In a motion to disqualify defense counsel in Harleysville Insurance Company v. Holding Funeral Home, an insurance coverage dispute, a Magistrate Judge in the Western District of Virginia held that the plaintiff's insurance investigators' upload (without password protection) of the insured's entire Claims File to Box, a popular cloud storage provider, waived any attorney-client privilege or work-product protection that might have attached to the information.
When an email containing the unique link to the information on the Box site was produced in discovery, defense counsel gained access to the site, reviewed the files, and distributed them to their clients and law-enforcement officials. (Plaintiff's counsel had discovered the gaffe when a later document production by defendants included the Claims File.) Because the link was unique and only shared with insurance investigators, counsel for the insurance company argued that the disclosure was involuntary and, even if found to be "inadvertent," did not work a waiver of attorney-client privilege (governed by Virginia state law in this diversity case) or work-product protection (under Federal Rule of Evidence 502).
The Magistrate Judge disagreed, finding that the total lack of precautions taken with the upload, the breadth of the disclosure, and the lengthy delay in rectifying the error waived any claim of attorney-client privilege that might have attached. She further found that her ruling "fosters the better public policy" to ensure that companies understand the risks of cloud storage and take adequate precautions to maintain confidentiality. She also concluded that work-product protection was waived because the disclosure was not "inadvertent" within the meaning of FRE 502(b)(1)—the acts taken to upload the material were not accidental or careless (under the different definition of "inadverten[ce]" under the Federal Rules of Evidence).
Citing "practical considerations"—and noting that even if defense counsel were disqualified on the basis of their access and use of the information, substitute counsel would be able to access and use it given her finding of waiver—the court refused to disqualify defense counsel. She did grant the plaintiff attorneys' fees associated with bringing the motion, finding that defense counsel's underlying conduct merited some sanction, to wit: they did not notify plaintiff's counsel that they had accessed the material (which they should have known might be privileged), sent it to their clients, or shared it with law-enforcement officials; did not seek the court's assistance in determining their ability to use the information; and the only affirmative semi-remedial step they could point to was having called the Virginia State Bar Ethics Hotline. The Magistrate Judge observed that "[t]his court should demand better . . . ."
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