The Second District holds that the attorney-client privilege extends beyond a corporation’s control group to employees who implement legal advice.
Watts Industries, Inc. filed suit against Zurich American Insurance Co. alleging bad faith breach of its duty to defend and to provide coverage; Zurich filed a declaratory relief action against Watts and others seeking a determination of its rights and duties.
Watts requested production of various Zurich documents, including documents from its claims file. Zurich objected, invoking the attorney-client privilege and the attorney work product doctrine. Watts moved to compel production, claiming that the documents sought were not protected.
The trial court granted the motion to compel in part, ordering Zurich to produce for in camera inspection documents withheld on the grounds of, among other things, the attorney-client privilege. The trial court rejected the broad privilege claimed by Zurich for all internal documents concerning reserves and reinsurance matters, holding as privileged only items in the claim file that contained actual copies of letters or e-mail communications from outside counsel, documents created by counsel, received by counsel, or that contained direct communications from counsel. Although many of the disputed documents contained litigation plans and strategy, the trial court held they were not protected by the attorney-client privilege, which, it reasoned, is limited to communications by counsel to a client, and by a client to counsel.
The Court of Appeal characterized the fundamental issue as whether corporate communications not directly involving an attorney, but which discuss legal advice, come within the attorney-client privilege.
Evidence Code § 951 include communications through an authorized representative. Evidence Code § 952 defines a confidential communication as one that is not disclosed to third persons who are not present to further the interest of the client or who are not reasonably necessary to transmit the information to achieve the client’s objective. Thus a communication directly or indirectly with a spouse, parent, business associate, joint client, or any other person who may meet with the client and his attorney in regard to a matter of joint concern does not destroy the privilege. Only involvement of an unnecessary third person destroys confidentiality.
The privilege exists for corporations who can speak only through an officer, employee, or some other natural person. While there are circumstances in which the privilege can be waived by the corporation, it is not waived simply because the communication was made through an agent of the corporation or of the attorney.
A principle governing corporate attorney-client privilege in the context of an employee’s statement is that the employer’s insurer,and its agents, are also agents of the employer corporation. The extent to which this doctrine may be applied must always depend on reason and the particular facts of the case.
Another principle is that in corporate employer-employee situations it is the intent of the person from whom the information emanates that originally governs its confidentiality and hence its privilege. By contrast, the intent of the party receiving and transmitting a statement cannot control the question of privilege where an employee has not been expressly directed by the employer to make a statement or does not know that the statement is sought on a confidential basis.
The Supreme Court has noted that in a corporate setting the attorney-client privilege may extend beyond the control group, that is officers and agents responsible for directing the company’s actions, to middle and lower level employees who possess the information needed by the corporation’s lawyers. Legal advice can be important to corporate employees at all levels. It is not practical or efficient to require that every corporate employee charged with implementing legal advice directly meet with counsel or see verbatim excerpts of the legal advice.
Section 73 of the Restatement (Third) of Law Governing Lawyers recognizes the need for corporate employees to have access to privileged material in order to implement legal advice. That section allows disclosure to agents of the organization who reasonably need to know of the communication in order to act for the organization. The Restatement also broadly interprets “Privileged Persons” to include a client’s lawyer, agents of either the client or its counsel who facilitate communications between them, and agents of the lawyer being consulted who facilitate the representation. A client’s confidential agent for communication is determined by examining a number of factors, including the client’s need for the third person’s presence to communicate effectively with the lawyer, or to understand and act upon the lawyer’s advice.
Comment (g) of §73 sanctions disclosing privileged communications to other agents of the organization who reasonably need to know of the privileged communication in order to act for the organization. Access does not need to be only through direct exchange with the lawyer. An employee may be made aware of a prior communication in order to conduct the affairs of the organization in light of the legal services provided.
Prior case law recognized that involvement of third persons to whom disclosure is reasonably necessary to further the purpose of the legal consultation does not destroy the confidentiality of the communication. Attorney-client communication of legal advice in the presence of, or disclosed to, clerks, secretaries, interpreters, physicians, spouses, parents, business associates, or joint clients remain privileged, although discussion of corporate policy, is not. This distinction may give rise to factual questions differentiating between the two.
The documents Zurich sought to shield were presumptively privileged if they contained legal advice. For example, a communication reflecting a discussion of litigation strategy in response to advice of counsel would come within the privilege.
The Court of Appeal remanded the case to make factual determinations concerning whether the documents were disseminated to necessary employees and agents, and contained legal advice or reactions to legal advice.
In closing, the court noted that Zurich could not shield an otherwise unprivileged document merely by copying it to counsel. Zurich could not shield facts, as opposed to communications, from discovery.
Comment: Although Zurich prevailed in preserving its right to protect attorney-client communications, it would be wiser to establish clear guidelines for employees to protect privileged information rather than to engage in the time consuming and expensive factual inquiry presented in this case.