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How discovery rules enrich the legal profession at the expense of the social good



American lawsuits have wide-ranging discovery rules requiring the production of documents. These require attorneys to screen hundreds of thousands of documents for relevance. It's disadvantageous enough for a party to a lawsuit to have to disclose what it's required to disclose, but disclosing documents that a party is entitled to withhold (such as documents outside the scope of the discovery request or attorney-client privileged documents) could have severe consequences.

Now, there are a wide range of possible rules that could govern the inadvertent disclosure of privileged documents, but they generally fall into one of two categories. For example, the default rule could be a Golden Rule: if an attorney receives a privileged document mistakenly produced by the other party, they could be required to return it without being allowed to use it. The other alternative is a sort of strict liability: if the privileged document is produced, the other side "wins" and gets to keep and use the document; if one's really nasty about it, one could argue that the privilege is waived with respect to privileged documents that weren't produced.

The second rule obviously has dynamic consequences in how document production is done. If a law firm is not allowed to make mistakes in producing documents, it has to take much more care, and spend much more time and money and resources double-checking to ensure that no one has made a mistake in approving the production of privileged documents. This is pure wealth-destroying social cost to pay highly educated lawyers to do the economic equivalent of digging holes and filling them in again, but it's good for the lawyers. At the end of the day, not many more privileged documents are disclosed than under the alternative rule where inadvertently produced privileged documents are required to be returned, but a lot more money is spent by parties on the lawyers getting to that result.

Guess which default rule is generally adopted by the courts? You got it: the socially wasteful one that transfers wealth to attorneys. And a law firm that gets it wrong and accidentally produces thousands of privileged documents to the other side gets castigated for a "blunder" and exposed to potential malpractice liability, ensuring that it is forced to spend lots of money on overeducated hole-digging and filling-in-of-holes.

Related: Mark Herrmann (also at Above the Law) on "clawback" agreements.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.