United States: California Court Of Appeal Finds Fact Investigation By Outside Counsel Is Privileged

Executive Summary: In City of Petaluma v. Superior Court (Andrea Waters), the California Court of Appeal recently held that outside counsel's fact investigation of an employee's harassment and discrimination claims conducted prior to litigation was protected by the attorney-client privilege and work product doctrine. Further, the employer's assertion of the avoidable consequences defense (i.e., that the employer took reasonable steps to prevent and correct harassment, but the employee failed to use those measures) in a subsequent lawsuit did not waive the privilege as to a post-employment investigation.

On June 30, the California Court of Appeal handed down City of Petaluma v. Superior Court (Andrea Waters), Case No. A145437, wherein it examined the extent to which a fact investigation conducted by outside counsel regarding an employee's harassment and discrimination claims is privileged. Generally, California law strictly protects attorney-client confidences. The state has multiple statutes that safeguard a client's ability to openly discuss legal matters with counsel and the attorney's ability to evaluate a matter and protect work product. However, unlike more typical litigation, lawsuits alleging harassment and discrimination often place at issue the adequacy of an employer's investigation into an alleged discriminatee's complaints and require the employer to rely on its investigation to defend itself. In these cases, courts have previously indicated that the attorney-client privilege and work product doctrine do not apply where an attorney conducts a routine fact investigation as opposed to providing legal services or advice. Even where privilege applies, courts have found an employer waives the privilege in asserting certain defenses.

In this matter, the City of Petaluma argued that its fact investigation regarding a discrimination and harassment charge filed by Waters with the Equal Employment Opportunity Commission (EEOC) was privileged because the City retained an outside attorney to conduct it. The retention agreement between the City and the investigating attorney specified that it created an attorney-client relationship and that outside counsel would conduct a "professional evaluation of the evidence" based on her employment law experience. The City intended to use outside counsel's legal expertise to conduct a fact investigation, which the City Attorney would, in turn, use to provide legal advice to the City related to Waters' EEOC complaint and anticipated lawsuit.

Waters disputed this, arguing instead that no privilege applied because outside counsel's role was limited to that of a fact finder, and there was no indication the City retained counsel to render legal advice (the City Attorney was solely responsible for providing legal advice).

In its opinion, the Court held that fact finding conducted by outside counsel was a legal service and entitled to attorney-client and work product protection, even if the attorney did not provide legal advice. The Court rejected the narrow view espoused by Waters and the trial court. In reaching its conclusion, the Court recognized that attorneys use legal expertise to identify facts that are legally relevant, synthesize the evidence and determine what happened. Additionally, ascertaining the facts is one of the steps necessary before resolving a legal issue. Further, the dominant purpose of the City's retention of outside counsel was for legal services. Therefore, the fact findings by the City's outside counsel were privileged even if she did not provide legal advice regarding how to proceed. 

The Court went on to address when waiver of these privileges might occur. It concluded that the employer does not waive privilege by asserting the avoidable consequences defense where counsel conducts the investigation after the employee leaves his or her employment. The reason for this is that the avoidable consequences defense focuses on what steps the employer took or could have taken during the employment. A post-employment investigation does not show the employer took reasonable steps to prevent or correct workplace harassment while the employee was employed. The City had retained outside counsel shortly after Waters filed an EEOC charge and resigned from her employment. Therefore, it did not rely on the investigation in asserting the defense and did not waive privilege. 

The Bottom Line: While this opinion limits an employee's ability to discover counsel's fact investigations and reinforces the privileges afforded these investigations, employers should be cautious because the Court of Appeal relied on the fact that the investigation occurred post-employment. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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