Appellate Court Rules that Certain Investigative Reports Prepared by Counsel Retain Privilege Even Without Providing Legal Advice
On June 8, 2016, the California Court of Appeal, First Appellate District held that an investigation report prepared by outside counsel need not contain legal advice to protect the report from having to be produced in litigation so long as the lawyer provided “legal services … in anticipation of litigation.” City of Petaluma v. Superior Court of Sonoma County (Cal. App. 1st Dist. June 8, 2016, No. A145437).
In the underlying case, an employee, Andrea Waters, sued the City of Petaluma for hostile work environment and discrimination based on her gender, retaliation, and failure to prevent harassment. Waters resigned her firefighter paramedic position shortly after filing an initial complaint with the EEOC. After Waters resigned, the City Attorney retained outside counsel to investigate Waters’ claims. The retention agreement between the City and outside counsel stated that outside counsel would “interview witnesses, collect and review pertinent information, and report to [the City] on that information.” It also stated, “As attorneys, we will use our employment law and investigation expertise to assist you in determining the issues to be investigated and conduct impartial fact-finding,” and that the investigation would be subject to the attorney-client privilege. The agreement specifically provided that outside counsel would not render legal advice.
In the lawsuit that followed, the City of Petaluma sought to withhold the investigation based on the attorney-client privilege and work-product doctrine. The Superior Court granted Waters’ motion to compel, finding that the information sought was not privileged because the retention agreement specifically stated that outside counsel would not provide legal advice. The Court also concluded that any applicable privilege had been waived because the City put the investigation at issue by asserting an avoidable consequences defense. The City filed a petition for writ of mandate, and after the Court of Appeal denied its petition, the Supreme Court granted a writ of review and transferred the matter back to the Court of Appeal with directions to issue an order to show cause why the relief requested by the City should not be granted.
The Court of Appeal reversed the Superior Court’s finding that the investigation report was not privileged because the retention agreement stated that the attorney investigator would not provide legal advice. The Court found that in assessing whether a communication is privileged, the initial focus of the inquiry is on the dominant purpose of the relationship between the attorney and client, not the purpose served by the individual communication. The Court noted that the statute defining “client” for purposes of the attorney-client privilege and work product doctrine refers to a person who retains a lawyer for securing “legal service or advice.” Accordingly, the Court held, “The plain terms of the statute support the conclusion that an attorney-client relationship may exist when an attorney provides a legal service without also providing advice. The rendering of legal advice is not required for the privilege to apply.” Since the dominant purpose of outside counsel’s relationship with the City Attorney of Petaluma was to provide “professional legal services” in “anticipation of litigation” that the City Attorney could then use as a basis to provide legal advice to the City, the City had established a claim of privilege and work product protection.
Avoidable Consequences Doctrine
The Court also found that the City did not waive privilege by asserting an avoidable consequences defense because the investigation was conducted after Waters left her employment. The Court noted that as a general matter, asserting an avoidable consequences defense may put the adequacy of an investigation at issue if the person was still employed and able to take advantage of any corrective measures the employer undertook as a result of the investigation. The investigation might also be relied upon to show that the employer took reasonable steps to prevent and correct workplace sexual harassment while the employee was still employed. But the assertion of an avoidable consequences defense, by itself, does not put a post-employment investigation directly at issue in a litigation because the employee could no longer have taken advantage of any corrective measures adopted as a result of the investigation.
Limitations of Decision
While the Court’s ruling provides helpful guidance for employers hoping to protect investigations from disclosure based on attorney-client privilege, there are a number of important limitations on the impact of this decision. For example, the Court’s focus was on a discovery request in civil litigation, and it did not consider whether the investigation would be protected from disclosure by employers under the California Public Records Act. The Court also did not address whether assertion of the avoidable consequences doctrine as an affirmative defense to a complaint brought by a current employee could result in a waiver of applicable privileges. Employers should continue to consult with legal counsel regarding the best way to approach using attorney investigators to maximize the chance of protecting their reports and notes from disclosure under applicable laws.