When confidential and/or privileged information is stored on hard drives that are sold as part of a company’s assets, is the information on said hard drives privileged from discovery requests in a court of law?

If the Hard Drives are Sold to Another, When is Info Stored on the Hard Drives Privileged? Definitely Not When Those Hard Drives Weren’t Scrubbed Before the Sale.

Author: Frank McLaughlin
Case Citation: In re: New England Compounding Pharmacy, Inc., 2016 WL 6883215 (D. Mass. 2016)
Employee/Personnel/Employer Implicated: Old Employee, Surgery Center, Purchaser of Defendant Surgery Center.
eLesson Learned: If you sell your computer, you better scrub it of confidential information you don’t want others to see.

First, a little background information for this case is needed before we get into the meat and potatoes of eDiscovery present here. A special surgery center, let’s call it SSC, sold their company and assets thereof, including their computers to a buyer, let’s call it Cumberland Medical Center or Cumberland. Those are the names used in the case; I did not make them up.  A plaintiff steering committee, let’s call it PSC, which acts as the lead for the plaintiffs in a mass tort case usually, served a subpoena on Cumberland requesting the hard drives of the computers it purchased from SSC. When SSC, the real defendant in this case, caught wind of the subpoena, they had a conniption and challenged the PSC’s ability to request their old hard drives.

SSC claimed the hard drives contained privileged information, which means it is not able to be demanded unless an exception applies or the privilege is waived somehow. SSC claimed there was an attorney-client privilege, work product doctrine privilege, and a peer review privilege. The court here shut SSC down, except for the peer review privilege, which is confusing and weird and probably not that important.

For the attorney-client privilege to apply, the communications need to be made pursuant to an attorney-client relationship with the intention of those communications being confidential. Makes sense, as that is the law, but also because it allows an attorney’s clients to disclose all information to them without the threat of everything they say to the attorney being used in court, which allows for better representation of those clients, in theory.  HOWEVER, this privilege can be waived if…. I don’t know… the client hands over or sells the communications to someone other than their attorney.  Furthermore, if said confidential information is provided to another by accident, there are some safeguard factors that the courts will consider.  Those are common sense factors like what precautions were taken, the time it took to rectify the error, the extent of the disclosure, and issues of fairness.  Here, when SSC sold their computers to Cumberland, they never wiped the computers of confidential information! Therefore, the information was not confidential between SSC and its attorneys because Cumberland purchased that information fair and square, un-scrubbed and dirty as hell. SSC didn’t even know what information was on the hard drives, only that it was being requested, so they had to try something!

Next, SSC asserted that the hard drives had information that was covered under the work-product doctrine. This doctrine is in place to protect documents prepared in anticipation of trial by or for a party’s representative. However, the court here quickly ruled this privilege did not exist.  SSC sold their computers to Cumberland, without any intention of anticipated litigation. This privilege protects the adversary nature of litigation… YOU DON’T WANT THE ENEMY KNOWING YOUR SECRETS AND YOUR MOVES! But, SSC seems to have sold those secrets, voluntarily, if those secrets even existed, to Cumberland. Ipso facto no work-product privilege because no work-product prepared?

The court here ruled that the peer review privilege did exist for certain communications, but further discovery would be needed to see which communications on the hard drives were covered. This is due to a change in Tennessee law, which I will not get into.

In addition to SSC’s privilege claims, an old employee for SSC named Jane Atkinson brought her own privilege assertions. The court here ruled Jane’s information that was stored on the hard drives that Cumberland bought from SSC was definitely privileged. Reasons being: Jane had communications with her lawyers on the hard drives, but she used a password protected computer and password protected email account to access and create these communications, Jane had no role in the decision to sell SSC and its computers to Cumberland, and Jane did not know the computers would be sold without being scrubbed of privileged information. Therefore, she had a reasonable expectation of privacy and did not waiver her rights to assert her personal privileges relating to her communications.

Frank McLaughlin is currently a law student at Seton Hall University School of Law, and he is in his last semester of his 3L year.  Frank has worked throughout law school and continues to work at Lasser Hochman, LLC, where he is a law clerk and focuses on real estate and finance law.  Prior to attending law school, he attended George Mason University, where he earned a B.S. in both finance and economics. After graduating from George Mason University, Frank worked as an accountant and a consultant for a public accounting firm in Washington, D.C., for three years and then worked in the CFO’s office at Prudential Financial, Inc. in Newark, NJ.

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