Law Firm Disqualified for Retaining and Using Privileged Email
By Daniel P. Elms, Litigation News Team Editor – September 15, 2016

A California court disqualified a law firm based on its review and use of a privileged email exchange. The court found that the firm failed to follow California law regarding the handling of inadvertently produced documents, that its use of the privileged document could prejudice the case outcome, and that the integrity and public confidence in judicial proceedings. The holding serves as an important reminder that the determination of the existence of a privilege should be left to the courts and that parties failing to comply with applicable procedures for reviewing and using potentially privileged materials do so at their own peril.

In Hausman v. McDermott Will & Emery LLP, the grandchildren of Dick Hausman, a founder of the pharmaceutical company Allergan, filed two legal malpractice lawsuits against McDermott, alleging that it had assisted one sibling in taking control of the family's fortune from the others. McDermott hired Gibson Dunn & Crutcher LLP to defend it in the malpractice actions. Gibson Dunn subsequently received an August 2013 email between Dick Hausman and an attorney with Pepper Hamilton LLP, which included legal advice to Hausman about a dispute with his son in the underlying probate case.

Hausman had inadvertently sent the email to a third-party family member who later forwarded it to Gibson Dunn, who used the information contained in the email during a deposition in defending McDermott. The plaintiffs' counsel informed Gibson Dunn that the email had been inadvertently disclosed but Gibson Dunn refused to return it, insisting that privilege had been intentionally waived because it was in the possession of a nonparty and because no one had requested its return in the probate action.

Limited Review of Inadvertently Produced Documents
California law provides that when an attorney receives inadvertently disclosed documents, he or she may not read the document any more closely than necessary to ascertain that it may be confidential or privileged and must then notify opposing counsel to resolve the situation. If the parties cannot agree on the use of the document, court intervention is required.

Leaders of the ABA Section of Litigation view the California process as reasonable, especially since failing to follow it could result in severe sanctions. "California law imposes reasonable procedures. If a party receives a document that may be privileged, it needs to stop reviewing and figure out the privilege issues. This is the kind of thing you want to work out without having to risk something as drastic as disqualification," says Scott E. Reiser, Roseland, NJ, cochair of the Section of Litigation's Ethics & Professionalism Committee.

Not all jurisdictions have the same rules. The ABA's Model Rules of Professional Conduct defer to counsel's professional judgment regarding whether to return an inadvertently produced document, and state bar requirements can vary. "Counsel faced with the receipt of an inadvertently produced privileged document must know the applicable ethical rules and case law, which may vary from state to state. This is particularly true when the document could have a material impact on the case—counsel should do whatever possible to try to preserve the right to use it," advises Robert J. Will, St. Louis, MO, cochair of the Section of Litigation's Pretrial Practice & Discovery Committee.

Failure to Follow the Process
The court found that Gibson Dunn failed to follow the process for determining privilege, which may have been its key mistake. "From the court's perspective, the real problem was that Gibson Dunn seemed to take the law into its own hands regarding whether the document was privileged or not," suggests Will. "The law in California did not permit Gibson Dunn to resort to what could be characterized as a 'self-help' remedy in determining the question itself," observes Will.

In opposing the motion to disqualify, Gibson Dunn argued that the plaintiffs had waived privilege and that disqualification was improper. "Gibson Dunn stated a logical basis for its belief that the document had been intentionally shared with a third party, but it seemed more like a waiver argument than a dispute about whether the document had been inadvertently produced in the first instance." says Will. Other section leaders view the delay argument as missing the core issue. "Gibson Dunn's argument seemed to be that the plaintiffs did not object until it was too late. This was more like a game of 'gotcha' and Gibson Dunn used it to run roughshod over privilege," opines Reiser.

"Red-Flag Event" Warrants Caution
An attorney who inadvertently receives a potentially privileged document must proceed with extreme caution, particularly since a misstep could result in disqualification. "Counsel should be very, very careful when making a determination about whether or not a privileged document was inadvertently produced because the consequences of getting it wrong can be severe," warns Will. "Obtaining a document that looks like it could be privileged is a red-flag event and requires counsel to err of the side of caution, particularly when the other side is insisting that the document is privileged and was not intentionally produced," says Will.

Counsel may be tempted to use inadvertently produced privileged documents in the name of zealously representing her client. But that objective can also be frustrated if ethical rules are compromised. "When you are reviewing documents that may be privileged, zealous advocacy can go both ways. If you go beyond the ethical boundaries, you're hurting your client by risking disqualification. Counsel in this situation should err on the side of caution for the benefit of the client," says Reiser.

Keywords: disqualification, attorney-client privilege, inadvertent disclosure, waiver

 
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