MILLER MORTON CAILLAT NEVIS v. CURRY (1985)

Miller, Morton, Caillat & Nevis, a law firm, is a defendant in a civil action for investment losses.   By petition for extraordinary writ it seeks review of a discovery order which requires it to produce certain documents despite its assertion of the attorney-client and work-product privileges.   On the basis of the record furnished to us we conclude that the discovery order takes insufficient account of the privileges on which the law firm relies.   A writ of mandate should issue, directing respondent superior court to reconsider and as necessary to reframe its discovery order in light of the views we express.

Nevis, Pauly, Hoss and Lunt is or was an unincorporated association of individuals characterized by counsel for the law firm as “promoters of numerous business ventures.”   Members of Nevis, Pauly, Hoss and Lunt sold a large number of investment ventures to real parties in interest Curry et al.   In preparing and structuring these ventures the members of Nevis, Pauly, Hoss and Lunt consulted with the law firm, and the law firm did the drafting and general legal work on the venture.   James Nevis of Nevis, Pauly, Hoss and Lunt is the brother of David Nevis of the law firm.

Many of the ventures were structured as general partnerships in which the members of Nevis, Pauly, Hoss and Lunt and various of the real parties in interest were individual general partners.

Certain of the ventures allegedly went bad.   Investors including real parties in interest sued Nevis, Pauly, Hoss and Lunt and its individual members, the law firm and its individual partners, and a brokerage house on various theories including violations of securities regulations, fraud, negligence, and breach of fiduciary relationship, claiming actual and punitive damages.   Three such lawsuits have been consolidated.

In course of discovery real parties in interest served on the law firm a “notice to produce” under Code of Civil Procedure section 2031, which called for the law firm to produce all papers, memoranda, documents, records, correspondence, research notes, inter-office correspondence, diaries, calendars, chronologies, fact summaries, opinion letters and any other records or papers of any kind or nature whatsoever in each of five categories, and also for time sheets, time records, billings and employment agreements related directly or indirectly to services performed by the law firm for Nevis, Pauly, Hoss and Lunt or the investment ventures.

The law firm represents that it has produced all relevant documents except for (1) written communications between it and Nevis, Pauly, Hoss and Lunt and (2) “its attorney work product (e.g. drafts of contracts and pleadings, legal research, notes)․”   As to the excepted documents the law firm objected to the notice to produce on the basis, among others, of attorney-client privilege and work product privilege.   Real parties in interest moved to compel production.   At hearing counsel for the law firm appeared to agree to produce “all documents after the formation of the general partnership dealing with matters in which [the law firm] represented Nevis, Pauly on behalf of partnership interests.   This would include negotiating contracts on behalf of the partnership and similar legal advice, because I think that is what the court was getting at.  [¶] But I must strenuously object to the production of any documents which came into existence before the date of the partnership.”   Respondent court ordered the law firm to produce all requested documents, drawing no distinction between those generated before and those generated after the general partnerships were formed.

This petition followed.

In this court the law firm has receded from counsel's apparent concession that at least some of the documents generated after the general partnerships were formed were discoverable.   The law firm now takes the position that either or both of the attorney-client privilege and the work-product privilege apply to all of the documents in issue and that the facts give rise to no relevant exception.

 We assign more significance to the event of formation of the individual investment partnerships than respondent court apparently did.   We conclude that those documents relevant to a particular general partnership which were generated before the partnership was formed would be discoverable only if they (1) were not subject to the attorney-client privilege and (2) to the extent they were subject to the work-product privilege, were properly subject to respondent court's discretion under the so-called “qualified” branch of the privilege.   We further conclude that all documents generated after partnership formation, and any documents (whenever generated) to which neither the attorney-client privilege nor the work product privilege applies, were properly ordered produced.   For these purposes we deem any particular general partnership to have been formed when any of real parties in interest became general partners in that partnership.   We will remand the matter to respondent court to draw the factual distinctions necessary to implement our holding.

Attorney-client privilege

 The attorney-client privilege (Evid.Code, § 954) is of course available in discovery proceedings (cf. Code Civ.Proc., § 2016, subd. (b)).  The burden is on the client to show preliminary facts to demonstrate that the privilege applies.  (Cf. Mize v. Atchison, T. & S.F. Ry. Co. (1975) 46 Cal.App.3d 436, 447, 120 Cal.Rptr. 787.)   The attorney normally may (Evid.Code, § 954, subd. (c)), and in circumstances such as these must (Evid.Code, § 955), invoke the privilege if applicable.   Real parties in interest do not deny that the law firm has shown that the privilege would be prima facie applicable to communications between it and the members of Nevis, Pauly, Hoss and Lunt.   Instead real parties in interest argue, generally, that the privilege should not apply in the circumstances of record and, specifically, that the communications come within either or both of the crime or fraud (Evid.Code, § 956) and joint client (Evid.Code, § 962) exceptions to the privilege.

1. General applicability.

 Real parties in interest argue that invocation of the attorney-client privilege in these circumstances would deny them access to information directly relevant to their claims.   Probably they are right.   But this fact, in and of itself, would not vitiate the privilege.   It has been recognized that the search for truth must sometimes give way to the purposes of the privilege.   As the American Law Institute has pointed out, “the continued existence of the privilege is justified on grounds of social policy.   In a society as complicated in structure as ours and governed by laws as complex and detailed as those imposed upon us, expert legal advice is essential.   To the furnishing of such advice the fullest freedom and honesty of communication of pertinent facts is a prerequisite.   To induce clients to make such communications, the privilege to prevent their later disclosure is said by courts and commentators to be a necessity.   The social good derived from the proper performance of the functions of lawyers acting for their clients is believed to outweigh the harm that may come from the suppression of the evidence in specific cases.”  (Model Code Rule 210 comment, quoted in 6 Cal.Law Revision Com.Rep. (1964) p. 381, fn. 1;  cf. Mitchell v. Superior Court (1984) 37 Cal.3d 591, 600, 208 Cal.Rptr. 886, 691 P.2d 642 (“ ‘The privilege is given on grounds of public policy in the belief that the benefits derived therefrom justify the risk that unjust decisions may sometimes result from the suppression of relevant evidence’ ”);  Witkin, Cal.Evidence (2d ed. 1966) Witnesses, § 795, pp. 740–741;  Benge v. Superior Court (1982) 131 Cal.App.3d 336, 344, 182 Cal.Rptr. 275.)

 More specifically real parties in interest argue that the individual members of Nevis, Pauly, Hoss and Lunt are general partners, with real parties in interest, in various of the investment partnerships, and thus are fiduciaries of real parties in interest, and that by the very act of invoking (or suffering the law firm to invoke) the attorney-client privilege the members of Nevis, Pauly, Hoss and Lunt have violated their fiduciary obligations to real parties in interest.   But there is no documented “fiduciary exception” to the privilege, and the policies which underlie the privilege are as applicable in litigation between fiduciaries as in any other lawsuit.   Any remedy real parties in interest may have for the asserted breach of fiduciary duty would not include disclosure of otherwise privileged information.

2. Crime or fraud exception.

 Evidence Code section 956 provides that there is no attorney-client privilege “if the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit a crime or a fraud.”  (Cf. Glade v. Superior Court (1978) 76 Cal.App.3d 738, 745–746, 143 Cal.Rptr. 119.)   The burden of establishing the factual basis for the exception in this case was on real parties in interest.  (Cooke v. Superior Court (1978) 83 Cal.App.3d 582, 589, 147 Cal.Rptr. 915.)  “[A] mere allegation of fraud is insufficient to make the exception applicable.  ‘[I]t would be destructive of the privilege to require disclosure on the mere assertion of opposing counsel.   “Accordingly, evidence should be presented, to make a prima facie showing that this was the client's purpose, before the communication is received.” ’   [Citation.]”  (Dickerson v. Superior Court (1982) 135 Cal.App.3d 93, 100, 185 Cal.Rptr. 97.)

 Under these criteria the record before us does not sustain a finding of a factual basis for the crime or fraud exception.   Real parties in interest appear to rely on proceedings had in respondent court which are not of record here.   There may have been evidence to make the requisite prima facie showing, but we are not at liberty to speculate on a silent record.

3. Joint client exception.

Evidence Code section 962 provides that “[w]here two or more clients have retained or consulted a lawyer upon a matter of common interest, none of them, nor the successor in interest of any of them, may claim [the attorney-client privilege] as to a communication made in the course of that relationship when such communication is offered in a civil proceeding between one of such clients (or his successor in interest) and another of such clients (or his successor in interest).”   It has been suggested that the exception applies to any communication between the lawyer and one joint client whether or not another joint client is present.  (Glacier Gen. Assurance Co. v. Superior Court (1979) 95 Cal.App.3d 836, 840–841, 157 Cal.Rptr. 435;  but cf. Glade v. Superior Court, supra, 76 Cal.App.3d at p. 747, 143 Cal.Rptr. 119.)

Real parties in interest argue that those members of Nevis, Pauly, Hoss and Lunt who engaged the law firm to do legal work for the general partnerships did so as the agents of all of the general partners (including in each instance one or more of real parties in interest) and thus that the law firm became counsel not only for the members of Nevis, Pauly, Hoss and Lunt but also for real parties in interest.   Hence, they argue, real parties in interest and the members of Nevis, Pauly, Hoss and Lunt became joint clients, with respect to communications relevant to the general partnerships, within the meaning of the statutory exception.

 It is apparently uncontested that the members of Nevis, Pauly, Hoss and Lunt selected the general partnership format for many of their investment packages;  that one or more members of Nevis, Pauly, Hoss and Lunt and one or more of real parties in interest were to be and ultimately became general partners in the various general partnerships;  and that in engaging the law firm to do necessary legal work for a particular general partnership the members of Nevis, Pauly, Hoss and Lunt purported to act for the benefit of real parties in interest.   There is no indication that any of real parties in interest were at that point represented by counsel of their own, or that the law firm or any of the members of Nevis, Pauly, Hoss and Lunt had suggested to them that it would be prudent to engage independent counsel.   Under applicable principles of partnership law, once the general partnership was formed each general partner's act for the benefit of the partnership bound the partnership and thus, ultimately, every general partner.  (Corp.Code, §§ 15009, 15013–15015.)   Inferably each real party in interest reasonably relied on members of Nevis, Pauly, Hoss and Lunt to secure adequate assistance of counsel for each general partnership.  “No formal contract or arrangement or attorney fee is necessary to create the relationship of attorney and client.   It is the fact of the relationship which is important.”  (Farnham v. State Bar (1976) 17 Cal.3d 605, 612, 131 Cal.Rptr. 661, 552 P.2d 445.)   Although the relationship is essentially contractual, the contract may be express or implied and its existence is generally a question of law.  (Cf. Houston Gen. Ins. Co. v. Superior Court (1980) 108 Cal.App.3d 958, 964, 166 Cal.Rptr. 904.)   We find adequate support for respondent court's implicit conclusion that upon formation of each separate general partnership the law firm was necessarily engaged as counsel for all the general partners, and that from that point forward, in all matters relating to the general partnership, all general partners were joint clients of the law firm within the meaning of the statutory exception.

 It follows that as among the partners of any particular general partnership, the attorney-client privilege would not apply to communications between the law firm and members of Nevis, Pauly, Hoss and Lunt, relevant to the partnership, once the partnership was formed.

  We cannot in any event extend the joint client exception back in time to communications which occurred before any particular general partnership was formed (as defined above).   To the extent respondent court's order might be so construed, it is not supported by the record with which we have been provided.   No evidence suggests that any of the real parties in interest retained or consulted the law firm or could otherwise be considered a client of the law firm prior to becoming a partner.

Work product privilege

Real parties in interest also sought information which did not take the form of attorney-client communications.   As to certain of this information the law firm invoked the work product privilege.  (Code Civ.Proc., § 2016, subds. (b), (h);  cf. Hickman v. Taylor (1947) 329 U.S. 495, 510–511.)   The privilege has been construed to apply not only to the trial preparation to which the statute expressly applies but also to work product developed by the attorney “in a nonlitigation legal capacity” such as the structuring of a business transaction.  (Rumac, Inc. v. Bottomley (1983) 143 Cal.App.3d 810, 813–816.)

 As to work product developed by the law firm with respect to any particular general partnership, from and after the point at which the partnership was formed, our determination that the law firm should be deemed to be the attorneys for each general partner supports the conclusion that the work product doctrine does not bar production of the requested documents here.   The privilege is held by the attorney so that he may claim or waive it as to third parties (Fellows v. Superior Court (1980) 108 Cal.App.3d 55, 63–66).   But the lawyer's entire file is open to his client and, unless former clients are feuding inter se, the file must be turned over to the client at the termination of the relationship.  (Weiss v. Marcus (1975) 51 Cal.App.3d 590, 599;  Kallen v. Delug (1984) 157 Cal.App.3d 940, 951.)   Such a rule does not offend the policy underlying the privilege set forth in Code of Civil Procedure section 2016, subdivision (h), namely to encourage the attorney to investigate also the unfavorable aspects of the case and to prevent an attorney from taking advantage of his adversary's industry and efforts.

But real parties' claim to work product generated by the law firm before any particular general partnership was formed (and thus before there was any apparent attorney-client relationship between the law firm and real parties in interest) is less persuasive.   Had respondent court's order been tailored to apply only to those of the demanded materials which were neither communications nor reflections of the law firm's “impressions, conclusions, opinions, or legal research or theories,” then perhaps it could be rationalized as a determination (explicit in the transcript although not in the written order) that “denial of discovery will unfairly prejudice [real parties in interest] in preparing [their] claim ․ or will result in an injustice․”  (Code Civ.Proc., § 2016, subds. (b), (g).)   But the order is not limited to materials subject only to the qualified branch of the work product privilege.   Conceivably the record before respondent court would permit that court, with respect to materials generated before the general partnerships were formed and as to which the work product privilege is invoked, to differentiate between the absolute and qualified branches of the doctrine.   But the record before us is insufficient to enable us to suggest how to do so, or even whether such differentiation is possible.

Let a peremptory writ of mandate issue directing respondent superior court to vacate so much of its “order granting motion for production of documents generated,” made January 25, 1985, nunc pro tunc as of November 16, 1984, as compels production of documents generated, as to any particular general investment partnership, before that partnership was formed, and to conduct further proceedings on the motion to compel production consistent with the views expressed herein.   The stay of respondent court's order and of proceedings to enforce it, heretofore ordered herein, shall be dissolved when the portions of the said order hereinabove identified have been vacated.

 PANELLI, Presiding Justice.

AGLIANO and BRAUER, JJ., concur.