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July 2014 - Seahaus v. Superior Court: An Uncommon Fact Pattern Highlights Complexities of the Common Interest Privilege in California

by Lisa Glasser

On March 12, the Fourth Appellate Division addressed the scope of the California common interest privilege in Seahaus La Jolla Owners Ass’n v. Super. Ct., 224 Cal. App. 4th 754 (2014). At issue in Seahaus were litigation update meetings at which attorneys for a homeowner’s association (“the Association”) presented information to non-client homeowners about the status of a construction defect litigation. Some homeowners were litigants in a related construction defect litigation involving their individual units, others were not, and several were employed by or otherwise affiliated with the opposing party in the construction defect cases. In the trial court, a discovery referee and two different superior court judges issued a series of seemingly inconsistent rulings, culminating in a ruling that would have required individual homeowners to testify at deposition regarding the litigation update meetings. Upon a petition for writ of mandate filed by the Association, the court of appeal vacated the trial court’s order, determining that the litigation update meetings were protected by the common interest privilege.

At first blush, this outcome may seem surprising. Given the general rule that the attorney-client privilege is waived if communications are not kept confidential, how can information remain privileged when disclosed in a meeting attended by non-clients, including personnel affiliated with one’s litigation adversary? The answer lies in the fact-driven nature of the common interest privilege. Unpacking the unique facts and procedural history upon which the common interest privilege was based in Seahaus highlights the complexities of the doctrine—and practical steps that practitioners can take to assess and guard against the risk of waiver across the myriad of other settings in which common interest issues may arise.

Background—The Common Interest Privilege
The common interest privilege is something of a misnomer, as it is not an independent privilege. Rather, it is a non-waiver doctrine derivative of Evidence Code sections 912, which provides that privilege is not waived by communications “reasonably necessary for the accomplishment of the purpose for which the lawyer . . . was consulted,” and section 952, which provides in part that the privilege extends to communication made “in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation.” As the Seahaus court observed before delving into its fact-driven analysis, “there is no absolute brightline[sic] test” for the common interest privilege. Seahaus, 224 Cal. App. 4th at 770 (citing OXY Res. Cal. LLC v. Super. Ct., 115 Cal. App. 4th 874, 896 (2004).) “Not only the content of the communication must be considered, but also the circumstances of the communication.” Id.

The Seahaus Court’s Analysis
In concluding that the common interest privilege shielded the litigation update meetings at issue, the Seahaus court placed significant weight on findings that the Association was required to provide notice to homeowners before filing construction defect litigation, and that the Association and its Board “perceive[d] that the Board has a duty to keep all the individual homeowners informed about common area litigation.” The court also found relevant the Association’s evidence that it made efforts to restrict attendance at the litigation meetings to units owners only, and not tenants, prospective buyers, realtors, or other such third parties. Additionally, the court noted that multiple homeowners had pending individual actions against the same developer, which had been consolidated with the Association’s action for discovery purposes.”

Given these considerations, the Seahaus court concluded that the litigation meetings were held to accomplish the purpose for which the attorneys were consulted. Specifically, in addition to the association’s statutory mandate to provide notice to homeowners, the meetings were “reasonably necessary” to ensure the litigation was being conducted in a way “that would be consistent with and would not interfere with the rights of the individual homeowners” and that with respect to the various individual actions against the same developer, would “advance their shared interests in securing advice on similar legal and factual issues.” The Seahaus court held that, under these circumstances, the presence at the meeting of some homeowners affiliated with the defendants did not destroy the common interest privilege. Although not explicitly stated, it appears that the Seahaus court premised that finding on the logic that, although such homeowners may have had some conflicting loyalties, they also had common interests (such as maintaining their property values in the face of the alleged defects) that were directly relating to the subject of the meetings.

Practical Considerations for Assessing the Common Interest Privilege
One takeway from the Seahaus case is a reminder of how fact-intensive (and therefore unpredictable) the common interest privilege inquiry can be. Clients considering sharing legal information with third parties should be cautioned that their actions may be challenged and that it is difficult to predict how a court will rule on any given set of facts. Indeed, in Seahaus, although a writ eventually entered directing the entry of a protective order, that occurred only after lengthy motion practice in the trial court and several adverse rulings. Moreover, it is unclear how the court would have ruled if presented with even slightly different facts—for example, if the meetings had been open to renters, if any of the meeting attendees had voluntarily shared information from the meeting, or any number of other factual permutations. Predicting how a particular court will rule on any novel fact pattern is difficult, and that challenge is multiplied by the fact that common interest privilege issues may arise in many practice areas, including (for example) patent litigation, criminal law, transactional due diligence, and regulatory work. However, there are a number of guiding principles that should always be considered.

For example, in evaluating whether disclosure to a third party could waive the attorney-client or work product privilege, the purpose of the disclosure, and how closely the disclosure is tailored to common legal interests, is a paramount consideration. In Seahaus, the court placed significant weight on its finding that at least some of the informational meetings were required by statute before pursuing claims, and that the interests of the Association and its Board, on the one hand, and the individual owners, on the other were aligned—at least with respect to the underlying litigation goal of remedying the alleged harm to the condominium complex.

The line between common interests and an adversarial relationship is not always clear. For example, in a case out of the Fifth District addressing a situation where a municipality and a developer exchanged legal information in connection with a development project, the common interest was found inapplicable before the date on which the developer’s project was approved, but applicable for the post-approval period. Citizens for Ceres v. Super. Ct., 217 Cal. App. 4th 889 (2013). In Ceres, even though the city and developer shared some common legal interests throughout their discussions, their overriding relationship was deemed adversarial rather than common in the pre-approval period during which the terms of the project were being negotiated. Similarly, some federal courts have found the federal common interest privilege inapplicable where otherwise privileged documents were shared with potential third party funders of the litigation. See, e.g., Leader Techs., Inc. v Facebook, Inc., 719 F. Supp. 2d 373 (D. Del. 2010) (applying federal law); see also Nidec Corp. v. Victor Co., 249 F.R.D. 575, 580 (N.D. Cal. 2007) (noting authority that the common interest privilege may extend to negotiations for the prospective purchase of a business, but holding that the disclosures must be for “formulating a common legal strategy” and not merely “to further a commercial transaction”).

Confidentiality protections are also an important consideration in the common interest privilege analysis. The facts regarding preservation of confidentiality that Seahaus found adequate (attempting to limit the meetings to owners of units, to the exclusion of renters and others) are somewhat unusual in that there was apparently no written non-disclosure agreement in place between the participants at the meeting. In general, it is advisable to have a written non-disclosure agreement in place before any information is exchanged, particularly given that Evidence Code section 952 requires that only communications made “in confidence” can be privileged. Similarly, clients should be cautioned to limit attendance at meetings to the minimum participants, and to avoid copying third party personnel on emails and other communications unless necessary, and to avoid “replying to all” where legal advice is being discussed except where the recipient list has been carefully vetted to ensure it is narrowly tailored. Such precautions can increase the likelihood of a court ultimately determining (1) that information was disclosed only to persons with a common interest, and (2) that such disclosure occurred in confidence, as necessary to find the common interest privilege applicable.

Venue and choice of law are also important considerations. Seahaus issued from the Fourth District, and although it sought to harmonize opinions from other districts, it is binding only in the Fourth District. Moreover, California law will not necessarily govern all actions involving California companies. For example, if an action is based on a federal cause of action, federal law will typically govern privilege issues. Fed. R. Evid. 501. In many state courts, the Restatement (Second) of Conflict of Laws will determine the applicable privilege law. The Restatement provides, in relevant part, that “[e]vidence that is privileged under the local law of the state which has the most significant relationship with the communication but which is not privileged under the local law of the forum will be admitted unless there is some special reason why the forum policy favoring admission should not be given effect.” The Restatement further explains in comment e that “[t]he state which has the most significant relationship to a communication will usually be the state where the communication took place.” Of course, there are numerous permutations to this analysis, as where a case includes both state and federal claims, or where a communication took place between participants in two different states or countries. Accordingly, to fully assess the applicability of the common interest privilege, it will often be important to conduct a choice of law analysis to fully assess a client’s options and risks.

In sum, Seahaus provides helpful arguments for litigants seeking to broadly invoke the common interest privilege to shield against waiver. However, it also serves as a reminder of the highly fact-intensive and uncertain process of determining the boundaries of the common interest doctrine. Practitioners in the Fourth District and elsewhere must be vigilant in assessing all relevant factors, including the relationship of one’s client to the third party to whom information is being disclosed, how narrowly tailored the disclosure is, the confidentiality protections in place, venue/choice of law, and other facts in advising clients on the potential for waiver when privileged information is being shared with a third party.

Lisa Glasser is a partner at Irell & Manella LLP, specializing in intellectual property and general business litigation. She can be reached at lglasser@irell.com.

 
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