Friday, October 12, 2007
Appeals Court Rules for Broad Corporate Attorney-Client Privilege
By STEVEN M. ELLIS, Staff Writer
The corporate attorney-client privilege extends to confidential communications regarding legal advice and strategy between a corporation’s agents, even those that do not directly involve attorneys or include excerpts of direct communications from attorneys, the Court of Appeal for this district ruled yesterday.
Div. Four held that Los Angeles Superior Court Judge Peter D. Lichtman employed an overly restrictive definition of the privilege when he adopted a discovery referee’s decision that the privilege attaches only to communications by counsel to a client, and by a client to counsel.
Presiding Justice Norman L. Epstein said that the privilege extends beyond such communications and is not waived by disclosure to third persons when such disclosure is reasonably necessary to further the purpose of the legal consultation.
The matter arose in connection with Zurich American Insurance Company’s claim of the privilege relating to internal documents sought by Watts Industries, Inc. during discovery in a bad faith suit. Watts alleged that Zurich breached its duty under insurance policies it had issued to defend Watts and to provide coverage in ongoing litigation.
Watts requested production of over 2,000 documents from Zurich’s claims file, and Zurich objected, invoking the attorney-client privilege and the attorney work product doctrine.
The number of contested documents was eventually reduced to 230 and retired Superior Court Judge Lester E. Olson was appointed as a referee to examine the documents in camera and rule on the claims of privilege.
Recognizing that many of the disputed documents indicated internal litigation plans and strategy, Olson concluded that documents whose creation was based upon the advice of counsel, but to which counsel was not a party, were not protected by privilege. He also declared that discussion of legal matters, strategy, and status of the bad faith litigation within documents alone could not be used to cloak them with privilege.
Lichtman adopted the referee’s decision and ordered Zurich to produce the documents.
Request for Articulation
Zurich appealed, asking for an articulation of principles concerning the attorney-client privilege and for a writ directing the trial court to examine the documents under such principles.
Ruling that corporate communications not directly involving an attorney, but which discussed legal advice, nonetheless fell within the attorney-client privilege, the panel vacated the trial court’s orders and directed it to conduct a new review of the disputed documents.
Epstein said the trial court’s definition of the privilege was inadequate because it failed to take into account the language of Evidence Code Sec. 952 expressly contemplating that confidential communications included information transmitted to persons “to whom disclosure is reasonably necessary for the transmission of the information,” and those to whom disclosure is reasonably necessary for “the accomplishment of the purpose for which the lawyer is consulted.”
“[I]n order to implement the advice of lawyers…,” Epstein wrote, “advice must be communicated to others within the corporation. It is neither practical nor efficient to require that every corporate employee charged with implementing legal advice given by counsel for the corporation must directly meet with counsel or see verbatim excerpts of the legal advice given.”
He also wrote that, to the extent that legal advice was discussed or contained in a communication between Zurich’s employees, it was presumptively privileged, and that a communication reflecting a discussion of litigation strategy which expressed that the strategy was in response to advice of counsel would come within the privilege.
Directing the trial court to conduct a review of the documents to ascertain their privileged status, the appellate panel said that the first relevant inquiry was whether a document contains a discussion of legal advice or strategy of counsel. Sec. 952 provides that a “confidential communication” includes legal opinions formed by a lawyer and advice given in the course of a relationship.”
Once a determination was made that a document is privileged, the trial court must then determine whether the holder waived the privilege by distributing the advice within the corporation, Epstein said.
“The key concept here is need to know,” he wrote, citing a previous case before the court.
“While involvement of an unnecessary third person in attorney-client communications destroys confidentiality, involvement of third persons to whom disclosure is reasonably necessary to further the purpose of the legal consultation preserves confidentiality of communication,” the presiding justice wrote.
On remand, he said, the trial judge must determine whether the Zurich employees with whom the advice of legal counsel was shared came within these principles and, if documents were shown to have been treated as confidential, to declare them privileged, Epstein said.
He emphasized that otherwise routine, non-privileged communications between corporate officers or employees transacting the general business of a company do not attain privileged status solely because in-house or outside counsel is “copied in” on correspondence or memoranda, and that relevant facts could not be withheld merely because they were incorporated into a communication involving an attorney.
He also added that, “[i]t is settled that the attorney client privilege is inapplicable where the attorney merely acts as a negotiator for the client, gives business advice or otherwise acts as a business agent.”
Epstein was joined in his opinion by Justice Thomas L. Willhite Jr. and Justice Nora M. Manella.
Attorneys on appeal were Neil H. Selman, Sheryl W. Leichenger, Kathleen Caswell Vance and Rachel E. Hobbs of Selman Breitman for the petitioner; and David S. MacCuish and Richard C. Giller of Rochefort, Rubalcava & MacCuish for the real party in interest.
Counsel for the petitioner and the real party in interest were unavailable for comment.
The case is Zurich American Insurance Co. v. Superior Court (Watts Industries, Inc.), 2007 S.O.S. 6174.
Copyright 2007, Metropolitan News Company