Wholesale Changes: Supreme Court Of California Disapproves Of Prior Precedent In Attorney-Client Ruling In Costco Appeal

California Evidence Code Section 954, California's attorney-client privilege, indicates in relevant part that

Subject to Section 912 and except as otherwise provided in this article, the client, whether or not a party, has a privilege to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and lawyer if the privilege is claimed by:

(a) The holder of the privilege;

(b) A person who is authorized to claim the privilege by the holder of the privilege; or 

(c) The person who was the lawyer at the time of the confidential communication, but such person may not claim the privilege if there is no holder of the privilege in existence or if he is otherwise instructed by a person authorized to permit disclosure.

In Costco, 

In June 2000, Costco Wholesale Corporation..., which operates warehouse-style retail establishments throughout California, retained the law firm of Sheppard, Mullin, Richter & Hampton to provide legal advice regarding whether certain Costco warehouse managers in California were exempt from California's wage and overtime laws. Attorney Kelly Hensley, an expert in wage and hour law, undertook the assignment, ultimately producing for Costco [a] 22-page opinion letter....The letter followed conversations held by Hensley with two warehouse managers Costco had made available to her. Costco, the managers, and Hensley understood the communications between the managers and Hensley were, and would remain, confidential. Similarly, Costco and Hensley understood that Hensley's opinion letter was, and would remain confidential.

Subbsequently, Costco employees filed a class action against Costco, "claiming that from 1999 through 2001 Costco had misclassified some of its managers as 'exempt' employees and therefore had failed to pay them the overtime wages they were due as nonexempt employees." Those plaintiffs then sought to compel discovery of Hensley's opinion letter, and "Costco objected on the grounds the letter was subject to the attorney-client privilege and the attorney work product doctrine." The "[p]laintiffs disagreed, arguing both that the letter contained unprivileged matter and that Costco had placed the contents of the letter in issue, thereby waiving the privilege." Thereafter, "[t]he trial court, over Costco's objection, ordered a discovery referee to conduct an in camera review of Hensley's opinion letter to determine the merits of Costco's claims of attorney-client privilege and work product doctrine."

This ruling prompted Costco's appeal and led to the Supreme Court of California to reverse and disapprove of prior California precedent.

Now, there were many aspects to the Supreme Court of California's opinion, but it seemed like the opinion boiled down to one question: If a party believes that communications are not covered by the attorney-client privilege, can the part get in camera review of the communications or does it have to rely on other evidence? According to the California Supremes, it is the latter. According to the court,

In arguing in favor of the trial court's ruling, plaintiffs cite [precedent] for the proposition that despite the unequivocal language of Evidence Code Section 915 subdivision (a), the section's prohibition “is not absolute,” and a litigant might be required to reveal some information in camera to enable the court to determine whether a communication is subject to the attorney-client privilege. But in citing these cases, plaintiffs fail to recognize the critical distinction between holding a hearing to determine the validity of a claim of privilege and requiring disclosure at the hearing of the very communication claimed to be privileged. Evidence Code Section 915, while prohibiting examination of assertedly privileged information, does not prohibit disclosure or examination of other information to permit the court to evaluate the basis for the claim, such as whether the privilege is held by the party asserting it....Evidence Code Section 915 also does not prevent a court from reviewing the facts asserted as the basis for the privilege to determine, for example, whether the attorney-client relationship existed at the time the communication was made, whether the client intended the communication to be confidential, or whether the communication emanated from the client....Accordingly, while the prohibition of Evidence Code Section 915 is not absolute in the sense that a litigant may still have to reveal some information to permit the court to evaluate the basis for the claim of privilege...,it does not follow that courts are free to ignore the section's prohibition and demand in camera disclosure of the allegedly privileged information itself for this purpose.

In reaching this conclusion, which I think was the correct conclusion, the court disapproved of pror California precedent such as Martin v. Workers Comp. Appeals Bd., 59 Cal.App.4th 1377 (Cal. App. 2 Dist. 1997), and 2,022 Ranch v. Superior Court, 113 Cal.App.4th 1377 (Cal.App. 4 Dist. 2003), which had found that requesting parties could get in camera review of allegedly privileged communications.

-CM