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Inadvertent Disclosure Results in Disqualification of Opposing Counsel

By M. Derek Harris, Litigation News Associate Editor – March 16, 2011

Counsel’s review and use of inadvertently disclosed privileged information may be equivalent to opening Pandora’s Box. In a recent order, a district judge for the U.S. District Court for the Northern District of California granted the plaintiffs’ motion for a temporary protective order due to opposing counsel’s interception and use of one or more privileged emails. Terraphase Engineering, Inc. v. Arcadis, U.S., Inc.

Plaintiffs’ counsel sent numerous emails, including a draft declaration, to individual plaintiffs suing Arcadis. He mistakenly directed some of those emails to one client’s former Arcadis email address. At the time, Arcadis still maintained that email account. Arcadis had been monitoring the email accounts of several individuals who had abruptly left the company and were now suing Arcadis. In-house counsel for Arcadis reviewed the email chain mistakenly sent by plaintiffs’ counsel. Counsel for Arcadis allegedly used information in those emails to construct a counterclaim against the plaintiffs.

The district court’s order granting a temporary protective order was sweeping in scope. The district court disqualified Arcadis’s outside counsel and ordered Arcadis to retain “alternate” counsel who would be required to submit a declaration “that new counsel has received no information about or contained in the inadvertently disclosed privileged information.” The court also disqualified the in-house counsel who reviewed the privileged communication and ordered that Arcadis remove another in-house counsel from “day-to-day” management of the case. The district court ordered Arcadis to dismiss its counterclaim, without prejudice, so that it could be refiled by new counsel “without reference to any of the inadvertently disclosed privileged information.”

Finders Weepers, Not Finders Keepers
“The shift in approach to waiver represented by this ruling is marked,” says Edna Selan Epstein, Chicago, a former member of the ABA Section of Litigation’s Council. “The old approach to waiver, that the burden was on the party wishing to maintain privilege not to inadvertently disclose, made a lot more sense. The position of the courts used to be: finders keepers; losers weepers,” she says. “This court has turned the finder into an ethical outlaw and imposed sanctions far in excess to what should have been necessary,” adds Epstein. 

Handle Privileged Information with Care
Arcadis’s in-house counsel could have taken steps to avoid the sanctions imposed by the district court. “Whenever a lawyer becomes aware that they might be reviewing privileged information, the lawyer needs to really focus on the document and what they do with it,” advises Michele D. Hangley, Philadelphia, cochair of the Section of Litigation’s Ethics and Professionalism Committee. “And that means segregating it so no one else can read it, possibly destroying it if that is appropriate, and consulting with colleagues, not on the substance of the document, but on how best to handle it,” explains Hangley.

“Too many attorneys aren’t as familiar as they should be with the professional ethics rules of the particular jurisdiction in which they are practicing,” observes Kent A. Lambert, New Orleans, cochair of the Section’s Pretrial Practice and Discovery Committee. “In terms of counsel’s responsibilities when they receive potentially privileged information, the prudent practice is that the moment you realize what it is and that it may be privileged—you shut the door and set it aside,” maintains Lambert.

The Fallout Continues
At present, Arcadis’s problems “have not ended with having its counterclaim dismissed and counsel disqualified,” says Ian H. Fisher, Chicago, cochair of the Section’s Pretrial Practice and Discovery Committee. Fisher notes that recent filings show that the plaintiffs are now claiming “the defendant’s affidavits were false regarding the extent the defendant disseminated and used the privileged information.” “These allegations have taken on a life of their own; the court appointed a special master and appears to be permitting discovery on the issue,” observes Fisher.

Keywords: litigation, privilege, inadvertent disclosure, ethics

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