The California Supreme Court has held in Costco Wholesale Corporation v. Superior Court of Los Angeles County, No. S163335 (Nov. 30, 2009) that communications between an outside counsel and his/her corporate client, providing advice regarding whether certain management positions are exempt from overtime, are privileged even if: the outside counsel gathers facts in the process of rendering advice; summaries of those facts are included in written communications prepared by the outside counsel; and those facts are otherwise discoverable in litigation.

Background

In June 2000, Costco Wholesale Corp. ("Costco") retained an outside law firm to provide a legal opinion regarding whether certain Costco managers could be classified as exempt from California's overtime laws. In order to prepare its opinion, the law firm reviewed documents, interviewed witnesses, and then prepared a written opinion regarding whether the positions could be classified as exempt. In its written opinion, the law firm included summaries of the facts gathered from its interviews and document review.

Years later, Costco employees filed suit claiming they had been misclassified as exempt from California overtime laws and were owed statutory overtime wages. In the course of discovery, the employees demanded production of the written opinion the outside law firm had provided Costco regarding whether certain management positions were exempt from overtime. Costco objected to the plaintiffs’ request for the opinion letter, arguing that it was attorney-client privileged. The employees then filed a motion to compel production of the letter.

The trial court ordered Costco to produce a copy of the letter to a discovery referee for an in-camera review. After conducting that review, the discovery referee recommended that Costco be ordered to produce a redacted version of the letter. The referee concluded that, while the letter was attorney-client privileged, it contained certain factual information, e.g., witness statements and excerpts of relevant documents, that were not privileged. Consequently, the referee recommended that the opinion letter be produced with the portions of the letter providing advice redacted. The trial court adopted the referee's recommendations and ordered Costco to produce a redacted version of the letter.

Costco filed a writ of mandate, asking the Court of Appeal to overturn the trial court's order. The Court of Appeal denied Costco's writ, concluding that Costco had not shown it would be irreparably harmed by production of the redacted letter. The Court of Appeal held the employees could discover the factual portions of the letter by other means so there was no harm in allowing the employees the factual information in the redacted opinion letter. Costco then asked the California Supreme Court to review the issue.

The California Supreme Court’s Ruling

The California Supreme Court concluded Costco had established a prima facie case of privilege - it had retained an outside law firm to render legal advice, the firm had prepared an opinion letter in order to communicate its legal advice to Costco, and the communication was confidential, i.e., was not disclosed to disinterested third parties. Consequently, the court held it was the employees' obligation to demonstrate the privilege did not apply.

The court rejected the employees' argument that the opinion letter was discoverable to the extent it contained purely factual information: "[t]he attorney-client privilege attaches to a confidential communication between the attorney and the client and bars discovery of the communication irrespective of whether it included unprivileged material." The court noted that the law regarding the attorney-client privilege has long been that, while transmitting publicly available information to a client does not cloak such information with the attorney-client privilege, an attorney’s transmission of publicly available information to a client is nevertheless a privileged communication, not subject to discovery. In the words of the court: "'it is the actual fact of the transmission which merits protection, since discovery of the transmission of specific public documents might very well reveal the transmitter's intended strategy.'" Additionally, the court held it is irrelevant that a non-attorney could have collected the facts that led to the attorney's opinion. If an attorney is retained to provide an opinion and the attorney collects facts in order to do so, the attorney-client privilege applies to the attorney's communication of not only the legal advice but also the factual statements in the transmission.

The court further held that the attorney-client privilege applies even if there is no pending litigation. The court again cited well-established precedent establishing that the attorney-client privilege attaches to all communications that arise in the course of the attorney-client relationship, not just those communications that arise in the context of litigation.

The court also held that the trial court had committed an error when it ordered Costco to produce its opinion letter for in-camera review. The court noted that, when the discovery of a privileged document is in dispute, a trial court may not order a party to produce the disputed communication for in-camera review. The court may order a party to produce other evidence establishing that the document in dispute is covered by the attorney-client privilege, but the allegedly privileged communication is absolutely protected from discovery and a court cannot order a party to produce it for an in-camera review.

Recommendations

While the decision by the court in Costco establishes that the attorney-client privilege is still alive and well, employers should continue to designate and protect attorney-client communications. For example, employers should put requests for legal advice in writing to confirm that the attorney's role is to provide legal advice, not just to collect information or to make a business decision. Employers also should label all communications relating to its request for legal advice as "Confidential Attorney-Client Privileged" communications to better identify which communications were made in order to obtain legal advice. Additionally, employers should take steps to ensure privileged communications are kept confidential and are not disclosed to individuals who have no need to know or receive the information.

Julie A. Dunne is a Shareholder in Littler Mendelson's San Diego office. If you would like further information, please contact your Littler attorney at 1.888.Littler, info@littler.com, or Ms. Dunne at jdunne@littler.com.