Case: Costco Wholesale Corporation v. Superior Court (Cal. Ct. App. 3/27/08)

The One Sentence Summary: Where a redacted version of a letter prepared by Costco’s outside counsel detailing a comprehensive factual investigation and legal analysis of the classification of managers within Costco warehouses disclosed only job descriptions of certain managers readily available from other sources, Costco was unable to establish that irreparable harm would result from disclosure of the redacted letter and therefore was not entitled to writ relief from the trial court’s order requiring production of the redacted letter.

What They Were Fighting About: In 2000, Costco engaged outside counsel to conduct a comprehensive factual investigation and legal analysis of the classification of managers within Costco warehouses. Outside counsel interviewed two warehouse managers and relied on other information provided to her by Costco, her legal research and experience in preparing a 22 page letter addressing the exempt status of certain Costco warehouse managers in California. In 2001, Costco decided to reclassify ancillary managers (i.e., managers of departments within each warehouse, such as meat, bakery, pharmacy, etc.) from exempt employees not entitled to overtime payments to salaried, non-exempt employees who were entitled to overtime. Plaintiffs then filed a class action against Costco in 2003 alleging it had misclassified ancillary managers as exempt employees and thus unlawfully failed to pay overtime. Plaintiffs sought production of the outside counsel’s letter, and Costco objected on attorney-client privilege and work product grounds. The trial court ordered that a referee inspect the letter in camera to determine whether and what information in the document constituted privileged legal advice. The referee issued a recommendation upholding Costco’s privileges as to parts of the letter, which he redacted, but found that other factual information about various employees’ job responsibilities was not protected and should be produced. The referee found that the factual information was obtained in outside counsel’s role as fact-finder rather than attorney and should be disclosed because it amounted to recorded statements of prospective witnesses and/or reflections on a non-legal matter. The trial court adopted the referee’s recommendation and ordered the redacted form of the letter produced. Costco filed a petition for writ of mandate, which the appellate court denied, and then filed a petition for review in the California Supreme Court. The Supreme Court granted the petition and transferred the case back to the appellate court. The appellate court requested supplemental briefs, specifically on the issue of whether irreparable harm would result from release of the redacted letter, thus justifying extraordinary relief by writ of mandate. Following a hearing, the court again denied the petition for writ of mandate, thereby upholding the trial court’s order requiring production of the redacted letter.

Court Holdings:

• The court’s opinion focused primarily on whether disclosure would result in irreparable harm to Costco. Upon examining the redacted letter, the court held that Costco could not establish irreparable harm because the only parts of the letter that were unredacted were “inconsequential and [did] not infringe on the attorney-client relationship.” The factual statements describing certain employees’ job descriptions did not communicate any legal opinion, analysis or strategy, but merely provided information readily available from other sources that could easily be obtained through interviews, depositions or a document production request.
• Although the general rule in Evidence Code section 915(a) is that a trial court may not require even in camera disclosure of a communication in order to determine whether the communication is privileged, the rule is not absolute and in camera hearings may be held under certain circumstances. For example, in camera review is allowed to evaluate whether waiver exists and when application of a privilege depends on the communication’s content (e.g., common interest privilege); or when there is a claim that the attorney was acting in some capacity other than as legal counsel and the dominant purpose of the communication and the attorney’s work were not in furtherance of an attorney-client relationship (e.g., communications by insurance company’s in-house claims adjuster who was also an attorney). Without in camera hearings, control over the determination of whether a privilege exists would be based solely on the representations of the party asserting the privilege.
• The court upheld the referee’s conclusion that the unredacted portions of the letter, which contained factual information about various employees’ job descriptions based on non-privileged documents and interviews with two managers, were not privileged. While recognizing that the attorney-client and work product privileges apply to corporations, the court cited the “landmark” California case on corporate attorney-client privilege, D.I. Chadbourne, Inc. v. Superior Court, 60 Cal.2d 723 (1964) for the proposition that not all statements furnished to corporate attorneys are privileged. The court noted that the referee applied the principles set forth by the Supreme Court in Chadbourne in analyzing which portions of the letter were privileged.