Controlling Waiver in Advance

Rule 502(b) judges a disclosure after it happens. A court asks whether the holder acted inadvertently, took reasonable precautions, and moved promptly to correct the error, and it answers those questions in hindsight, on facts the holder cannot predict when it decides how much review to buy. That uncertainty keeps review expensive, because a holder who cannot count on a mistake being excused feels pressure to read every page before anything leaves the office.

Rule 502 offers two ways to settle the consequence of disclosure before any production occurs. A federal court may order that disclosure connected with the pending litigation waives nothing, and the parties may agree on the effect of disclosure.¹ Under either tool, a slip in a large exchange is measured against terms the litigants already know, and no multi-factor inquiry follows. The tools differ in whom they bind. An order draws its force from the judge who enters it, and an agreement draws its force from the consent of those who sign it.

These tools answer a different question from the confidentiality orders discussed earlier in this chapter. Rule 26(c)(1)(G) lets a court require that confidential research, development, or commercial information be revealed only in a specified way, so it governs how discoverable material is revealed.² A waiver term governs what disclosure does to privilege or work-product protection. One production can call for both: a confidentiality order for the commercial files, and a nonwaiver term for the lawyers' memoranda that might slip in among them.

Court Orders Under 502(d)

Rule 502(d) empowers a federal court to order that the privilege or protection is not waived by disclosure connected with the litigation pending before it, and the disclosure is then also not a waiver in any other federal or state proceeding.³ The word protection covers work product, which Rule 502 defines as the protection that applicable law provides for tangible material, or its intangible equivalent, prepared in anticipation of litigation or for trial.⁴ Where Rule 502(b) examines a mistaken production afterward, Rule 502(d) announces the legal effect of production at the start of the case. A later fight over waiver is answered by reading the order, which is why practitioners treat the provision as the one of greatest importance in the rule.⁵

The order's value lies in what it does to the cost of review. A producing party that must rely on Rule 502(b) has to read every page for privilege, because a miss will be judged later on facts it cannot control. An order removes the pressure to review the entire production page by page,⁶ and its protection does not depend on the care the producing party took: the order may provide for return of documents without waiver irrespective of that care.⁷ Rowe Entertainment, Inc. v. William Morris Agency, Inc. shows the economics. One defendant estimated that the review would cost nearly $250,000, and another projected $120,000 and two years of work. The court answered that the defendants' documents could be protected at little cost by a confidentiality order and a protocol requiring attorneys'-eyes-only review and providing that review of attorney-client documents would not be deemed a waiver.⁸ Under that protocol, defense counsel reviewed the documents produced and designated those that were confidential or privileged; designated documents stayed on an attorneys'-eyes-only basis until any dispute was resolved; and review by counsel or the expert waived nothing.⁹ The no-waiver term made the cheap sequence workable. A Rule 502(d) order supplies that term and carries it beyond the case.

The phrase any other federal or state proceeding separates a court order from a private promise. A stranger to the case, such as a plaintiff in a later suit, may argue that the production forfeited protection and demand the material. A Rule 502(d) order answers that argument too, because it is enforceable against all parties in any state or federal proceeding.¹⁰ Whitaker Chalk Swindle & Sawyer, LLP v. Dart Oil & Gas Corp. illustrates the point. After the case was removed to federal court, the defendants sought to stay discovery, arguing that producing privileged information there would waive privilege in a related state proceeding. The court denied the stay, reasoning that a Rule 502(d) order would protect against waiver and that the state court should recognize the federal order, and it entered the order together with a Rule 26(c) protective order for confidentiality.¹¹ The pairing divides the work. A confidentiality order of the kind Rule 26(c)(1)(G) authorizes controls how commercial information is revealed, while the nonwaiver order controls whether disclosure costs the holder its protection.¹²

A court does not need the parties' consent to enter such an order, because courts may enter nonwaiver orders even without party agreement.¹³ In Rajala v. McGuire Woods, LLP, the court held that it may issue the order on its own initiative or over any party's objection. It found good cause because the production involved a large volume of material, the risk of inadvertent disclosure was great, and the order would expedite discovery.¹⁴ All three facts point to one concern: a large production makes mistakes likely, and the order spares the cost of guarding against them. The same standard presumably applies when no party asks for the order.¹⁵

The order also makes two cost-saving arrangements safe. In a quick peek, the requesting party examines the other side's documents without any privilege review and designates the material it wants to use, which spares the producer the cost of reviewing everything first.¹⁶ In a return arrangement, often called a clawback, the order lets the producer recover a protected document that slips out, without waiver, irrespective of the care it took.¹⁷ The drafters of Rule 502 contemplated both in order to control the excessive costs of pre-production review.¹⁸ A quick peek is a deliberate disclosure and not a mistake, so the inadvertent-disclosure test of Rule 502(b) would not excuse it. The order is what keeps the peek from being a waiver.

Courts divide on whether to enter such an order when no privilege review preceded the production. In Radian Asset Assurance, Inc. v. College of the Christian Brothers of New Mexico, the court entered an order without predisclosure privilege review, and in Spieker v. Quest Cherokee, LLC another court refused to enter one without it.¹⁹ The first position fits what the drafters contemplated, since they allowed such orders to reduce litigation costs.²⁰ A careful answer states that the drafters allowed orders without prior review, that courts split on entering them, and that the question is therefore open.

Two limits bound the order. It reaches only disclosure connected with the litigation pending before the court, so a disclosure unrelated to that case falls outside it.²¹ And it answers only the waiver question, leaving open whether the material was ever protected, a point developed below in connection with agreements. An agreement can reach some of the same ground, but only among the people who made it.

Party Agreements Under 502(e)

Rule 502(e) lets litigants settle by contract what disclosure will do to protection, but a contract reaches only as far as consent does: an agreement on the effect of disclosure in a federal proceeding binds only the parties to it, unless it is incorporated into a court order.²³ A signatory has promised, and a stranger has not. That one fact accounts for both what an agreement accomplishes and where it stops.

An agreement is worth having because Rule 502(b) protects a mistaken production only if the holder can show inadvertence, reasonable precautions, and prompt rectification, and a court judges each afterward. A nonwaiver agreement can provide more protection than Rule 502(b) itself,²⁴ because the parties write the term in advance and it binds them.²⁵ A producer who knows that its co-signatories will not hold a slip against it can use a lighter screen, or can agree to a quick peek, an arrangement the drafters contemplated to control the excessive costs of pre-production review.²⁶

Hypothetical Illustration

Two parties in a federal commercial case sign an agreement that production of privileged material will not be treated as a waiver, and they never ask the court to adopt it. The producer, working under deadline, runs no privilege screen, and the production includes a privileged memorandum. The receiving party cannot claim waiver against the producer, and the producer's failure to screen does not matter between those two. Now a plaintiff in a related state suit against the producer, who signed nothing, demands the memorandum and argues that production waived protection. The agreement does not answer that plaintiff, because it binds only its parties. Had the parties presented the agreement and the court incorporated it in an order, the disclosure would not be a waiver in the state case.

Outsiders are another matter. A stranger may seek discovery of the documents in related or later litigation and claim that the disclosure waived privilege or work-product protection, and the agreement gives the producer no answer, because the stranger promised nothing.²⁷ Against that stranger the producer must defend its protection under the ordinary waiver rules.

That gap explains ordinary practice. Litigants who want a nonwaiver agreement normally present it to the court to be incorporated in an order, if the court is willing, and an order of that kind means the disclosure did not amount to waiver in any other federal or state proceeding.²⁸ Incorporation turns a promise among signatories into a command of the court, which a stranger must answer. The court's willingness is a real condition, since courts divide, as noted above, on entering nonwaiver orders where no privilege review preceded the production, and parties who worry about related litigation do not stop at the signature page.

A nonwaiver agreement answers only the waiver question, so it leaves open whether the material was protected to begin with. The receiving party may ask the court to rule that the documents were never privileged, as would be true if they gave business advice rather than legal advice. It may also contest work-product status, which applies to tangible material, or its intangible equivalent, prepared in anticipation of litigation or for trial.²⁹ Until the court rules, though, the receiving party may not use the material. Rule 26(b)(5)(B) requires a party that receives material claimed to be privileged to promptly return, sequester, or destroy it, and it bars use or disclosure of the information until the claim is resolved.³⁰

Exam Analysis Steps

Because the answer depends on who demands the material and on what stands behind the agreement, a problem is best run by classifying the demander first and the protection second.

Identify who is demanding the material, asking whether that person signed the agreement or is a stranger to it, since a contract binds only its parties.
If the demander signed, ask whether the agreement covers the disclosure, and if it does, conclude that the demander cannot claim waiver however much care the producer took.
If the demander is a stranger, ask whether the agreement was incorporated into a court order, and if it was not, treat the stranger as free to argue waiver under the ordinary Rule 502 rules.
Whoever the demander is, ask separately whether the material was privileged or work product at all, because the agreement settles only the effect of disclosure.
Until the court resolves any challenge to the claim of protection, require the receiving party to return, sequester, or destroy the material and to refrain from using it.

Two errors recur on exam stems. One treats a signed agreement as protection against everyone, forgetting that a stranger in related litigation signed nothing. The other treats the agreement as proof that the material was protected, confusing waiver with the existence of the privilege or work product. The line between the two tools is the line between contract and command: an agreement binds the parties, while an order under Rule 502(d) carries the court's authority into other federal and state proceedings.