agreement to return inadvertently produced privilege documents”). The rule provides a party with a predictable protection from a court order-predictability that is needed to allow the party to plan in advance to limit the prohibitive costs of privilege and work product review and retention. Explanatory Note to Rule 502(d); see also Capitol Records, Inc. v. MP3tunes, LLC, 261 F.R.D. 44, 49 n. 6 (S.D.N.Y. 2009) (emphasizing that a party constrained by production deadlines may seek to negotiate a clawback provision under Fed. R. Evid. 502(d), which would allow it to forego privilege review altogether). *3 The stipulated protective order in this case represents just such a claw-back agreement. (Doc. 75, ¶¶ 17, 18). In addition, Paragon provides evidence of an email exchange between party counsel setting up a “claw-back” agreement in this specific instance, for any inadvertently produced privileged communications issuing from the Court Ordered forensic production. In this instance, the renewed discovery process yielded enormous volumes of material, some of it privileged. This Court's 27 June 2008 Order directed a forensic examination of Paragon's electronically stored information. That search was performed by a vender, Visual Evidence, contracted by Automated, using search terms provided by Automated that putatively contained filters for attorney-client privileged information. According to the Defendant, the initial search yielded an unmanageable 121 GB of data, the equivalent of over 9 million separate pieces of paper. Using its own forensic expert, Vestige, Inc., Paragon carried out a search of the electronic database to be turned over to Automated. Paragon found, and removed, additional privileged material within the files identified as “relevant” by Automated's forensic expert, Visual Evidence. Defendant maintains, through affidavit evidence, they first learned of the production of the privileged material to Automated when they received Automated's Supplemental Appendix Of Exhibits attached to the Plaintiff's Reply Memorandum in Support of Motion for Sanctions. The Court is satisfied that Paragon took reasonable steps to prevent disclosure during the voluminous document production. According to the Defendant, even after the parties' respective experts worked to revise automated's key word search to reduce and focus the results, the search resulted in 47 GB of material, the equivalent of approximately 3,525,000 pieces of paper. Paragon's expert, Vestige, indicated that the privileged e-mails were produced inadvertently as a result of an undiscovered flaw in the software used to conduct the forensic search. Paragon estimated a manual privilege review of the database would entail 12,000 attorney hours and cost the Defendant more than $280,000. As prophylactic measures, in addition to the Protective Order (Doc. 75) that addressed inadvertent production of privileged material, Paragon worked out a “claw-back” agreement with Automated prior to production. (Doc. 291, Exhibits 3 & 4). The Court also is satisfied that Paragon took prompt steps to recall the documents once they realized that they had been disclosed. Paragon reviewed the forensic exam results in a timely manner once Automated signaled its intention to move forward on production. (Doc. 296, Exhibits 4 & 5). The Court, therefore, will find that Paragon is entitled to avoid a finding of waiver as a result of the production of the discovery documents, which the Court is satisfied was inadvertent. B. In Camera Review and the Crime-Fraud Exception The central case under federal privilege law describing the appropriate circumstances in which to conduct an in camera review in order to determine the applicability of the crime-fraud exception to the attorney-client privilege is United States v. Zolin, 491 U.S. 554, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989). In Zolin, the Court recognized the attorney-client privilege as the oldest known to common law and noted that the underlying rationale for the privilege was to encourage the frank and open communications between attorneys and their clients and thereby promote the broader public interests in the observance of law and administration of justice. Id. at 562, 109 S.Ct. 2619. The Court further noted that the privilege is not without costs since it has the effect of withholding relevant evidence from the fact-finder and because of this cost, the privilege should only apply where necessary to achieve its purposes. Id. Thus, while the privilege may operate to protect confidences of wrongdoers, the justification for that protection does not extend to cover advice that refers to future wrongdoing. Id.(emphasis added); In re Antitrust Grand Jury, 805 F.2d 155, 162 (6th Cir. 1986) (noting “[a]ll reasons for the attorney-client privilege are completely eviscerated when a client consults an attorney not for advice on past misconduct, but for legal assistance in carrying out a contemplated or ongoing crime or fraud”). After concluding that neither the Federal Rules of Evidence nor the common law of privileges precluded the use of in camera inspection in order to determine the applicability of the crime-fraud exception, the Court turned to the issue of whether the party asserting the exception must make some threshold showing that such review is appropriate. Id. at 565-70, 109 S.Ct. 2619. The Zolin Court stated: *4 In fashioning a standard for determining when in camera review is appropriate, we begin with the observation that “in camera inspection ... is a smaller intrusion upon the confidentiality of the attorney-client relationship than is public disclosure.” We therefore conclude that a lesser evidentiary showing is needed to trigger in camera review than is required ultimately to overcome the privilege. The threshold we set, in other words, need not be a stringent one. We think that the following standard strikes the correct balance. Before engaging in camera review to determine the applicability of the crime-fraud exception, “the judge should require a showing of a factual basis adequate to support a good faith belief by a reasonable person,” that in camera review of the materials may reveal evidence to establish the claim that the crime-fraud exception applies. Id. at 572, 109 S.Ct. 2619. Once this showing is made, it is within the sound discretion of the district court whether to conduct an in camera review. In establishing a Court's discretionary exercise over this reasonableness standard, the Zolin Court was explicitly concerned that opponents of the privilege might engage in baseless crime-fraud expeditions, requiring district courts to conduct numerous in camera reviews. In exercising this discretion, the Zolin Court directed that the district court: should make that decision in light of the facts and circumstances of the particular case, including, among other things, the volume of materials the district court has been asked to review, the relative importance to the case of the alleged privileged information, and the likelihood that the evidence produced through in camera review, together with other available evidence then before the court, will establish that the crime-fraud exception does apply. Id. Accordingly, for this Court to gauge the reasonableness of a request for an in camera review of documents over which the attorney-client privilege is asserted, the Zolin decision directs a two step analysis. First, the Court must require a showing of a factual basis adequate to support a good faith belief by a reasonable person that in camera review may reveal evidence to establish the crime-fraud exception. The required showing of a “factual basis adequate to support a good faith belief” does not go to the merits of the issue of privilege. Rather, it only concerns whether the district court is obligated to conduct an in camera review. The Sixth Circuit summarized Zolin as follows: “[E]ven inspections by the district judge, which do not destroy privilege, require a prior showing that is weakly analogous to probable cause.” In re Grand Jury Subpoenas, 454 F.3d 511, 520 (6th Cir. 2006). The crime-fraud exception is more akin to requiring probable cause for in camera review than allocating burdens of proof. Second, the Court must make a discretionary decision using the factors set out above involving the facts and circumstances of the particular case. The second step expressly allows consideration of “other available evidence then before the court” when exercising the discretion as to whether to grant the in camera review. In application, Courts use this two part test stringently to both “preserve the vitality of the privilege” and to ensure that a decision to avoid the privilege is reliably reached. See In re Omnicom Group, Inc. Securities Litigation, 233 F.R.D. 400, 440 (S.D.N.Y. 2006). As to the first step, the Court has reviewed the papers presented on behalf of Automated's request for an in camera review of the specific 32 documents, including the briefing involving Paragon's motion to strike exhibits 3 and 4 of Automated's supplemental appendix to its motion for sanctions. As a result, the Court does not find a basis upon which to rest a good faith belief by a reasonable person that an in camera review of the requested documents would yield a crime-fraud exception to Paragon's privilege. *5 As to the second step, in light of the past course of this long-standing legal contest, and in light of the remaining issues, the Court finds the likelihood spare indeed that the evidence provided in these 32 inadvertently produced documents will establish that the crime-fraud exception does apply. The Court finds no probable cause for an in camera review of the 32 documents. Conclusion Accordingly, the Court denies Automated's request for an in camera review of Paragon's privileged documents. The Court, further, grants Paragon's Motion to Strike Exhibits 3 & 4 of Automated's supplemental appendix to its motion for sanctions. The Court denies Paragon's request for attorney fees incurred in preparation of its motion to strike. Finally, the Court directs Automated forthwith to return to Paragon or destroy all copies of Paragon's inadvertently produced, privileged documents. IT IS SO ORDERED.