California Supreme Court Decision Impacts Attorney-Client Privilege

Companies can retain counsel to provide legal advice, and gather factual information necessary to the provision of such advice, without fear that any aspect of the attorney's communication of such advice will wind up subject to discovery—or in camera review. That was the holding in the California Supreme Court's decision in Costco Wholesale Corp. v. Superior Court, released on November 30, 2009.

The issue arose after Costco retained Sheppard, Mullin, Richter & Hampton LLP to review its classification of certain managers as exempt employees under California's wage and overtime laws. Kelly Hensley, a wage and hour law expert, interviewed two Costco managers, and ultimately produced an opinion letter for Costco.

Several years later, certain Costco managers brought a class action lawsuit against Costco, alleging that it had misclassified them as exempt employees and sought to compel production of the Hensley's opinion letter. Costco objected on the grounds that the letter was protected from discovery by the attorney-client privilege and the work product doctrine. After in camera review (to which Costco also objected), the trial court ordered Costco to turn over portions of the memo containing factual information obtained from Costco's employees. The court held that (1) statements obtained in attorney interviews of corporate employees are not privileged and do not become privileged by being incorporated into a later communication between the attorney and client; and (2) Costco's outside counsel had been acting as a fact finder, not as an attorney, when she interviewed the two Costco managers.

The Supreme Court disagreed. Rather than focusing on the contents of the communication, the Court focused on the communication itself. Because the letter was between an attorney and her client, its contents were privileged. Whether the contents of the letter were confidential or public, legal advice or facts was immaterial. Slip Op. at 8. The Court also rejected the trial court's conclusion that the outside attorney was acting as a fact finder when she interviewed her client's employees. Id. at 9-10. It is important to note, however, that the Court expressly did not reach the issue of whether the conversations between Hensley and the managers—as opposed to the attorney's summary of those conversations to her client—might be protected by the attorney-client privilege or the work product doctrine. Id. at 4.

In its second holding, the Court unequivocally concluded that a court may not require a litigant to submit assertedly privileged communications for in camera review to determine the validity of the assertion and disapproved two contrary court of appeal decisions. Id. at 14. Of particular note for practitioners, the court suggested, in dicta, that the party asserting the privilege may ask for in camera review to support the privilege assertion (apparently without waiving the privilege, although the Court was not explicit about the waiver question). Id. at 15.

The Court's third holding concerned the Court of Appeal. The Court of Appeal had denied Costco's petition, without reaching the merits, on the grounds that Costco had not demonstrated that disclosure of the letter would cause irreparable harm because the information Costco was ordered to produce was easily discoverable from another source. The Supreme Court held that an order to produce privileged material is inherently harmful because such production disrupts the attorney client relationship. Id. at 17.

If you have questions about any of the matters summarized in this alert, please contact Jonathan W. Hughes at 415.677.6380 or jhughes@howardrice.com, Amy L. Bomse at 415.677.6590 or abomse@howardrice.com or contact your usual Howard Rice attorney.