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Attorney-client privilege is a critical protection to safeguard your interests, especially your construction interests.
For contractors and construction executives, a dispute that escalates to litigation brings risks that go well beyond the jobsite. When a dispute escalates to litigation, the attorney-client privilege is a critical protection to safeguard your interests. Disclosing privileged material can undermine your litigation position and, in some cases, negatively impact your business. In the construction context, this often includes sensitive communications about project delays, defect investigations, safety incidents or payment disputes—materials that can significantly impact both liability and reputation.
During litigation, the discovery process requires the exchange of documents and data with your adversary. If privileged materials are disclosed to your adversary during discovery you risk the waiver of your privilege, which in plain terms means you lose the protection of the privilege and make the privileged information, and in some cases all other information related to the same subject matter, available to your adversary. It is critical that your attorney take steps to protect against the unintentional disclosure of privileged materials during discovery to avoid a waiver.
In the digital age, the massive increase in the volume of material that is collected and produced in litigation has made it increasingly difficult to protect against inadvertent disclosure. Sophisticated review protocols must be established to avoid these unintentional disclosures and the costs associated with establishing these protocols are significant and growing. And the unfortunate reality is that even with the most sophisticated protocols in place, inadvertent disclosures still occur. Federal Rule of Evidence 502 was enacted to combat the “prohibitive” costs of protecting against inadvertent disclosures and waivers of attorney-client privilege.
FRE 502(b) establishes a baseline rule that a disclosure will not operate as a waiver of privilege, if the disclosure is inadvertent and the holder of the privilege took reasonable steps to prevent it and to rectify the error. But to be entitled to the protections of FRE 502(b) a party that produces privileged information must prove that it meets all the requirements in the rule—inadvertent disclosure, reasonable steps to prevent disclosure and reasonable steps to rectify the error—and the rule does not define what constitutes “inadvertent” or “reasonable”. The Advisory Committee Notes expressly recognize the undefined nature of the rule and characterize this fact-specific inquiry as a feature of the “flexibility” of FRE 502, but this flexibility also creates uncertainty and risk for a party that relies solely on FRE 502(b) to protect against a waiver of privilege by inadvertent production. The remaining sections of FRE 502 provide broader protection against waiver of attorney client privilege with the use of clawback agreements and court orders. For contractors and construction business owners in litigation, the safer and more reliable path is to insist that your attorney secure stronger protections through a clawback agreement before producing any materials in discovery.
To maximize the protections of a clawback agreement:
- State that inadvertent production shall not constitute a waiver of privilege as to the material and/or its subject matter
- State that that the terms of the order (not FRE 502(b)) govern the issue of waiver
- Provide concrete directives regarding each of the requirements set forth in Rule 502(b)—what constitutes inadvertence, what precautionary measures are reasonable and required, and what steps are reasonable and required after disclosure. The most clearly enforceable way to address this is by including a provision whereby all parties waive the “reasonable steps” requirements of FRE 502 and create a “no-fault” standard whereby all disclosures of privileged information are defined as inadvertent.
- Have the agreement memorialized in a court order. If you are unable to agree with your adversary, file a motion with the court seeking to have a clawback order entered.
- Establish the procedures for clawing back inadvertently produced materials and the procedures for resolving disputes over assertions of privilege
- Provide for cost-shifting in the event of a clawback demand, dispute or both
Recent case law highlights that, even with a clawback agreement, there is still some risk that a court will find waiver of privilege. For example, the Western District of Washington recently ruled in the case Coster v. Amazon.com Inc., that a waiver of privilege occurred after a party unintentionally produced privileged information, even though the parties had entered into a clawback agreement and had it “so ordered” by the Court. That court adopted an extremely high standard which potentially eliminates the possibility that human error in the review process could constitute inadvertence when it held that a disclosure was not “inadvertent” after the producing party explained that the privilege review in the case was “enormous and exceedingly difficult” and that despite significant efforts to review documents for privilege, a “small number of documents” were “mistakenly” produced. In contrast, many other recent cases have enforced clawback agreements. For example, the Southern District of New York in Brookfield Asset Mgmt. v. AIG Fin. Prods. Corp. held that the producing party “has the right to claw back the minutes, no matter what the circumstances giving rise to their production were” where a clawback agreement had been “so ordered” by the court. Similarly, the Northern District of Illinois held that an inadvertent production did not result in a waiver of privilege because “[i]n contrast with 502(b), the Rule 502(d) order entered in this case prevents waiver of the attorney-client privilege or work-product regardless of whether the disclosure was inadvertent or any efforts were taken to prevent or rectify the same.”
Clawback agreements are not a silver bullet and it is important that your attorney employs review protocols to protect against inadvertent disclosures of privileged information. However, as a matter of sound policy, construction executives and contractors in litigation should insist that their attorneys seek the further protections of a clearly drafted clawback agreement entered as a court order before producing any information in discovery. Disputes over contracts, payments, and project defects frequently escalate to litigation, which can be costly. Protecting your attorney client privilege, including with the use of a well drafted claw back agreement prepared by your construction attorney is one critical way to protect your interests and limit those costs.
