Rule 26 Blog
Clawback Agreements in the Wake of FRE 502
Written by Jonathan Yeh   
Wednesday, 18 November 2009 09:12
Privilege review of voluminous electronic documents can be extremely costly and time-consuming. As one federal magistrate judge put it, it is one of the most challenging aspects of discovery of electronically stored information (ESI):

    [H]ow properly to conduct Rule 34 discovery within a reasonable pretrial schedule, while concomitantly insuring that requesting parties receive appropriate discovery, and that producing parties are not subjected to production timetables that create unreasonable burden, expense, and risk of waiver of attorney-client privilege and work product protection. Hopson v. Mayor and City Council of Baltimore, 232 F.R.D. 228 at 232 (D. Md. 2005).


Until the recent adoption of Federal Rule of Evidence (FRE) 502, the discordant substantive law on privilege waiver did little to lessen the challenge. In the absence of clear law or procedural rules tailored to ameliorate the growing problem of privilege review in electronic discovery, parties and courts sometimes turned to clawback and nonwaiver agreements to address the issue.

Simply put, "clawback" or "nonwaiver" agreements are contracts - and in the context of civil discovery often in the form of an agreed court order - under which parties to a lawsuit agree that inadvertent disclosure of privileged material in discovery will not constitute waiver of privilege. Typically, a clawback agreement will set forth a specific procedure with which the inadvertently producing party must comply in order to demand the return of disclosed materials.

Although the adoption of FRE 502 has clarified the law of privilege waiver somewhat (at least for the federal system), it presents a default standard and does not obviate the need for clawback agreements, particularly given the ambiguities built into the Rule. FRE 502 is filled with phrases such as "reasonable steps to prevent," "reasonable steps to rectify," and "ought in fairness" - terms that are ripe for all sorts of interpretation.

Moreover, FRE 502(e) specifically states that: "An agreement on the effect of disclosure in a Federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order." Given such a clear statement, in the context of preservation of privilege against third parties, can a party ever claim to have taken "reasonable steps to prevent" disclosure without having sought a clawback agreement incorporated into a court order?

In the wake of FRE 502, it may be that the use of clawback agreements will become more and more routine.

As with all contracts, there is no magic to drafting a strong and enforceable clawback agreement and no magical language that is perfect for every situation. That said, there are some basic principles to keep in mind both in deciding whether or not a clawback agreement is a good option in a particular case and in negotiating and drafting the agreement if the answer is in the affirmative:

  • Don’t let clawback agreements lull you into a sense of complacency. Clawback agreements are not a license to indiscriminately produce documents, whether electronic or paper. It is a fiction that the opposing party can return a privileged document and forget any helpful content they have read.

  • Privilege is just one of the reasons to perform careful review of documents to be produced in discovery. The need to prevent disclosure of other confidential documents, such as those containing trade secrets or employees’ personal information, may need to be considered as well.

  • Although FRE 502 is a good step towards clarifying the law on inadvertent privilege waiver, there are still ambiguities built into the Rule. For example, parties must be mindful that courts may vary in how they interpret terms like "reasonable steps to prevent," "reasonable steps to rectify," and "ought in fairness."

  • Attorneys should carefully consider industry standards and best practices in the establishment of procedures set forth in clawback agreements. For electronic discovery, this means utilizing experienced e-discovery experts (whether experienced colleagues within a firm or outside vendors) to assist in effective searching and compliance with established standards. See, e.g. Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (D. Md. 2008)("Defendants ... bear the burden of proving that their conduct was reasonable").

  • Effort should always be made to incorporate clawback agreements into court orders to prevent waiver of privilege as to third parties. See FRE 502, which provides: "An agreement on the effect of disclosure in a Federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order." FRCP 16 and 26 specifically incorporate discussion of clawback agreements in pre-trial conferencing and discovery plan development stages of suits, providing ample opportunity for litigants to seek a court order.

  • Clawback agreements should always include detailed timing and firm deadlines.

  • Procedures for search and review contained in clawback agreements should always take into consideration trial and error in the search process and the practicalities of electronic evidence. Many facets of electronic evidence, such as keyword lists, should never be agreed upon in advance and practicalities, such as the difficulty of redacting native format electronic files, must be addressed.

  • If the opposing party will not agree to a clawback agreement, a party can go straight to the court. The agreement of the parties is not a prerequisite to the entry or enforceability of a non-waiver order under Rule 502(d). FRE 502 requires no particular showing be made before a non-waiver order is entered.

  • Even if a party intends to conduct a page-by-page review and does not believe that a clawback agreement is necessary, it can be an important safety net. See, e.g. Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (D. Md. 2008).

Photograph of Jonathan Yeh
Jonathan Yeh is an attorney and  principal at Blank Law + Technology PS. Mr. Yeh’s practice includes general commercial transactions and litigation, computer forensics, electronic evidence, electronic data and technology risk management and intellectual property. Mr. Yeh received his J.D. degree, cum laude, from the Seattle University School of Law and his undergraduate degree from the University of Georgia.
 
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