Point 4 Data Corp. v. Tri-State Surgical Supply & Equip., Ltd.
Point 4 Data Corp. v. Tri-State Surgical Supply & Equip., Ltd.
2013 WL 12503118 (E.D.N.Y. 2013)
July 18, 2013
Mann, Roanne L., United States Magistrate Judge
Summary
The court found that the Chadwick Email was protected by the attorney-client privilege and had not been waived. The court also found that the precautions taken by plaintiffs' prior counsel to screen for privilege could not be said to have been reckless, and thus the disclosure of the Chadwick Email did not constitute a waiver. The court ordered Tri-State to return or certify as destroyed all copies of the Chadwick Email in its possession, custody or control and to destroy all notes or other work product reflecting the contents of the Chadwick Email.
Additional Decisions
POINT 4 DATA CORP., et al., Plaintiffs,
v.
TRI-STATE SURGICAL SUPPLY & EQUIPMENT, LTD., et al., Defendants
v.
TRI-STATE SURGICAL SUPPLY & EQUIPMENT, LTD., et al., Defendants
11-CV-726 (CBA)
United States District Court, E.D. New York
Signed July 18, 2013
Counsel
Matthew J. Press, New York, NY, for Plaintiffs.Rishi Bhandari, Robert Allen Glunt, Mandel Bhandari, LLP, New York, NY, for Defendant Tri-State Surgical Supply and Equipment, LTD.
Eli S. Fixler, Israel Vider Law Offices, Brooklyn, NY, for Defendants SJ Computers, Inc., Shmuel Judkovitz.
Mann, Roanne L., United States Magistrate Judge
MEMORANDUM AND ORDER
*1 Currently pending before this Court is a motion for a protective order filed by plaintiffs Point 4 Data Corp. (“Point 4”) and Dynamic Concepts, Inc. (“DCI” or “Dynamic”) (collectively, “plaintiffs”). See Memorandum of Law in Support of Plaintiffs’ Motion for a Protective Order (“Pl. Mem.”) at 14, DE #302. In their motion, plaintiffs seek the return or destruction of an email thread culminating in a January 17, 2011 email authored by Dynamic principal Douglas Chadwick (collectively, the “Chadwick Email”); plaintiffs contend that that email thread (1) is protected by the attorney-client privilege and (2) was inadvertently produced to defendants. Defendant Tri-State Surgical Supply & Equipment, Ltd. (“Tri-State”), having relied on the Chadwick Email in responding to plaintiffs’ pending motion for summary judgment, opposes plaintiffs’ motion, arguing that the Chadwick Email is not privileged and that plaintiffs deliberately produced it. In addition, Tri-State contends that plaintiffs have put the subject matter of the Chadwick Email at issue in this case and have thereby forfeited any privilege.
As explained more fully below, the Court grants plaintiffs’ motion for a protective order in substantial part.
BACKGROUND
This Court previously set forth a detailed description of this action in its report and recommendation addressing a motion for partial summary judgment filed by Tri-State in February 2012. See Point 4 Data Corp. v. Tri-State Surgical Supply & Equip., No. 11-CV-726 (CBA), 2012 WL 3306600 (E.D.N.Y. June 13, 2012) (hereinafter, “PSJ R&R”), adopted, 2012 WL 3306575 (E.D.N.Y. Aug. 13, 2012). Below, the Court recounts the facts and procedural history relevant to the current dispute.
I. The 1999 Agreement and Subsequent Server Issues
Tri-State is a Brooklyn-based distributor of medical and surgical equipment and supplies, which, until this lawsuit was filed, utilized an accounting software program called Genesys to operate its business. See PSJ R&R at *1. In 1999, Tri-State entered into an agreement with Point 4, a Genesys distributor, to overhaul Tri-State's hardware and software system (the “1999 Agreement”). See id. Because Genesys operates on a computer development platform called UniBasic, which was created by DCI, the 1999 Agreement also granted Tri-State a license to use UniBasic. See id.
Sometime between 2005 and 2007, Tri-State began to experience recurring problems rebooting the server that hosted Genesys and UniBasic. See id. at *2. To overcome the problem and resolve the issue, Ari Spiegel (“Spiegel”), one of Tri-State's independent Information Technology (“IT”) consultants, would from time to time enter a command and the server and its programs would operate normally. See id. On February 25, 2010, the Tri-State server crashed, and none of Tri-State's users was able to log on to their computers. See id. Defendant Shmuel Judkovitz (“Judkovitz”),[1] another outside IT consultant for Tri-State, suspected that the server's failure to reboot properly was related to UniBasic's security protections, which included, among other things, a piece of hardware called a dongle. See id. at *2, *3.[2]
*2 It is undisputed that, on February 25, 2010, Tri-State contacted both DCI and Point 4 about the software, but the parties differ as to the substance of those communications. Plaintiffs contend that “[n]either Dynamic nor Point 4 had any conversation about an allegedly malfunctioning dongle.” Plaintiffs’ Response and Counterstatement to Tri-State's Rule 56.1 Statement of Undisputed Facts ¶ 20, DE #280; see also id. ¶ 213 (Tri-State never informed Dynamic representative that Tri-State was “having an emergency or any problem with UniBasic, Genesys or the dongle.”); id. ¶ 215 (Tri-State made “no mention of a dongle problem” in its February 25, 2010 call with Point 4). Contrary to plaintiffs’ version of the discussions, Tri-State claims that it explained to Dynamic's representative that Tri-State's server froze due to the dongle's malfunctioning, and further contends that a “dongle problem” was also mentioned in its conversation with Point 4. See Defendant Tri-State's Response to Plaintiffs’ Counterstatement of Undisputed Facts ¶¶ 213, 215, DE #267.
Eventually, Tri-State began to look for a long-term solution to ensure that Genesys/UniBasic would operate following a server crash, without having to rely on Spiegel or having to pay to upgrade its software.[3] See PSJ R&R at *2. To that end, Judkovitz contacted a third party, DongleLabs, to assist with Tri-State's server issue. See id. In connection with this undertaking, Judkovitz loaded a copy of Genesys and UniBasic onto a spare computer. See id. Through this spare computer, DongleLabs modified the UniBasic code (hereinafter, the “Crack”). See id. On July 19, 2010, Tri-State installed the Crack onto the Tri-State server that hosted Genesys and UniBasic, and Tri-State was thereafter able to run Genesys without issue. See id.
A few weeks prior to Tri-State's installation of the Crack, a third-party UniBasic specialist -- whom Judkovitz had contacted for troubleshooting purposes -- informed DCI that Tri-State was possibly using an unlicensed version of UniBasic, in violation of the 1999 Agreement. See id. DCI shared this information with Point 4. See id. By August 10, 2010, plaintiffs had drafted a letter to Tri-State, warning Tri-State that “[b]ypassing the security provision for the licensing of UniBasic ... [was] in direct violation of the [1999 Agreement]” (hereinafter, the “Draft Notice-of-Breach Letter”). See id. Plaintiffs never sent the Draft Notice-of-Breach Letter. See id. Instead, plaintiffs waited and filed the instant action against defendants in February 2011 -- seven months after learning of the possible breach (hereinafter, the “Waiting Period”). See id.
Plaintiffs’ complaint alleges that defendants unlawfully hacked into and modified plaintiffs’ software to enable Tri-State to circumvent the software's security protections. See Compl. Plaintiffs contend that these actions violated the 1999 Agreement; other aspects of New York common law; the Lanham Act, 15 U.S.C. § 1125(a); and the Digital Millennium Copyright Act (“DMCA”), 17 U.S.C. § 1201 et seq. See Compl.
II. The 3/25/11 Protective Order and the ESI Agreement
Prior to the exchange of documents in discovery, the parties filed, for the Court's approval, a proposed protective order, in which they addressed the exchange of confidential and privileged information. See Proposed Protective Order Signed By All Parties (Mar. 24, 2011) (“Proposed Order”), DE #36. Among other things, Section 10 of the Proposed Order stated, in part, that “[t]he production of Discovery Material subject to attorney[-]client privilege or attorney work-product doctrine will not waive the attorney-client privilege or the attorney work-product protection.” See id. § 10.
The following day, this Court so-ordered the Proposed Order after making certain handwritten modifications, including a revision to the above-quoted portion of Section 10. See Protective Order, So-Ordered (Mar. 25, 2011) (“3/25/11 Protective Order”), DE #37. With the Court's insertion of the word “inadvertent,” Section 10 of the 3/25/11 Protective Order, as modified, reads in relevant part as follows:
*3 The inadvertent production of Discovery Material subject to attorney[-]client privilege or attorney work-product doctrine will not waive the attorney-client privilege or the attorney work-product protection.
3/25/11 Protective Order § 10 (emphasis added). Neither the Proposed Order nor the 3/25/11 Protective Order defines the term “inadvertent.”
Thereafter, the parties engaged in discovery. On August 17, 2011, after some initial delays and at least one violation of a court order by plaintiffs,[4] the undersigned magistrate judge ordered that the parties confer on terms to employ in searching electronically stored information (“ESI”) for relevant and responsive documents. See Minute Order (docketed Aug. 18, 2011) (“8/18/11 Minute Order”), DE #73. The Court further directed that plaintiffs “complete their ESI production” by August 25, 2011. See id.
Over the next two days, plaintiffs’ then counsel Jason Koral (“Koral”) and Tri-State's then counsel Suyash Agrawal (“Agrawal”)[5] exchanged emails regarding the scope of the ESI search terms. See Declaration of Suyash Agrawal (Mar. 15, 2013) (“Agrawal Decl.”) ¶¶ 5-8, DE #306; Koral-Agrawal ESI Emails (“ESI Emails”), DE #306 at 6-14. In this email exchange, Koral raised the issue of conducting a privilege review. See id., DE #306 at 7. Agrawal suggested that Koral electronically extract documents containing search terms indicative of potentially privileged documents, such as lawyer names and law firm domain names. See id. Koral advised that he would be amenable to Agrawal's proposed solution for electronically culling privileged documents from those being produced, but he requested a “written claw-back agreement.”[6] See id. Although Agrawal pointed out to Koral that there was a clawback provision in the 3/25/11 Protective Order, Koral wanted an agreement in writing that defendants would “not contend that [a] privileged doc[ument] produced pursuant to this protocol was not produced inadvertently because we relied on a culling/exclusion technique rather than individual human review of each document.” See id. Agrawal responded to Koral's proposal as follows: “I will agree to that as applicable to all parties. It is how I understood the protective order anyway.” See id. On August 19, 2011, Agrawal sent Koral an email confirming a number of ESI-related understandings between the parties (the “ESI Agreement”), including Section 5, which stated in full:
No party shall contend that a privileged document produced pursuant to this protocol was not produced inadvertently because we relied on a culling/exclusion technique rather than individual human review of each document. However, this does not vitiate the obligation to timely (1) review those screened out documents; (2) make sure none is responsive; (3) produce any that is responsive but not privileged; and (4) produce a privilege log for records that are responsive but privileged/work product.
*4 ESI Agreement § 5, DE #302-1 at 31.
In accordance with Section 5, plaintiffs, in conducting their privilege review of the responsive ESI, did not rely solely on culling emails based on electronic search terms like “lawyer,” as initially proposed by Agrawal; rather, any document containing the privilege filter terms were segregated and manually reviewed. See Declaration of Jason Koral (Feb. 19, 2013) (“Koral Decl.”) ¶ 11, DE #302-1.[7] In particular, the privilege-filter process “captured 4,856 emails and 69,179 attachments, which required manual review by contract attorneys to confirm that the documents were, indeed, privileged.” Id. ¶ 13. Koral's firm hired five experienced contract attorneys to conduct the manual review, under the supervision of Koral (a partner) and mid-level associate Karen Won (“Won”). See id. ¶ 15. Koral “personally trained the contract attorneys concerning [the] nature of their search, the basic rules of attorney-client privilege, and the importance of protecting the privilege.” Id. “All difficult questions concerning privilege were referred to [Koral] or [Won].” Id. According to plaintiffs, “[i]nexplicably, the Chadwick Email slipped through this process” and was produced to defendants, along with more than a hundred thousand other documents. See Pl. Mem. at 14 (emphasis added); see also Koral Decl. ¶ 12; but cf. Koral Decl. ¶ 17 (noting that “one copy of the Chadwick Email managed to slip through the electronic privilege filter, and it was produced to Tri-State among over a hundred thousand other documents on August 25, 2011”) (emphasis added).[8]
*5 On January 15, 2013, eighteen months after plaintiffs produced the Chadwick Email, Tri-State attached the Chadwick Email as an exhibit to its memorandum of law in further support of its pending motion for summary judgment. See, e.g., Tri-State Memorandum of Law in Further Support of Summary Judgment and in Opposition to Plaintiffs’ Motion at 53, DE #266. The instant dispute ensued.
III. The Parties’ Dispute Over the Chadwick Email
Before turning to the substance of the instant motion, the Court will summarize the structure and general content of the Chadwick Email, which has been submitted to the Court under seal.
A. The Chadwick Email
The Chadwick Email consists of three emails contained in a single email string or thread. See Chadwick Email, DE #302-1 at 12-14. In the earliest such email, dated January 14, 2011, at the bottom of the thread, attorney Won forwards to Koral, Koral's co-counsel Greenwald, and Sandy Groscup (“Groscup”), a paralegal with Greenwald's firm, drafts of plaintiffs’ complaint and application for a preliminary injunction and temporary restraining order. See id., DE #302-1 at 13-14. In this email, Won asks that the attorneys review and comment upon the drafts. See id. In particular, Won requests additional details regarding Genesys and UniBasic security measures. See id. The second email in this thread, also from January 14, 2011, consists of Groscup forwarding these same draft pleadings to Michele Nichol and Don Burden (“Burden”), senior executives of Point 4, and to DCI's CEO, Douglas Chadwick (“Chadwick”), for their review. See id., DE #302-1 at 13. Finally, in the third email, dated January 17, 2011, Chadwick responds to Groscup with his comments on the draft complaint, ranging from typographical corrections to a substantive description of the security measures protecting Genesys and UniBasic, including a reference to Tri-State's dongle. See id., DE #302-1 at 12-13.
B. The Parties’ Respective Positions
In moving for a protective order, plaintiffs claim that all three communications comprising the Chadwick Email “were exchanged exclusively between the senior executives of Plaintiffs and their attorneys ... for the purpose of providing and obtaining legal advice[.]” Pl. Mem. at 7. Plaintiffs contend that “it is difficult to conceive of communications closer to the very core of the attorney-client privilege than the Chadwick Email,” id. at 9, and that Tri-State's failure to notify plaintiffs of its receipt of the Chadwick Email violated Rule 4.4(b) of the New York Rules of Professional Conduct. See Pl. Mem. at 11.
According to plaintiffs, Section 5 of the ESI Agreement bars defendants from disputing that the production of the Chadwick Email was inadvertent. See Pl. Mem. at 12. And even in the absence of the ESI Agreement, plaintiffs assert, disclosure of the Chadwick Email would qualify as an “inadvertent production” and, pursuant to both the 3/25/11 Protective Order and Rule 502(b) of the Federal Rules of Evidence (the “FRE”), would not operate as a waiver of the privilege. See Pl. Mem. at 12-14. Finally, plaintiffs argue that a finding of subject matter waiver would not be appropriate under Rule 502(a) of the FRE. See Pl. Mem at 15-16.
As for relief, plaintiffs seek an order directing Tri-State to, inter alia, return, or certify as destroyed, all copies of the Chadwick Email. See Pl. Mem. at 16. In addition, plaintiffs request that the Court strike “all portions of Tri-State's [summary judgment papers] that in any way cite[ ] or rel[y] upon the Chadwick Email.” Id. at 17. Finally, plaintiffs urge this Court to “order Tri-State to pay Plaintiffs[’] attorney[’]s fees and costs in connection with this motion pursuant to Rules 26(c)(3) and 37(a)(5)(A) of the Federal Rules of Civil Procedure” (the “FRCP”). See Pl. Mem. at 17.
*6 In response, Tri-State challenges the privileged nature of the Chadwick Email, asserting that, at best, it might be protected not by the attorney-client privilege but by the qualified attorney work-product doctrine, which, according to Tri-State, is trumped by its substantial need for the evidence. See Tri-State Memorandum of Law in Opposition (“Def. Opp.”) at 16-18, DE #304. Tri-State also argues that the Chadwick Email falls outside the scope of Section 5 of the ESI Agreement, on the ground that Section 5 does not apply to documents that were manually reviewed by attorneys. See Def. Opp. at 7. A manual review, Tri-State contends, renders the disclosure deliberate, not inadvertent, inasmuch as an attorney would have assessed the document and determined that it was non-privileged. See id. at 7-10.[9] Moreover, Tri-State takes the position that, by “put[ting] the Chadwick Email at issue,” plaintiffs impliedly waived any privilege. See id. at 11-15. Finally, Tri-State argues that plaintiffs’ request for attorney's fees, and reliance on the Rules of Professional Conduct, are without merit. See id. at 18-21.
On reply, plaintiffs counter that Section 5 of the ESI Agreement applies to the entire document production, whether or not a particular document was manually reviewed, and that Tri-State therefore is barred under the ESI Agreement from arguing that any document was intentionally disclosed. See Reply Memorandum of Law in Support of Motion (“Pl. Reply”) at 8, DE #303. Plaintiffs further contend that “Tri-State's repeated and groundless assertion that a contract attorney must have made an affirmative decision to produce the Chadwick Email, and that Plaintiffs somehow are bound by that junior independent contractor's ‘decision’ is obviously incorrect.” Id. at 10 (internal citation omitted). Plaintiffs continue: “Even if the Chadwick Email was individually reviewed, which Plaintiffs do not believe to be the case, see Koral Dec[l]. ¶ 17, its production plainly was the result of a coding error and there is no basis for Tri-State's assertion that it was authorized or intended by Plaintiffs.” Pl. Reply at 10 (emphasis added).
DISCUSSION
I. Applicable Legal Standards
A. Attorney-Client Privilege
The attorney-client privilege “exists for the purpose of encouraging full and truthful communications between an attorney and client and ‘recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.’ ” In re von Bulow, 828 F.2d 94, 100 (2d Cir. 1987) (citing Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)).[10] “A party invoking the attorney-client privilege must show (1) a communication between client and counsel that (2) was intended to be and was in fact kept confidential, and (3) was made for the purpose of obtaining or providing legal advice.” In re County of Erie, 473 F.3d 413, 419 (2d Cir. 2007) (“In re Erie I”).
In In re Erie I, the Second Circuit expounded on what is entailed in “obtaining or providing legal advice”:
Fundamentally, legal advice involves the interpretation and application of legal principles to guide future conduct or to assess past conduct. It requires a lawyer to rely on legal education and experience to inform judgment. But it is broader, and is not demarcated by a bright line.
*7 In re Erie I, 473 F.3d at 419-20. The attorney-client privilege “does not protect underlying facts, only confidential communications between attorney and client about those facts.” United States v. Ghailani, 751 F.Supp.2d 498, 501 (S.D.N.Y. 2010); see In re Grand Jury Subpoena Duces Tecum Dated Sept. 15, 1983, 731 F.2d 1032, 1037 (2d Cir. 1984).
As detailed in a subsequent section of this opinion, see infra pp. 28-36, even where the privilege does attach to a communication, “[a] client may ... by his actions impliedly waive the privilege or consent to disclosure.” In re von Bulow, 828 F.2d at 101 (citations omitted). For example, a party may impliedly waive the privilege “when a client asserts reliance on an attorney's advice as an element of a claim or defense....” See In re County of Erie, 546 F.3d 222, 228 (2d Cir. 2008) (“In re Erie II”) (citations omitted).
B. Rule 502
In addition to waivers of privilege that are implied at common law because of the manner in which a party has used its privileged communications, Rule 502 of the FRE governs waivers that result from a party's disclosure of a privileged communication in a federal proceeding or to a federal office or agency. See Fed. R. Evid. 502 advisory committee's note (“The rule is not intended to displace or modify federal common law concerning waiver of privilege or work product where no disclosure has been made.”); see also McLoughlin et al., Navigating Implied Waiver of the Attorney-Client Privilege After Adoption of Federal Rule 502 of the Federal Rules of Evidence, 67 N.Y.U. Ann. Surv. Am. L. 693, 726 (2012) (noting that “Rule 502 addresses waiver by disclosure only”).
Essentially, as discussed below, Rule 502 codifies two different types of privilege disclosures: (1) intentional disclosures that give rise to a waiver as to the subject matter of the disclosed information, pursuant to Rule 502(a); and (2) inadvertent disclosures that, because of the unreasonableness of the disclosing party's actions, render the privilege waived or forfeited, as set forth in Rule 502(b).
1. Rule 502(a) – Intentional Disclosure
Waiver by disclosure under Rule 502(a) occurs where there has been an intentional selective disclosure of attorney-client privileged matter and fairness dictates that there be a waiver as to the subject matter of the disclosed communication. Rule 502(a) enumerates three prerequisite to waivers under that Rule: (1) the disclosure must be intentional; (2) the disclosed and undisclosed communications or information must concern the same subject matter; and (3) the disclosed and undisclosed communications “ought in fairness to be considered together.” See Fed. R. Evid. 502(a)(1)-(3). The Advisory Committee's Note makes clear the drafters’ intention that this aspect of the Rule be invoked sparingly. See Fed. R. Evid. 502(a) advisory committee's note (stating that subject matter waivers under Rule 502(a) are “reserved for those unusual situations in which fairness requires a further disclosure of related, protected information, in order to prevent a selective and misleading presentation of evidence to the disadvantage of the adversary”). In short, “[s]ubject matter waiver is limited to situations in which a party intentionally puts protected information into the litigation in a selective, misleading and unfair manner.” Id.; see also Seyler v. T-Systems N. Am., Inc., 771 F.Supp.2d 284, 288 (S.D.N.Y. 2011). Significantly, the Advisory Committee's Note states that “[i]t follows that an inadvertent disclosure of protected information can never result in a subject matter waiver.” See Fed. R. Evid. 502(a) advisory committee's note (emphasis added).
2. Rule 502(b) – Inadvertent Disclosures
*8 In contrast to the intentional disclosures contemplated by Rule 502(a), subsection (b) of Rule 502 governs inadvertent disclosures. See Fed. R. Evid. 502(b). Prior to the adoption of Rule 502(b), courts disagreed as to whether an inadvertent disclosure constituted an automatic waiver of the privilege. See Fed. R. Evid. 502(b) advisory committee's note (“Courts are in conflict over whether an inadvertent disclosure of a communication or information protected as privileged or work product constitutes a waiver.”). Many courts opted for a “middle ground” approach, rejecting two competing views: that disclosure in and of itself would result in a waiver, and that a waiver would never result from an inadvertent disclosure. See id. Instead, the “middle ground” approach looked to various factors to determine whether the disclosure was “inadvertent,” such that the disclosure was excusable and would not forfeit the privilege. See id. (citing Lois Sportswear, U.S.A., Inc. v. Levis Strauss & Co., 104 F.R.D. 103, 105 (S.D.N.Y. 1985)). These factors included the reasonableness of the precautions undertaken by the disclosing party and the time it took that party to rectify the error. See id.
It is this “middle ground” approach that is codified in Rule 502(b). See Fed. R. Evid. 502(b) advisory committee's note (Rule 502 “opts for the middle ground” and “is in accord with the majority view on whether inadvertent disclosure is a waiver”). Rule 502(b) states:
(b) Inadvertent Disclosure. 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....
Fed. R. Evid. 502(b)(1)-(3). Notably, in determining what constitutes an “inadvertent” disclosure, pre-Rule 502 case law looked to the various Lois Sportswear factors, such as whether reasonable steps had been taken prior to production. See, e.g., Lois Sportswear, 104 F.R.D. at 105 (whether a production was deemed inadvertent, i.e., “a mistake, immediately recognized and rectified,” turned on, among other things, the time it took the party to rectify the error). In contrast, the language and structure of Rule 502(b) treat as separate and distinct elements the concept of inadvertence (under Rule 502(b)(1)) and the pre- and post-disclosure reasonableness of the disclosing party's actions (under subsections (2) and (3)). See BNP Paribas Mortg. Co. v. Bank of Am., N.A., Nos. 09 Civ. 9783(RWS), 09 Civ. 9784(RWS), 2013 WL 2322678, at *9 (S.D.N.Y. May 21, 2013). While the Advisory Committee's Note provides guidance as to the application of the reasonableness requirements of subsections (2) and (3), the Note is silent as to the meaning of “inadvertent” in subsection (1).
3. Rule 502(d) – Controlling Effect of a Court Order
In addition to codifying the law as to intentional and inadvertent disclosures of privilege, Rule 502 reinforces a court's authority to “order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court[.]” See Fed. R. Evid. 502(d). The Advisory Committee's Note acknowledges that, pursuant to Rule 502(d), a “court order may provide for return of documents without waiver irrespective of the care taken by the disclosing party,” and that “the rule contemplates enforcement of ‘claw-back’ and ‘quick peek’ arrangements.” See Fed. R. Evid. 502(d) advisory committee's note (emphasis added); see also U.S. Bank Nat'l Ass'n v. PHL Variable Ins. Co., No. 12 Civ. 6811(CM)(JCF), 2012 WL 5395249, at *4 (S.D.N.Y. Nov. 5, 2012) (by entering a Rule 502(d) order precluding disclosure from operating as a waiver, the court left the parties “free to engage in as exacting a privilege review as they wish[ed]”).
Where a disclosure falls within the scope of a Rule 502(d) protective order, federal courts look to the governing protective order and not to Rule 502(a) or (b) in assessing whether a waiver occurred. See Brookfield Asset Mgmt., Inc. v. AIG Fin. Prods. Corp., No. 09 Civ. 8285 (PGG)(FM), 2013 WL 142503, at *1 (S.D.N.Y. Jan. 7, 2013) (protective order gave party “the right to claw back the minutes, no matter what the circumstances giving rise to their production were”); Rajala v. McGuire Woods, LLP, No. 08-2638-CM-DJW, 2013 WL 50200, at *5 (D. Kan. Jan. 3, 2013) (“The terms of the Protective Order, and not the default provision of the Federal Rule of Evidence 502, govern the handling of inadvertent productions in this case.”); DeGeer v. Gillis, No. 09 C. 6974, 2010 WL 3732132, at *8 (N.D. Ill. Sept. 17, 2010) (six privileged emails that were inadvertently produced did not cause waiver of privilege where stipulated order under Rule 502(d) “expressly addresse[d] inadvertent production of privileged documents” and provided that inadvertent production would be “without prejudice” to any privilege claim); Alcon Mfg., Ltd., v. Apotex, Inc., No 1:06-CV-1642-RLY-TAB, 2008 WL 5070465, at *4 (S.D. Ind. Nov. 26, 2008) (concluding that standards for inadvertent disclosure waiver under Rule 502(b) offer only “limited guidance” in light of court's ability to issue orders under Rule 502(d)).
C. Burdens of Proof
*9 It is well settled that the party asserting the privilege “bears the burden of establishing its essential elements.” United States v. Mejia, 655 F.3d 126, 132 (2d Cir. 2011) (citing von Bulow, 811 F.2d at 144). Second Circuit case law is less clear as to which party bears the burden of establishing waiver or non-waiver. While dictum in a 1977 Second Circuit opinion identifies non-waiver as an element of a claim of privilege, see United States v. Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFL-CIO, 119 F.3d 210, 214 (2d Cir. 1977), more recent case law from this District notes a split of authority on this issue. See United States v. Finazzo, No. 10-CR-457 (RRM) (RML), 2013 WL 619572, at *6 (E.D.N.Y. Feb. 19, 2013) (acknowledging some “mixed authority” concerning burden of establishing or negating waiver); United States v. Hatfield, No. 06-CR-550 (JS), 2009 WL 3806300, at *3 (E.D.N.Y. Nov. 13, 2009) (after detailing split among courts as to burden, court devises its own burden-shifting standard). The majority view treats the concept of “waiver” as a component of the element of “confidentiality.” See Hatfield, 2009 WL 3806300, at *3; see also Mejia, 655 F.3d at 131, 134 (defining issue to be decided as whether party “waived” the privilege, and ultimately finding no intention to keep disputed communication “confidential”). In other words, if a party did not maintain confidentiality, then that party waived the privilege.
The text of Rule 502(a) and (b) is silent as to burden, except that the Addendum to the Advisory Committee Notes states that Rule 502 does not alter substantive law regarding the burden of the party invoking the privilege to “prove that the particular information (or communication) qualifies for it.” Fed. R. Evid. 502, addendum to advisory committee's note; see also Ceglia v. Zuckerberg, No. 10-CV-00569A(F), 2012 WL 1392965, at *8 (W.D.N.Y. Apr. 19, 2012) (holding that the party invoking the privilege bore the burden under Rule 502, but citing pre-Rule 502 common law). Moreover, in the context of a Rule 502(d) protective order, at least one federal court has held that the movant seeking to claw back the allegedly privileged document bears the burden to establish that the production was inadvertent within the meaning of the protective order. See Callan v. Christian Audigier, Inc., 263 F.R.D. 564, 565-66 (C.D. Cal. 2009).
Having reviewed the authority addressing the waiver issue, this Court concludes that where, as here, the purportedly privileged document has already been disclosed to an adverse party (whether intentionally or not), the most sensible approach -- and the one reflected in the majority view -- is to place the burden of establishing non-waiver on the proponent of the privilege.[11] As it is plaintiffs who are invoking the privilege and who claim that their disclosure of the Chadwick Email was inadvertent, it is only fair that they bear the burden of proving non-waiver, whether that analysis is under common law, Rule 502, or in connection with the 3/25/11 Protective Order. See Finazzo, 2013 WL 619572, at *7 (where it was undisputed that privileged email had been disclosed to third parties, “[t]he question [of] whether either of those ‘disclosures’ defeat[ed] the privilege” was for the party invoking the privilege to answer).
II. Application of Legal Principles
A. The Chadwick Email is Covered By the Attorney-Client Privilege
A threshold issue facing the Court is whether the communications comprising the Chadwick Email fall within the attorney-client privilege. Tri-State argues that the Chadwick Email contains only factual information and “is neither legal advice nor a request for legal advice and it is therefore not privileged.” See Def. Opp. at 16. Tri-State disputes plaintiffs’ claim that the Chadwick Email contains comments on the draft complaint, see id. at 17, and further contends that because Tri-State is not relying on those portions of the Chadwick Email thread that specifically refer to the draft pleading, the attorney-client privilege is not implicated. See id.
*10 While Tri-State's argument has superficial appeal, the Chadwick Email must be viewed in the context of the entire thread of email messages, which together make clear that the factual information provided by Chadwick in his email was directly responsive to counsel's request for additional details concerning the software's security measures. See generally Chadwick Email. This request was made in the specific context of drafting the complaint, the document that would set forth the legal basis for plaintiffs’ initiation of litigation against defendants. See In re Erie I, 473 F.3d at 420 (holding that privilege attaches where “the predominant purpose of the communication is legal advice”); Thomas v. Euro RSCG Life, 264 F.R.D. 120, 122 (S.D.N.Y. 2010) (client's factual chronology relayed to counsel for purposes of seeking legal advice with respect to claims in her complaint was privileged). While Tri-State is correct that the attorney-client privilege may not be used to shield factual information, see Def. Opp. at 17, the privilege does protect communications of factual information from a client to an attorney, where those facts are conveyed in confidence in connection with the rendering of legal advice.[12] Here, plaintiffs have succeeded in establishing that the Chadwick Email was privileged (and not simply subject to the qualified work-product doctrine).
B. The Privilege Has Not Been Forfeited
Before conducting its legal analysis of the parties’ respective contentions, the Court must first make factual findings based on the existing record. As an initial matter, plaintiffs have failed to substantiate their theory that the Chadwick Email was not screened by a contracting attorney. The Chadwick Email unquestionably contains at least two of the search terms that were used to cull potentially privileged emails – “privilege” and “confidential.”[13] While the Koral Declaration states in conclusory fashion that the Chadwick Email “slip[ped] through the electronic privilege filter,” see Koral Decl. ¶ 17, there is no explanation from either Koral or a technical expert as to how a document review software program, such as Relativity, could somehow miss a document containing relevant search terms. See McGee Decl. ¶ 5 (stating that Relativity “uses metadata, including text files, for filtering documents such as in a privilege filter”); see generally McGee Ex. B.[14]
Moreover, plaintiffs’ initial memorandum of law suggests that the Chadwick Email slipped through the entire privilege review process (including the contract attorney review), rather than through the electronic privilege filter. See Pl. Mem. at 14. Although, on reply, plaintiffs challenge Tri-State's assumption that the Chadwick Email was manually reviewed, counsel merely states, in plaintiffs’ unsworn legal memorandum, that they “believe” that the document was not reviewed by an attorney. See Pl. Reply at 10. Thus, plaintiffs’ own submissions are conspicuously ambiguous as to whether the Chadwick Email was individually reviewed.[15] See id. Plaintiffs’ willful ignorance as to how the Chadwick Email came to be produced is dubious, especially since the available technology may well allow plaintiffs to ascertain whether one of the documents reviewed by attorneys was the Chadwick Email. See Def. Opp. at 8; supra note 14.
*11 Thus, on the basis of the record before it, the Court concludes that plaintiffs have not established that the Chadwick Email was disclosed without individual review by a contract attorney. Nevertheless, for the reasons explained below, the Court concludes that plaintiffs have not forfeited the protection of the attorney-client privilege.
1. The 3/25/11 Protective Order Governs This Dispute
As previously discussed, because a Rule 502(d) protective order was entered in this case, that protective order, rather than the default rules of Rule 502(b), governs the Court's analysis in the first instance. See discussion supra pp. 17-18. Rule 502(d) allows, but does not mandate, a court to enter an order protecting the parties against privilege waivers, irrespective of the care taken in conducting a privilege review. Fed. R. Evid. 502(d). While the Rule permits entry of an order containing a blanket prohibition on waiver, the Court in this case did not grant such an order. In fact, it explicitly rejected the outer limits authorized by Rule 502(d) (and proposed by the parties) by inserting a notation that only “inadvertent” production would fall within the scope of the clawback agreement in the 3/25/11 Protective Order.
The Court's intention in modifying the language proposed by the parties was to require that they exercise a minimal level of care in screening for privilege -- consistent with prior precedent in this Circuit holding that the privilege attaching to documents inadvertently produced pursuant to court-ordered clawback agreements is not waived unless the disclosure was “completely reckless.” See, e.g., HSH Nordbank AG N.Y. Branch v. Swerdlow, 259 F.R.D. 64, 75 (S.D.N.Y. 2009) (Lynch, J.) (citing U.S. Fid. & Guar. Co. v. Braspetro Oil Servs. Co., Nos. 97 Civ. 6124, 98 Civ. 3099 (JGK) (THK), 2000 WL 744369 at *4 (S.D.N.Y. June 8, 2000); Prescient Partners, L.P. v. Fieldcrest Cannon, Inc., No. 96 Civ.7590(DAB) (JCF), 1997 WL 736726, at *4 (S.D.N.Y. Nov. 26, 1997)); accord Employers Ins. Co. of Wausau v. Skinner, No. CV07-735(JS)(AKT), 2008 WL 4283346, at *7 (E.D.N.Y. Sept. 17, 2008). As revealed in counsel's email exchange surrounding the ESI Agreement, the parties likewise understood that the concept of “inadvertence” referenced in the 3/25/11 Protective Order contemplated some level of care and/or manner of review. See ESI Emails, DE #306 at 7 (Koral expressed his concern that without human review, plaintiffs’ production of documents might be deemed “not” inadvertent); id. at 6 (Tri-State's counsel agreed that Koral's concerns were addressed by the 3/25/11 Protective Order).[16]
*12 Consequently, the Court will now consider whether plaintiffs’ production of the Chadwick Email was so completely reckless as to constitute a waiver.[17]
2. Disclosure of the Chadwick Email Was Not Reckless
“For a production to be ‘completely reckless,’ the producing party must have shown no regard for preserving the confidentiality of the privileged documents.” Prescient Partners, 1997 WL 736726, at *4; accord HSH Nordbank, 259 F.R.D. at 75. “The fact of disclosure does not necessarily mean that the precautions were unreasonable.” Prescient Partners, 1997 WL 736726, at *5. Indeed, the “rule recognizes that mistakes are often made in the discovery process,” Kalra v. HSBC Bank USA, N.A., No. CV-06-5890(JFB)(ETB), 2008 WL 1902223, at *4 (E.D.N.Y. Apr. 28, 2008), and that it is “virtually impossible to avoid any error whatsoever in dealing with large volumes of discovery material.” Id. at *6 (internal quotation and citations omitted). Thus, where the disclosure of a privileged document occurred as part of a production of voluminous materials, courts are far less likely to find a waiver of the privilege, see id., particularly where, as here, the applicable standard is recklessness. See Employers Ins., 2008 WL 4283346, at *7; see also BNP, 2013 WL 2322678, at *6, *7-8.
*13 Measured against these legal principles, the precautions taken by plaintiffs’ prior counsel to screen for privilege cannot be said to have been reckless. While the Court questions the wisdom of plaintiffs’ omission of certain search terms from their electronic privilege filter -- such as “cooley.com” and “ghlaw.us” (domain names for plaintiffs’ counsel at the time of the search) -- it is undisputed that the Chadwick Email includes at least two of the privilege filter terms that should have “caught” the document and triggered a manual attorney review. See Koral Decl. ¶ 13. Plaintiffs have proffered evidence that in order to meet the one-week deadline set by the Court, see 8/18/11 Minute Order, counsel of record trained contract attorneys on the concepts of attorney-client privilege, and a partner and associate supervised the production. See Koral Decl. ¶ 15. Within a week, plaintiffs disclosed a huge volume of discovery documents and apparently only three privileged documents slipped through this process. See id. ¶ 17 (Chadwick Email was produced as part of production of more than 100,000 documents on August 25, 2011); id. ¶ 14 (“a total of 79,816” documents required individual review by attorneys in connection with production on August 25, 2011); see also id. ¶ 2 (plaintiffs “ultimately produced hundreds of thousands, and perhaps a million,” pages to Tri-State in “the spring and summer of 2011”); Pl. Reply at 14 (seeking to claw back two other emails -- Bates-numbered P4D01294 and DCI_00036400 -- that were attached to the McGee Declaration).[18]
On these facts, the Court is not prepared to deem plaintiffs’ production to be so “completely reckless” as to have forfeited the benefit of the clawback provision contained in Section 10 of the 3/25/11 Protective Order. See, e.g., Employers Ins., 2008 WL 4283346, at *7-9 (disclosure of one-page privileged email in 396-page production was inadvertent and did not waive privilege where counsel took reasonable steps to avoid its disclosure); Kalra, 2008 WL 1902223, at *4-5 (disclosure of three attorney-client privileged emails in 100-page production did not operate as waiver where in-house counsel and paralegal described a not unreasonable procedure that they typically followed in reviewing and producing documents, and they assumed they followed that typical procedure); Prescient Partners, 1997 WL 736726, at *2, *5 (finding that plaintiff's counsel took reasonable precautions in managing document production, and granting plaintiff's motion for protective order with respect to 117 pages of privileged material that, due to “stress-related emotional breakdown” of a paralegal, were not pulled from a production in excess of 12,000 pages); see also BNP, 2013 WL 2322678, at *4, *6-7 (finding that plaintiff, which hired contract attorneys to review for privileged information, took reasonable precautions, despite disclosure of 116 privileged documents as part of production of 156,000 documents).[19]
3. The Privilege Has Not Been Lost By an “At Issue” Waiver
Tri-State also argues that, whether or not the disclosure of the Chadwick Email resulted in a waiver, plaintiffs impliedly waived the privilege by “assert[ing] claims and tak[ing] factual positions as to which the Chadwick Email is critically relevant.” Def. Opp. at 2. In essence, Tri-State contends that plaintiffs have “put at issue their pre-suit investigatory activities, communications with [their counsel] and beliefs concerning Tri-State's problems with its dongle[,]” and that “documents reflecting those activities, communications and beliefs, including in particular the Chadwick Email, are critically relevant to multiple claims and issues in this case.” Id. at 12.[20]
*14 The analysis as to implicit waiver of the attorney-client privilege must be performed “on a case-by-case basis, and depends primarily on the specific context in which the privilege is asserted.” In re Erie II, 546 F.3d at 229 (quotation and citation omitted). The Second Circuit has recognized three general types of implied, or at-issue, waivers: (1) where a “client testified concerning portions of the attorney-client communication”; (2) “when a client places the attorney-client relationship directly at issue”; (3) and “when a client asserts a reliance on attorney's advice as an element of a claim or defense.” See id. at 228 (quotation and citation omitted). Although Tri-State does not specify which type of implied waiver it is advocating, the only arguably applicable one is reliance on advice of counsel. In order to give rise to an implied waiver with respect to advice of counsel, there must be “some showing by the party arguing for a waiver that the opposing party relies on the privileged communication as a claim or defense or as an element of a claim or defense.” Id. (emphasis in original). Though the Second Circuit “declined [ ] to specify in Erie the degree to which a party must rely on privileged advice before waiver of attorney-client privilege is found,” Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Ams., 727 F.Supp.2d 256, 271 (S.D.N.Y. 2010) (citing In re Erie II, 546 F.3d at 229), the Court in Erie II did make clear that “[a] mere indication of a claim or defense certainly is insufficient to place legal advice at issue.” In re Erie II, 546 F.3d at 229.
There appears to be no dispute between the parties that, in advancing their own claims and defending against Tri-State's counterclaims, plaintiffs have not specifically put in issue their reliance on any legal advice in the Chadwick Email chain or on any legal advice relating to those emails; those communications concern the drafting of plaintiffs’ complaint, with input from Chadwick regarding the UniBasic security protections and how those protections might have operated in Tri-State's case. Significantly, any beliefs that Chadwick may have had regarding Tri-State's circumvention of plaintiffs’ security measures would have been based on Chadwick's own knowledge and assumptions regarding Tri-State's problem and would in no way implicate any reliance by plaintiffs on advice of counsel concerning the drafting of their complaint. See Pl. Reply at 13.
Apparently unable to cite any portion of the record wherein plaintiffs have put in issue their counsel's advice in connection with the subject of the Chadwick Email, Tri-State instead argues that, by “contend[ing] that they needed the lengthy Waiting Period” to investigate Tri-State's possible circumvention of plaintiffs’ security measures, plaintiffs waived the privilege with respect to the Chadwick Email and other attorney-client communications occurring within that seven-month period. See Def. Opp. at 15. Tri-State seems to be suggesting that plaintiffs have asserted a defense of good faith, and, by putting in issue their state of mind, have opened the door to an inquiry into otherwise protected communications. See generally United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991). Tri-State's argument is unavailing for a number of reasons. First, an at-issue waiver will not be triggered where the proponent of the privilege merely denies wrongful intent but does not affirmatively assert good faith, or where it argues good faith only through counsel or through examination of witnesses. See In re Erie II, 546 F.3d at 228. Moreover, even assuming, without deciding, that plaintiffs put at issue (and thereby forfeited the privilege as to) plaintiffs’ reasons for waiting to confront Tri-State about the Crack, the narrow question before the Court is whether there has been an implied waiver with respect to the Chadwick Email,[21] which does not discuss or otherwise reveal plaintiffs’ motivation for that delay.
The Court concludes that there has been no “at issue” implied waiver as to the Chadwick Email. As made clear in In re Erie II and its progeny, the fact that a particular privileged communication might be relevant to claims or defenses is not, without more, sufficient to support an implied waiver. See In re Erie II, 546 F.3d at 229; see also, e.g., Leviton Mfg. Co. v. Greenberg Traurig LLP, No. 09 Civ. 8083(GBD)(THK), 2010 WL 4983183, at *4 (S.D.N.Y. Dec. 6, 2010) (“In Erie, the Second Circuit concluded that simply because privileged information is relevant to a claim or defense in the case does not give rise to an implied waiver....”). Rather, for there to be a finding of implied waiver, the party asserting the privilege must have either expressly or impliedly placed in issue that party's reliance on the advice of counsel. See In re Erie II, 546 F.2d at 229; Leviton, 2010 WL 4983183, at *4; Aristocrat, 727 F.Supp.2d at 274 (“[N]otions of equitable fairness cannot be used as a substitute for the lack of the essential element of reliance on privileged communications.”). Here, however, as previously noted, the legal advice implicated by the Chadwick Email relates to the drafting of plaintiffs’ complaint in the instant matter, and Tri-State does not and cannot contend that plaintiffs have put at issue their counsel's advice in drafting their pleading, thereby effecting an implied waiver.[22]
*15 In arguing that a waiver occurs where a party advances a factual claim that may be rebutted by that party's privileged communications, Tri-State relies on decisions that predate In re Erie II or that in turn rely on decisions that predate In re Erie II. See Def. Opp. at 11-12, 14. In particular, Tri-State draws its broad definition of at-issue waiver from a 1993 decision issued out of the Southern District of New York, Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465 (S.D.N.Y. 1993). See Def. Opp. at 11-12 (“[E]ven if a party does not attempt to make use of a privileged communication, he may waive the privilege if he asserts a factual claim the truth of which can only be assessed by examination of a privileged communication.”) (quoting Bowne, 150 F.R.D. at 488). Bowne embraced the analysis embodied in a 1975 out-of-circuit case, Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash. 1975), whose rationale was soundly rejected in Erie II. “[A]gree[ing] with its critics that the Hearn test cuts too broadly,” the Second Circuit concluded that the district court had erred in applying the test that Tri-State now advocates:
According to Hearn, an assertion of privilege by one who pleads a claim or affirmative defense “put[s] the protected information at issue by making it relevant to the case.” Hearn, 68 F.R.D. at 581. But privileged information may be in some sense relevant in any lawsuit. A mere indication of a claim or defense certainly is insufficient to place legal advice at issue. The Hearn test presumes that the information is relevant and should be disclosed and would open a great number of privileged communications to claims of at-issue waiver. Nowhere in the Hearn test is found the essential element of reliance on privileged advice in the assertion of the claim or defense in order to effect a waiver.
In re Erie II, 546 F.3d at 229 (emphasis in original).
Despite the Second Circuit's rejection of the Hearn test, Tri-State largely relies on cases that follow the lead of Hearn or its direct descendant, Bowne, or both. See cases cited at Def. Opp. at 11-12, 15.[23] Notably, even the author of Bowne (Magistrate Judge Michael Dolinger) has modified his at-issue analysis in the wake of Erie II. See Briese Lichttechnik, 272 F.R.D. at 372 (Dolinger, M.J.) (rejecting defendants’ “fairness theory of waiver,” and concluding that “[p]laintiffs have [ ] not waived the privilege ‘by assertion’ since they have not asserted a claim or defense premised on the advice of counsel”).
So too here, in opposing plaintiffs’ motion, Tri-State has pointed to no claim or defense asserted by plaintiffs that is premised on the advice of counsel relative to the Chadwick Email. Therefore, whatever its relevance to the case, the Chadwick Email remains protected by the attorney-client privilege.
In any event, the Court does not give much credence to Tri-State's contention that the Chadwick Email is “critically relevant” to issues in this case, such that fairness would require this Court to find an implied waiver, see Def. Opp. at 13-14 -- even under the discredited Hearn test. As an initial matter, the Chadwick Email was sent on January 17, 2011, a few weeks prior to the initiation of litigation, and thus does not purport to reflect plaintiffs’ thought processes at the time plaintiffs decided to forego sending the Draft Notice-of-Breach Letter to Tri-State in August 2010.
*16 Nor is the Court persuaded that the Chadwick Email demonstrates that Tri-State complained to DCI, in February 2010, that its dongle was malfunctioning and/or that the disputed email is otherwise “critically relevant” to the DMCA's malfunctioning dongle exemption.[24] See Def. Opp. at 13-14. The Chadwick Email does not purport to recount precisely what Tri-State may have told DCI's representative about Tri-State's dongle in their discussion on February 25, 2010.[25] Even assuming arguendo that the email reflects what Chadwick, eleven months later, speculated may have been causing Tri-State's problems, the Court's in camera review of the document clearly reveals that Chadwick posited not one but two explanations -- a fact that Tri-State, through the use of ellipses in several quotations, seeks to obscure. Compare Def. Opp. at 13, 14, with Chadwick Email. Tri-State's other dongle-related arguments are similarly based on skewed interpretations of the record.[26] In any event, whether or not the Chadwick Email is critically relevant, the attorney-client privilege is absolute and, in contrast to qualified privileges,[27] makes no exception for critically relevant information. Therefore, Tri-State is not entitled to the information in the Chadwick Email absent a waiver -- which has not occurred here.
In short, the Court concludes that plaintiffs have not put in issue their reliance on advice of counsel as an element of their claims or defenses, such that fairness requires an implied waiver under the circumstances of this case.
III. Remedies
A. Destruction and/or Return of the Chadwick Email
In connection with their motion for a protective order, plaintiffs request that the Court compel Tri-State to: “(1) return or certif[y] as destroyed all copies of the Chadwick Email in its possession, custody or control, (2) destroy all notes or other work product reflecting the contents of the Chadwick Email, and (3) be prohibited from using the Chadwick Email in any subsequent proceedings, or at trial.” Pl. Mem. at 16. Tri-State has made no specific objection to this remedy. See generally Def. Opp.
The Court concludes that such relief is warranted, as there is ample case law to support plaintiffs’ request. See Employers Ins., 2008 WL 4283346, at *11 (where party inadvertently produced privileged email, court ordered receiving party to “return the originally produced Email and all copies to Plaintiff's counsel OR destroy the Email and all copies and provide Plaintiff's counsel with a written certification that such destruction has occurred) (emphasis in original); Metso Minerals, Inc. v. Powerscreen Int'l Distrib. Ltd., No. CV-06-1446 (ADS)(ETB), 2007 WL 2667992, at *9 (E.D.N.Y. Sept. 6, 2007) (directing defendants to return privileged documents “to plaintiff or, alternatively, destroy the documents and certify their destruction”). Moreover, the requested relief is within the spirit of the 3/25/11 Protective Order, which requires a receiving party in possession of a document believed to be privileged to “immediately return it to the Producing Party and confirm in writing that all copies were returned or destroyed.” See 3/25/11 Protective Order § 10; see also BNP, 2013 WL 2322678, at *12 (enforcing Rule 502 protective order that required recipient of inadvertently produced privileged materials to refrain from any further use or review of such documents and to return or destroy them within three business days).
*17 Thus, within seven days of this Memorandum and Order, Tri-State (1) must return or certify as destroyed all copies of the Chadwick Email in its possession, custody or control and (2) destroy all notes or other work product reflecting the contents of the Chadwick Email.[28] To the extent that defendants Judkovitz and/or SJ Computers also received a copy of the Chadwick Email, those defendants are likewise directed to return or destroy any copies of the Chadwick Email in their possession, custody or control. The copy of the Chadwick Email that was filed on the ECF Docket as an attachment to Tri-State's summary judgment papers will remain sealed, see Chadwick Email, DE #302-1 at 12-14; see also DE #310-3, and will not be considered by the Court in addressing that motion.
B. Costs
Plaintiffs also seek an order requiring Tri-State to reimburse them for the fees and costs they incurred in litigating over the Chadwick Email. See Pl. Mem. at 17; Pl. Reply at 15-16. Rule 26(c) of the Federal Rules of Civil Procedure governs the issuance of protective orders, such as the one now granted by the Court. In particular, Rule 26(c)(3), titled “Awarding Expenses,” states in full: “Rule 37(a)(5) applies to the award of expenses.” See Fed R. Civ P. 26(c)(3). Rule 37(a)(5), in turn, provides that if a motion for a protective order is granted, “the court must, after giving an opportunity to be heard, require the party [ ] whose conduct necessitated the motion, the party or attorney advising that conduct, or both to pay the movant's reasonable expenses incurred in making the motion, including attorney's fees.” Fed. R. Civ. P. 37(a)(5). Nevertheless, “the court must not order this payment if: (i) the movant filed the motion before attempting in good faith to obtain the disclosure or discovery without court action; (ii) the opposing party's nondisclosure, response, or objection was substantially justified; or (iii) other circumstances make an award of expenses unjust.” See id. (emphasis added).
The Court concludes that Tri-State was substantially justified in opposing plaintiffs’ efforts to claw back the Chadwick Email and that an award of fees would thus be unjust. Among other things, Tri-State challenged the inadvertence of plaintiffs’ disclosure of that document. The issue of inadvertence was complicated by the fact that plaintiffs provided extremely limited information concerning the mechanics of their privilege review. Viewing Tri-State's arguments as a whole, the Court cannot say that Tri-State was substantially unjustified in opposing plaintiffs’ motion. See Prescient Partners, 1997 WL 736726, at *8 (although defendants’ position as to waiver of privilege “was not ultimately vindicated, it was substantially justified,” and therefore costs were not warranted).
Consequently, the Court denies plaintiffs’ request for costs pursuant to Rules 26(c)(3) and 37(a)(5).[29]
CONCLUSION
*18 For the reasons explained above, the Court grants, in substantial part, plaintiffs’ motion for a protective order as to the Chadwick Email. By July 25, 2013, defendants must return, or certify the destruction of, any copies of the Chadwick Email. The Chadwick Email will be deemed stricken from Tri-State's papers in summary judgment. The Court, however, declines to award plaintiffs costs in connection with this motion.
Any objection to this Memorandum and Order must be made to the Honorable Carol B. Amon no later than August 5, 2013, or will be deemed waived.
SO ORDERED.
Footnotes
Judkovitz's company, SJ Computers, has also been named as a defendant. See Complaint (Feb. 14, 2011) (“Compl.”), DE #1. Tri-State, Judkovitz and SJ Computers are collectively referred to herein as “defendants.”
The dongle at issue contained the license number for the associated UniBasic installation. See PSJ R&R at *3.
In March 2010, in response to a query from Tri-State, Point 4 offered to upgrade Tri-State with the latest version of UniBasic and Genesys, for a total cost of $32,637. See PSJ R&R at *2. Tri-State declined to accept Point 4's offer to upgrade. See id.
On June 14, 2011, this Court ordered plaintiffs to respond to Tri-State's outstanding document requests by June 30, 2011. See Minute Entry (June 14, 2011), DE #46. Plaintiffs failed to comply with that order, necessitating a motion to compel by Tri-State. See Motion to Compel (Aug. 9, 2011), DE #65.
On November 13, 2012, plaintiffs’ current counsel substituted into the case in place of Koral and his law firm and co-counsel Paul Greenwald (“Greenwald”) and his law firm. See Stipulation and Order (Nov. 13, 2012), DE #259. Agrawal and his firm were counsel of record for Tri-State in this matter until May 2, 2012, but withdrew following the filing of a Notice of Change of Firm by Tri-State's lead counsel. See Endorsed Order Granting Motion to Withdraw (May 2, 2012), DE #167; Notice of Change of Firm (Apr. 5, 2013), DE #157.
Clawback agreements “allow parties to forego privilege review altogether in favor of an agreement to return inadvertently produced privileged documents.” Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 290 (S.D.N.Y. 2003).
More specifically, after the agreed search terms were applied to the ESI of the agreed document custodians, the resulting documents were loaded onto a Relatively e-discovery platform (the document review software program used by plaintiffs to filter and code their documents). See Koral Decl. ¶ 12. The privilege filter terms included: (1) the web domains smrh.com, sheppardmullin.com, wente.de, ssw-muc.de, heisspartner.de, dync.de, Dorsey.com, sam-gmbh.de, slingerland.de; (2) the law firm names Sheppard Mullin, Heiss & Partners, Scheneider Shiffer, Weihermoller, Greenwald & Hoffman, Cooley, Kronish Lieb; (3) the attorney/paralegal names Paul Greenwald, Paul Hoffman, Jason Koral, Karen Won, John Flocken, Sandra Groscup and Tom Matthews; and (4) the terms lawyer, counsel, confidential, and privilege. See id. ¶ 13.
Tri-State argues, in the alternative, that if the document was not reviewed by an attorney, plaintiffs’ decision to produce thousands of documents without review was sufficiently reckless to constitute a waiver of any privilege. See Def. Opp. at 10-11.
Plaintiffs brought this case on the basis of federal question jurisdiction and supplemental jurisdiction. See Compl. ¶ 6. The evidence at issue is arguably relevant to both the federal and state claims in this case. “In such situations[,] courts have consistently held that the asserted privileges are governed by the principles of federal law.” von Bulow v. von Bulow, 811 F.2d 136, 141 (2d Cir. 1987). In any event, both parties have briefed the issues citing federal law, and thus have implicitly consented to its application. See, e.g., Comprehensive Habilitation Servs., Inc. v. Commerce Funding Corp., 240 F.R.D. 78, 85 (S.D.N.Y. 2006).
This principle is subject to one limited exception, discussed below. See infra p. 30 (party advocating implied waiver based on reliance on advice of counsel must make “some showing” of such reliance).
Under the theory advanced by Tri-State, a prosecutor in a criminal case would be entitled to discover whether the accused admitted to his defense lawyer that he committed the offense charged. That plainly is not the law.
Tri-State contends that the Chadwick Email contained at least seven search terms, including but not limited to “Sandra Groscup,” “Paul Greenwald,” “ghlaw.us” and “cooley.com.” See Declaration of Patrick R. McGee (Mar. 15, 2013) (“McGee Decl.”) ¶ 4, DE #305. However, neither “ghlaw.us” nor “cooley.com” appears to have been included in the privilege filter. See Koral Decl. ¶ 13. Moreover, as to “Sandra Groscup” and “Paul Greenwald,” it is unclear whether those names, which appear in slightly varied form in the Chadwick Email (“Sandy Groscup” and “Paul Evan Greenwald,” respectively) would have been captured (i.e., whether the full names must have appeared in identical form in order to be captured by the filter or whether a Boolean search was conducted for, e.g., “Paul” or “Greenwald”). Compare Koral Decl. ¶ 13 with Chadwick Email.
Nor do plaintiffs provide records from their Relativity files identifying by Bates number each of the documents captured by the Relativity privilege filter. See Def. Opp. at 8.
Plaintiffs surmise that if the Chadwick Email had been reviewed by a contract attorney, then its production was probably “the result of a coding error,” as opposed to attorney judgment. See Pl. Reply at 10. Plaintiffs provide no evidence in support of this theory.
Having looked to the ESI Emails to glean the parties’ understanding of the 3/25/11 Protective Order, the Court nevertheless rejects plaintiffs’ argument that the ESI Agreement should govern what constitutes an “inadvertent” production within the meaning of the Court's 3/25/11 Protective Order. See Pl. Mem. at 12. Although invited by this Court to do so, plaintiffs have provided no case law addressing the issue of how a private agreement between parties could be viewed as modifying or overriding a stipulation so-ordered by this Court. See id.; see generally Pfohl Bros. Landfill Site Steering Comm. v. Pfohl Enters., No. 95-CV-956A(F), 1996 WL 772893, at *2 (W.D.N.Y. Sept. 13, 1996) (absent court approval, parties are not permitted to enter into discovery-related stipulation that effectively modified prior court order). If plaintiffs wished to modify or amend the language of the 3/25/11 Protective Order, they should have applied to the Court to do so. See 3/25/11 Protective Order § 17 (parties were free to apply to Court to modify 3/25/11 Protective Order).
Under Rule 502(b), the determination whether a disclosure was “inadvertent” is an inquiry separate from the assessment of the reasonableness of the steps taken to produce and rectify any errors. See discussion supra pp. 16-17. Nevertheless, many courts assume, without discussion, that an evaluation of inadvertence under subsection (1) may be made only by looking to subsections (2) and (3). See Ceglia, 2012 WL 1392965, at *8 (referring to subsections (2) and (3) as the “first” and “second” elements of 502(b), with no discussion of inadvertence under subsection (1)); United States v. Sensient Colors, Inc., Civil No. 07-1275 (JHR/JS), 2009 WL 2905474, at *4 (D.N.J. Sept. 9, 2009). In this case, the Court need not consider what constitutes “inadvertent” for purposes of Rule 502(b)(1), as the issue before the Court is the meaning of the term “inadvertent” as used in the 3/25/11 Protective Order. In any event, even if the Court were to conduct a Rule 502(b) analysis, as it would in the absence of the 3/25/11 Protective Order, case law in this Circuit (in contrast to the out-of-circuit decisons cited by Tri-State, see Def. Opp. at 9) supports a finding that the Chadwick Email would constitute an “inadvertent” production under subsection (1) of Rule 502(b). See BNP, 2013 2322678, at *5, *7 (disclosure was found to be “inadvertent” notwithstanding adversary's contention that disclosure was “intentional and deliberate, albeit in error”); Jacob v. Duane Reade, Inc., No. 11 Civ. 0160(JMO)(THK), 2012 WL 651536, at *4 (S.D.N.Y. Feb. 28, 2012) (finding there was “no question” that email was inadvertently produced, despite the fact that it was reviewed by contract attorney and deemed non-privileged); Valentin v. Bank of N.Y. Mellon Corp., No. 09 Civ. 9448 (GBD) (JCF), 2011 WL 1466122, at *2 (S.D.N.Y. Apr. 14, 2011) (“Disclosure is unintentional even if a document is deliberately produced, where the producing party fails to recognize its privileged nature at the time of production.”), adopted, 2011 WL 2437644 (S.D.N.Y. May 31, 2011).
See infra p. 37 n.28 (declining to address plaintiffs’ request to claw back two additional documents, raised for the first time in their reply papers).
In the factual portion of its memorandum of law, Tri-State states that plaintiffs’ production includes more than 100 emails with counsel and more than 3,000 documents containing privilege terms. See Def. Opp. at 6. Tri-State has specifically identified only a handful of such documents, see id., and, except for the two additional documents that plaintiffs now seek to claw back, the cited documents do not contain substantive communications, but instead relate to scheduling issues and the like. See generally McGee Decl. ¶ 6; McGee Ex. C. Tri-State does not explain how these disclosures support its waiver argument.
Tri-State's reliance on Atronic International, GmbH v. SAI Semispecialists of America, Inc., 232 F.R.D. 160 (E.D.N.Y. Oct. 18, 2005), is misplaced, as the facts of that case bear no resemblance to those in the instant case. For one thing, there apparently was no Rule 502(d) confidentiality order in that case. Furthermore, the plaintiff in Atronic disclosed the privileged emails to the defendant not once, but twice, including in “a binder of exhibits that the Plaintiff intended to use at a subsequent deposition.” Id. at 161.
Tri-State does not rely on, or even cite, Rule 502(a) of the FRE, which provides, in relevant part, that where, through selective disclosure of privileged information, a party intentionally waives the privilege, the waiver extends to undisclosed communications concerning the same subject matter that “ought in fairness to be considered together” with the selectively disclosed information. Fed. R. Evid. 502(a); see supra pp. 14-15. Thus, while disputing that the disclosure of the Chadwick Email was inadvertent, Tri-State does not — and cannot — contend that plaintiffs intentionally waived the privilege by deliberately utilizing the Chadwick Email to its advantage in the adversarial process. See Briese Lichttechnik Vertriebs GmbH v. Langton, 272 F.R.D. 369, 372 (S.D.N.Y. 2011) (“[D]efendants point to no evidence that — apart from the inadvertently disclosed documents — plaintiffs have revealed any part of a privileged communication while seeking to withhold the balance of that communication or other related privileged communications or that plaintiffs’ disclosure of the privileged documents was in any sense a deliberate stratagem to gain a tactical advantage.”); Seyler, 771 F.Supp.2d at 288 (whether or not the record supported a finding of “inadvertent” disclosure under Rule 502(b), “it does not satisfy the higher standard of intentional waiver in Rule 502(a)”).
To be sure, Tri-State's memorandum of law contains occasional references to plaintiffs’ “selective use of [other] documents and communications from the Waiting Period,” Def. Opp. at 15; see id. at 2, 3, which Tri-State contends should result in a finding of “an ‘at issue’ waiver” with respect to the Chadwick Email. Id. at 15. This Court likewise will analyze whether there has been an implied “at issue” waiver, rather than an intentional waiver, as to the Chadwick Email.
Notably, Tri-State requests that the Court reject plaintiffs’ efforts to claw back the Chadwick Email, but does not seek an order compelling plaintiffs to turn over all privileged documents from the Waiting Period.
Moreover, the attorney comments and statements to the Court cited by Tri-State, see, e.g., Def. Opp. at 2, 13, 14, have no bearing on the relevant legal issue: i.e., whether the advice of counsel so impacted the state of mind of a party that an implied waiver should result. See In re Erie II, 546 F.3d at 228 (the assertion of a good-faith defense does not waive the privilege where it is advanced “only through defense counsel and the examination of witnesses”) (citing Bilzerian, 926 F.2d at 1293). And while plaintiffs’ prior counsel, Jason Koral, may not have been completely forthcoming with Judge Raymond Dearie (to whom the case was then assigned), see Affirmation of Jason Koral (Feb. 15, 2011) ¶ 6, DE #5, his representations, while troubling, are unrelated to the legal issue currently before this Court.
Of the at-issue waiver cases cited by Tri-State, see Def. Opp. at 11-12, only one postdates the decision in In re Erie II and addresses its impact on the doctrine. See MBIA Ins. Corp. v. Patriarch Partners VIII, LLC, No. 09 Civ. 3255, 2012 WL 2568972, at *6-7 (S.D.N.Y. July 3, 2012). In ruling that MBIA had waived the attorney-client privilege by placing at issue its intent and interpretations of a particular contractual agreement, the MBIA court noted that, in opposing the defendant's motion for summary judgment, MBIA had “demonstrated its intention to place the opinion of counsel at issue” by submitting affidavits interpreting that contract, see id. at *7; moreover, MBIA's witness list identified a series of witnesses who would testify at trial about the scope of the contract, including MBIA's general counsel and the attorney who negotiated the contractual documents on MBIA's behalf. See id. at *5. Suffice it to say, Tri-State points to no affirmative acts on plaintiffs’ part that are in any way comparable to MBIA's litigation strategy and reliance on the opinions of counsel.
See generally 37 C.F.R.§ 201.40(b).
In this connection it should be noted that, not surprisingly, Chadwick, the CEO of DCI, was not a party to the February 25, 2010 phone call, which was handled by DCI's customer service representative, Joel Grotzinger. See Declaration of Joel Grotzinger ¶¶ 3-7, DE # 283-8. Moreover, even if Tri-State expressed an interest in upgrading to a system without a dongle, it does not necessarily follow that plaintiffs were informed that Tri-State's dongle was malfunctioning. See Def. Opp. at 13; discussion supra p. 3 (while denying that plaintiffs were aware of problems with a dongle, plaintiffs’ Rule 56.1 statements do not dispute that a dongle was discussed).
According to Tri-State, the Chadwick Email belies the position taken by plaintiffs during discovery “that the dongle is still manufactured, still supported and is in no way obsolete.” See Def. Opp. at 13. Suffice it to say, Tri-State misreads the portions of the record on which it relies.
In arguing the “critical relevance” of the Chadwick Email, Tri-State erroneously assumes that the only applicable privilege is attorney work product. See Def. Opp. at 16-17; but see supra pp. 20-21.
In their reply, plaintiffs, in rather conclusory fashion, request that Tri-State return two additional emails — P4D01294 and DCI_00036400 — neither of which is the subject of plaintiffs’ motion for a protective order. See Pl. Reply at 14. The Court need not and will not consider an argument raised for the first time on reply. See Fisher v. Kanas, 487 F.Supp.2d 270, 278 (E.D.N.Y. 2007) (collecting cases).
In plaintiffs’ motion papers, they urge this Court to find that Tri-State, by failing to immediately return the Chadwick Email upon its production, violated Rule 4.4(b) of the New York Rules of Professional Conduct (“NYRPC”). See Pl. Mem. at 10-11; Pl. Reply at 5-7. However, while complaining that Tri-State “sandbagged” them and delayed litigation over this issue, plaintiffs do not articulate what effect, if any, an ethics violation would have on their motion for a protective order. Nor do they explain why a federal court is the appropriate forum for litigating what essentially amounts to a state attorney ethics complaint. See Fagan v. U.S. Dist. Court for S. Dist. of N.Y., 644 F.Supp.2d 441, 450 (S.D.N.Y. 2009) (allegations that law firm violated New York Lawyer's Code of Professional Responsibility should be brought “before the appropriate disciplinary authorities” and “do not form a valid cause of action” in federal court). Therefore, the Court declines to resolve plaintiffs’ challenge under Rule 4.4(b) of the NYRPC.