On May 14, 2014, in US Commodity Futures Trading Commission v. Parnon Energy Inc., the US District Court for the Southern District of New York held that a confidentiality order providing for the return of inadvertently produced privileged information does not protect privileged documents when the production is "completely reckless" (No. 11-3543 (S.D.N.Y. May 14, 2014).

The Commodity Futures Trading Commission (CFTC) commenced this action alleging price manipulation of crude oil futures. During discovery, the parties entered into a confidentiality order requiring the return of privileged documents that had inadvertently been produced. The order also stated that inadvertent production would not waive the privilege. The CFTC produced more than 250,000 documents relating to an earlier investigation of the crude oil market. The documents included communications with an attorney representing a confidential informant who consulted with the CFTC during its investigation. The CFTC marked the documents "highly confidential," but did not review them for privilege before making its production. As a result of the production, the defendants were able to learn the identity of the informant's attorney.

The defendants subpoenaed the informant's attorney and his law firm to obtain all communications between the attorney and the CFTC and all communications between the attorney and other persons "concerning any of the Defendants." The CFTC argued that the attorney's identity was covered by the informer's privilege and was not waived under the inadvertent production provision of the confidentiality order.

The SDNY explained that the informer's privilege is the government's privilege to withhold the identity of persons providing information to law enforcement officers about violations of the law. In this case, the privilege was not waived with respect to the informant's identity and any communications with the informant's attorney that would reveal the informant's identity. Although communications with the informant's attorney had been disclosed, the informant's identity had not. Therefore, the informer's privilege had not been waived.

However, the court determined that it need not decide whether the attorney's identity came within the informer's privilege because CFTC's production of communications with the informant's attorney was completely reckless. The SDNY noted that the protection of privilege for inadvertently produced documents does not apply when the production of privileged information is completely reckless. A production is completely reckless when a party shows no regard for protecting the confidentiality of the privileged information, regardless of the number of documents involved. Although the court recognized that errors are inevitable in large-scale discovery, here the CFTC failed to conduct any privilege review before making its production. Instead, it merely designated the entire production "highly confidential." Because the CFTC's production of communications with the informant's attorney resulted from a failure to review and not an inadvertent error, the confidentiality agreement's protection of inadvertently produced documents did not apply.

Practitioners should be reminded of the need to conduct a thorough privilege review, even in cases where they have entered into confidentiality agreements. Counsel cannot simply mark documents "highly confidential" and rely on claw back provisions in a confidentiality agreement to preserve the documents' privilege. This decision shows that completely reckless production of privileged information will result in waiver of the privilege.