Costco Decision Could Significantly Change Scope of Attorney ...

Costco Decision Could Significantly Change
Scope of Attorney-Client Privilege
by michael a. sands and dan ko obuhanych
The case of Costco Wholesale Corporation v. Superior
on a non-legal matter.” Despite Costco’s protest, the trial
Court, currently pending before the California Supreme
court adopted the referee’s recommendation and ordered
Court, may dramatically affect the manner in which
production of the redacted opinion letter. Costco then
clients interact with and utilize their lawyers. At stake is
petitioned for writ relief and review.
the potential for the routine in camera review of attorney
opinion letters and disclosure of “factual” portions to
The Court of Appeal essentially adopted a “no harm, no
litigation adversaries. A decision to affirm the approach
foul” approach. After examining the redacted opinion
taken by the lower courts in Costco could have a profound
letter, the appellate court determined that Costco could
impact on the way in which lawyers and clients work
not make the requisite “irreparable harm” showing for
together and the information they exchange with one
writ relief because the remaining unredacted portions
another in the course of their legal relationship.
of the letter were “inconsequential and do not infringe
on the attorney-client relationship.” The appellate
At the heart of the case is an entirely typical engagement
court noted that the unredacted portions of the letters
of Costco’s outside employment attorney. Desiring to
were “factual statements about the employees’
ensure that its warehouse managers (e.g., meat, bakery,
responsibilities” and did not reveal legal knowledge,
pharmacy, optical, etc.) were properly classified under
advice or impressions, and stated that the information
California’s wage and hour laws, Costco asked its outside
“is hardly startling and can easily be obtained from
counsel to investigate and analyze the job positions.
interviews, depositions, or from a production request.”
Costco Wholesale Corporation v. Randall, 161 Cal. App.
Costco appealed the ruling and the California Supreme
4th 488 (2008). After the attorney’s investigation,
Court granted review.
which included fact-finding interviews with two Costco
warehouse managers, the attorney prepared and
The California Supreme Court’s decision in Costco should
submitted to Costco a 22-page opinion letter setting forth
provide much needed guidance in this complex area of
the investigation results and her legal advice about “the
law. More importantly – depending on how the court
exempt status of certain Costco warehouse managers
views the issue – its ruling could significantly impact
in California.” A year after receipt of the opinion letter,
the scope of attorney-client communications and, by
Costco reclassified many of its warehouse managers
extension, the course of attorney-client relationships as
to non-exempt employees, making them eligible for
a whole.
overtime and other benefits. A year and a half after
Costco implemented the change, a group of class
A common example illustrates the potential impact of the
action plaintiffs sued, alleging that Costco previously
issues before the court. An employer is sued for alleged
misclassified many of the warehouse managers as
violation of various laws. Prior to the filing, the employer
exempt employees. The opinion letter from Costco’s
procured legal advice from a lawyer regarding the risks
outside employment counsel became the subject of a
of just such a lawsuit, and the assigned lawyer has
contentious discovery dispute when plaintiffs moved to
written a comprehensive opinion letter that synthesizes
compel its disclosure in the face of Costco’s arguments
the significant facts, evaluates important witnesses,
that it was a privileged attorney-client communication.
analyzes the law and predicts the likelihood of favorable
To resolve the dispute – and over Costco’s objection –
and unfavorable results. During discovery, plaintiff’s
the trial court ordered an in camera review of the letter
counsel demands production of all documents relevant to
by a discovery referee. After review, the referee took the
analysis of the employer’s liability.
position that “factual information,” including the witness
If the approach of the lower courts in Costco stands,
statements obtained by Costco’s outside attorney,
the court – without any finding of waiver or exception
“should be disclosed because it amounts to recorded
to the attorney-client privilege – is empowered (if
statements of prospective witnesses and/or reflections

fenwick & west

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not obligated) to inspect the letter and to parse out

Clients may also use investigative efforts to advocate a
“facts.” This invasion of the attorney-client privilege
position rather than to ensure compliance with the law.
is essentially unreviewable so long as an appellate
For example, an employer accused of legal violations
panel, perhaps knowing little about the complexities
(and with an eye toward possible litigation) may decide
of the case or even the law governing it, thinks that
to use an attorney investigation as an opportunity to
the facts disclosed are “inconsequential” and that the
advocate that no violation occurred, rather than taking
client has not been “irreparably harmed.” Meanwhile,
a critical look at its current practices and working
of course, the trial judge has read the lawyer’s entire
environment to remedy any possible improper policies
written communication. The party seeking protection
or conduct. Instead of a complete, unbiased recitation
has no confidence that the court reading its privileged
of operative facts within a privileged lawyer investigative
legal analysis will not be influenced by its lawyer’s
report, facts may be skewed or omitted out of concern
candid assessments concerning the facts, the law or
that portions of the report may be used as “Exhibit A” in
even the judge in question. The disclosure of “factual
future litigation.
communications” in the opinion letter to litigation
opponents raises additional issues. Simply knowing
These limitations on full and candid attorney-client
what specific facts were communicated between a party
interaction may create a new approach to client-lawyer
and its attorney can provide valuable insight about a
relations. Attorneys may have to develop a new protocol
case’s strengths and weaknesses and possible strategies
for preparing opinion letters and communicating with
to address them.
their clients, as a greater emphasis may be placed on
oral communication. The utilization of an attorney
The potential for routine review and disclosure (even
as a preventive counselor may be circumscribed, as
partial) of privileged communications may serve to
clients may no longer be willing to risk the significant
curtail candid and full attorney-client communications.
involvement of attorneys for their business needs, and
Knowledge that lawyer opinion letters may, at a
instead may view attorneys as having a more limited role
minimum, be subject to an in camera review by a court
(e.g., for dispute resolution, to draft legal documents,
(or discovery referee), and that all “facts” a client
etc.). Consultants and investigators who were previously
communicates to its lawyer are subject to disclosure
retained by attorneys on behalf of clients to cloak their
to adversaries, could discourage clients from fully
activity with privilege may no longer be a viable option.
engaging attorneys for investigation and evaluation.
Due to the possible reluctance by clients to fully engage
Absent certainty that communications with their lawyers
their attorneys, attorneys may need to devise creative
are entirely confidential, clients may be much less
ways to provide value to their clients.
likely to divulge all pertinent information (including
“harmful” information) to counsel and may even decide
In light of the significant practical consequences at stake,
to forego certain lawyer investigations and interviews
how the California Supreme Court ultimately decides
of employees altogether – putting their lawyers in the
the Costco case will be important to clients and their
position of making important evaluations based on
attorneys. Clients and attorneys who have long relied
incomplete information, or information that has not
on the belief that their communications are absolutely
been developed through the skill that interviews by
privileged may have to adapt their practices to comply
seasoned attorneys provide. Lawyers, knowing that
with the court’s interpretation.
portions of their “factual” communications could be
subject to discovery, may become similarly constrained
Michael A. Sands is a partner in the Litigation and
in their willingness and efforts to discover relevant facts,
Employment Practices Groups of Fenwick & West in
and may even feel affirmatively compelled to limit their
Mountain View. He is also the chair of the firm’s
involvement to protect the interests of their clients.
Electronic Information Management Group.
Fear of disclosure could result in opinion letters being
Dan Ko Obuhanych is an associate in the Litigation and
severely constricted in their discussion of facts, or the
Employment Practices Groups of Fenwick & West.
client and lawyer may decide to forego the preparation of
a detailed written opinion letter entirely and instead rely
upon strictly oral communications.
2 costco decision could significantly change scope of attorney-client privilege
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