District Court Disagrees with Magistrate Over Privilege Waiver After Plaintiff Places Privileged Files on Public Shared Drive
In Harleysville Insurance Co. v. Holding Funeral Home, Inc., et. al., Case No. 15-0057 (W.D. Va., Feb 9, 2017), Plaintiff sued to determine that it does not owe Defendants for their fire loss claim because the fire was caused by arson, and because Defendants made material misrepresentations and failed to cooperate. Defendants filed counterclaims for breach of contract and bad faith.
In the course of the case, a senior executive for the Plaintiff uploaded evidence to a file sharing service. The email associated with information about the upload included a confidentiality notice, but there was no password on the actual files. The Defendants’ lawyers, without permission, downloaded all the files on the file sharing server and reviewed them. Plaintiffs moved for disqualification of the defense counsel for improperly accessing privileged confidential information. Defense counsel argued that privilege was waived by leaving the evidence on the file sharing drive without password protection. The Magistrate found that the disclosure was inadvertent and held that privilege was waived because the information was uploaded to an internet site that anyone could access. The Magistrate said the Plaintiff had committed the “cyber world equivalent of leaving its claims file on a park bench in the town square and telling its counsel where it could find it. The Magistrate admonished defense counsel for looking at what they must have known was confidential and inadvertently revealed information.
Both parties asked a district judge to review the Magistrate’s decision. The standard of review would allow the district judge to overturn any finding that was erroneous or clearly contrary to law. The district judge also asked for more evidence. As part of the review, the judge looked at the files in question. The judge concluded that this was a case where the client unknowingly and unintentionally made privileged documents available to a third party, and such disclosure is inadvertent under the law.
A document is not disclosed by the person who receives the document; it is disclosed by the person who sends it. Here, the disclosure was made by Harleysville when it uploaded the Claims File to the file sharing service it had used to share the video with Defendants. Defense counsel did not conduct themselves appropriately, and there is evidence to support Harleysville’s assertion that they attempted in bad faith to conceal that they accessed the files. Accordingly, to the extent that Harleysville objects to the magistrate judge’s finding that the disclosure was inadvertent, such objection is overruled.
The Court stated as holder of the privilege, Harleysville had the responsibility to take reasonable precautions to safeguard the Claims File and to preserve its confidentiality. Despite the eventual disclosure of the Claims File, the Court found that the precautions taken by Harleysville were reasonable under the circumstances. The Court found that the URL for the file sharing service acted as a password, as the content was not searchable by the general public. The Court found that Plaintiff’s counsel reached out to Insureds’ counsel to request destruction of the privileged materials within four days of discovering it. The Court also found the disclosure in this case was not extensive, as the Plaintiff only inadvertently disclosed the privilege documents to Insureds’ counsel. Because of these reasons, this Court found that privilege was not waived. The Court did find that while the Defense counsel’s actions did not warrant disqualification, it was sanctionable. The Court found that defense counsel had duties to notify Plaintiff promptly when it accessed the files. It also had a duty to promptly destroy all the files upon Plaintiff’s request.
Defense counsel violated Rule 45(e)(2)(B) when they refused to return or destroy the privileged material upon Plaintiff counsel’s request. By attempting to conceal their possession of the Claims File, Defense counsel fell far short of their responsibility. The Court found that disqualification was too harsh a sanction. However, the Court imposed evidentiary sanctions: Defendant must not use any information contained in the privileged material, or information derived from such material.