Client Alert

Privilege Protects Attorney Audit Reports, California Supreme Court Rules

December 08, 2009

Kirby Wilcox and Ben Strawn

Businesses can audit themselves for legal compliance with less risk of creating adverse evidence for a litigation opponent following the California Supreme Courts unanimous ruling in Costco Wholesale Corp. v. Superior Court of Los Angeles (Nov. 30, 2009, Case No. S163335).

I. Overview

The Supreme Court held that an attorney-client communication is privileged in its entirety, even purely factual material in it, and even though the factual material contained in the communication may be discoverable by other means. A trial court had ordered Costco to disclose portions of an opinion letter issued by outside counsel. The Supreme Court found error in three aspects of the lower court proceedings: (1) the courts attempt to draw a distinction between privileged legal advice and non-privileged factual material; (2) an in camera review of the communication to determine whether it was privileged; and (3) the finding that the letters partial disclosure would not irreparably harm Costco.

Although Costco is favorable, it expressly declined to address a related question: When an attorney communicates with a clients employees, gather facts upon which to form a legal opinion, are those factual communications also covered by the attorney-client privilege? Employers therefore should take precautions to make privileged the investigatory communications between employees and counsel.

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