California Supreme Court reaffirms sanctity of corporate attorney-client privilege
The scenario described in Costco Wholesale Corp. v. Superior Court is a common one: a corporation hires outside legal counsel to provide a written opinion on some aspect of its operations. In this particular case, Costco asked for a legal opinion on whether its warehouse managers were exempt from California’s wage and overtime laws. Of course, written opinions of various stripes are sought routinely from outside counsel in areas of corporate governance and securities law, among others. The written opinion of outside counsel, given in response to a request from a corporation, is clearly protected by the attorney-client privilege, right? Not according to a California Court of Appeal in Costco Wholesale Corp. the decision the State’s Supreme Court reversed, closing a hole in the privilege protection that the intermediate appellate court had created.
The privilege issue arose when Costco managers brought a class action lawsuit alleging that Costco misclassified them as exempt employees. They filed a motion to compel discovery of outside counsel’s opinion letter on that issue, written before the lawsuit was filed. Costco had refused to produce the letter on the grounds that it was protected from disclosure by the attorney-client privilege and the attorney work product doctrine. The trial court, over Costco’s objection, ordered a review in chambers of the disputed letter. Following this review, the trial court concluded that the letter contained both privileged communications (involving attorney observations, impressions, and opinions) and an unprivileged description of various employees’ job responsibilities. The trial court ordered that the letter be produced to plaintiffs and their counsel, with the privileged communications redacted from the letter. The Court of Appeal denied Costco’s petition for a writ of mandate to reverse the trial court. The appeals court concluded that Costco could not show irreparable harm by having the letter produced, as the description of facts contained in the unredacted text would be easily discoverable by other means.
On November 30, 2009, the California Supreme Court unanimously ruled that the entire letter was protected from disclosure by the attorney-client privilege. There was no dispute that the letter was a confidential communication between the attorney and the corporate client. It was also well-established that the attorney-client privilege attaches to a confidential communication between attorney and client even if the communication contains unprivileged material. The Court explained that the transmission of information is, itself, privileged, even if the underlying factual information may be obtained through interrogatories, deposition questions, or other means of discovery. Moreover, California law prohibits courts from requiring disclosure of a privileged communication “in order to rule on a claim of privilege” although a court may require disclosure of some information to evaluate the basis for the claim. For example, a judge may inquire in open court whether the communication was intended to be confidential and whether the attorney-client relationship existed when the communication was made. Nevertheless, as the Supreme Court observed, in ruling on a claim of privilege, a court may not order disclosure of “the very communication claimed to be privileged.” Finally, the court held that the breach of the attorney-client privilege was harmful in itself, and that the client need not also demonstrate prejudice by the discovery of the contents of the communication.
The decision in Costco Wholesale Corp. should come as a relief to companies and their counsel throughout California. Although the outcome of this case may now seem obvious in retrospect, the lower courts had been persuaded otherwise. The California Supreme Court’s decision provides clear instructions to the lower courts that if the attorney-client privilege attaches to a communication, it may not be invaded, regardless of the rationale.
- Costco Wholesale Corp. v. Superior Court (Randall), Cal. Supreme Court, filed November 30, 2009. [Back to reference]
- Because the Supreme Court found for Costco on the attorney-client privilege defense, it did not reach the separate question whether the letter also was protected by the attorney work product doctrine. [Back to reference]
- California Evidence Code § 915(a). [Back to reference]