eDiscovery Daily Blog

• November 1, 2017

In Harleysville Insurance Co. v. Holding Funeral Home, Inc., No. 1:15cv00057 (W.D. Va. Oct. 2, 2017), Virginia District Judge James P. Jones sustained the plaintiff’s objections to the Magistrate Court ruling that the plaintiff’s placement of privileged information on a file share site and distribution of the hyperlink to access that information without providing any protection for the site resulted in a failure to take reasonable steps to protect the information.  As a result, for their “improper” conduct in failing to promptly return the materials, the defendants received an evidentiary sanction, barring their use of the inadvertently disclosed privileged materials.  Judge Jones overruled the plaintiff’s objection to the decision not to disqualify defense counsel, stating he was “not convinced that the ‘blunt remedy of disqualification is appropriate.’”

Case Background

In this dispute over a fire insurance claim by the defendants against the plaintiff insurance agent, a senior investigator for Nationwide Insurance, owner of the plaintiff company, uploaded surveillance footage to a file share service operated by Box, Inc. and sent an email containing a link to the site to an investigator at the National Insurance Crime Bureau (“NICB”) in September 2015.  The email contained a confidentiality notice indicating that the “e-mail contains information that is privileged and confidential”, but the information on Box was not password protected.  For a while, only the video was available on the Box site, but in April 2016, the Nationwide investigator placed files containing the plaintiff’s entire claims file and Nationwide’s entire investigation file for the defendants’ fire loss on the Box Site to be accessed by the plaintiff’s counsel – a month later, in response to a subpoena, the NICB electronically produced its files – including the email containing the link – to the defense counsel, which gave them access to the file share site containing the claims files.

Defense counsel subsequently accessed the site and reviewed and downloaded the entire claims file, but did not notify the plaintiff’s counsel that it had accessed the information until plaintiff’s counsel discovered the claims file included in materials produced by the defense in October 2016.  As a result of this discovery, the plaintiff moved to disqualify defense counsel; in response, they argued that that the motion should be denied because the plaintiff “waived any claim of privilege or confidentiality by placing the information on the Box, Inc., site where it could be accessed by anyone.”  Magistrate Judge ruled that Pamela Meade Sargent, determining that “Rule 502 does not apply in this situation to prevent a waiver of the work-product doctrine”, concluded that the plaintiff waived any claim of privilege or work-product protection over its Claims File.  She also declined to disqualify defense counsel, but ruled that they should bear the cost of the parties in obtaining the court’s ruling on the matter.  The plaintiff’s objected to both rulings.

Judge’s Ruling

Noting that “the magistrate judge did not have the benefit of reviewing the Claims File” and that “it is within my discretion to receive and consider additional evidence”, Judge Jones found that “the attorney-client privilege attaches to multiple documents contained in the Claims File”, calling them “the epitome of privilege.”  Judge Jones overruled the plaintiff’s objection to the magistrate court findings that the disclosure was inadvertent, leading to the consideration of three of five factors (Judge Jones agreed with the magistrate court that “Factors Three and Five have no applicability to this case”) to determine whether privilege had been waived:

(1) [T]he reasonableness of the precautions to prevent inadvertent disclosures, (2) the time taken to rectify the error and (4) the extent of the disclosure.

Noting that “the Box Folder was not searchable through Google or any other search engine, nor was it searchable on the Box, Inc. website” and that “as a practical matter, the [disclosed] URL itself functions as a password”, Judge Jones did “conclude that Nationwide, acting for Harleysville, did take reasonable precautions to prevent an inadvertent disclosure of the Claims File and that this factor weighs against a finding of waiver” and sustained the objection on reasonable precautions.  Judge Jones also observed that “Harleysville’s counsel were not notified of the disclosure until October 27, 2016” and “reached out to Insureds’ counsel to request destruction of the privileged materials on November 1, 2016” in sustaining the objection on time taken to rectify the error.  He also noted that the “disclosure in this case was not extensive” in sustaining that objection as well.

As for sanctions against defense counsel, Judge Jones found that “Insureds’ counsel had an obligation to ‘promptly return, sequester, or destroy’ the privileged materials, Fed. R. Civ. P. 45(e)(2)(B), with which they refused to comply.”  He also found that “Insureds’ counsel had a duty to uphold the integrity of the legal profession and to strive to avoid impropriety, as well as the mere appearance of impropriety” and that they “failed to do so”.  However, noting that “the mistakes by Nationwide’s employee initiated this issue”, Judge Jones declined to disqualify defense counsel, stating that “I am not convinced that the ‘blunt remedy of disqualification is appropriate.’”  Instead, Judge Jones found that “an evidentiary sanction is appropriate”, ruling that “the Insureds must not use any information contained in the privileged material, or information derived from such material, to seek additional information in discovery, through a subpoena, or in any other manner. Moreover, the Insureds must not use the information contained in or derived from the privileged material for any purpose in any filing or proceedings (including trial) in this action or any other related civil action.”

We covered the case previously here and Tom O’Connor and I also discussed it in a webcast as one of the key eDiscovery cases in the first half of 2017 here.

So, what do you think?  Was the first ruling right in waiving privilege or the second one right in determining that privilege was not waived?  Please share any comments you might have or if you’d like to know more about a particular topic.

Case opinion link courtesy of eDiscovery Assistant.

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