Costco Wholesale Corp. v. Superior Court

• Decision Date: 27 March 2008
• Docket Number: No. B197692.,B197692.
• Citation: 74 Cal.Rptr.3d 345,161 Cal.App.4th 488
• Parties: COSTCO WHOLESALE CORPORATION, Defendant and Petitioner, v. The SUPERIOR COURT of the State of California for the County of Los Angeles, Respondent; Greg Randall et al., Plaintiffs and Real Parties in Interest.
• Court: California Court of Appeals Court of Appeals

74 Cal.Rptr.3d 345

161 Cal.App.4th 488

COSTCO WHOLESALE CORPORATION, Defendant and Petitioner, v. The SUPERIOR COURT of the State of California for the County of Los Angeles, Respondent;

Greg Randall et al., Plaintiffs and Real Parties in Interest.

No. B197692.

Court of Appeal, Second District, Division 3.

March 27, 2008.

Seyfarth Shaw LLP, Kenwood C. Youmans, David D. Kadue and Aaron R. Lubeley, Los Angeles, for Defendant and Petitioner.

No appearance for Respondent.

Hagens Berman Sobol Shapiro LLP, Reed R. Kathrein, Berkeley, Lee M. Gordon, Elaine T. Byszewski, Los Angeles, and Steve W. Berman; Rehwald Glasner & Chaleff, Lawrence Glasner, William Rehwald and Daniel Chaleff, Woodland Hills, for Plaintiffs and Real Parties in Interest.

ALDRICH, J.

I. INTRODUCTION

In the underlying lawsuit in this matter, real parties in interest (hereinafter collectively referred to as plaintiffs)¹ allege that prior to September 2001, defendant and petitioner Costco Wholesale Corporation (Costco) misclassified certain managers as exempt employees. Plaintiffs assert they have a right to inspect a letter that has been redacted by the trial court. In this writ of mandate proceeding, Costco asks this court for extraordinary relief contending the letter is protected from disclosure by the attorney-client privilege and the work product doctrine and it will be harmed by the disclosure of the redacted letter. We conclude that extraordinary relief is not warranted because Costco has not demonstrated how it will be irreparably harmed by the release of the letter as redacted. Thus, we deny the request for a writ of mandate.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The initial facts.

Costco "operates `cash-and-carry membership warehouses' throughout the United States." (Ellis v. Costco Wholesale Corp. (N.D.Cal.2005) 372 F.Supp.2d 530,0 534.) "Costco's nationwide operations are divided into three divisions (Southwest, Eastern, and Northern/Midwest), each governed by an Executive Vice President. ... These divisions are in turn divided into regions managed by Senior Vice Presidents.... Each Costco region is broken down into districts, led by District Vice Presidents, which are in turn composed of numerous Costco warehouses.... Each Costco warehouse is staffed with a General Manager, multiple Assistant Managers, and a team of staff level, area, and department managers...." (Ellis v. Costco Wholesale Corp. (N.D.Cal.2007) 240 F.R.D. 627, 634.)

Costco operates over 100 warehouse stores in California. Each store has hundreds of employees and up to 20 managers, including a general manager. A "general manager" is an onsite supervisor within a warehouse. It appears the general manager was the person most senior at each warehouse. Certain managers within Costco warehouses include the "meat, bakery, pharmacy, service deli, optical, hearing aid, tire center, photo lab, and food court managers. These and other managers are commonly referred to as 'ancillary managers.'"

Senior operations personnel at Costco determine how to classify employees for compensation purposes. At the time pertinent to this case, there were approximately 20 operations people who made such decisions. The operations personnel included district vice presidents and others senior to general managers.

"Exempt" employees (those engaged in managerial tasks) are not entitled to overtime payments.

In June 2000, Costco's then corporate counsel (attorney Donna M. Brandon) engaged "the law firm[ ] of Sheppard Mullin ... to undertake [a] comprehensive factual investigation and legal analysis regarding the classification of managers within Costco Warehouses." Attorney Kelly L. Hensley handled the assignment.

Attorney Hensley interviewed two Costco warehouse managers. According, to attorney Hensley, she assured the two warehouse managers that "their communications would be treated as confidential and protected by attorney-client privilege." Also, according to attorney Hensley, she relied upon "the information [she] received from Costco, [her] legal research, and [her] expertise with respect to wage and hour law" to write, a 22-page letter to attorney Brandon dated August 4, 2000, "addressing the exempt status of certain Costco warehouse managers in California." According to attorney Hensley, the letter reflected her "legal advice to [Costco] and also [her] own impressions, conclusions, and legal research."

"During 2000 and 2001, there were discussions at various operational meetings regarding the job responsibilities of certain managers within the Costco warehouses, including [the ancillary managers]." Keith Miyahira, who was corporate counsel in 2000 to 2001, attended these meetings and communicated legal advice regarding the exemption defense for ancillary managers, including what tasks would be exempt from overtime requirements under California law. However, attorney Miyahira did not play any role in the decision as to whether to classify these managers as exempt or non-exempt.

In 2001, Costco decided to reclassify the ancillary managers from exempt to salaried, non-exempt employees. Thus, these employees would receive overtime for "work over 8 hours a day or 40 hours a week." This decision was implemented in September 2001. According to John C. Matthews, the "person most knowledgeable," the reclassification decision was not based upon a belief that the affected managers had been uniformly mis classified, rather the decision was made because it was cumbersome to police daily duties of department managers to ensure that they continued to meet Costco's expectations of managers. According to Costco, the decision was for operational simplicity and efficiency and to avoid a wave of potential litigation.

B. The lawsuit and discovery.

1. The pleadings.

The original class action complaint was filed in May 2003. It, and subsequently filed amended complaints, alleged Costco unlawfully failed to pay overtime to ancillary managers, including department managers, because Costco categorically had misclassified these employees as exempt employees.

Costco answered the class action complaint, pleading as an affirmative defense that plaintiffs were exempt from the protection of the California overtime laws (the exemption defense).

2. The discovery.

In January 2004, plaintiffs served written discovery seeking documents related to the investigation of the exempt classification for Costco's managers in California.

Costco objected to production of communications involving its counsel on the grounds of attorney-client privilege and work product doctrine.² The documents Costco withheld, based on privilege claims, were listed in Costco's privilege log. The privilege log identified Sheppard Mullin's August 4, 2000, 22-page letter.

In response to interrogatories propounded by plaintiffs, Costco stated that the basis for its exemption defense was the following: "During the relevant time period, salaried Costco managers were assigned job duties that required them to exercise independent judgment and discretion. Among these duties was the direction and supervision of other employees. Defendant 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 (and other tasks closely and directly related to such exempt tasks) for more than 50% of their time." ³ (Italics added.)

3. The deposition of Matthews.

On January 19, 2006, plaintiffs took the deposition of John C. Matthews, Costco's person most knowledgeable about Costco's exemption defense. Matthews was Costco's senior vice president of human resources and risk management.

Matthews testified about Costco's reasonable expectations regarding the duties of managers historically classified as exempt. He testified that in making the classification decision, Costco gathered information during interviews with managers. Matthews also testified that Costco relied, in part, on input from counsel in classifying its employees as exempt or nonexempt. During the deposition, Costco's counsel explicitly stated that Costco was not relying upon the advice of counsel defense. Costco's counsel instructed Matthews not to relay any information as to what was discussed during interviews with Costco's attorneys.

Thereafter, plaintiffs stated in a letter that they considered Costco had waived attorney-client and work product privileges regarding the legal advice given by Sheppard Mullin to Costco. In response, Costco reiterated that it was not asserting the advice of counsel defense and that its "reasonable expectation" exemption defense was not dependent upon legal advice.

4. The motion to compel.

In April 2006, plaintiffs filed a motion to compel production of documents regarding Costco's exemption defense, including its investigation into, knowledge of, and reasonable expectations as to, how junior managers spent their time at work (pre-September 2001). Plaintiffs contended Costco waived any privilege by placing its knowledge and expectations at issue.⁴ In part, plaintiffs argued that "Costco affirmatively placed the requested information directly at issue by basing its exemption defense on its `reasonable expectation' that junior managers spent most of their time on managerial tasks. Plaintiffs have a right to show that Costco actually knew and expected the exact opposite, i.e., that Costco investigated the work of its junior managers and learned that they were spending most of their time doing handson work. Furthermore, Costco relied on counsel's input to support its exemption defense. In essence, Costco testified that it reasonably expected junior managers to be primarily engaged in management tasks based on input from in-house counsel."

Plaintiffs sought, among other documents, the August 4, 2000, Sheppard Mullin letter.

In opposition, Costco argued the communications were protected by the attorney-client privilege and...