Class Action

Attorney-Client Privilege/Class Action Defense Cases–Costco v. Superior Court: California State Court Denies Writ Relief Of Court Order Requiring Defense To Produce In Labor Law Class Action Copy Of Redacted Letter Prepared By Outside Counsel

By Michael J. Hassen

Class Action Discovery Order Requiring Defense to Produce Redacted Letter Prepared by Outside Counsel did not Warrant Extraordinary Writ Relief because Unredacted Portions were “Inconsequential” and Disclosure to Class Action Plaintiffs would not cause Costco “Irreparable Harm” California Court Holds

Plaintiffs filed a putative labor law class action against Costco alleging that it “misclassified certain managers as exempt employees.” Costco Wholesale Corp. v. Superior Court, ___ Cal.App.4th ___, 74 Cal.Rptr.3d 345, 347 (Cal.App. 2008). According to the class action complaint, each Costco warehouse store “has hundreds of employees and up to 20 managers”; a “general manager” (apparently the most senior person at the warehouse store), and “ancillary managers” (in charge of various departments, such as meat, bakery, pharmacy, optical, etc.). Id., at 348. The class action alleges that “[s]enior operations personnel at Costco determine how to classify employees for compensation purposes,” and in June 2000 Costco’s corporate counsel hired a law firm to “‘undertake [a] comprehensive factual investigation and legal analysis regarding the classification of managers within Costco Warehouses.’” Id. In response to that request, outside counsel conducted interviews, performed legal research and prepared a 22-page letter dated August 4, 2000, addressed to Costco’s corporate counsel. Id. Internal meetings followed, attended by in-house counsel, and in 2001 Costco reclassified ancillary managers as non-exempt employees. Id., at 348-49. The gravamen of the class action is that Costco “unlawfully failed to pay overtime to ancillary managers…because Costco categorically had misclassified these employees as exempt employees”; Costco’s answer to the class action complaint included the affirmative defense that “plaintiffs were exempt from the protection of the California overtime laws (the exemption defense).” Id., at 349. In discovery, plaintiffs sought inter alia production of the August 4 letter, which defense attorneys had listed on a privilege log; the trial court ordered production of a redacted copy of the letter. Costco sought a writ of mandate but the Court of Appeal denied the petition.

This discovery dispute centered on whether Costco had placed the contents of the August 4 letter at issue by virtue of its affirmative exemption defense and other discovery responses. Specifically, in response to interrogatories Costco stated that it “reasonably expected that employees who held the position of salaried Costco manager regularly and customarily exercised their independent judgment and discretion performing such exempt tasks…for more than 50% of their time.” Costco, at 349. The defense “person most knowledgeable about Costco’s exemption defense” testified that “Costco relied, in part, on input from counsel in classifying its employees as exempt or nonexempt.” Id., at 350. Defense attorneys stated that Costco was not relying on “advice of counsel” as a defense, and asserted the attorney-client privilege as to any discussion with counsel, id. Plaintiffs demanded discovery of legal advice provided by outside counsel on the grounds that the privilege had been waived; defense attorneys reiterated that Costco’s “‘reasonable expectation’ exemption defense was not dependent upon legal advice.” Id.

Full post as published by Class Action Defense Blog on April 28, 2008 (boomark / email).