Wellpoint Health Networks, Inc. v. Superior Court

Opinion

In this case we are asked to resolve two issues: (1) whether a law firm’s prelitigation investigation into the circumstances surrounding the claims of an employee who may have suffered discriminatory treatment is protected by the attorney-client privilege and/or the attorney work product doctrine, and (2) if so, whether the employer waives these protections when it raises the investigation as a defense to the employee’s ensuing discrimination lawsuit. The trial court ruled that a prelitigation investigation of an employee’s discrimination claims did not result in attorney-client communications or attorney work product and so did not reach the second issue. After review of the record, we conclude that no substantial evidence supports the trial court’s ruling concerning the inapplicability of the privilege and the work product doctrine. We further hold that resolution of the waiver issue is dependent on the claims asserted in the complaint and the defenses raised thereto. As there was neither a complaint nor an answer on file when the trial court made its ruling, the order compelling discovery was premature. We, therefore, instruct the trial court to vacate its order requiring production of the investigative files prepared on behalf of petitioners. We do this without prejudice to the employee’s ability to bring a motion to compel production of the subject documents at a later stage in the proceedings.

Background

The Complaint and Initial Discovery

Real party in interest Barry McCombs brought a complaint against defendants Wellpoint Health Networks, Inc., Blue Cross of California, and Craig

In a separate incident in 1994, McCombs complained about inadequate disclosures to potential investors when Wellpoint spun off from Blue Cross. At the same time, he continued to bring up his suspicions about racial discrimination and went to the human resources department with his concerns. Ultimately, he filed a formal charge with the Department of Fair Employment and Housing (DFEH). Thereafter, according to the complaint, McCombs began to receive negative performance reviews and was “singled out, harassed and maligned.” He “became a marked man” and “. . . Plassmeyer became verbally abusive with McCombs and sought to undermine McCombs’ credibility with his peers and with management.”

McCombs took a medical leave of absence in January 1995, which he attributed to the “abusive conduct[.]” In May of 1995, when he returned, he was laid off after the work of his department was contracted out to Arthur Andersen & Co.

The complaint purported to state a cause of action for interference with prospective contractual relations based on McCombs’s failure to obtain employment with Arthur Andersen, which he believed was the result of information provided by defendants. The second cause of action alleged that defendants retaliated against McCombs for filing the DFEH complaint by “abuse” and by “negative performance criticism” prior to the layoff, in violation of California’s Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.). The third cause of action was for failure to promote due to the 1994 complaint to the DFEH. It too was brought under the FEHA. The fourth cause of action claimed “wrongful retaliation in violation of public policy.” Here, McCombs alleged that “defendant refused to promote plaintiff to a supervisor’s position, and otherwise maintained a retaliatory and oppressive work environment based upon (i) plaintiff’s race, (ii) plaintiff’s efforts to oppose racial discrimination, and (iii) plaintiff’s efforts to ensure compliance with federal and state securities laws.”

In their answer to the first amended complaint, defendants alleged in two separate affirmative defenses that “they had no knowledge plaintiff was

The discovery dispute was heard by a referee appointed by the trial court, retired Judge Paul Breckenridge, who concluded the employer should be required to produce all documents responsive to the “complete personnel file” request, including documents related to the law firm’s investigation. The report and recommendation specified that the responding parties “may redact from writings any attorney impressions, conclusions or portions representing attorney’s thought processes,” but further directed that “[c]opies of redacted and unredacted writings must be submitted to the referee for in camera review[.]” The report and recommendation required responding parties to provide a privilege log where a privilege was asserted.

Objections were raised to the referee’s recommendations, and after a hearing, the trial court adopted the recommendations insofar as they are relevant here. In so doing, the court explained: “. . . Mr. Lafayette (defendant’s current counsel) acted as the corporate investigator into plaintiff’s complaints of discrimination, and plaintiff is entitled to discover the results of that investigation notwithstanding the fact that Mr. Lafayett[e] happens to be an attorney ([Labor Code, section] 1198.5; Harding [v. Dana Transport,

With these principles in mind, we turn to the issues raised by the petition.

McCombs argues here and argued below that an attorney retained to investigate employee claims of discrimination is not acting as an attorney but as a fact finder, and that the attorney-client privilege and work product doctrine therefore do not have any applicability. The trial court agreed, based on Montebello Rose Co. v. Agricultural Labor Relations Bd. (1981) 119 Cal.App.3d 1 [ 173 Cal.Rptr. 856 ] and Watt Industries, Inc. v. Superior Court (1981) 115 Cal.App.3d 802 [ 171 Cal.Rptr. 503 ], that Lafayette was acting in a nonattomey capacity when he undertook the investigation of McCombs’s in-house complaints.

In Montebello Rose, an attorney had been hired by management to negotiate with the union. After conducting an in camera inspection of documents representing communications between the attorney and his employer, the labor board had concluded that certain communications were not privileged in that they were not related to a request for the giving of legal advice. The board separated documents representing “communications in a legal capacity from those in his nonlegal capacity as a labor negotiator . . . .” (119 Cal.App.3d at p. 31.) The appellate court upheld the distinction drawn by the board and its decision to allow documents in the latter category into evidence, reasoning: “Since [the employer’s] labor negotiations could have

In Watt Industries, a developer engaged in the process of converting a rental property into condominiums wished to ascertain whether certain prospective buyers intended to occupy the unit as their primary residence after sale. The developer spoke with the attorney for the buyers who allegedly made numerous representations about their intention to live in the unit. After the deal closed, the buyers immediately put the unit on the market, and the developer sued for rescission. The notes taken by the attorney during the conversation with the developer were sought during discovery. The attorney claimed they represented his work product. The court disagreed, holding that where “the attorney acts merely as a business agent for the client in conveying the client’s position to a contracting party, we see no justification for protecting the attorney’s notes concerning the conversation. To apply the privilege in such a situation would have the effect of placing a premium upon use of attorneys as business agents, nonattomeys or clients acting for themselves having no such right to protect their notes. As we view the work-product ‘privilege,’ it applies to documents related to legal work performed for a client, not to notes memorializing acts performed as a mere agent.” (115 Cal.App.3d at p. 805, fn. omitted.) The court added the following caveat: “We acknowledge that under different facts, the distinction between acts performed as an agent and those involving legal work might be difficult to draw. Presumably, in doubtful cases or those in which the legal work and work performed as an agent are inextricably intertwined, the privilege will be sustained. However, this is a clearcut case of an attorney acting as a business agent performing nothing which could be considered legal work in the conversation memorialized.” (Ibid., fn. 1.)

Reliance on these cases to support a blanket rule excluding attorney investigations of employer discrimination from attorney-client and work product protection is misplaced. Both cases involved analyses of individual documents containing attorney-client communications or purported work product to determine whether the dominant purpose behind each was or was not the furtherance of the attorney-client relationship. The courts in both cases recognized that even though an attorney is hired to conduct business affairs, he or she may be called on to give legal advice during the course of the representation, and documents related to those communications should be protected notwithstanding the original purpose of employing the attorney. The trial court should not have given McCombs carte blanche access to Lafayette’s investigative file, but should have based its ruling on the subject matter of each document.

In supplemental papers in support of the motion, McCombs argued for the first time that Lafayette was not acting as an attorney, but as a fact finder and investigator. Here again the only declaration submitted was from the attorney representing McCombs, which discussed the discovery dispute but contained no underlying facts concerning the investigation. On this showing, we cannot agree with McCombs that substantial evidence supported the trial court’s finding.

McCombs suggests that it was petitioners’ burden to establish that Lafayette’s investigation involved functions primarily legal in nature. While it is true that the burden of showing preliminary facts necessary to support the privilege lies with the party claiming it (State Farm Fire & Casualty Co. v. Superior Court, supra, 54 Cal.App.4th at p. 639), there was never a dispute concerning the underlying facts. McCombs conceded in his memorandum in support of the motion to compel that Lafayette was an attorney hired by his employer to conduct an investigation of the charges of discrimination. This concession established the facts necessary to support a prima facie claim of privilege, i.e., communication in the course of the lawyer-client relationship (see State Farm Fire & Casualty Co. v. Superior Court, supra, at p. 639), and passed the burden to McCombs to make a prima facie showing that an exception applied. (Ibid.; see BP Alaska, supra, 199 Cal.App.3d at p. 1252 [holding that party claiming privilege could not be “faulted for failing to make an adequate evidentiary showing when there was no apparent need to do so” because opposing party did not challenge the conclusion that the documents at issue contained attorney impressions, opinions, and legal

The trial court ruled that production of the documents was required by Labor Code section 1198.5. That statute provides: “Every employer shall at reasonable times, and at reasonable intervals as determined by the Labor Commissioner, upon the request of an employee, permit that employee to inspect such personnel files which are used or have been used to determine that employee’s qualifications for employment, promotion, additional compensation, or termination or other disciplinary action.” (Lab. Code, § 1198.5, subd. (a).) In a memorandum interpreting this provision, the labor commissioner has stated: “. . . Categories of records which are defined as personnel records are those that are used or have been used to determine that employee’s qualifications for employment, promotion, additional compensation, or termination or other disciplinary action. [5D The following, but not limited to, are examples of items (if maintained) which are subject to inspection: [50 ... [50 ••• q) Investigation of FEPC or EEOC matters.”

We agree that the provision intends a broad definition of “personnel file” to preclude employers from assigning documents to files having some other name, and then refusing access to the documents on the ground that they are not contained in the “personnel file.” To accomplish this, the statute defines an employee personnel file as anything “used to determine that employee’s qualifications for employment, promotion, additional compensation, or termination or other disciplinary action” wherever located within the employee’s various departments. (Lab. Code, § 1198.5, subd. (a).) However, while

McCombs argues that petitioners waived any existing attorney-client or work product protections by raising the investigation as a defense to his claims, as in Harding v. Dana Transport, Inc. (D.N.J. 1996) 914 F.Supp. 1084 . To understand Harding and appreciate its significance to the present litigation, we first briefly summarize the legal context in which it arose.

Federal statute provides that it is an unlawful employment practice for an employer “to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin[.]” (42 U.S.C. § 2000e-2(l).) Federal courts have concluded that a violation of this provision occurs both when an employee suffers an adverse personnel decision due to discrimination, and when the employee is subjected to harassment that, while not affecting economic benefits, creates a hostile or offensive working environment. (Meritor Savings Bank v. Vinson (1986) 477 U.S. 57 , 61 [ 106 S.Ct. 2399 , 2402-2403, 91 L.Ed.2d 49 ]; Firefighters Institute, etc. v. City of St. Louis (8th Cir. 1977) 549 F.2d 506 , 514-515, cert. den. sub nom. Banta v. United States (1977) 434 U.S. 819 [ 98 S.Ct. 60 , 54 L.Ed.2d 76 ]; Gray v. Greyhound Lines, East (D.C. Cir. 1976) 545 F.2d 169 , 176 [ 178 App.D.C. 91 ], disapproved in part on other grounds in Fair Employ. Council v. BMC Marketing Corp. (D.C. Cir. 1994) 28 F.3d 1268 [ 307 App.D.C. 401 ]; Rogers v. Equal Employment Opportunity Com’n (5th Cir. 1971) 454 F.2d 234 , cert. den. (1972) 406 U.S. 957 [ 92 S.Ct. 2058 , 32 L.Ed.2d 343 ], disapproved in part on other grounds in EEOC v. Shell Oil Co. (1984) 466 U.S. 54 [ 104 S.Ct. 1621 , 80 L.Ed.2d 41 ].)

To sustain a hostile work environment claim under the federal statute, the plaintiff must, among other things, establish “the existence of respondeat

Thus, a vital component of a hostile work environment harassment claim under federal law is proof that the employer had knowledge of the existence of the hostile environment. In most cases, this is established by a showing that complaints about the harassment were lodged with the employer. The employer may defend “by pointing to prompt remedial action reasonably calculated to end the harassment.” (Katz v. Dole, supra, 709 F.2d at p. 256.) Proof of “prompt remedial action reasonably calculated to end the harassment” can consist of a range of actions such as warning the offending employee (Barrett v. Omaha Nat. Bank (8th Cir. 1984) 726 F.2d 424 , 427), issuing a written reprimand (Swentek v. USAIR, Inc. (4th Cir. 1987) 830 F.2d 552 , 558), ordering employees to undergo counseling (Intlekofer v. Turnage (9th Cir. 1992) 973 F.2d 773 , 779-780), or terminating the harasser (Bouton v. BMW of North America, Inc. (3d Cir. 1994) 29 F.3d 103 , 106).

Whatever course of action the employer chooses to take, an effective remedy is unlikely to take shape in the absence of a thorough investigation of the alleged acts of harassment. This explains why an investigation conducted by an attorney or law firm of an employee’s claim of harassment differs from the typical prelitigation investigation, and why in certain circumstances it may be treated differently. The adequacy or thoroughness of a defendant’s investigation of plaintiff’s claim is simply irrelevant in the typical civil action. In an employment discrimination lawsuit based on hostile work environment, on the other hand, the adequacy of the employer’s investigation of the employee’s initial complaints could be a critical issue if the employer chooses to defend by establishing that it took reasonable corrective or remedial action. (See, e.g., Bouton v. BMW of North America, Inc., supra, 29 F.3d at p. 107; Barrett v. Omaha Nat. Bank, supra, 726 F.2d at p. 427; Giordano v. William Patterson College (D.N.J. 1992) 804 F.Supp. 637 , 643; Swentek v. USAIR, Inc., supra, 830 F.2d at p. 558 [holding that an investigation may be deemed thorough and adequate, even though it leads the employer to the conclusion that not all of the employee’s allegations are true].)

After analyzing the relevancy of the investigation to the employment discrimination charges in the complaint, the court reviewed a number of cases in which the attorney-client privilege was found to have been waived when the client asserted a defense based on advice of counsel. (See, e.g., Glenmede Trust Co. v. Thompson (3d Cir. 1995) 56 F.3d 476 ; Handgards, Inc. v. Johnson & Johnson (N.D.Cal. 1976) 413 F.Supp. 926 ; Garfinkle v. Arcata National Corporation (S.D.N.Y.1974) 64 F.R.D. 688 .) Persuaded by these authorities, the court sided with plaintiffs, and held that the attorney-client privilege had been waived with respect to the content of the attorney’s investigation of the plaintiffs’ allegations. The court gave the following rationale for its decision: “Discovery of the content of the investigation is relevant to much more than the state of mind of [the employer]. Rather, the investigation, itself, provides a defense to liability. As previously reviewed, Title VII permits employer liability which employers may refute by proving that they reasonably and sufficiently investigated the allegations of discrimination. Andrews, 895 F.2d at 1482 . [The employer] has attempted to utilize the results of [the attorney’s] investigation both as a defense to liability under Title VII and as an aspect of its preparation for the sexual discrimination trial itself. By asking [the attorney] to serve multiple duties, the defendants have fused the roles of internal investigator and legal advisor. Consequently, [the employer] cannot now argue that its own process is shielded from discovery. Consistent with the doctrine of fairness, the plaintiffs must be permitted to probe the substance of [the employer’s] alleged investigation to determine its sufficiency. Without having evidence of the actual content of the investigation, neither the plaintiffs nor the fact-finder at trial can discern its adequacy.” (Harding v. Dana Transport, Inc., supra, 914 F.Supp. at p. 1096.)

The court in Harding did not hold that investigation of hostile work environment charges by an attorney is unprivileged because it is not predominately legal work. To the contrary, the court specifically ruled that in the

The proposition for which Harding stands is that the employer’s injection into the lawsuit of an issue concerning the adequacy of the investigation where the investigation was undertaken by an attorney or law firm must result in waiver of the attorney-client privilege and work product doctrine. With this proposition, we agree. As our Supreme Court has held, waiver is established by a showing that “the client has put the otherwise privileged communication directly at issue and that disclosure is essential for a fair adjudication of the action. [Citation.]” (Southern Cal. Gas Co. v. Public Utilities Com., supra, 50 Cal.3d at p. 40, citing Mitchell v. Superior Court, supra, 37 Cal.3d at p. 609.) California law is to the same effect as federal law in this area, although it is not judge-made. The FEHA itself lays out knowledge and failure to act as necessary preconditions to employer liability for harassment: “. . . Harassment of an employee or applicant by an employee other than an agent or supervisor shall be unlawful if the entity, or its agents or supervisors, knows or should have known of this conduct and fails to take immediate and appropriate corrective action.” (Gov. Code, § 12940, subd. (h)(1).) In addition, the FEHA specifies that “[a]n entity shall take all reasonable steps to prevent harassment from occurring.” (Ibid.)

If a defendant employer hopes to prevail by showing that it investigated an employee’s complaint and took action appropriate to the findings of the investigation, then it will have put the adequacy of the investigation directly at issue, and cannot stand on the attorney-client privilege or work product doctrine to preclude a thorough examination of its adequacy. The defendant cannot have it both ways. If it chooses this course, it does so with the understanding that the attorney-client privilege and the work product doctrine are thereby waived.

This leads to the question of whether a waiver has occurred herein. The trial court did not reach this question because of its ruling that Gary

Put simply, prior to any finding on the question of waiver, McCombs must file an acceptable complaint. Only then, and only if defendants’ answer or discovery responses indicate the possibility of a defense based on thorough investigation and appropriate corrective response, can a finding of waiver be made. The order requiring petitioners to turn over the investigative file must be reversed without prejudice to McCombs’s ability to reassert a right to obtain discovery of the file at a later time if defendants interject a defense based on the investigation.

V

Code of Civil Procedure section 2031, subdivision (f)(3) states that . . [i]f the responding party objects to the demand for inspection of an item or category of item, the response shall (A) identify with particularity any document. . . falling within any category of item in the demand to which an objection is being made, and (B) set forth clearly the extent of, and the specific ground for, the objection.” The trial court directed responding parties to prepare a privilege log “as to any documents containing attorneys’ mental impressions” under the belief that only documents fitting that description were to be protected from disclosure. Since our holding allows all arguably attorney-client and work product protected documents to be withheld at this point, the trial court should amend its order to require responding parties to prepare a privilege log for all documents pertaining to the investigation which they believe are privileged or subject to the attorney work

Disposition

The alternative writ is discharged and the stay is dissolved. Let a peremptory writ of mandate issue directing the respondent trial court to vacate its order of March 5, 1997, to the extent that it requires petitioners to produce all documents pertaining to the Lafayette law firm’s prelitigation investigation of McCombs’s complaint of discrimination, and to enter an order requiring petitioners to prepare a privilege log pursuant to section 2031, subdivision (f)(3) of the Code of Civil Procedure. Should defendants waive the attorney-client privilege or the protections of the work product doctrine in their answer or otherwise, the motion to compel may be renewed and resolved in accordance with the views expressed in this opinion. Costs to petitioners.

Vogel (C. S.), P. J., and Epstein, J., concurred.