Court Grants Defendant’s Motion for Entry of Clawback Provision

Rajala v. McGuire Woods LLP, 2010 WL 2949582 (D. Kan. July 22, 2010)

Plaintiff, as Bankruptcy Trustee, brought suit against defendant, alleging several claims.  The parties could not agree on the entry of a clawback provision. Accordingly, defendant moved the court to enter such a provision.  Upon establishing its authority to enter such an order pursuant to Fed. R. Civ. P. 26(c)(1) and analysis of the relevant facts, the court granted the motion, with modification, and indicated that a separate order setting forth a clawback provision would be entered.

Simply stated, the parties to this action could not agree on the entry of a clawback provision.  Defendant, a large law firm, wanted one and plaintiff did not.  Following the court’s entry of a protective order which did not include a clawback provision, defendant moved the court to enter one.

Defendant argued that such a provision would prevent “contentious, costly, and time consuming discovery disputes” and relied on Fed. R. Evid. 502(d) “which provides that a court may order that a privilege or protection ‘is not waived by disclosure connected with the litigation pending before the Court’” and the rule’s attendant Advisory Committee Notes.  Defendant further argued that the nature of discovery in the case, which would require review and production of a large volume of ESI, and its duty to protect the attorney-client privilege of its many clients, necessitated such a provision.  Plaintiff opposed such a provision arguing that its ability to carry out its pretrial activities would be hampered by the “ever present concern that any documents could suddenly be taken back” and that, in the event of defendant’s inadvertent production, such a provision would prevent plaintiff from arguing that defendant failed to take reasonable care in preventing the disclosure.

Taking up the motion, the court established the availability of such a provision as discussed in the Advisory Committee’s Notes to Fed. R. Civ. P. 26(f) and as established in Fed. R. Evid. 502, and the court’s authority to enter such a provision where the parties have not agreed to one pursuant to Fed. R. Civ. P. 26(c)(1).  The court then turned to the propriety of such a provision in the present case.

The court found that defendant met its burden of establishing good cause for the entry of a protective order containing a clawback provision.  Among the reasons cited were the large volumes of ESI implicated in the case, defendant’s duty to protect the privilege of all of its clients, and the likelihood that absent such an order, disputes regarding inadvertent production would “disrupt the discovery process” and require a significant expenditure of resources arguing over what measures were taken to prevent the disclosure.  Indeed, the court found this case “precisely the type of case that would benefit from a clawback provision” and stated that “[s]uch a provision will permit the parties to conduct and respond to discovery in an expeditious manner, without the need for time-consuming and costly pre-production privilege reviews, and at the same time preserve the parties’ rights to assert the attorney-client privilege or work product immunity.”

Addressing plaintiff’s concern that it would be precluded from arguing that defendant failed to take reasonable precautions to prevent disclosure, the court noted that the provision proposed by the defendant governed the “inadvertent” disclosure of privileged information and that plaintiff would not be foreclosed from seeking appropriate relief if evidence indicated the agreement was being abused.

The court also noted that such an order was consistent with the court’s duty under Fed. R. Civ. P. 1 to “secure the just, speedy, and inexpensive determination of every action.”

Despite finding that a clawback provision was appropriate, the court declined to enter defendant’s proposed terms in their entirety and indicated that a separate order would be entered containing the provision that would govern the present case.