We blogged the Court of Appeals’ opinion here; go there for the facts.The Supreme Court vacates that decision, largely undoes the damage it caused, and gives some fairly clear directions on how to deal with the problem.

Rule 26(1)(f)(2) does not require the return of allegedly-privileged documents produced inadvertently. The party receiving the documents may return them, destroy them, or, if the party wants a ruling on them, file them under seal.

If the documents are filed under seal the trial court may not look at them until “the receiving party makes a factual showing to support a reasonable, good-faith belief that the document is not privileged.” (That involves briefing by both sides and since the trial judge in this case did not wait that long the case is remanded.)

How can the receiving party know enough about the documents to make such a showing? The rule’s prohibition on the “use” of the documents “does not preclude filing the documents with the court under seal and other conduct allowed by the rules” (our emphasis). The rule allows the party to “present to the court” . . . “the questions of privilege and waiver.” The opinion does not specifically say “you can examine the documents enough to figure out if they’re really privileged” but that seems to be the lesson we’re to draw. “Although . . . these actions involve a literal “use” of the documents, Rule 26(1)(f)(2) contemplates that the privilege claim may be ‘resolved’ through such use.”

If a proper showing is made, an in camera review determines if the documents are privileged. As to who should do that, “the trial judge should consider whether another judicial officer [note that it doesn’t say “judge”] should conduct the review in light of the possibility that a review of privileged documents may be so prejudicial as to require the judge’s recusal. If the trial judge conducts the review and upholds the privilege claim, the judge should consider whether recusal is then necessary.”

(link to opinion)

We blogged the Court of Appeals opinion here; go there for the facts. The Supreme Court disagrees with the Court of Appeals, deciding that Montelucia does after all have to prove its ability to perform before it can retain the earnest money.

The rule is salutary but the court sullies it by playing games with words, suggesting that the issue is whether “a defendant who seeks to retain damages” must show ability to perform. To call the benefits received by one party under a contract “damages” when the other decides to repudiate it is spin, not analysis.

On remand Montelucia must prove that it was ready to perform in order to keep the earnest money. For some reason the court seems uneasy about this since it spends several paragraphs explaining that this earnest money wasn’t, contrary to the contract language and Montelucia’s claim, really earnest money, it was progress payments. Maybe that’s right but since when is it for the Supreme Court to resolve disputed facts? This was a contract – the money’s function was what the parties intended it to be. And what does all this mean to the analysis – if it really was “earnest money” would it not be “damages?” Apparently not, because the court tells us that earnest money “typically” remains in escrow and “usually” does not finance construction. But what if it doesn’t and does, respectively?

(link to opinion)