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                                                       Calendar No. 580
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-264

======================================================================
 
A BILL TO AMEND THE FEDERAL RULES OF EVIDENCE TO ADDRESS THE WAIVER OF 
      THE ATTORNEY-CLIENT PRIVILEGE AND THE WORK PRODUCT DOCTRINE

                                _______
                                

               February 25, 2008.--Ordered to be printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                         [To accompany S. 2450]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 2450), to amend the Federal Rules of Evidence to 
address the waiver of the attorney-client privilege and the 
work product doctrine, having considered the same, reports 
favorably thereon without amendment and recommends that the 
bill do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Bill...............................1
 II. History of the Bill and Committee Consideration..................4
III. Section-by-Section Summary of the Bill...........................5
 IV. Congressional Budget Office Cost Estimate........................6
  V. Regulatory Impact Evaluation.....................................6
 VI. Changes to Existing Law Made by the Bill, as Reported............7

                 I. Background and Purpose of the Bill


                             A. BACKGROUND

    An efficient and cost-effective discovery process is 
important to preserving the integrity of our legal system. The 
costs of discovery have increased dramatically in recent years 
as the proliferation of email and other forms of electronic 
record-keeping have multiplied the number of documents 
litigants must review to protect privileged material. Outdated 
law affecting inadvertent disclosure coupled with the stark 
increase in discovery materials has led to dramatic litigation 
cost increases.
    Currently, the inadvertent production of even a single 
privileged document puts the producing party at significant 
risk. If a privileged document is disclosed, a court may find 
that the waiver applies not only to that specific document and 
case but to all other documents and cases concerning the same 
subject matter. Furthermore, the privilege can be waived even 
if the party took reasonable steps to avoid disclosing it.
    The increased use of email and other electronic media in 
today's business environment have exacerbated the problems with 
the current doctrine on waiver. Electronic information is even 
more voluminous and dispersed than traditional record-keeping 
methods, greatly increasing the time needed to review and 
separate privileged from non-privileged material. As the time 
spent reviewing documents has increased, so too has the amount 
of money litigants on all sides must spend to protect against 
the potential waiver of privilege.
    In his floor statement introducing legislation to correct 
this problem, Senator Leahy observed:

          Billions of dollars are spent each year in litigation 
        to protect against the inadvertent disclosure of 
        privileged materials. With the routine use of email and 
        other electronic media in today's business environment, 
        discovery can encompass millions of documents in a 
        given case, vastly expanding the risks of inadvertent 
        disclosure. The rule proposed by the Standing Committee 
        is aimed at adapting to the new realities that 
        accompany today's modes of communication, and reducing 
        the burdens associated with the conduct of diligent 
        electronic discovery.

    In his statement supporting the proposed legislation, co-
sponsor Senator Specter remarked:

          Current law on attorney-client privilege and work 
        product is responsible in large part for the rising 
        costs of discovery--especially electronic discovery. 
        Right now, it is far too easy to inadvertently lose--or 
        ``waive'' the privilege. A single inadvertently 
        disclosed document can result in waiving the privilege 
        not only as to what was produced, but as to all 
        documents on the same subject matter. In some courts, a 
        waiver may be found even if the producing party took 
        reasonable steps to avoid disclosure. Such waivers will 
        not just affect the case in which the accidental 
        disclosure is made, but will also impact other cases 
        filed subsequently in State or Federal courts.

    In sum, though most documents produced during discovery 
have little value, lawyers must nevertheless conduct exhaustive 
reviews to prevent the inadvertent disclosure of privileged 
material. In addition to the amount of resources litigants must 
dedicate to preserving privileged material, the fear of waiver 
also leads to extravagant claims of privilege, further 
undermining the purpose of the discovery process. Consequently, 
the costs of privilege review are often wholly disproportionate 
to the overall cost of the case.

                         B. PURPOSE OF THE BILL

    The bill addresses these problems by providing a 
predictable and consistent standard to govern the waiver of 
privileged information. It improves the efficiency of the 
discovery process while preserving accountability. Furthermore, 
it does not alter federal or state law on whether information 
is protected by the attorney-client privilege or work product 
doctrine in the first instance, but merely modifies the 
consequences of inadvertent disclosure once a privilege is 
found to exist.
    The bill provides a new Federal Rule of Evidence 502 to 
limit the consequences of inadvertent disclosure, thereby 
relieving litigants of the burden that a single mistake during 
the discovery process can cost them the protection of a 
privilege. It provides that if there is a waiver of privilege, 
it applies only to the specific information disclosed and not 
the broader subject matter unless the holder has intentionally 
used the privileged information in a misleading fashion. An 
inadvertent disclosure of privileged information does not 
constitute a waiver as long as the holder took reasonable steps 
to prevent disclosure and acted promptly to retrieve the 
mistakenly disclosed information.
    The bill provides a new rule to ensure that parties will 
take advantage of its protections by remaining enforceable in 
subsequent proceedings. If a federal court enters an order 
finding that an inadvertent disclosure of privileged 
information does not constitute a waiver, that order will be 
enforceable against persons in federal or state proceedings. 
This protects the rule's ability to limit discovery costs by 
ensuring that parties in any given case will know they can rely 
on the new waiver rules in subsequent proceedings.
    Importantly, the bill respects federal-state comity. The 
bill will ensure that if there is a disclosure of privileged 
information at the federal level then courts must honor Rule 
502 in any subsequent state proceedings. If there is a 
disclosure in a state proceeding, then admissibility in any 
subsequent federal proceeding will be determined by the law 
that is most protective against waiver. However, it does not 
apply to any disclosure made in a state proceeding that is 
later introduced in a subsequent state proceeding.
    Litigants recognize the need to adopt a new waiver doctrine 
to adapt to the effects of changing technology in the business 
environment. The bill has attracted widespread support from 
major legal organizations representing stakeholders on all 
sides of modern litigation. Among those groups voicing support 
for the measure are the American Bar Association, American 
College of Trial Lawyers, U.S. Chamber of Commerce, former 
Chairs of the Section of Litigation of the American Bar 
Association, Lawyers for Civil Justice, and several private law 
firms.

                       C. STATUTORY REQUIREMENTS

    Any rule creating, establishing, or modifying an 
evidentiary privilege requires legislation. Under the Rules 
Enabling Act, federal rules of procedure proposed by the 
Judicial Conference usually take effect after a prescribed 
period unless Congress acts to disapprove them. Pursuant to 28 
U.S.C. Sec. 2074(b), however, rules concerning evidentiary 
privileges must be affirmatively approved by an Act of 
Congress.

          II. History of the Bill and Committee Consideration


                        A. DRAFTING OF THE BILL

    The Judicial Conference Committee on Rules of Practice and 
Procedure has long been concerned about the rising costs of 
litigation associated with the current law on waiver of 
privileged information. In 2006, then-House Judiciary Committee 
Chairman Sensenbrenner suggested that the Judicial Conference 
propose a rule that would deal with privilege waiver in a way 
that would solve the problems of rising discovery costs. The 
Judicial Conference referred the task of drafting a proposed 
rule to the Advisory Committee on Evidence Rules.
    The Advisory Committee invited eminent judges, lawyers, and 
academics to testify before the Committee about the need for 
the new evidence rule and how to craft it successfully. For 
over a year, the Advisory Committee coordinated the drafting of 
the proposed new rule with the Conference of Chief Justices, 
revising it by limiting the rule's scope to address the 
Conference's federalism concerns. The Advisory Committee also 
met with Pennsylvania Chief Justice Ralph Cappy, who chaired 
the Conference's group addressing the new rule to satisfy the 
Conference's last remaining concern about the proposed rule. As 
a result of this collaboration, the Advisory Committee revised 
the Committee Note to acknowledge the reciprocity of court 
orders by state and federal courts.
    At the suggestion of Chairman Sensenbrenner, the Advisory 
Committee also considered a new rule that would allow persons 
to cooperate with government agencies and disclose privileged 
information without waiving the right to assert privilege as to 
other parties in subsequent litigation. However, after careful 
review of the competing interests involved in these ``selective 
waivers,'' the advisory committee determined that it would not 
recommend this provision. Unlike inadvertent waivers, which 
raise the costs and burdens of the discovery phase of 
litigation, an area of great concern to the rules committees, 
the selective waiver provision addresses policy matters, 
principally the effectiveness of government investigations, 
which are largely outside the competence and jurisdiction of 
the rules committees.
    In April 2006, the Advisory Committee held a conference at 
Fordham Law School with a select group of practitioners and 
academics to review the draft rule. After making appropriate 
changes in response to the feedback at the conference, the 
Advisory Committee published the revised rule for public 
comment in August 2006. The Committee received more than 70 
public comments and heard testimony from 20 live witnesses at 
two public hearings.
    In April 2007, the Advisory Committee released a revised 
proposed Rule 502, taking into consideration the public comment 
and witness testimony. The Committee on Rules of Practice and 
Procedure and the Judicial Conference approved the revised 
rule.

        B. INTRODUCTION OF THE BILL AND COMMITTEE CONSIDERATION

    On December 11, 2007, Chairman Leahy introduced S. 2450, 
incorporating the language proposed by the Judicial 
Conference's Advisory Committee. He was joined initially by 
Senator Specter and later by Senator Graham on December 17, 
2007. The bill was referred to the Senate Committee on the 
Judiciary.
    The bill was listed on the Executive Business Meeting 
Agenda on January 24, 2008. On January 31, 2008, the Judiciary 
Committee considered the legislation approved it by unanimous 
consent. The Committee reported the bill to the full Senate 
without amendment.

              III. Section-by-Section Summary of the Bill


 SECTION 1: ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT LIMITATIONS ON 
                                 WAIVER

    (a) This section amends Article V of the Federal Rules of 
Evidence by adding the following provisions as Rule 502:
          (a) This section limits the effect of disclosures 
        made in a Federal proceeding or to a Federal officer or 
        agency that waive the attorney-client privilege or the 
        work-product doctrine. The section prevents such a 
        waiver from extending to undisclosed information or 
        information in a State or Federal proceeding unless: 
        the waiver was intentional, the disclosed and 
        undisclosed information concern the same subject 
        matter, and in fairness, the undisclosed and disclosed 
        information should be considered together.
          (b) This section prevents inadvertent disclosures 
        made in Federal proceedings or to a Federal Officer or 
        agency from operating as a waiver if: the disclosure 
        was inadvertent, the holder of the privilege or 
        protection took reasonable steps to prevent disclosure, 
        and the holder took steps to quickly rectify the 
        disclosure under Federal Rule of Civil Procedure 
        26(b)(5)(B).
          (c) This section prevents disclosures made in a State 
        proceeding, which are not the subject of a State-court 
        order concerning waiver, from constituting a waiver in 
        Federal court if: the disclosure would not have been a 
        waiver under this rule if made in Federal court or the 
        disclosure would not be a waiver under the law of the 
        State where the disclosure occurred.
          (d) This section allows Federal courts to order that 
        privileged or otherwise protected information is not 
        waived by disclosure connected with the present 
        litigation, and provides that such disclosure is not a 
        waiver in any other Federal or State proceeding.
          (e) This section limits agreements made between 
        parties on the effects of disclosure in a Federal 
        proceeding to be binding only on the parties to the 
        agreement unless the agreement is incorporated into a 
        court order.
          (f) This section defines the applicability of this 
        rule, notwithstanding Rules 101 and 1101, to State 
        proceedings and to Federal-court annexed and Federal-
        court mandated arbitration proceedings, in the 
        circumstances set out in this rule. Notwithstanding 
        Rule 501, this rule applies even if State law provides 
        the rules of decision.
          (g) This section defines ``attorney-client 
        privilege'' as ``the protection that applicable law 
        provides for confidential attorney-client 
        communications''; and defines ``work-product 
        protection'' as ``the protection that applicable law 
        provides for tangible material (or its intangible 
        equivalent) prepared in anticipation of litigation or 
        for trial.''
    (b) This section adds Rule 502 to the table of contents for 
the Federal Rules of Evidence.
    (c) This section makes this rule applicable to all 
proceedings commenced after the enactment of this rule and to 
all proceedings pending on the date of enactment, if it would 
be just and practicable.

             IV. Congressional Budget Office Cost Estimate

    The Committee on the Judiciary sets forth, with respect to 
the bill, S. 2450, the following estimate prepared by the 
Director of the Congressional Budget Office under section 402 
of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 22, 2007.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2450, a bill to 
amend the Federal Rules of Evidence to address the waiver of 
the attorney-client privilege and work product doctrine.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Leigh Angres.
            Sincerely,
                                         Robert A. Sunshine
                                   (For Peter R. Orszag, Director).
    Enclosure.

S. 2450--A bill to amend the Federal Rules of Evidence to address the 
        waiver of attorney-client privilege and the work product 
        doctrine

    S. 2450 would amend the Federal Rules of Evidence relating 
to the disclosure of information gained by a waiver of the 
attorney-client privilege and work product protection. The bill 
would apply to all proceedings commenced after the date of 
enactment, and when practicable, to proceedings pending on such 
date. CBO estimates that implementing S. 2450 would have no 
significant effect on the federal budget. Enacting the 
legislation would not affect direct spending or revenues.
    S. 2450 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The staff contact for this estimate is Leigh Angres. The 
estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                    V. Regulatory Impact Evaluation

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 2450.

       VI. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 2450, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

SECTION 1. ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT; LIMITATIONS ON 
                    WAIVER.

    (a) In General.--Article V of the Federal Rules of Evidence 
is amended by adding at the end the following:
``Rule 502. Attorney-Client Privilege and Work Product; Limitations on 
        Waiver
    ``The following provisions apply, in the circumstances set 
out, to disclosure of a communication or information covered by 
the attorney-client privilege or work-product protection.
    ``(a) Disclosure Made in a Federal Proceeding or to a 
Federal Office or Agency; Scope of a Waiver.--When the 
disclosure is made in a Federal proceeding or to a Federal 
office or agency and waives the attorney-client privilege or 
work-product protection, the waiver extends to an undisclosed 
communication or information in a Federal or State proceeding 
only if:
          ``(1) the waiver is intentional;
          ``(2) the disclosed and undisclosed communications or 
        information concern the same subject matter; and
          ``(3) they ought in fairness to be considered 
        together.
    ``(b) Inadvertent Disclosure.--When made in a Federal 
proceeding or to a Federal office or agency, the disclosure 
does not operate as a waiver in a Federal or State proceeding 
if:
          ``(1) the disclosure is inadvertent;
          ``(2) the holder of the privilege or protection took 
        reasonable steps to prevent disclosure; and
          ``(3) the holder promptly took reasonable steps to 
        rectify the error, including (if applicable) following 
        Federal Rule of Civil Procedure 26(b)(5)(B).
    ``(c) Disclosure Made in a State Proceeding.--When the 
disclosure is made in a State proceeding and is not the subject 
of a State-court order concerning waiver, the disclosure does 
not operate as a waiver in a Federal proceeding if the 
disclosure:
          ``(1) would not be a waiver under this rule if it had 
        been made in a Federal proceeding; or
          ``(2) is not a waiver under the law of the State 
        where the disclosure occurred.
    ``(d) Controlling Effect of a Court Order.--A Federal court 
may order that the privilege or protection is not waived by 
disclosure connected with the litigation pending before the 
court--in which event the disclosure is also not a waiver in 
any other Federal or State proceeding.
    ``(e) Controlling Effect of a Party Agreement.--An 
agreement on the effect of disclosure in a Federal proceeding 
is binding only on the parties to the agreement, unless it is 
incorporated into a court order.
    ``(f) Controlling Effect of This Rule.--Notwithstanding 
Rules 101 and 1101, this rule applies to State proceedings and 
to Federal court-annexed and Federal court-mandated arbitration 
proceedings, in the circumstances set out in the rule. And 
notwithstanding Rule 501, this rule applies even if State law 
provides the rule of decision.
    ``(g) Definitions.--In this rule:
          ``(1) `attorney-client privilege' means the 
        protection that applicable law provides for 
        confidential attorney-client communications; and
          ``(2) `work-product protection' means the protection 
        that applicable law provides for tangible material (or 
        its intangible equivalent) prepared in anticipation of 
        litigation or for trial.''.
    (b) Technical and Conforming Changes.--The table of 
contents for the Federal Rules of Evidence is amended by 
inserting after the item relating to rule 501 the following:

``502. Attorney-client privilege and work-product doctrine; limitations 
          on waiver.''.

    (c) Effective Date.--The amendments made by this Act shall 
apply in all proceedings commenced after the date of enactment 
of this Act and, insofar as is just and practicable, in all 
proceedings pending on such date of enactment.