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Corporate Compliance Insights
Home Governance

Guarding Against Privilege Waiver in Federal Agency Investigations, Part 2

by Elizabeth McGinn
November 30, 2016
in Governance
Keys to using Rule 502 correctly

with co-author Tihomir Yankov

Read Part 1 here.

Rule 502(b): Weaker Protections in Cases of Inadvertent Disclosure

Subject matter waiver protections aside, Rule 502 does not provide the same level of comfort as to the consequences of inadvertent disclosure.  The effect of inadvertent disclosure of privileged information in federal proceedings (including in cases where the disclosure was made to federal agencies) is governed by Rule 502(b) and potentially by parallel agency regulations governing the waiver as to the agency investigation itself.  The Rule provides that “[w]hen 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 (i) the disclosure was “inadvertent,” (ii) the holder of the privilege took “reasonable steps to prevent disclosure” and (iii) “the holder promptly took reasonable steps to rectify the error.”

For one, Rule 502(b) does not define, and the comments to the Rule do not clarify, what “inadvertent” means.  Inadvertence should mean the opposite of the “intentional” standard set by Rule 502(a).  But not all courts agree, with some injecting a reasonableness inquiry as part of the inadvertent element.  Judge Grimm has argued, in contrast, that a reasonableness inquiry ought to belong only to the second element — the one concerning the reasonableness of precautions.[1]  Second, Rule 502(b) purposefully does not define what “reasonable steps” means — an understandable necessity in order to provide flexibility in application by the courts.

For the seasoned litigator, this lack of clarity can be easily circumvented, for Rule 502(b) represents but a fallback provision for those who have not taken advantage of the “Get Out of Jail Free Card” under Rule 502(d), or at the very least entered into a well-drafted voluntary agreement governing waiver with the opposing party under Rule 502(e).

Unfortunately, the potential for inadvertent disclosure does not bode that well for parties producing to a federal agency.  In most cases, agencies serve not only as the requesting party, but also as the judge, the fact finder and the initial appellate forum, thereby placing them in a position to make the fact-intensive analysis as to whether an investigated party has taken reasonable steps to prevent disclosure.  While one may have the option to raise the issue in federal court, few may choose to air it in a public forum due to the confidential nature of most investigations and the fact that investigated parties often take a highly cooperative posture during the investigation phase.  This may lead investigated parties to continue down the path of using the most conservative (read: expensive) approach to privilege review with the hope that the steps it takes will be deemed reasonable by the requesting agency.

Rule 502(e): Privilege Waiver Agreements with Government Agencies

Litigants may circumvent the inherent ambiguities of Rule 502(b) by entering into a Rule 502(e) agreement: it provides a vehicle for parties making disclosures in a federal proceeding or to a federal office or agency to enter into voluntary clawback agreements, which generally are binding only on the parties to the agreement.[2] 

But as before, the scope of Rule 502(e) does not extend to agency investigations.  This limitation could be easily cured by the federal agency itself.[3]  Yet some government agencies, even those who have adopted the provisions of Rule 502(a)-(b) as part of their own investigative process,[4] may choose not to enter into privilege clawback agreements,[5] potentially forcing investigated parties instead to rely on the fuzzier “reasonableness” standard set under the agency rules mirroring Rule 502(b), if at all promulgated.

Such reluctance is out of step with the drive toward risk mitigation in light of inevitable mistakes that plague modern-day discovery.  If agencies are concerned about the time and cost of complying with a government subpoena, they should freely enter into clawback agreements with the same eagerness and frequency as litigants do in civil litigation.  Forcing parties to rely exclusively on the protections of Rule 502(b) and any applicable agency equivalent should be the exception and not the rule.

It may appear on the surface that any federal agency inherently lacks the incentive to enter into clawbacks: (i) document productions in investigations roll only on a one-way street, unlike in litigation, (ii) the agency is in the unique position as a requesting party to determine whether the investigated party has undertaken reasonable precautions against inadvertent disclosure and (iii) investigated parties are often highly cooperative anyway.

Yet agencies are not entitled to receive privileged information in the course of their investigations, and privilege clawback agreements should be viewed as a default win-win: the investigated party (i) saves on resources that were previously directed at refortifying permeable barriers to guard against the inevitable and (ii) redirects part of those resources to speed up the document production efforts without obsessing over privilege issues, ultimately speeding up the agency’s investigation.

Rule 502(d) and Government Investigations: Stuck in Jail

Perhaps the biggest disappointment of them all is that investigated parties have little chance of being dealt the “Get Out of Jail Free Card.”  Rule 502(d) provides, “A federal court may order that privilege … is not waived by disclosure connected with the litigation pending before the court — in which event the disclosure is also not a waiver in any other federal or state proceeding.”

The theoretical protections here are much greater than those afforded by an agreement between the parties under 502(e), for the court order is effectively binding on any party and in any proceeding.  But yet again, the reality is that investigated parties often take a cooperative posture during an investigation and would rarely consider seeking a court order during the course of a nonpublic investigation.

Practice Tips

In many government investigations, the most meaningful protections against privilege waiver may be beyond reach.  If available, the optimal protections may be afforded by a carefully drawn clawback agreement: the agency benefits in receiving the documents more quickly, the producing party minimizes risk and review cost and the confidentiality of the investigation is not jeopardized by seeking a court order.  But if the investigative agency is unwilling to consider a clawback agreement, a cooperative party may be left with only the default protections provided by agency-specific rules (if promulgated).

In such a suboptimal scenario, the responding party may need to memorialize the minimum steps that it plans to take to review documents for privilege and perhaps whether the agency, if willing to opine, considers the planned steps to be reasonable precautions in preventing disclosure of privileged information before document production begins (vs. in hindsight after privileged documents are inadvertently produced).  But in the absence of such an acknowledgment, a cooperative party may have to consider engaging in a full and expensive linear privilege review (assisted by technology, of course), despite the fact that such efforts could still result in the disclosure of privileged information.

At this junction, the key is communicating early and often.  Investigated parties have ample opportunity to discuss and negotiate e-discovery challenges and parameters early during the meet-and-confer conference with agency staff.[6]  Quite simply, the issue of privilege waiver ought to be raised as early as possible in order to gauge the agency’s expectations up front and calibrate the privilege review process accordingly.  In the end, one might find that an agency is willing to mirror the cooperative posture of the investigated party.

[1] Paul W. Grimm, Lisa Yurwit Bergstrom & Matthew P. Kraeuter, Federal Rule of Evidence 502: Has It Lived Up to Its Potential?, XVII RICH. J.L. & TECH. 8, 30 (2011), http://jolt.richmond.edu/v17i3/article8.pdf.

[2] Fed. R. Evid. 502(e).

[3] It remains unclear whether Rule 502(e) will resolve a circuit split as to whether a voluntary clawback agreement with an agency protects the party against privilege waiver as to third parties in future litigation in the absence of a court order.  See e.g. In re Natural Gas Commodities Litig., 232 F.R.D. 208, 211 (S.D.N.Y. 2005) (acknowledging circuit split and noting that “courts in this district have held [under the minority view] that voluntary disclosure to government agencies pursuant to an explicit non-waiver agreement does not waive the attorney or representative work product or attorney-client privilege.”)

[4] See 12 C.F.R. § 1080.8(c).

[5] See http://www.law360.com/articles/619051/doj-chiefs-share-the-wrong-way-to-respond-to-a-subpoena (quoting a senior DOJ lawyer, “the DOJ is not in the business of granting mulligans to lawyers who have failed to cover their bases and are hoping to negotiate a clawback agreement…. ‘Sometimes the government will entertain them, sometimes they won’t, but the terms of those clawback agreements are closely looked at because there may be other investigations going on that you don’t know about, . . . [s]o in many instances we may not be amenable to having our hands tied in that respect, and making sure that you’re doing your due diligence on the front end and looking at your processes before privilege flies out the door is very important.'”)

[6] See Caitlin M. Kasmar, The Butterfly Effect: eDiscovery in Government Investigations and Why Small Tweaks May Have Great Impacts, Digital Discovery & e-Evidence, Bloomberg BNA (2016).


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Elizabeth McGinn

Elizabeth McGinn

elizabeth-mcginnElizabeth McGinn is a partner in the Washington, DC and New York offices of BuckleySandler LLP. Ms. McGinn advises clients on consumer financial services, e-discovery and privacy-related issues. She may be reached at emcginn@buckleysandler.com.

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