SCOTUS holds discovery ruling requiring disclosure of privileged information is not appealable

Richard Westfall at Rocky Mountain Appellate Blog wrote up the first SCOTUS opinion authored by Justice Sotomayor, Mohawk Industries, Inc. v. Carpenter, in which the unanimous court (with a separate concurrence from Justice Thomas) holds that a discovery order is not immediately appealable under the “collateral order doctrine.” Westfall summarized the case:

In Mohawk, the district court ordered Mohawk to turn over documents Mohawk asserted were protected by the attorney-client privilege. The collateral-order doctrine allows for immediate appeals if: (1) the particular ruling conclusively determines the disputed question; (2) resolves an important issue separate from the merits of the action; and (3) is effectively unreviewable on appeal from a final judgment. Some circuits allow for immediate appeals under the collateral-order doctrine to review whether an order violates the attorney-client privilege. The Supreme Court held in Mohawk that orders requiring disclosure of arguably privileged material will have to wait for a final judgment because they are reviewable after judgment, however imperfectly. Justice Sotomayor noted that parties in such situations can defy disclosure orders and suffer sanctions, which will then be reviewable, or subject themselves to contempt of court, thereby also obtaining review.

Westfall urges the Colorado state courts not to adopt the rule, to which I say . . . be glad you don’t practice in California, Steve! In California state courts, discovery rulings are generally not appealable, even where the disclosure of privileged information would result. In such a situation, the party seeking review must do so by petitioning for a discretionary writ, and hope that the issue presented and the gravity of the disclosure are enough for the court of appeal to exercise its discretion to hear the petition on the merits.

Mohawk Industries resolves a circuit split in which the Ninth Circuit was in the minority camp that allowed appeal from such rulings. (In re Napster, Inc. Litigation (9th Cir. 2007) 479 F.3d 1978.) I’ll have more on the federal angle in an update.

Privilege within the Company

Lawyer advises the CEO of his client on some litigation strategy. Privileged communication, obviously. CEO then meets with his VPs and shares the information with them. Privileged?

I always thought it should be, and now I have the decision in Zurich American Ins. Co. v. Superior Court (Watts Industries, Inc.), case no. B194793 (2d Dist. Oct. 11, 2007) to back me up.

The court holds that the trial court construed the attorney-client privilege too narrowly by exempting from discovery only those documents that “contain actual copies of letters or e-mail communications from outside counsel, or documents that have been created by counsel, or received by counsel, or that contain direct communications from counsel.” Evidence Code section 952 defines confidential communications between lawyer and client much more broadly. Under section 952:

[C]onfidential communications include information transmitted to persons “to whom disclosure is reasonably necessary for the transmission of the information,” and those to whom disclosure is reasonably necessary for “the accomplishment of the purpose for which the lawyer is consulted.” Section 952 expressly includes legal opinions and advice given by a lawyer within the definition of confidential communication.

Since corporations are unquestionably “persons” who can invoke the privilege, and can only communicate through living individuals:

It follows that in order to implement the advice of lawyers, the advice must be communicated to others within the corporation. It is neither practical nor efficient to require that every corporate employee charged with implementing legal advice given by counsel for the corporation must directly meet with counsel or see verbatim excerpts of the legal advice given. But that is what the approach adopted by the referee and trial court would require in light of the narrow construction of section 952 they adopted.

But before your company gets too crazy telling everybody everything, realize there are limits: “The privilege only protects disclosure of communications, it does not protect disclosure of the underlying facts by those who communicated with the attorney.”

Documents are privileged if they (1) contain legal advice or a discussion of legal advice or strategy and (2) were not disclosed within the corporation to anyone but those identified in section 952, i.e.,

those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship.

C.C.P. Section 1985.3 is Toothless

Just one decision out of the Court of Appeal yesterday, but it’s a doozy.  In Foothill Federal Credit Union v. Superior Court, case no. B198664 (2d Dist. Sept. 24, 2007), the court holds that consumers’ claims against a credit union for disclosing consumer records in response to a subpoena are barred by the litigation privilege of Civil Code section 47.  At least, that’s the way the court describes its holding, but there is more at work in the decision.

The impact of this decision is hard to understate in light of Code of Civil Procedure section 1985.3, which requires a party seeking certain forms of consumer records in discovery to notify the consumers so they have an opportunity to object to the disclosure.  The court’s finding that the credit union in this case was shielded from any liability by Civil Code section 47 renders Code of Civil Procedure section 1985.3 pretty much toothless.

Interestingly, the real parties did not contend that section 47 was inapplicable.  Instead, they claimed that the policies underlying expanding the privilege beyond defamation were not served by applying it to a custodian of records who provides records in violation of section 1985.3, that applying the privilege in such circumstances would virtually abrogate section 1985.3 because it would remove any incentive for a records custodian to comply with it, and  that applying the privilege in this case leads to an absurd result because the very litigation that gives rise to the discovery would also confer immunity for providing discovery in violation of the statute.

The actual reasoning of the court strays from application of the privilege to whether any remedy exists for violation of section 1983.5.  The court holds that the only purpose of section 1985.3 is to provide a process for consumers to object to disclosure.  It provides them no right of action against a noncomplying records custodian.

Given this determination, the discussion of whether the section 47 litigation privilege applies seems academic to me.  If no right of action exists, then there’s no liability, privilege or no privilege.

Regardless of the court’s actual reasoning, there is no denying that its decision leaves consumers at the mercy of records custodians and leaves them with no recourse for violations of section 1985.3.  The tone of California Appellate Report‘s post on the case does not appear to be overstated.

Even the majority opinion appears to acknowledge this (though certainly in less dire terms than California Appellate Report), and the concurring opinion makes an explicit appeal to the legislature to step in.

Writ Review Appropriate where Discovery Ruling Threatens Privilege

You’ve seen me complain before about the court of appeal reviewing writ petitions on the merits without saying why.  After all, there has to be something special in every instance of review, as more than 90% of writ petitions are summarily dismissed.

Ombudsman Services of Northern California v. Superior Court, case no. C054737 (3d Dist. Sept. 5, 2007), the court is very explicit about why it reviewed the writ petition on the merits (citations omitted):

“Although writ review of discovery rulings is generally disfavored, interlocutory review by writ is the only adequate remedy when, as here, a court compels the disclosure of documents or information that may be subject to a privilege, because ‘once privileged matter has been disclosed there is no way to undo the harm which consists in the very disclosure.’ [Citation.]”  Writ review is particularly appropriate here to protect the confidential records of third persons who are not parties to the underlying litigation below, who have had no notice of the ordered disclosure, and who, as a result, have had no opportunity to object. OSNC properly asserted the privacy rights of those third persons affected by the discovery order of the trial court.

It figures that the court of appeal would be very explicit in a case where the reason for review would probably have been rather obvious without the explanation.  But I won’t look a gift horse in the mouth.  Instead, I shall just politely ask: “More of this, please.”