Commentary to the amended Federal Rules of Civil Procedure (“FRCP”, “Rules”) explicitly recognizes that screening voluminous collections of discovery materials for privilege adds significant cost to the litigation process and slows the pace at which discovery materials can be exchanged and cases moved forward. Accordingly, the amended Rules encourage litigants to explore whether other, less labor-intensive measures can be used to screen discovery documents for privilege. Though this language reads as a dramatic difference from the procedural measures set forth in the historical Rules, these new provisions only recognize an existing litigation practice in which some parties negotiate private agreements that govern the use of privileged materials produced during the discovery process.

Alternative approaches to preserving privilege are a welcome opportunity to slow the rising cost of litigation, but it is equally important to keep in mind that the Rules only supplement and do not replace substantive law of the jurisdiction under which a litigation matter is being decided. And, for better or for worse, many of these jurisdictions continue to use a traditional analysis in determining whether a party has waived attorney privilege with respect to some or all of its attorney-client communications.

One example of the continued tension between existing privilege law and emerging practices is the question of whether information produced to the government pursuant to subpoena constitutes waiver of legal privilege associated with those materials. As a matter of increasingly common practice, federal investigators and prosecutors invite corporations to waive attorney-client privilege and open their corporate archives fully for examination by the government. As an inducement, corporations that provide this information will be considered “cooperative” by the government in assessing the extent to which fines or penalties should be imposed in response to any wrongdoing that is uncovered. As a threat, corporations that vigorously enforce their attorney-client privilege may be considered “uncooperative,” opening the organization to significantly more severe penalties if wrongdoing is uncovered-and even stronger penalties if evidence of this wrongdoing is found in the materials being withheld on grounds of privilege.

As a further inducement, government investigators and prosecutors often offer corporations written agreements that state that production of privileged materials pursuant to government request will not be considered a waiver of privilege for other purposes, ostensibly permitting the producing corporation to claim that these documents are privileged if they are ever requested in civil litigation. However, though this type of agreement may be enforceable between the parties signing the agreement, it is far less certain that this agreement will apply to third parties who would cite a corporation’s production of these materials to the government as evidence that the corporation had waived privilege on these documents-and possibly on the entire subject matter that they discussed.

A recent Tenth Circuit opinion, In re Qwest Communications International, Inc., 2006 WL 1668246 (June 19, 2006) demonstrates how privilege preservation agreements with the government may offer only the most limited protection. Pursuant to subpoenas issued by the SEC and the DOJ, Qwest produced approximately 220,000 pages of documents protected by the attorney-client privilege and the work-product doctrine. In addition to the subpoena, the document productions to the agencies were also governed by explicit confidentiality agreements that stated that Qwest did not intend to waive attorney-client privilege or work-product protection. In turn, the SEC agreed to “maintain the confidentiality [of these materials] and…not disclose them to any third party, except to the extent that the Staff determines that disclosure is otherwise required by law or would be in furtherance of the Commission’s discharge of its duties and responsibilities. 2006 WL 1668246 at *1. The DOJ also agreed to maintain the confidentiality of the materials produced by Qwest and not disclose them to third parties “except to the extent that DOJ determines that disclosure is otherwise required by law or would be in furtherance of DOJ’s discharge of its duties and responsibilities.” Id.

As is often the case, Qwest was also a defendant in numerous civil actions, some of which had been filed prior to the government investigations, some of which had been filed thereafter. In these cases, Qwest produced “millions of pages” of material in discovery, but did not produce the 220,000 pages of privileged material provided to the SEC and DOJ, claiming that these materials remained privileged pursuant to its agreements with the federal agencies. The magistrate and district court judges in a consolidated federal securities action disagreed and ordered those and certain other materials prepared by its litigation counsel produced to plaintiffs in the civil action.

In a lengthy opinion, the Tenth Circuit joined six other Circuits in explicitly rejecting Qwest’s legal argument. In contrast to accidental disclosure of privileged material, which was explicitly distinguished as a separate analysis, the Court found that “selective waiver” was not a reasonable extension of current privilege law and that numerous state and federal courts-counterbalanced only by the Fourth Circuit-had consistently rejected this or similar arguments. Accordingly, the privileged materials that had been provided to the government agencies was ordered produced to the private litigation plaintiffs that had requested them.

How does this opinion relate to private litigation agreements that permit “quick peek,” “claw-back,” and other methods for reducing the cost of privilege review? First, the opinion offers compelling proof that a voluntary production of privileged material may waive privilege, even with a written agreement that is intended to explicitly control the consequences. Qwest knew that it was producing privileged materials to the SEC and DOJ; hence, privilege was waived. A somewhat similar, though less dramatic, situation can occur if a private litigant produces a large body of discovery materials without first screening it for privilege, relying instead on a “claw-back” agreement that permits it to withdraw materials from production as it determines that they are privileged. If the producing party is certain that its production contains some privileged material, one could make the argument that privilege has similarly been waived as to any use of those documents outside the immediate litigation in which the claw-back agreement applies.

A second lesson is that privilege preserving agreements must be very carefully drafted. In Qwest’s case, the Tenth Circuit found that the agreements it negotiated with the SEC and DOJ did not meaningfully restrict the agencies’ ability to work with admittedly privileged materials or even to distribute them more broadly to federal and state investigators and prosecutors. Specifically, the Court noted that the privilege preservation agreements in this case did not require the receiving party to: (1) segregate privileged material; (2) file any such materials used in court filings under seal; (3) keep records regarding everyone who had seen or had potential access to these privileged materials; or (4) track what privileged information had been disseminated to third parties in any way.” 2006 WL 1668246 at *15 (citing DOJ Response Brief). It is possible that a private litigation agreement that focused very specifically on controlling the spread of privileged material might have somewhat greater enforceability, at least in jurisdictions that are more flexible in analyzing whether privilege has been waived in litigation document productions.

Finally, In re: Qwest Communications also speaks to the way that the law can and should evolve. In June 2006, the federal Judicial Conference’s Committee on Rules of Practice and Procedure approved the August 2006 publication of a proposed Rule 502(b)(3) for public comment. This new rule would explicitly recognize a “government investigation” privilege intended to permit corporations to communicate frankly and fully with government agencies without fear of waiving attorney-client privilege as Qwest did in this matter. The Tenth Circuit, in rendering its opinion, recognized that Congress, which has the ultimate control over the Federal Rules, has the power to expand existing common law privilege, and that such a change could impact how they decided similar cases in the future. Debate over proposed Rule 502(b)(3) has only begun, and it is expected that the already deliberative process will be particularly intense, particularly on the question of whether this provision imposes national substantive law in an area traditionally left to individual jurisdictions.