Return Of Privileged Materials Required Due To "Callous Disregard" Of Federal Prosecutors

• Published date: 20 October 2021
• Subject Matter: Litigation, Mediation & Arbitration, Food, Drugs, Healthcare, Life Sciences, Disclosure & Electronic Discovery & Privilege, Trials & Appeals & Compensation
• Law Firm: Holland & Knight
• Author: Ms Kathryn Isted

In Harbor Healthcare System, L.P. v. United States, 5 F.4th 593 (5th Cir. 2021), the court of appeals ruled that the district court abused its discretion in refusing to exercise its equitable jurisdiction over a healthcare provider's motion for return of property, in which the provider sought the return of privileged materials seized by the United States during a pre-indictment criminal investigation led by the U.S. Attorney's Office for the Eastern District of Texas. On May 18, 2017, the government executed search warrants on Harbor Healthcare System (Harbor), seizing hundreds of boxes of paper records and 3.59 terabytes of data contained in multiple computers, hard drives, mobile devices and email accounts. The materials seized included the computer, email account, iPhone and paper documents of Eric Sprott, Harbor's general counsel and director of compliance, and consequently, contained substantial information protected by the attorney-client privilege and work product doctrine. The government assembled a "filter team" from "another division of the Eastern District" to review the seized materials for privileged information. After Harbor repeatedly sought the return of its privileged documents from the government to no avail, Harbor initiated an action in the U.S. District Court for the Southern District of Texas on Sept. 7, 2018, and filed a motion for the return of property under Rule 41(g) of the Federal Rules of Criminal Procedure.

In that action, at the district court's insistence, the parties proposed a "privilege-screening plan." During the test phase of that plan, Harbor identified 3,843 emails from Sprott's account as privileged and discovered that "a significant number of privileged documents" had already been transferred from the government's filter team to its civil and criminal investigators. Meanwhile, the government moved to dismiss Harbor's action on the grounds that the district court lacked equitable jurisdiction, arguing that Harbor had not "demonstrate[d] any irreparable harm to its legitimate property interests" and that the Rule 41(g) motion was mooted by the privilege-screening plan. The district court granted the motion, declining to continue exercising its equitable jurisdiction and dismissing Harbor's action.

The court of appeals reversed, finding the district court erred in its application of the Richey v. Smith, 515 F.2d 1239, 1242-43 (5th Cir. 1975) factors for evaluating pre-indictment motions for return of property, which...