Harleysville Insurance Company v. Holding Funeral Home, Inc. et al

Filing 108

OPINION AND ORDER granting in part and denying in part 73 Objections to the magistrate judge's Order 69 ; granting 70 Objections to the magistrate judge's Order 69 , and the magistrate judge's Order imposing monetary sanctions 100 is VACATED; Granting 106 Motion to Strike. Signed by Judge James P. Jones on 10/2/17. (flc)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
HARLEYSVILLE INSURANCE
COMPANY,
Plaintiff,
v.
HOLDING FUNERAL HOME, INC.,
ET AL.,
Defendants.

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Case No. 1:15CV00057
OPINION AND ORDER
By: James P. Jones
United States District Judge

Robert Tayloe Ross, David Paul Abel, and Robert S. Reverski, Jr., Midkiff,
Muncie & Ross, P.C., Richmond, Virginia, and John L. Cooley,
CooleySublettPearson PLC, Roanoke, Virginia, for Plaintiff and CounterDefendant Harleysville Insurance Company; Glenn H. Silver, C. Thomas Brown,
Erik B. Lawson, and Caitlin M. Brown, Silver & Brown, Fairfax, Virginia, for
Insureds and Counter-Claimants Holding Funeral Home, Inc., Golden Rule
Family Management, LLC, and L.J. Horton Florist, Inc.
This is a diversity action arising out of a claim for fire insurance coverage.
Harleysville Insurance Company (“Harleysville”) seeks a declaration that it has no
duty to pay benefits under its policy to the insureds, Holding Funeral Home, Inc.,
Golden Rule Family Management, LLC, doing business as Holding Funeral Home
of Castlewood, and L.J. Horton Florist, Inc. (the “Insureds”).
counterclaim for breach of the insurance contract.

The Insureds

Proceedings on the merits of this case have been stayed pending the
disposition of a related criminal prosecution. However, as a separate matter,
Harleysville has moved to disqualify counsel for the Insureds. The magistrate
judge denied the motion, and the parties’ objections to that decision, as well as an
additional Motion to Strike, are now before me for review.
I. FACTUAL SUMMARY.
The basic facts surrounding the motion seeking disqualification of opposing
counsel are uncontested. On October 22, 2014, the Insureds’ funeral home burned
to the ground. Harleysville received prompt notice of the fire loss and resulting
claim. It immediately launched an investigation, and its independent fire expert
found that the fire had been intentionally set. In its Complaint, filed in this court
on November 23, 2015, Harleysville alleges that representatives of the Insureds
“made material misrepresentations to Harleysville during the investigation of the
Fire and the Claim.” Compl. ¶ 33, ECF No. 1. These alleged misrepresentations
are also the subject of the pending criminal prosecution. Indictment, United States
v. Riebe, 1:17CR00014, ECF No. 2 (W.D. Va. Apr. 24, 2017).
Sometime after the fire, one or more employees of Nationwide Insurance
Company (“Nationwide”), which owns Harleysville, began corresponding with

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representatives of the National Insurance Crime Bureau (“NICB”). 1 During the
course of that correspondence, NICB asked Harleysville to provide surveillance
video footage of the fire scene. In response, Thomas Cesario, a senior investigator
for Nationwide, uploaded the video file to an electronic folder in an Internet-based
file-sharing service operated by Box, Inc. (“Box Folder”). On September 22, 2015,
Cesario sent an email to NICB agent Wes Rowe. The email contained a “sharing”
link to the Box Folder and stated, “Here is the link to access the video.” Cesario
Email, ECF No. 55-5. The email also contained a notice that it was “privileged
and confidential.” Id. Rowe used the link to access the Box Folder on two
occasions shortly after receiving the email. On both occasions, the video was the
only file contained in the folder. No one from NICB accessed the Box Folder after
that point.
Some seven months later, Cesario was asked to share Harleysville’s claims
file and Nationwide’s investigation file (collectively, “Claims File”) with
Harleysville’s counsel. On April 28, 2016, Cesario uploaded the Claims File to the
Box Folder, generated a “sharing” link to the folder, and sent an email to
Harleysville’s counsel containing the link to the folder. Cesario did not realize that

1

The NICB is a non-profit organization that partners with insurance companies
and law enforcement agencies to fight insurance fraud and insurance crime. See About
NICB, National Insurance Crime Bureau, available at https://www.nicb.org/about-nicb.
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the link he provided to Harleysville’s counsel was identical to the link he had
provided to NICB seven months earlier.
On May 24, 2016, Insureds’ counsel issued a subpoena duces tecum to
NICB requesting NICB’s entire file relating to the funeral home fire. On June 23,
2016, NICB responded to the subpoena with electronic copies of all documents and
information it had received from Harleysville.

Included in the response was

Cesario’s September 22 email to Rowe, which contained the link to the Box
Folder.
That same day after receiving NICB’s response, Insureds’ counsel used the
link contained in Cesario’s email to access the Box Folder. When Cesario sent the
link to NICB in September 2015, the Box Folder contained only the video;
however, by the time Insureds’ counsel came into possession of the link in June
2016, the Box Folder contained the Claims File as well.

Insureds’ counsel

downloaded and reviewed the Claims File. During their review, Insureds’ counsel
noted that certain documents were marked as “Confidential” and “Attorney-Client
Privileged.” Upon discovering these documents, they contacted the Virginia State
Bar’s ethics hotline for advice as to how to proceed, as well as conducted research
of their own. Insureds’ counsel, incorrectly assuming that Harleysville had used
the Box Folder to share the Claims File with NICB, came to the conclusion that
any attorney-client and work-product privileges had been waived by Harleysville
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and continued their review of the file.

Insureds’ counsel neither notified

Harleysville’s counsel that they were in possession of the Claims File nor sought
this court’s ruling on the issue of waiver.
On August 22, 2016, Insureds’ counsel produced a thumb drive to
Harleysville’s counsel in response to a request for production of documents. The
thumb drive contained “tens of thousands of pages of documents, sorted into
hundreds of folders and subfolders.” Mem. Supp. Mot. to Disqualify 5, ECF No.
53.

During their review of the documents contained on the thumb drive,

Harleysville’s counsel noticed certain potentially privileged material inadvertently
produced by Insureds’ counsel. Harleysville’s counsel notified Insureds’ counsel
of the disclosure, and Insureds’ counsel requested that the privileged documents be
destroyed. Harleysville’s counsel complied with this request and continued to
review the contents of the thumb drive.
On October 27, 2016, Harleysville’s counsel discovered that its Claims File
was contained on the thumb drive in a folder labeled “NICB Video.” A few days
later, on November 1, Harleysville’s counsel contacted Insureds’ counsel and
requested that Insureds’ counsel destroy their copies of the Claims File. Insureds’
counsel refused, and Harleysville’s counsel subsequently filed the present motion
to disqualify Insureds’ counsel.

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In issuing her Memorandum Opinion on this motion, the magistrate judge
did not have the benefit of reviewing the Claims File, but assumed that at least
some of the materials that make up the Claims File were privileged. Mem. Op. 5,
ECF No. 68. Upon my in camera review of the Claims File, I find that it did, in
fact, contain clearly privileged material. See infra at IV.A.1. Insureds’ counsel
have conceded that they reviewed the entire Claims File and that they shared the
Claims File with counsel for both sides in the related criminal case.
II. PROCEDURAL HISTORY.
In seeking disqualification, Harleysville asserted that Insureds’ counsel
improperly accessed and reviewed certain privileged documents, that they
concealed this access from Harleysville’s counsel, and that they refused to destroy
the Claims File when asked to do so.

As relief, Harleysville sought the

disqualification of Insureds’ counsel. Harleysville also sought an order directing
Insureds’ counsel to destroy copies of the Claims File, directing Insureds’ counsel
not to disclose the Claims File, and barring the use of the Claims File in this action.
See generally Mem. Supp. Mot. to Disqualify, ECF No. 53. Insureds’ counsel
contended in response that disqualification was inappropriate, first on the ground
that Harleysville had failed to prove that material in the Claims File was
privileged, and second on the ground that any privilege was waived when

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Harleysville posted the Claims File to a publicly-accessible folder on the Internet.
See generally Opp’n to Mot. to Disqualify, ECF No. 55.
The motion seeking disqualification was referred to the magistrate judge for
determination. Following full briefing by the parties, the magistrate judge held an
evidentiary hearing and she invited counsel to submit supplemental evidence and
legal authorities following the hearing. Both Harleysville and the Insureds did so.
The Insureds subsequently objected to Harleysville’s submission, arguing that the
evidence contained therein should properly have been presented at the hearing,
where the witnesses would have been subject to cross-examination and evidentiary
objections. The magistrate judge agreed and sustained Insureds’ objections, a
decision to which Harleysville’s counsel timely objected. Order, ECF No. 67; Pl.’s
Objs., ECF No. 73.
The magistrate judge subsequently denied the motion to disqualify. She
found that any privilege had been waived when Harleysville uploaded the files to a
publically accessible, non-password-protected website. Mem. Op. 9, 13, ECF No.
68.

Because any privilege was waived, she concluded, disqualification of

Insureds’ counsel was unwarranted, since replacement counsel would be entitled to
access the same information. Id. at 17. However, she also held that because
Insureds’ counsel knew or should have known they had accessed potentiallyprivileged information, they should have revealed this access to Harleysville’s
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counsel and should have asked the court to decide the question of waiver before
making use of the information. Id. at 16. Because they did not do so, she said,
their conduct “require[d] some sanction.” Id. She accordingly imposed monetary
sanctions on the Insureds’ counsel.
Both Harleysville and the Insureds filed timely objections to the magistrate
judge’s rulings.

Harleysville objected to the magistrate judge’s finding that

Harleysville had waived any privilege and to her denial of their motion to
disqualify. Pl.’s Objs., ECF No. 73. Insureds’ counsel objected to the magistrate
judge’s sua sponte imposition of monetary sanctions, arguing that such sanctions
were both unwarranted and unjust. Defs.’ Objs., ECF No. 70.
After careful review of the record to that point, I concluded that there was a
need for additional evidence as to certain important matters, including those
encompassed by Harleysville’s counsel’s supplementary submission, which the
magistrate judge excluded from consideration. Accordingly, I ordered a second
evidentiary hearing and directed the parties to present additional evidence. Op. &
Order, ECF No. 96.
Prior to the hearing, Harleysville filed two written experts’ reports in
conjunction with the hearing: one by Paul Georgiadis, who testified at the hearing,
and one by Michael Rigsby, who did not testify. Following the hearing, the
Insureds filed a Motion to Strike both reports, arguing both that my order directing
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the evidentiary hearing did not permit the parties to file such reports and that
Michael Rigsby’s report was improper because he did not testify, and thus was not
subject to cross-examination at the hearing.
Before me for review are (1) the Harleysville objections to the magistrate
judge’s finding that Harleysville had waived any privilege, her finding that
Harleysville’s counsel’s supplemental affidavits could not be considered, and her
denial of the motion to disqualify; (2) the Insureds’ objection to the magistrate
judge’s imposition of sanctions; and (3) the Insureds’ Motion to Strike the written
expert reports of Paul Georgiadis and Michael Rigsby. I consider each in turn.
III. STANDARD OF REVIEW.
The issues raised by both parties — namely, questions of privilege and
waiver along with sanctions — are “not dispositive of a party’s claim or defense.”
Fed. R. Civ. P. 72(a). I therefore must consider the parties’ objections to the
magistrate judge’s order and “modify or set aside any part of the order that is
clearly erroneous or is contrary to law.” Id.
Findings of fact are reviewed under the Rule’s “clearly erroneous” standard.
Gairola v. Va. Dep’t of Gen. Servs., 753 F.2d 1281, 1288 (4th Cir. 1985); see also
Bruce v. Hartford, 21 F. Supp. 3d 590, 594 (E.D. Va. 2014); HSBC Bank USA,
Nat’l Ass’n v. Resh, No. 3:12-CV-00668, 2014 WL 317820, at *7 (S.D.W. Va. Jan.
28, 2014).

A court’s “finding is ‘clearly erroneous’ when although there is
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evidence to support it, the reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been committed.” United States v.
U.S. Gypsum Co., 333 U.S. 364, 395 (1948); see also Harman v. Levin (In re
Robertson), 772 F.2d 1150, 1153 (4th Cir. 1985).
In addition, it is within my discretion to receive and consider additional
evidence. United States v. Caro, 461 F. Supp. 2d 478, 480 n.2 (W.D. Va. 2006),
aff’d, 597 F.3d 608 (4th Cir. 2010); see also United States v. Frans, 697 F.2d 188,
191 n.3 (7th Cir. 1983) (noting that Rule 72(a) “do[es] not necessarily restrict
district court review of a magistrate’s findings” and stating that the district court
may “receiv[e] additional evidence or conduct[] a full review”); 12 Charles Allen
Wright, et al., Federal Practice and Procedure § 3069 (2d ed. 2017) (noting that
“a district judge should have at least the authority to consider further evidence in
reviewing rulings on nondispositive matters”). I have supplemented the magistrate
judge’s findings of fact based on evidence adduced at the hearing before me.
The magistrate judge’s decisions on questions of law, however, I review
under the Rule’s “contrary to law” standard. PowerShare, Inc. v. Syntel, Inc., 597
F.3d 10, 15 (1st Cir. 2010). In the context of Rule 72(a), this “contrary to law”
standard is equivalent to de novo review. Id. (holding that review of a question of
law “is plenary under the ‘contrary to law’ branch of the Rule 72(a) standard” and
that therefore, “[f]or questions of law, there is no practical difference between
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review under Rule 72(a)’s ‘contrary to law’ standard and . . . [a] de novo standard”
(citations omitted)); Haines v. Liggett Grp. Inc., 975 F.2d 81, 91 (3d Cir. 1992)
(holding that while “[t]he district court is bound by the clearly erroneous rule in
findings of facts[,] the phrase ‘contrary to law’ indicates plenary review as to
matters of law”); Bruce, 21 F. Supp. 3d at 594; HSBC Bank USA, Nat’l Ass’n,
2014 WL 317820, at *7; 12 Charles Allen Wright, et al., supra (noting that
“[r]egarding legal issues, the language ‘contrary to law’ appears to invite plenary
review”).
IV. PRIVILEGE AND WAIVER.
A. The Claims File Contained Privileged Materials.
This court has jurisdiction over this declaratory judgment action based on
diversity of citizenship. Accordingly, questions regarding the applicability and
waiver of any evidentiary privilege, including the attorney-client privilege, are
governed by Virginia state law. Fed. R. Evid. 501.
The work-product doctrine, however, is a “qualified immunity from
discovery,” rather than an evidentiary privilege. FTC v. Grolier Inc., 462 U.S. 19,
24 (1983) (citing Hickman v. Taylor, 329 U.S. 495, 510 (1947)); see also Chevron
Corp. v. Page (In re Naranjo), 768 F.3d 332, 345 n. 16 (4th Cir. 2014); Fed. R.
Civ. P. 26(b)(3). Questions regarding the applicability and waiver of the protection
provided by the work-product doctrine are therefore governed by federal law.
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Cont’l Cas. Co. v. Under Armour, Inc., 537 F. Supp. 2d 761, 769-70 (D. Md.
2008).
1. Attorney-Client Privilege.
In Virginia, “confidential communications between an attorney and his or
her client made in the course of that relationship and concerning the subject matter
of the attorney’s representation are privileged from disclosure.” Walton v. Mid-Atl.
Spine Specialists, P.C., 694 S.E.2d 545, 549 (Va. 2010) (citations omitted). The
purpose of the privilege is to “encourage clients to communicate with attorneys
freely, without fearing disclosure of those communications . . . thereby enabling
attorneys to provide informed and thorough legal advice.” Id. (citing Upjohn Co.
v. United States, 449 U.S. 383, 389 (1981)). However, because the privilege is an
“obstacle to investigation of the truth,” it “should be strictly construed.”

Id.

(quoting Commonwealth v. Edwards, 370 S.E.2d 296, 301 (Va. 1988)).

The

burden of showing the privilege applies is on the proponent of the privilege — in
this case, Harleysville. United States v. Jones, 696 F.2d 1069, 1072 (4th Cir.
1982).
At the second evidentiary hearing, Harleysville’s counsel provided the court
with a copy of the Claims File. From my in camera review, I find that the
attorney-client privilege attaches to multiple documents contained in the Claims
File. Such documents include lengthy multipage reports by Harleysville’s counsel
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to their client of the results of the attorneys’ factual investigation and analysis of
the law, as well as advice on litigation tactics and strategy. These documents are
the epitome of privilege.
2. Work-Product Protection.
“[T]he work product doctrine belongs to the attorney and confers a qualified
privilege on documents prepared by an attorney in anticipation of litigation.” Solis
v. Food Emp’rs Labor Relations Ass’n, 644 F.3d 221, 231 (4th Cir. 2011) (citing,
inter alia, Hickman, 329 U.S. at 509-14). As with the attorney-client privilege, the
burden of showing that the work-product protection applies lies with Harleysville.
From my in camera review, I find that the work-product protection applies to
multiple documents contained in the Claims File.
B. The Privilege and Protection Were Not Waived.
1. Attorney-Client Privilege.
a. The Disclosure Was Inadvertent.
The attorney-client privilege “may be expressly or impliedly waived by the
client’s conduct.” Walton, 694 S.E.2d at 549. “[T]here is no bright line rule for
what constitutes waiver”; instead, courts must “consider the specific facts of each
case in making a waiver determination.” Id. “The proponent of the privilege has
the burden to establish that the attorney-client relationship existed, that the

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communication under consideration is privileged, and that the privilege was not
waived.” Id.
Where a privileged document is inadvertently or involuntarily disclosed, the
court must determine whether that disclosure constitutes a waiver of the attorneyclient privilege.

Id. at 550.

An inadvertent disclosure may occur where a

document is produced “knowingly, but mistakenly” or where the client
“unknowingly provid[es] access to a document by failing to implement sufficient
precautions to maintain its confidentiality.” Id. at 552. An involuntary disclosure
may occur where a document is “knowingly produced by someone other than the
holder of the privilege through criminal activity or bad faith” and “without the
consent of the proponent of the privilege.” Id. at 551.
Under the facts presented by this case, I find that disclosure of the privileged
materials in the Claims File was inadvertent. The evidence shows that when
investigator Cesario uploaded the Claims File to the Box Folder, he unknowingly
made the Claims File available to NICB. NICB, in turn, unknowingly made the
Claims File available to Insureds’ counsel. Neither Harleysville nor Harleysville’s
counsel were aware the Insureds’ counsel had access to the Claims File until they
discovered the Claims File among documents produced by Insureds’ counsel.
Moreover, Harleysville’s disclosure of the Claims File was intended for
Harleysville’s counsel, not for Insureds’ counsel or NICB. This is a case where the
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client unknowingly and unintentionally made privileged documents available to a
third party, and such disclosure is inadvertent under the law.
Harleysville asserts that the disclosure of the Claims File was involuntary
because it “was accomplished through [Insureds’] Counsel’s misconduct.” Pls.’
Objs. 2, ECF No. 73. This is incorrect. A document is not disclosed by the person
who receives the document; it is disclosed by the person who sends it. Here, the
disclosure was made by Harleysville when it uploaded the Claims File to the same
Box Folder it had used to share the video with NICB. Insureds’ counsel did not
conduct themselves appropriately, and there is evidence to support Harleysville’s
assertion that they “attempted in bad faith to conceal [their] access of the [Box
Folder] and procurement of [the Claims File],” id., but it would defy logic to
conclude that Insureds’ counsel disclosed the documents by viewing them.
Accordingly, to the extent that Harleysville objects to the magistrate judge’s
finding that the disclosure was inadvertent, such objection is overruled.
b. There Was No Waiver.
Having found that Harleysville’s disclosure was inadvertent, I must now
determine whether the attorney-client privilege has been waived. “[W]aiver may
occur [through inadvertent disclosure] if the disclosing party failed to take
reasonable measures to ensure and maintain the document’s confidentiality, or to
take prompt and reasonable steps to rectify the error.” Walton, 694 S.E.2d at 552.
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To determine whether the privilege has been waived, courts must consider five
factors:
(1) [T]he reasonableness of the precautions to prevent inadvertent
disclosures, (2) the time taken to rectify the error, (3) the scope of the
discovery, (4) the extent of the disclosure, and (5) whether the party
asserting the claim of privilege . . . has used its unavailability for
misleading or otherwise improper or overreaching purposes in the
litigation, making it unfair to allow the party to invoke confidentiality
under the circumstances.
Id. “None of these factors is independently dispositive.” Id. As the magistrate
judge correctly noted, Factors Three and Five have no applicability to this case. 2
Mem. Op. 8, ECF No. 68. I therefore consider the remaining three factors in turn.
i. Factor One: Reasonableness of Precautions.
As holder of the privilege, Harleysville had the responsibility to take
reasonable precautions to safeguard the Claims File and to preserve its
confidentiality. Despite the eventual disclosure of the Claims File, I find that the
precautions taken by Harleysville were reasonable under the circumstances.
Box, Inc. is one of many “cloud storage” providers that allows users to store,
share, and otherwise manage files using the Internet. The cyber-arena in which
this file storage and sharing takes place is widely known as the “cloud.”
Nationwide uses its account with Box, Inc. to share files that are too large to be
sent by email. To use the file-sharing service, Nationwide employees can make a
2

To the extent that Harleysville objects to the magistrate judge’s decision not to
consider Factor Five in making a determination of waiver, such objection is overruled.
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folder in the Nationwide Box account, upload one or more files to that folder, and
click a button to generate a “sharing” link to the folder, which can be sent by
email. The recipient can then use the link to access the folder and view or
download the files inside.
The disclosure in this case occurred because Nationwide uploaded the
Claims File to the Box Folder after sharing the link to the Box Folder with NICB.
The Box Folder was not password-protected. As a result, any person with access
to the Internet could have viewed its contents simply by typing the URL for the
“sharing” link into a web browser. 3
However, the Box Folder was not searchable through Google or any other
search engine, nor was it searchable on the Box, Inc. website. Therefore, a person
would need to enter the specific URL of the “sharing” link in order to access the
folder. The “sharing” link, which was generated by Box, Inc., consisted of 32
randomly-generated alphanumeric characters. As a result, the URL for the Box
Folder contained in Cesario’s email looked like this:
https://nationwide.box.com/s/[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
Each “x” represents a randomly-generated alphanumeric character. See Cesario
Email, ECF No. 55-5.

3

“URL” stands for “Uniform Resource Locator” and is the “address” of a web

page.
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The nature of this URL is dispositive as to the question of reasonableness.
Although any person who knew the URL could access the Box Folder without a
password, as a practical matter, the URL itself functions as a password. The URL
contains a string of 32 characters, where each character can be one of 36 letters or
numbers.

These parameters mean that there are 6.3340287 x 1049

(63,340,287,000,000,000,000,000,000,000,000,000,000,000,000,000,000) possible
“sharing” links. The security of the Box Folder, then, is inherent in the nature of
the URL. In this context, the magistrate judge’s analogy of Harleysville leaving
the Claims File in a briefcase on a public park bench and telling its counsel where
it could be found, is inapposite. Practically speaking, it would be impossible for
anyone, let alone a particular person connected with the case, to accidently stumble
across the Box Folder. As far as real-world equivalents go, it is more appropriate
to characterize the briefcase as having been buried somewhere in a large park,
technically publicly-accessible, but for all practical purposes, secured.
Moreover, when Cesario uploaded the video to the Box Folder in September
2015, it was his first time using the Box, Inc. file-sharing service. He understood
the Box Folder to be secure and believed that only someone who was specifically
invited to view the folder or who received the direct “sharing” link to the folder
would be able to access the folder and its contents. In addition, Cesario believed
that the “sharing” link generated by Box, Inc. to allow him to share the Claims File
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with Harleysville’s counsel was a unique link. He did not know it was the same
“sharing” link that Box, Inc. had generated to allow him to share the video with
NICB seven months earlier. Furthermore, he believed the original “sharing” link
he had sent to NICB had expired in a manner similar to Nationwide’s encrypted
emails, which expire within five to ten days after being sent. A review of Box,
Inc.’s website reveals that such security precautions are available, and the evidence
adduced at the second hearing showed that Cesario, who was inexperienced with
the Box, Inc. service and who lacks a technical background, believed he was
implementing them. See Kyko Global Inc. v. Prithvi Info. Sols. Ltd., No. C131034, 2014 WL 2694236, at*4 (W.D. Wash. June 13, 2014) (finding no waiver
where proponent genuinely believed the documents were not accessible). Finally,
the privileged materials were marked as privileged and confidential, and the email
Cesario sent to Rowe containing the link to the Box Folder contained a
confidentiality notice.

I therefore conclude that Nationwide, acting for

Harleysville, did take reasonable precautions to prevent an inadvertent disclosure
of the Claims File and that this factor weighs against a finding of waiver.
Accordingly, to the extent that Harleysville objects to the magistrate judge’s
finding that it did not take reasonable precautions, such objection is sustained.

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ii. Factor Two: Time Taken to Rectify Error.
The disclosure technically occurred on April 26, 2016, when Cesario
uploaded the Claims File to the Box Folder. However, no one was aware of the
disclosure at that time. NICB remained ignorant of the Claims File’s existence,
and, as I explained above, Harleysville believed the Claims File was secure. It was
not until June 23, 2016, when NICB responded to the subpoena and Insureds’
counsel accessed the Box Folder, that anyone became aware of the disclosure.
Harleysville’s counsel were not notified of the disclosure until October 27, 2016,
— four months later — when they discovered the Claims File on a thumb drive
produced to them by Insureds’ counsel. Following their discovery, Harleysville’s
counsel reached out to Insureds’ counsel to request destruction of the privileged
materials on November 1, 2016. In short, Harleysville’s counsel attempted to
rectify the error within four days of discovering it.
It is true that Harleysville’s counsel used the “sharing” link to access the
Box Folder in April 2016. However, I do not believe that, simply by using the
“sharing” link to access the Box Folder, Harleysville’s counsel should have
realized that the Claims File was publicly available. It was perfectly reasonable —
and, indeed, accurate — for Harleysville’s counsel to expect that no one could
access the Box Folder unless he was given that specific URL. The fact that
Harleysville’s counsel could access the Box Folder via a 32-character, randomly- 20 -

generated “sharing” link in an email sent by Harleysville did not, and should not
have, put Harleysville’s counsel on notice that anyone with an Internet connection
could do the same. I therefore conclude that this factor weighs against a finding of
waiver. To the extent that Harleysville objects to the magistrate judge’s finding
that Harleysville and Harleysville’s counsel waited too long to rectify the error,
such objection is sustained.
iii. Factor Four: Extent of Disclosure.
The disclosure in this case was not extensive, as Harleysville only
inadvertently disclosed the privilege documents to Insureds’ counsel. Although
NICB could have accessed the Claims File through the Box link, it did not do so;
NICB was unaware that it had access to the Claims File. It is true that Insureds’
counsel subsequently distributed the privileged documents to others, but
Harleysville should not be punished for these later disclosures, which were beyond
its control. Harleysville, through Cesario, only disclosed the privileged documents
to one party. I therefore conclude that the extent of the disclosure does not weigh
in favor of a finding of waiver. To the extent that Harleysville objects to the
magistrate judge’s finding that the extent of the disclosure weighed in favor of
waiver, such objection is sustained.
For the reasons described above, I find that, although there was an
inadvertent disclosure, a balancing of the relevant factors compels the conclusion
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that the attorney-client privilege was not waived.

Accordingly, to the extent

Harleysville objects to the magistrate judge’s finding that there was a waiver of
privilege, such objection is sustained. 4
2. Work-Product Protection.
a. The Disclosure Was Inadvertent.
The work-product protection may be waived, “expressly or by conduct,” by
either the attorney or the client. Doe v. United States (In re Doe), 662 F.2d 1073,
1079 (4th Cir. 1981); see also United States v. Nobles, 422 U.S. 225, 239 (1975)
(“The privilege derived from the work-product doctrine . . . may be waived.”). The
rules of evidence provide that a disclosure of material protected by attorney-client
privilege or work-product doctrine made in a federal proceeding “does not operate
as a waiver” if:
(1) the disclosure is inadvertent;
(2) the holder of the . . . 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).

4

To the extent Harleysville objects to the court’s consideration of the issue of
waiver in the first instance, on the grounds that the Insureds did not raise this issue in a
motion under Rule 26, such objection is overruled. Because the issue of waiver is of
fundamental importance in determining whether disqualification is appropriate, see infra
at V.B, the issue must necessarily be decided in the course of ruling on Harleysville’s
motion.
- 22 -

Fed. R. Evid. 502(b). Importantly for this diversity case, Rule 502(b) “applies
even if state law provides the rule of decision.” Fed. R. Evid. 502(f).
There is a dearth of authority in the Fourth Circuit, and in federal law
generally, as to the definition of an “inadvertent disclosure” under the meaning of
Rule 502. See Francisco v. Verizon S., Inc., 756 F. Supp. 2d 705, 718 (E.D. Va.
2010) (observing that “[f]ew cases in the Fourth Circuit address what constitutes
inadvertent disclosures, or even explicitly define the term ‘inadvertent” (citing
cases)). The Advisory Committee notes to Rule 502 elaborate as to the question of
waiver generally, but they fail to provide any guidance as to the meaning of the
term “inadvertent.”
Black’s Law Dictionary defines “inadvertence” as “[a]n accidental
oversight; a result of carelessness.” Black’s Law Dictionary (10th ed. 2014); see
also Francisco, 756 F. Supp. 2d at 719. Nevertheless, the Eastern District of
Virginia has held that a disclosure was not “inadvertent” where the document was
produced intentionally, and the only mistake was producing it in unredacted form.
ePlus Inc. v. Lawson Software, Inc., 280 F.R.D. 247, 255 (E.D. Va. 2012). This
holding was based on an unpublished opinion from the District of Maryland,
McCafferty’s, Inc. v. Bank of Glen Burnie, in which the court found that the
disclosure was not inadvertent because the party claiming the privilege “knew full
well that [it] was making a disclosure of the [allegedly privileged] document. . . .
- 23 -

[It] just didn’t consider the document as one to be kept confidential.” No. MJG96-3656, 1998 LEXIS 12861, at *5 (D. Md. Apr. 23, 1998). The McCafferty’s
court stated:
An inadvertent waiver would occur when a document, which a party
intended to maintain confidential, was disclosed by accident such as a
misaddressed communication to someone outside the privilege scope
or the inadvertent inclusion of a privileged document with a group of
nonprivileged documents being produced in discovery. In contrast,
when a client makes a decision — albeit an unwise, or even mistaken,
decision — not to maintain confidentiality in a document, the
privilege is lost due to an overall failure to maintain a confidence.
Id.
While I agree with the magistrate judge that the courts’ analyses in ePlus
and McCafferty’s are helpful, I disagree that they lead to the conclusion that
Harleysville’s disclosure is not “inadvertent” under federal law. In McCafferty’s,
the proponent disclosed the privileged document to a third party. Upon learning
that the third party had the document, the proponent “did nothing to indicate that it
was concerned about any breach of confidentiality.” Id. at *5-6. This “lack of
concern about the confidentiality of the [document] indicate[d] that the [proponent]
did not maintain confidentiality of the document.” Id. at *6-7.
Here, by contrast, the third party — NICB — never viewed, or even knew of
the existence of, the Claims File. More importantly, as soon as Harleysville’s
counsel learned that Insureds’ counsel was in possession of the Claims File, they
took action. This is not a case in which Harleysville knew that NICB or Insureds’
- 24 -

counsel had the Claims File but failed to do anything about it; it is a case in which
Harleysville was ignorant of the fact that the Claim’s File had been made available.
Moreover, as I have noted above, the evidence shows that Harleysville believed the
Claims File was not accessible to any entity other than its own counsel and that
they believed their file-sharing method was secure. The McCafferty’s court itself
stated that disclosure would be inadvertent where the party intended to maintain
the document as confidential, but disclosed it by accident. Id. at *5. Here,
Harleysville intended and attempted to maintain the confidentiality of the Claims
File, even if it ultimately failed.
Because Harleysville intended to maintain the confidentiality of the Claims
File, and because it was ignorant of the fact that the Claims File was accessible to
anyone other than its own counsel, I find that the disclosure was inadvertent. To
the extent Harleysville objects to the magistrate judge’s finding that the disclosure
was intentional, such objection is sustained.
b. There Was No Waiver.
As noted above, Rule 502 provides that a disclosure is not a waiver where it
was inadvertent, the holder of the privilege “took reasonable steps to prevent
disclosure,” and the holder of the privilege “promptly took reasonable steps to
rectify the error, including . . . following Federal Rule of Civil Procedure
26(b)(5)(B).” Fed. R. Evid. 502(b).
- 25 -

The Advisory Committee Notes to Rule 502 explain that the rule is “in
accord with the majority view on whether inadvertent disclosure is a waiver.” Fed.
R. Evid. 502 advisory committee’s note to 2007 amendment. The Notes further
explain that while some courts have adopted a five-factor test identical to the one
laid out in Walton, “[t]he rule does not explicitly codify that test, because [the test]
is really a set of non-determinative guidelines that vary from case to case. [Rule
502] is flexible enough to accommodate any of those listed factors.” Id.
Observing that the five-factor test completely encompasses the three factors
described in Rule 502, at least one court in this circuit has applied the five-factor
test when determining whether a waiver has occurred under Rule 502(b). Mt.
Hawley Ins. Co. v. Felman Prod., Inc., 271 F.R.D. 125, 133-36 (S.D. W. Va.
2010). Others, including this court, have simply applied the three factors of Rule
502(b). See, e.g., Maxtena, Inc. v. Marks, 289 F.R.D. 427, 444 (D. Md. 2012);
King Pharm., Inc. v. Purdue Pharma, L.P., No. 1:08CV00050, 2010 WL 2243872,
at *2 (W.D. Va. June 2, 2010).
I have already found that the disclosure was inadvertent, that Nationwide
(for Harleysville) took reasonable steps to prevent disclosure of the Claims File,
and that Harleysville’s counsel promptly took reasonable steps to rectify the
disclosure. Harleysville’s counsel also promptly complied with Federal Rules of
Civil Procedure 26(b)(5)(B) and 45(e)(2)(B), which require them to notify
- 26 -

Insureds’ counsel of their claim.

Fed. R. Civ. P. 26(b)(5)(B) (governing

discovery); Fed. R. Civ. P. 45(e)(2)(B) (governing subpoenas). In addition, I have
already found that application of the five-factor test weighs against a finding of
waiver. See supra at IV.B.1.b. Accordingly, I conclude that the work-product
protection was not waived. To the extent Harleysville objects to the magistrate
judge’s finding that there was a waiver of the work-product protection, such
objection is sustained. To the extent Harleysville objects to the magistrate judge’s
decision to apply the five-factor test, resulting in a finding of waiver, such
objection is overruled as moot.
V. SANCTIONS.
A. Insureds’ Counsel’s Conduct Violated Ethical Standards.
1. Applicable Ethical Standards.
As the magistrate judge noted in her opinion, “[t]he conduct of attorneys
appearing before this court is governed by the Virginia Rules of Professional
Conduct as adopted by the Virginia Supreme Court.” Mem. Op. 13, ECF No. 68
(citing W.D. Va. Fed. R. Disc. Enf., Nov. 4, 1992 (amended Nov. 6, 1998 & June
16, 2016)). Virginia Rule of Professional Conduct 3.4(d) states: “A lawyer shall
not: . . . (d) Knowingly disobey . . . a standing rule.” Va. Sup. Ct. R. 3.4(d).
Federal Rule of Civil Procedure 45(e)(2)(B) states:
If information produced in response to a subpoena is subject to a
claim of privilege or of protection, . . . the person making the claim
- 27 -

may notify any party that received the information of the claim and
the basis for it. After being notified, a party must promptly return,
sequester, or destroy the specific information and any copies it has;
must not use or disclose the information until the claim is resolved;
must take reasonable steps to retrieve the information if the party
disclosed it before being notified; and may promptly present the
information under seal to the court for the district where compliance
is required for a determination of the claim.
Fed. R. Civ. P. 45(e)(2)(B) (emphasis added). Importantly, the Rule does not
require that the person asserting the claim of privilege be the one who produced the
material; instead, the Rule only refers to information that is “subject to a claim of
privilege.” Id. Thus, Rule 45 required Insureds’ counsel, upon notification of
Harleysville’s counsel’s claim of privilege, to, among other things, “promptly
return, sequester, or destroy” the privileged materials.5
Although Rule 45 imposes certain obligations on Insureds’ counsel, the
Rules of Civil Procedure are not themselves disciplinary rules. Given the odd
circumstances of this case — that is, that the disclosure occurred pursuant to a
third-party subpoena as a result of an inadvertent disclosure by the privilege holder
— there appear to be no black-letter disciplinary rules, either among the Virginia
Rules of Professional Conduct or the Model Rules promulgated by the American
5

Insureds argue that the magistrate judge erred in relying on the requirements of
Rule 26(b)(5)(B) as the basis for sanctions because Rule 26 does not apply in this
situation. They assert that, because the Claims File was produced in response to a
subpoena, and not in the course of discovery, Rule 45 governs. Defs.’ Objs. 12, ECF No.
70. However, this argument is ineffective, because the requirements of Rule 26(b)(5)(B)
are identical to requirements described in Rule 45(e)(2)(B). The only difference between
the language of the two is that Rule 26 applies to information “produced in discovery,”
whereas Rule 45 applies to information “produced in response to a subpoena.”
- 28 -

Bar Association (“ABA”), that are directly on point. This dearth of governing
rules does not, however, absolve Insureds’ counsel of their failure to notify
Harleysville’s counsel.
Legal Ethics Opinions (“LEOs”) issued by the Virginia State Bar Standing
Committee on Legal Ethics, while not binding on this or any court, provide
persuasive guidance regarding the propriety of attorneys’ conduct. LEO 1702 is
particularly instructive in this case. In LEO 1702, the Committee addressed the
conduct required where an attorney received a facsimile containing privileged
information from opposing counsel. The opinion first notes that “[t]he absence of
an explicit Disciplinary Rule does not create an ethical vacuum.” LEO 1702,
Inadvertent Receipt of Confidential Information; Zealous Representation (Nov. 24,
1997), 1999 WL 348823. Instead, it states, “[w]hen explicit ethical guidance does
not exist, a lawyer should determine his conduct by acting in a manner that
promotes public confidence in the integrity and efficiency of the legal system and
the legal profession.” Id. (internal quotation marks and citation omitted). It further
asserts that:
Every lawyer owes a solemn duty to uphold the integrity and honor of
his profession; . . . to conduct himself so as to reflect credit on the
legal profession and to inspire the confidence, respect, and trust of his
clients and of the public; and to strive to avoid not only professional
impropriety but also the appearance of impropriety.
Id. (internal quotation marks and citation omitted) (emphasis added).
- 29 -

Having clearly expressed that a lawyer’s ethical duties extend beyond the
black-letter rules, the opinion goes on to say that “a lawyer who receives
inadvertently transmitted confidential documents from the opposing lawyer has a
duty to notify the opposing lawyer promptly.” Id. Importantly, this conclusion is
not based on any particular rule or statute, but rather on the overarching principle
that the attorney’s “ethical polestar is conduct that reflects credit on and inspires
public confidence in and respect for the integrity of the legal profession.” Id.
Although LEO 1702 was decided in 1997, prior to the adoption of the
Virginia Rules of Professional Conduct, the Committee has recently affirmed its
applicability to the circumstances of this particular case. 6

In LEO 1871, the

Committee observed that Supreme Court of Virginia Rule 4:1(b)(6)(ii) now
governs a situation in which an attorney receives confidential information “in the
discovery phase of litigation.” LEO 1871, Inadvertent Receipt of Confidential
Information During the Discovery Phase of Litigation (July 24, 2013), 2013 WL
6151729. However, “[o]utside of the discovery process, the requirements of LEO
1702 fully apply.”

Id. (emphasis added).

6

Thus, an attorney who receives

It is worth noting that in issuing LEO 1702, the Committee relied in part on two
non-binding Formal Opinions issued by the ABA’s Committee on Ethics and
Professional Responsibility — 92-368 and 94-382 — both of which have since been
withdrawn. However, because the applicability of LEO 1702 was expressly affirmed in
LEO 1871 without mention of the ABA’s withdrawal of those opinions, and because
LEO 1702 itself was based on far more than those two opinions, I find that LEO 1702
continues to be persuasive.
- 30 -

privileged material outside the discovery process — for example, by means of a
subpoena on a third party — nevertheless has a “duty to notify the opposing lawyer
promptly.” LEO 1702 (Nov. 24, 1997), 1999 WL 348823.
At the evidentiary hearing before me, both sides presented expert testimony
as to the ethical propriety of the Insureds’ counsel’s conduct. Paul G. Georgiadis
testified on behalf of Harleysville and Bernard J. DiMuro testified on behalf of the
Insureds. Both are experienced and prominent Virginia attorneys. Mr. Georgiadis
served for 15 years as Assistant Bar Counsel for the Virginia State Bar,
prosecuting ethics complaints, and now specializes in lawyer’s professional
responsibility issues, including the defense of lawyer discipline prosecutions. Mr.
DiMuro is a former president of the Virginia State Bar and has previously qualified
as an expert witness on matters relating to professional responsibility and the
standard of care for lawyers in malpractice actions.
Mr. Georgiadis was of the opinion that Insureds’ counsel acted improperly
in their handling of the Claims File, while Mr. DiMuro was of the opposite
opinion. While I respect Mr. DiMuro’s long and varied experience, I find Mr.
Georgiadis’ opinion more persuasive.

His pertinent experience with attorney

conduct was greater and I find his analysis more in keeping with the applicable
ethical rules and authorities.

- 31 -

2. Insureds’ Counsel’s Conduct.
For the reasons described above, I find that Insureds’ counsel had an
obligation to “promptly return, sequester, or destroy” the privileged materials, Fed.
R. Civ. P. 45(e)(2)(B), with which they refused to comply.

I also find that

Insureds’ counsel had a duty to notify Harleysville’s counsel of the disclosure.
Insureds’ counsel does not dispute the fact that it did not provide notice, arguing
instead that it had no such duty. Moreover, I find that Insureds’ counsel had a duty
to uphold the integrity of the legal profession and to strive to avoid impropriety, as
well as the mere appearance of impropriety. They failed to do so.
Upon receiving NICB’s response to their subpoena, Insureds’ counsel
accessed the link contained in Cesario’s September 22 email, expecting to find the
video described in the email. They found the video, but they also found the Claims
File. Incorrectly assuming the Claims File had been intentionally produced by
Harleysville to NICB, Insureds’ counsel began reviewing its contents. When they
encountered materials marked as privileged and confidential, they temporarily
halted any review.
The materials marked as privileged and confidential are clearly privileged on
their face. Upon review of those materials, Insureds’ counsel knew or should have
known that they were privileged, and Insureds’ counsel do not dispute that they
realized as such. Until that point, Insureds’ counsel had done nothing wrong.
- 32 -

After realizing that the materials might be subject to a claim of privilege, however,
and still incorrectly assuming that Harleysville had intentionally shared the Claims
File with NICB, Insureds’ counsel conducted their own research as to how they
should proceed. Based on that research, Insureds’ counsel concluded that any
privilege had been waived, that they had no duty to notify Harleysville’s counsel,
and that they could treat the materials as non-privileged.

They proceeded

accordingly.
On July 1, 2016, a week after receiving NICB’s subpoena response,
Insureds’ counsel mailed to Harleysville’s counsel a DVD, which purportedly
contained electronic copies of all the documents Insureds’ counsel had received
from NICB pursuant to the subpoena. Brown Letter, July 1, 2016, ECF No. 56-4.
The DVD contained a copy of the September 22 email from Cesario to Rowe.
However, it did not contain the Claims File.
At the second evidentiary hearing before me, one of the Insureds’ attorneys,
Mr. Brown, testified that when Insureds’ counsel first reviewed the September 22
email, they believed that NICB intended to produce the video to them via the Box
Folder. However, if Insureds’ counsel genuinely believed the contents of the Box
Folder were part of NICB’s production, it appears that Insureds’ counsel should
have included the contents of the Box Folder on the DVD they sent to
Harleysville’s counsel. The fact that they failed to include the Claims File on the
- 33 -

DVD as being among the documents received from NICB strongly supports an
inference that Insureds’ counsel knew they were not supposed to have access to
those documents. Alternatively, if Insureds’ counsel believed that NICB only
intended to produce the video, and not the Claims File, disclosure of the Claims
File would necessarily have appeared to be inadvertent. Faced with an inadvertent
disclosure, and in light of the law governing such disclosures, see supra at IV,
Insureds’ counsel should have notified either NICB or Harleysville’s counsel.
In August 2016, Insureds’ counsel produced a thumb drive to Harleysville’s
counsel that did contain the Claims File, among thousands of other documents.
The Claims File was stored in a subfolder misleadingly named “NICB Video.” At
the hearing, Mr. Brown testified both that the subfolder was so named to match the
subject line of the September 22 email and that it was so named because that was
the designation NICB had used. However, the actual subject line of the email is
“video,” see Cesario Email, Ex. 3, ECF No. 53-3 — not “NICB Video” — so it is
clear the folder names were not automatically populated with document titles or
email subject lines. I thus infer that Insureds’ counsel chose to name the folder
“NICB Video,” despite knowing that the folder included far more than a video. If
Insureds’ counsel truly believed that Harleysville had produced the Claims File to
NICB and that NICB had, in turn, produced it to Insureds’ counsel — and thus that
there was no privilege issue — there would have been no reason to inaccurately
- 34 -

label the folder as containing only a video. Thus, the inaccurate label supports an
inference that Insureds’ counsel wished to conceal its possession of the Claims File
from Harleysville’s counsel to the extent it could do so without blatantly violating
discovery rules. 7
Additionally, in reviewing the contents of Insureds’ counsel’s thumb drive,
Harleysville’s counsel noted certain documents belonging to Insureds’ counsel that
appeared to be privileged. Harleysville’s counsel notified Insureds’ counsel of the
disclosure. In response, Insureds’ counsel asserted a claim of privilege and asked
Harleysville’s counsel to destroy the documents. Harleysville’s counsel did so.
Brown Letter, Aug. 29, 2016, ECF No. 53-4. Insureds’ counsel’s failure to alert
Harleysville’s counsel as to the disclosure of potentially privileged materials in the
Claims File, as well as their refusal to return or destroy the materials following
notice of the claim of privilege, is even more egregious when viewed in this
context.

7

Insureds’ counsel claims that the Virginia State Bar’s ethics hotline reached the
same conclusion as they did, that is, that any privilege had been waived and that
Insureds’ counsel had no duty to notify Harleysville’s counsel of the apparent disclosure.
However, advice provided by the ethics hotline is “irrelevant, as it is impossible to know
. . . precisely what information was conveyed to the ethics counselor.” Jeffers v. Inova
Mount Vernon Hosp., No. 1:04CV820, 2005 WL 1229694, at *2 (E.D. Va. May 12,
2005). “In any event, Virginia State Bar ethics hotline advice does not relieve an
attorney from the obligation of exercising [his] own judgment as to the proper ethical
course to follow, nor does such advice relieve an attorney from shouldering the
responsibility for the decisions [he] makes.” Id.
- 35 -

In addition, I find it impermissible that Insureds’ counsel did not voluntarily
bring this matter before the court for resolution. Both Rule 45(e)(2)(B) and Rule
26(b)(5)(B) specifically allow the party who received the privileged information to
“present the information under seal to the court . . . for a determination of the claim
[of privilege].” Fed. R. Civ. P. 45(e)(2)(B); see Fed. R. Civ. P. 26(b)(5)(B). If
Insureds’ counsel believed that waiver was obvious, they would have had nothing
to lose by bringing the question to the court. Moreover, they assert that they have
an “unblemished record and hav[e] never been sanctioned by any Court
anywhere,” have “never had a bar complaint filed by any clients,” and “hav[e]
always acted responsibly and in accordance with all statutes [and rules].” Defs.’
Objs. 15, ECF No. 70. Particularly in light of this record, even if they truly
believed any privilege had been waived, why not err on the side of caution and ask
the court to rule on the issue?
Insureds’ counsel violated Rule 45(e)(2)(B) when they refused to return,
sequester, or destroy the privileged material upon Harleysville’s counsel’s request.
In addition, and perhaps more importantly, they failed to adhere to the ethical
standards espoused by the Virginia State Bar. Attorneys must strive to avoid both
impropriety as well as the mere appearance of impropriety in their conduct, and
they must uphold the integrity of the profession. By attempting to conceal their
possession of the Claims File and usurping the role of the court by making a
- 36 -

unilateral determination on the issue of waiver, Insureds’ counsel fell far short of
their responsibility.
B. Disqualification is Not Warranted.
Harleysville has moved to disqualify Insureds’ counsel from continuing to
participate in this litigation, arguing that Insureds’ counsel’s conduct has created
an appearance of impropriety that necessitates disqualification. Pl.’s Objs. 22,
ECF No. 73.

Based upon all of the circumstances of the case, I find that

disqualification is not warranted.
The Fourth Circuit has noted that disqualification decisions should be based
on the circumstances of each case and an analysis of the harm to the parties, rather
than on a mechanical application of the applicable ethical rules. See Aetna Cas. &
Sur. Co. v. United States, 570 F.2d 1197, 1202 (4th Cir. 1978). Where an attorney
faces disqualification for failing to notify opposing counsel of the disclosure of
privileged material, courts have often applied a six-factor test first articulated by
the Supreme Court of Texas in In Re Meador, 968 S.W.2d 346 (Tex. 1998).
That decision articulated a list of factors that it emphasized, “apply only when a
lawyer receives an opponent’s privileged materials outside the normal course of
discovery.” 968 S.W.2d at 352 (emphasis added). Those factors are:
(1) whether the attorney knew or should have known that the material
was privileged;

- 37 -

(2) the promptness with which the attorney notifies the opposing side
that he or she has received its privileged information;
(3) the extent to which the attorney reviews and digests the privileged
information;
(4) the significance of the privileged information; i.e., the extent to
which its disclosure may prejudice the movant’s claim or defense, and
the extent to which return of the documents will mitigate that
prejudice;
(5) the extent to which movant may be at fault for the unauthorized
disclosure;
(6) the extent to which the nonmovant will suffer prejudice from the
disqualification of his or her attorney.
Id. 8 at 351-52. I consider each factor in turn as it applies to the present matter.
As I note above, Insureds’ counsel knew, or at the very least should have
known that the material was privileged.

Insureds’ counsel did not notify

Harleysville’s counsel that they had received the privileged materials.
Additionally, Insureds’ counsel reviewed the privileged materials and disseminated
them to their clients’ criminal defense counsel for use in the criminal case. Thus,
the first three factors weigh in favor of disqualification.

8

I note that Meador was decided in 1998, prior to the ABA’s withdrawal of
Formal Opinion 94-382. However, while Meador discusses Formal Opinion 94-382, it
expressly notes that the opinion is merely a “guideline.” In re Meador, 968 S.W.2d at
351. Moreover, courts have continued to apply Meador’s six-factor test in the years
following the ABA’s withdrawal of Formal Opinion 94-382. See, e.g., Raymond v. Spirit
AeroSystems Holdings, Inc., No. 16-1282, 2017 WL 2831485 (D. Kan. Jun. 30, 2017);
Merits Incentives, LLC v. Eighth Judicial Dist. Ct. of State, 262 F.3d 720, 726 (Nev.
2011).
- 38 -

The last three factors, however, weigh against disqualification. Although the
information at issue was certainly privileged, I did not find, in my in camera
review, any “smoking gun” materials that would necessarily make or break either
party’s case. In addition, I believe the Insureds would suffer prejudice were their
counsel to be disqualified. While Insureds’ counsel is certainly not the only law
firm capable of providing adequate representation, they have been working on this
case from the beginning, and, more importantly, their receipt of the Claims File
occurred through no fault of their clients. See Richards v. Jain, 168 F. Supp. 2d
1195, 1208 (W.D. Wash. 2001) (disqualification where the nonmovant party was
responsible for the breach of privilege).
Finally, although the disclosure of the Claims File was inadvertent, the
mistakes by Nationwide’s employee initiated this issue. This is not a case of
involuntary disclosure, where an unauthorized third party shared the privileged
information with opposing counsel through no fault of the movant. If Mr. Cesario
had not erroneously believed that the “sharing” link sent to NICB would expire, or
if he had stored the video and the Claims File in two separate folders on the Box,
Inc. website, the disclosure would never have occurred. See, e.g., Maldonado v.
New Jersey, 225 F.R.D. 120 (D.N.J. 2004) (disqualification where disclosure was
involuntary); Richards, 168 F. Supp. 2d 1195 (same); Resolution Trust Corp. v.

- 39 -

First of Am. Bank, 868 F. Supp. 217 (1994) (no disqualification where disclosure
was inadvertent).
Thus, although I am within my discretion to disqualify Insureds’ counsel
from this litigation, in light of the above factors, I am not convinced that the “blunt
remedy of disqualification is appropriate.” Raymond, 2017 WL 2831485, at *18
(internal quotation marks and citation omitted).
C. Evidentiary Sanctions Are Appropriate.
In their motion seeking disqualification, Harleysville requests that the court
“bar the use of Harleysville’s privileged and confidential files during this
litigation.” Mot. to Disqualify 1, ECF No. 52. The court has the inherent authority
to impose an evidentiary sanction in order to “achieve the orderly and expeditious
disposition of cases.” Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991) (internal
quotation marks and cite omitted); see also Raymond, 2017 WL 2831485, at *18.
For the reasons described below, I will grant Harleysville’s request.
In Raymond v. Spirit AeroSystems Holdings, Inc. the District of Kansas
considered four factors in determining whether improperly obtained documents
could be used:
(1) whether there was improper conduct by counsel;
(2) whether there was a direct benefit to the appropriator;
(3) whether other disincentives to the theft were available;
- 40 -

(4) whether there was any prejudice to the opposing party.
2017 WL 2831485, at *18 (citing Brado v. Vocera Commc’ns, Inc., 14 F. Supp. 3d
1316, 1320-22 (N.D. Cal. 2014)). I discuss each factor in turn.
I have already discussed Insureds’ counsel’s improper conduct in this matter.
See supra at V.B.2.
In addition, though I do not believe the Claims File contained information
that would necessarily make the Insureds’ case, I do find that the Insureds
nevertheless directly benefited from review of the privileged materials in the
Claims File.
Other disincentives to a party’s improper access of privileged documents
may include mere return of the documents, full exclusion of the documents,
disqualification of counsel, and civil claims for conversion of the documents. See
Raymond, 2017 WL 2831485, at *19. Where some disincentive besides exclusion
is available, “courts tend to lean toward ordering only the return of the
documents.” Id. For example, in Brado, where the documents were taken by a
party who was subsequently exposed to claims of breach of contract and
conversion, mere return of the documents was sufficient. Brado, 14 F. Supp. 3d at
1321. Where other disincentives are unavailable, however, exclusion may be
appropriate. Raymond, 2017 WL 2831485, at *19. Of course, civil conversion
claims are not appropriate in a case like this, where the improper access was the
- 41 -

result of an inadvertent disclosure rather than theft. In addition, I have already
concluded that disqualification is not warranted. Thus, exclusion and return of the
documents are the only available sanctions. In light of the impropriety of Insureds’
counsel’s conduct and the nature of the privileged materials, mere return of the
documents under these circumstances would not be sufficient. Allowing Insureds’
counsel to use the knowledge gained through their improper review would reward
them for their inexcusable behavior. This factor therefore weighs in favor of
exclusion as an appropriate remedy.
Finally, Insureds’ counsel’s review of the privileged material undoubtedly
prejudiced Harleysville. Where “all of the information wrongfully obtained would
have been disclosed through the discovery process later,” it may be difficult to
show prejudice. Id. The privileged materials in the Claims File, however, would
not have been discoverable. They consist of communications protected by the
attorney-client privilege as well as attorney work product. It would have been
impossible for Insureds’ counsel to have obtained these documents in the normal
course of discovery. As the court in Raymond noted, “[e]ven severe evidentiary
sanctions cannot erase what . . . counsel learned from their review.” Id. Moreover,
this breach of trust by Insureds’ counsel will undoubtedly burden the litigation
going forward. This factor therefore weighs in favor of exclusion.

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I therefore find that an evidentiary sanction is appropriate. Accordingly, the
Insureds must not use any information contained in the privileged material, or
information derived from such material, to seek additional information in
discovery, through a subpoena, or in any other manner. Moreover, the Insureds
must not use the information contained in or derived from the privileged material
for any purpose in any filing or proceedings (including trial) in this action or any
other related civil action.
The Insureds will be permitted to use evidence contained in the privileged
material, so long as such evidence was independently obtained not arising from the
privileged material. If contested, the Insureds must be prepared to prove that the
evidence sought to be used was, in fact, independently obtained. Insureds’ counsel
must also certify, for all future document productions or discovery responses, that
the information on which the production or response is based has been
independently obtained not arising from the privileged material.
Harleysville must promptly designate to the Insureds the material contained
in the Claims File that Harleysville deems privileged. If the Insureds dispute any
such designation, it must promptly seek a determination of the issue by the
magistrate judge.

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The Insureds and their counsel must not make any copies of the privileged
material and must not provide or communicate the privileged material to any other
person or entity. 9
VI. MOTION TO STRIKE.
Following the second evidentiary hearing, Insureds filed a Motion to Strike
two expert reports filed by Harleysville’s counsel. The first is a report, ECF No.
101-1, filed by Mr. Georgiadis, who testified at the hearing. The second is a
report, ECF No. 102, filed by Michael Rigsby, who did not testify.
I find that consideration of the Rigsby report is inappropriate. Rigsby did
not testify at the hearing and was not subject to cross-examination. The fact that
Insureds’ counsel opened the door by asking Georgiadis about Rigsby’s opinion
does not change the hearsay nature of that opinion. In addition, I find that the
Georgiadis report is unnecessary. Georgiadis testified at length during the hearing
and was subject both to cross-examination by Insureds’ counsel and to questioning
by the court. Accordingly, I will grant Insureds’ Motion to Strike both expert
reports from the record.
VII. CONCLUSION.
For the foregoing reasons, it is hereby ORDERED as follows:

9

The magistrate judge imposed a monetary sanction on Insureds’ counsel. In
view of my evidentiary sanction, I will sustain the objection to the monetary sanction.
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1. Harleysville’s Objections (ECF No. 73) to the magistrate judge’s Order
(ECF No. 69) are GRANTED IN PART AND DENIED IN PART;
2. The Insureds’ Objections (ECF No. 70) to the magistrate judge’s Order
(ECF No. 69) are GRANTED, and the magistrate judge’s Order imposing
monetary sanctions (ECF No. 100) is VACATED;
3. The Insureds’ Motion to Strike (ECF No. 106) is GRANTED;
4. The Insureds must not use any information contained in the privileged
material, or information derived from such material, to seek additional information
in discovery, through a subpoena, or in any other manner. Moreover, the Insureds
must not use the information contained in or derived from the privileged material
for any purpose in any filing or proceedings (including trial) in this action or any
other related civil action.
The Insureds will be permitted to use evidence contained in the privileged
material, so long as such evidence was independently obtained not arising from the
privileged material. If contested, the Insureds must be prepared to prove that the
evidence sought to be used was, in fact, independently obtained. Insureds’ counsel
must also certify, for all future document productions or discovery responses, that
the information on which the production or response is based has been
independently obtained not arising from the privileged material.

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Harleysville must promptly designate to the Insureds the material contained
in the Claims File that Harleysville deems privileged. If the Insureds dispute any
such designation, it must forthwith seek a determination of the issue by the
magistrate judge.
The Insureds and their counsel must not make any copies of the privileged
material and must not provide or communicate the privileged material to any other
person or entity.
ENTER: October 2, 2017
/s/ James P. Jones
United States District Judge

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