California Appeals Court Protects Outside Counsel’s Factual Investigation as Privileged

City of Petaluma
City of Petaluma

In early June, a California court of appeal held in City of Petaluma v. Waters that the report resulting from a fact-finding investigation conducted by outside counsel for the City of Petaluma’s (the City) City Attorney was protected by attorney-client privilege and therefore undiscoverable.  The holding is notable because the court refused to read the privilege so narrowly as to only protect legal opinions and would not further encroach upon the outside-counsel relationship.

In 2014, Andrea Waters, the only female firefighter for the City, filed a charge with the U.S. Equal Employment Opportunity Commission (EEOC) alleging sexual harassment and retaliation for complaining about her treatment.  Soon after the City received her charge, Waters voluntarily resigned.

Taking the resignation as an indication that Waters was not seeking to reform the fire department’s work environment but rather exhausting her administrative remedies in anticipation of filing a lawsuit, the City Attorney retained outside counsel (Oppenheimer) to conduct a fact-finding investigation.  The retention agreement stated that Oppenheimer would “use [her] employment law and investigation expertise to assist [the City] in determining the issues to be investigated and conduct impartial fact-finding.”  Further, the agreement explicitly stated that the investigation and resulting report would be the subject of attorney-client privilege.  However, the agreement was also clear that outside counsel would “not render legal advice as to what action to take as a result of the findings of the investigation.”

After Waters filed suit, she attempted to compel the City into disclosing Oppenheimer’s report during discovery.  Waters primarily argued that the report was not subject to attorney-client privilege because the document did not involve any legal advice, instead containing merely factual determinations.  In addition, Waters argued that even if the document was originally privileged, the City’s assertion of an avoidable consequences defense put the report at issue.  The trial court granted Waters’s motion to compel, and the City filed a petition for writ of mandate that the court of appeal denied.  However, after the California Supreme Court ordered the appellate court to show cause for denying the appeal, the court of appeal took up the matter.

The court of appeal began by framing the issue through definitions.  An individual becomes a client when she retains an attorney and seeks, in the lawyer’s professional capacity, “legal service or advice.”  The court observed that when analyzing the attorney-client privilege, courts’ initial focus should be on “the dominant purpose of the relationship between attorney and client and not on the purpose served by the individual communication.”  Any communications made in the course of the attorney-client relationship are privileged regardless of their purpose.  Even facts that might be discoverable through other means can be protected by privilege.  The court also observed that “‘[t]he first step in the resolution of any legal problem is ascertaining the factual background and sifting through the facts with an eye to the legally relevant.’  It is for this reason that ‘fact-finding which pertains to legal advice counts as “professional legal services.”’”

Turning to the facts, the court observed that the City hired Oppenheimer in the wake of Waters’ EEOC complaint, anticipating litigation.  In addition, Oppenheimer was retained to use her expertise in employment law to investigate the facts based upon her “professional evaluation of the evidence.”  “Oppenheimer was expected to use her legal expertise to identify the pertinent facts, synthesize the evidence, and come to a conclusion as to what actually happened.  The dominant purpose of Oppenheimer’s representation was to provide professional legal services.”  Thus, almost by definition, the court held that Oppenheimer’s investigation and resulting report were legal services provided during a valid attorney-client relationship and therefore, protected by attorney-client privilege.

Further, the court held that the City did not waive the privilege when it offered an avoidable consequences defense to Waters’s claims.  That defense requires that the employer had reasonable steps available to prevent workplace harassment and the employee unreasonably failed to use such procedures.  Waters argued that the City put Oppenheimer’s report into issue because it was evidence of the City’s lack of reasonable harassment-prevention procedures.  However, the court noted that the defense focuses specifically on the time in which the plaintiff was an employee; any procedures before or after are irrelevant to the inquiry.  Therefore, because Oppenheimer’s investigation took place after Waters quit, the report was not relevant to the defense and the City did not waive its privilege by asserting the avoidable consequences defense.

City of Petaluma v. Waters provides a thorough explanation of the attorney-client privilege defense in the outside-counsel context.  It rightly notes that legal services, even if fact-based, can still be protected by privilege and are not easily waivable by affirmative defenses.  Though the entity asserting the privilege was a municipality, the court’s reasoning applies equally to private corporations.  The opinion joins a 2015 U.S. Court of Appeals for the D.C. Circuit decision, US ex rel. Barko v. Halliburton Company, et al. (see a WLF Legal Pulse post on the ruling here), as a further example of how courts should avoid an overly simplistic fact/opinion analysis in privilege disputes and instead look to the larger context surrounding the privilege claim.

Also published by Forbes.com at WLF’s contributor page

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