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Basics of The Attorney-Client Privilege (Part IV)

As discussed in Part I of this series, the attorney-client privilege shields and protects from disclosure confidential communications between an attorney and his or her client. In Parts II and III, we explored factual matters and information not subject to the privilege and various exceptions. See Cal. Evid. Code § 950 et. seq. here. In this Part IV, we discuss how the attorney-client privilege works under California law with respect to corporations, as you’ll need trusted and skilled legal advice for your San Diego business.

California Business Law: Corporations and the Attorney-Client Privilege

Corporations are legal entities existing separate and apart from the natural persons that form and own the corporations. But because corporations function through the actions and decisions and communications of natural human beings, the nature of the attorney-client privilege is complicated.

As many know, a corporation is owned by shareholders and, as many also know, the shareholders meet regularly to elect a board of directors that makes decisions for the corporation. Further, the board of directors meets regularly and, among other decisions, the board hires the Chief Executive Officer (“CEO”) and, often, the Chief Financial Officer and, sometimes, other high-level management employees to run the day-to-day operations of the corporation. Finally, the CEO hires lower level employees.

So, the complex legal questions is, among all those possibilities, who is the “client?”

Under California law, the answer is complicated. It can probably be stated this way: Communications with persons in the “control group” of the corporation are most likely privileged depending on the communications; communications with others in the corporation, such as a mere shareholder or low-level employee, are most likely NOT privileged unless the DOMINANT purpose of the communication is to communicate with respect to legal issues/advice.

California Business Law: Attorney-Client Privilege Belongs to the Corporation

Under California law, the “client” is the corporation itself. That is, the privilege belongs to the corporate entity. This is based on the California Evidence Code, §§ 175, 953(d) and how the California courts have interpreted the statutes. See, for example, National Football League Properties, Inc. v. Superior Court, 75 Cal.Rptr.2d 893 (Cal. App. 1998).

California Business Law: Corporate Attorney-Client Privilege Turns on Dominate Purpose of the Communication

Over the years, there have been several tests with respect to identifying what communications are covered by the attorney-client privilege when dealing with corporations. In many states, the principal doctrine was called the “control-group test.” When an attorney was communicating with someone in the control-group of the corporation on legal matters, it was generally held and accepted that the communications were covered by the attorney-client privilege. Those in the control group were corporate officials such as the CEO, the president of the board, and others.

However, in many jurisdictions and at the federal level, the control-group test was increasingly found to be deficient. It was both too broad and not quite broad enough. It was clear that, under some factual circumstances, communications by an attorney with lower level employees were communications with respect to legal issues and, therefore, should be shielded by the privilege. At the same time, the control group test seemed to provide a blanket protection for all communications between a lawyer and the control group which was clearly not always appropriate or needed.

California courts never adopted the control group test, although WHO is communicating is still important. Rather, the focus has been on the question of WHAT is being communicated, focusing on the “dominant purpose” of the communication. If the dominant purpose is to provide advice with respect to legal issues, the communication is very likely to be protected regardless of who is involved in the communication. See D. I. Chadbourne, Inc. v. Superior Court, 60 Cal.2d 723 (Cal. Supreme Court 1964). In that case, the plaintiff fell on a sidewalk and sued the corporate defendant for negligent maintenance of the sidewalk. The company received a written statement from an employee who had performed work on the sidewalk before and after the accident. The company claimed the statement was privileged. The trial court overruled the claim of privilege and the California Supreme Court affirmed. Among other problems, there was no evidence in the record that the company intended the statement to be given to its attorney and there was no evidence that the employee was anything other than a witness. In other words, the dominant purpose of the statement was not legal communications.

The dominant purpose test has been affirmed by the California Supreme Court many times over the years. Thus, in the case of Costco Wholesale Corp. v. Superior Court, 47 Cal.4th 725 (Cal. Supreme Court 2009), the privilege cloaked a 22-page report prepared by a lawyer after the lawyer had interviewed two lower-level managers at the company. The purpose was clearly legal in nature. By contrast, in Los Angeles County Bd. of Supervisors v. Superior Court, 2 Cal. 5th 282 (Cal. Supreme Court 2016), the court rejected a privilege claim for legal invoices since the dominant purpose for preparing the invoices was to facilitate payment, not to provide legal advice or services.

California Business Law: Contact San Diego Corporate Law

If you would like more information about the attorney-client privilege in San Diego and California, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.

You Might Also Like:

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Board Minutes: Why They Are Important

Who Can Sign Contracts for A Corporation?

What is Attorney-Client Privilege in Relation to California Business Law?


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