Ride the Lightning

Decision Reversed: Mistake Using File Sharing Site Didn’t Waive Privilege

October 24, 2017

A case I wrote a post about in March of 2017 has now been reversed – to the relief of many lawyers, I'm sure. As Bloomberg BNA reported (sub. req.), the decision by a state magistrate judge in Harleysville Ins. Co. v. Holding Funeral Home, Inc. was reversed by a federal judge in Virginia on October 2nd. Thanks to Dave Ries for letting me know.

The decision basically says that inadvertent disclosure of confidential materials through an error in using a file-sharing site didn't waive a plaintiff's attorney-client privilege and work product protection for those materials.

The judge also found that defense counsel acted unethically by using the protected materials without notifying plaintiff's counsel and seeking a court ruling on the waiver issue. The case represents a reminder that lawyers generally aren't free to secretly exploit inadvertently disclosed materials even if they believe the disclosure waived any privilege claim.

The litigation was between an insurer and its insureds over a fire loss. An insurance company employee put surveillance video footage of the fire scene in an electronic folder on the file sharing site Box and the employee e-mailed a link to a National Insurance Crime Bureau agent so the agent could access the video.

Months later, the insurance company employee uploaded the insurer's entire claims file to the Box folder, generated a sharing link to the folder, and e-mailed the link to the insurer's counsel. The employee didn't realize that the link he provided in that e-mail was identical to the link he had previously given to NICB.

The NICB investigator produced a copy of the e-mail along with other materials in response to a subpoena from defense counsel. Defense counsel accessed the claims file using the link in the e-mail. Later on, defense counsel produced the insurer's claims file back to the company, leading to the privilege battle and a motion to disqualify defense counsel.

The magistrate judge, in the earlier opinion, said the insurance company employee should have known that anyone could access the claims file by clicking on the hyperlink to the folder, which wasn't password protected. The insurer's actions "were the cyber world equivalent of leaving its claims file on a bench in the public square and telling its counsel where they could find it," the magistrate judge said.

The district court did not concur, noting that the Box folder wasn't searchable through any search engine or through the Box website. No one could access the Box folder without entering the specific sharing link that consisted of 32 randomly generated alphanumeric characters, the judge noted.

The magistrate judge's analogy to leaving a briefcase on a public park bench was inaccurate, the court said. "As far as real-world equivalents go, it is more appropriate to characterize the briefcase as having been buried somewhere in a large park, technically publicly-accessible, but for all practical purposes, secured," Judge Jones wrote.

The court found that the insureds' counsel violated Fed. R. Civ. P. 45(e)(2)(B) when they refused to return, sequester, or destroy the privileged material upon opposing counsel's request. Rule 45(e)(2)(B) applies when information produced in response to a subpoena is subject to a claim of privilege or protection.

The court found that in light of the law governing inadvertent disclosures, the insureds' counsel should have notified either NICB or the insurer's counsel about the disclosure of potentially privileged material. Also, a 1997 Virginia ethics opinion requires a lawyer who received privileged information outside the discovery process to notify opposing counsel promptly.

The court found that the insureds' counsel didn't adhere to the Virginia state bar's ethical standards requiring lawyers to avoid the appearance of impropriety. The judge wrote that the lawyers fell far short of their responsibility by attempting to conceal their possession of the claims file and by usurping the court's role and instead making their own determination on the issue of waiver.

The district court, like the magistrate judge, found that the circumstances didn't warrant disqualification of the insureds' counsel. The court rejected the magistrate judge's view that, as a sanction, the insureds' counsel should bear the parties' costs in obtaining the ruling.

Instead, the court imposed evidentiary sanctions. The insureds may not use any information contained in the privileged material, or information derived from the material, to seek additional discovery, and they may not use it for any purpose in the case or in any related civil action.

As I constantly remind readers, no confidential document should be placed on a file sharing site without encrypting it first by applying a password.

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