Waiver of Privilege… It Can Happen. Just Ask Lois.

Waiver of Privilege… It Can Happen. Just Ask Lois.


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This case just goes to show you the importance of effective counsel.  In the case, Rhino Advisors, Inc., a non-party, sought in camera review of 260 documents out of 67,000 documents that it had produced to the SEC in August 2003.  Rhino wanted to “claw back” these documents, claiming they were privileged and inadvertently produced.

The court analyzed Rhino’s claim using the four factors set forth in Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., and concluded that based Rhino had waived any privilege that it may have asserted.  Before discussing the court’s analysis, a brief rendition of the facts is required.

The SEC conducted investigations in 2002 of Rhino and its main executive, Thomas Badian, regarding possible securities violations conducted by Rhino.  Rhino and Badian agreed to settle with the SEC in early 2003, with part of the settlement requiring Rhino to respond to 23 detailed questions.  Its attorney, Robert Charron, submitted a signed reply to the questions posed by the SEC, including an index of all the documents that were relied upon when answering the SEC’s questions, in either paper or electronic form.

On August 6, 2003, Bryan Cave LLP, as attorneys for Rhino, produced 47 boxes of hard copies of email documents from Rhino’s computer system, accompanied by a letter from its attorney’s firm stating that the production “shall not be deemed or construed” as waiver and that if privileged materials were inadvertently produced, Rhino reserved the right to request their return.

The U.S. Attorney’s office subpoenaed and received documents from Rhino in support of their criminal investigation of Andreas Badian (Thomas had fled the country), but later dropped the criminal charges.  Therefore, only the SEC complaint was entered against Andreas Badian (since the settlement only applied to Thomas).  The SEC issued a subpoena in October 2007 to Charron for the production of all the documents listed in the index that he produced in 2003.  Charron sought the advice of DLA Piper LLP, Badian’s attorneys, which notified the SEC that he and Rhino were withholding some documents as privileged.

The SEC objected to the privilege assertions on the grounds that any privilege was waived when Bryan Cave LLP produced the documents in 2003.  The court analyzed the Lois factors, which are:

  1. The reasonableness of the precautions to prevent inadvertent disclosure of privileged documents.
  2. The time taken to rectify the error.
  3. The extent of the disclosure.
  4. The overarching issue of fairness and the protection of an appropriate privilege which…must be judged against the care or negligence with which the privilege is guarded…

In analyzing the four factors against the facts of the case, United States Magistrate Judge Douglas Eaton analyzed the four factors.  Judge Eaton analyzed the factors out of order, but ultimately came to the conclusion that Rhino had waived its right to assert privilege.

First, he emphasized that the lack of precautions taken by Rhino or Bryan Cave LLP seriously impeded any privilege arguments.  Eaton concluded that no precautions were taken.

Next, Judge Eaton noted that the extent of the production was a significant amount.  Rhino additionally claimed that approximately 5% of the 67,000 documents were privileged, but later reduced it to 260 when the SEC scoffed at the large percentage of documents that were claimed to be “inadvertently produced.”  However, Judge Eaton stressed that this was still a significant number of documents to recall.

Judge Eaton then stressed that the standard for the second factor was when the producing party realized that privileged information had been disclosed.  The court found that Rhino and Bryan Cave LLP discovered the possibility of privileged documents in August 2003 (i.e. a significant period of time had elapsed).

Finally, Judge Eaton concluded that since Rhino acted with a lack of care in guarding its privilege, its carelessness could not be disregarded.  Eaton noted that there was “no fairness” in precluding the SEC from using any of the documents produced by Bryan Cave LLP.

It appears that Judge Eaton made an informed decision regarding the waiver of privilege, carefully analyzing the facts and how they compared to the Lois factors.  It appears that if a party makes efforts to protect its privileged documents, ensures that an excessive amount of documents  were disclosed, and attempts to retrieve the inadvertent disclosures were made in a timely manner, a court will look with favor by allowing a party to assert its privilege (and denying another party’s request that privilege was waived).

Matthew is a magna cum laude graduate of Seton Hall University, where he received a B.S. degree with a concentration in Accounting, and has since graduated from Seton Hall Law.

Comments (4):

  1. Social comments and analytics for this post…

    This post was mentioned on Twitter by eLLblog_dot_com: Waiver of Privilege… It Can Happen. Just ask Lois. http://cli.gs/XvbhS

  2. It appears as though Rhino’s attorneys didn’t put much thought into the initial disclosure. Maybe it is because the company was a non-party, but regardless, it was a careless mistake that could prove costly if the disclosed information adversely affects the company’s interests. Could this lead to a malpractice suit against the attorneys?

  3. In applying the Lois factors are courts given any guidance as to which factor if any should be given the most weight? It would seem to me that the fourth factor, i.e. fairness, should be the primary concern.

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