On September 8, 2008, the House of Representatives passed Senate Bill S.2450, which President Bush is expected to sign into law. The new Federal Rule of Evidence 502 will, among other things, set a nationwide federal standard for waiver of attorney-client privilege and work product protection, and allow for non-waiver orders that will bind non-parties in federal and state proceedings. Rule 502 will, thus, allow litigants to exchange materials without waiver of privilege or work product protection. However, exactly how Rule 502 will operate is open to debate, as no courts have had an opportunity to interpret or apply it.

The enactment of the new Rule 502 was driven by the challenges associated with electronic discovery. The purposes of the Rule are to reduce the burdens associated with e-discovery (and the often massive exchange of materials in electronic format), provide clear guidance to courts and parties on waiver of attorney-client privilege and work product protection, avoid broad waiver of privilege and work product protection by the disclosure of materials in discovery, and protect parties which enter into non-waiver agreements.

Rule 502 would accomplish these purposes in several ways. It explains that intentional disclosure of privileged materials or work product to federal offices or agencies, or in federal proceedings, gives rise to a waiver of those materials and to “undisclosed” material that concern the same subject matter if these should, “in fairness … be considered together.”

As to inadvertent disclosure of privileged materials or work product in either federal or state proceedings, there should be no waiver under Rule 502 if reasonable steps are taken to prevent disclosure and to promptly rectify any erroneous disclosure. Rule 502 further provides that, under certain circumstances, a disclosure of privileged materials or work product in a state proceeding will not be a waiver in a federal proceeding.

On the other hand, a federal court order that provides that “privilege or protection is not waived by disclosure connected with the litigation” becomes binding “in any other Federal or State proceeding.” Finally, Rule 502 essentially offers parties in federal proceedings an option: Rather than secure a non-waiver order, or, if the federal court refuses to enter such an order, the parties may enter into a non-waiver agreement that “is binding only on the parties.”

What does Rule 502 mean for litigants in federal courts or for those before federal regulators? First, litigants will need counseling regarding the level of disclosure (if any) of privileged material. There may be circumstances under which protected material should be shared with a federal regulator or an adversary. Care must be taken, however, to limit the scope of any waiver of undisclosed material.

Second, Rule 502 would appear to encourage discussion between parties or with a federal regulator to guard against waiver by inadvertent production. This, in turn, may place an emphasis on reasonable procedures undertaken by parties to protect against inadvertent production and on reasonable procedures to promptly discover any error.

Third, there is the question of how to address these issues by a party to another proceeding. Must that party intervene before the court that issued the order? What arguments must the party make before that court to modify or vacate the order?

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.