Marylander v. Superior Court, B138779.

• Decision Date: 28 June 2000
• Docket Number: No. B138779.,B138779.
• Citation: 97 Cal.Rptr.2d 439,81 Cal.App.4th 1119
• Court: California Court of Appeals Court of Appeals
• Parties: Stuart J. MARYLANDER, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Office of Statewide Health Planning And Development et al., Real Parties in Interest.

97 Cal.Rptr.2d 439

81 Cal.App.4th 1119

Stuart J. MARYLANDER, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent;

Office of Statewide Health Planning And Development et al., Real Parties in Interest.

No. B138779.

Court of Appeal, Second District, Division 4.

June 28, 2000.

Manatt, Phelps & Phillips, LLP, David Elson, Kathrin A. Wanner, and Mark E. Goldman, Los Angeles, for Petitioner.

No appearance for Respondent.

Bill Lockyer, Attorney General, Manuel M. Medeiros, Senior Assistant Attorney General, Andrea Lynn Hoch and Tom Blake, Deputy Attorneys General, for Real Parties in Interest.

CHARLES S. VOGEL, P.J.

INTRODUCTION

A defendant in pending civil litigation seeks to compel discovery from a state agency of records that are relevant to his defense in the underlying case. The records are memoranda from the state agency to the Governor's Office. The trial court denied a motion to compel production, agreeing with the state agency that such memoranda are absolutely privileged on the grounds that correspondence to the Governor is exempt from disclosure as a public record, and a common law "deliberative process" privilege absolutely protects such interoffice communications in order to facilitate candid advice and disclosures to the Governor. We hold the trial court erred, because the applicable privilege is not absolute but conditional under Evidence Code section 1040, subdivision (b)(2), which required the trial court to consider the party's need for disclosure in the interest of justice, and to determine whether that interest is outweighed by the public interest in preserving confidentiality. We direct the trial court to conduct further proceedings in accordance with Evidence Code section 1040.

FACTUAL AND PROCEDURAL BACKGROUND

Petitioner Stuart J. Marylander is the defendant in a civil action alleging misrepresentation, concealment, and breach of fiduciary duty. The plaintiff is the chapter 11 trustee in bankruptcy for Triad Healthcare, a nonprofit corporation (Triad) of which petitioner was formerly an officer and employee. Triad was formed by petitioner for the purpose of acquiring two hospitals from Nu-Med Corporation (Nu-Med). At the time petitioner formed Triad, petitioner was an officer and director of Nu-Med. The theory of the complaint by the trustee on behalf of Triad is that the purchase price paid by Triad for the two hospitals was far in excess of fair market value, and that this ultimately led to Triad's default on its loan obligations in July 1993. The complaint alleges that petitioner failed to disclose to Triad that the two hospitals had been previously appraised at significantly lower values, that the price was in excess of all other available comparable sales for similar hospitals, and that due diligence on behalf of Triad was not exercised prior to the purchase.

The real parties in interest in the present writ proceeding are the State of California and its agency, the Office of Statewide Health Planning and Development (OSHPD). OSHPD was involved in the purchase of the hospitals because OSHPD insured (guaranteed) the loan by which Triad obtained the purchase price, pursuant to OSHPD's California Health Facilities Construction Loan Insurance Program (Cal-Mortgage program). Triad subsequently defaulted on its loan obligations. OSHPD, obligated on its guaranty of Triad's loan, is the largest creditor in Triad's bankruptcy estate, with a bankruptcy claim of approximately $174 million.

Petitioner is defending the complaint in part on the ground that "Triad's inability to meet its debt service obligations was not the consequence of wrongdoing, but instead resulted from factors which Marylander and Triad's Board could not have foreseen—including unreasonable conduct by OSHPD which caused much of Triad's losses and stymied Triad's efforts to restore the hospitals' profitability."

During the course of discovery, petitioner was informed of the existence of a series of written communications known as Governor Action Requests (GAR's). These were memoranda prepared by officials of OSHPD or the California Health and Welfare Agency, and directed to the Governor or to the Health and Welfare Secretary, between August 1993 and October 1995, apparently addressing Triad's financial problems.

Petitioner served on OSHPD a deposition subpoena (Code Civ. Proc, § 2020, subd. (d)(1)) requesting production of the GAR's, which were identified specifically by date and author, and of any responses thereto. OSHPD declined to produce them, claiming they were privileged under a deliberative process privilege.

Petitioner filed a motion to compel production. Petitioner contended the GAR's are relevant to petitioner's defense concerning causation and damages, and therefore are discoverable. OSHPD does not deny that the GAR's are relevant to the pending litigation.

Petitioner challenged OSHPD to show pursuant to Evidence Code section 1040, subdivision (b)(2) that the GAR's were acquired in confidence or that the necessity for preserving their confidentiality outweighed petitioner's interest in disclosure. OSHPD replied it was relying upon a common law deliberative process privilege, which it contended was codified in Government Code section 6254, subdivision (l), which exempts "[cjorrespondence of and to the Governor or employees of the Governor's office" from disclosure as a public record.

The trial court denied petitioner's motion to compel production of the GAR's. The court commented it did not need to examine the GAR's in camera; rather it was persuaded that OSHPD had "made [a] foundation to show the privileges or immunities from discovery or disclosure that they've talked about here." Petitioner's counsel asked if the trial court was holding that "the [deliberative] process privilege, the government's correspondence privilege, they call it, is applicable to these documents," to which the court replied, "Correct."

Petitioner filed in this court a petition for a writ of mandate to compel respondent trial court either to compel production or to require OSHPD to make the showing required by Evidence Code section 1040, subdivision (b)(2) that the public interest in preserving confidentiality outweighs petitioner's interest in disclosure. We issued an order to show cause. (See Shepherd v. Superior Court (1976) 17 Cal.3d 107, 116, 123, 130 Cal.Rptr. 257, 550 P.2d 161 [writ review of order erroneously sustaining absolute privilege where only conditional privilege applied]; Oceanside Union School Dist. v. Superior Court (1962) 58 Cal.2d 180, 185-186, fn. 4, 23 Cal.Rptr. 375, 373 P.2d 439 [writ review of discovery order raising question of first impression of public importance].) OSHPD filed a "return by way of demurrer" contending that the "Governor's correspondence" exemption in Government Code section 6254, subdivision (I), and the common law deliberative process privilege are controlling.

DISCUSSION

1. The only applicable privilege is the official information privilege in Evidence Code section 1040, subdivision (b)(2), which requires the trial court to balance the necessity for preserving confidentiality against the litigant's interest in disclosure.

Petitioner is the defendant in a pending civil action for misrepresentation, concealment, and breach of fiduciary duty. Petitioner is entitled by law to "obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action ... if the matter is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence." (Code Civ. Proa, §§ 2017, subd. (a) [right to discovery], 2020, subds. (a)(2), (d)(1) [procedure to obtain business records from nonparty].) OSHPD does not dispute the relevance of the requested documents, since the petition alleges without contradiction that petitioner contends "Triad's inability to meet its debt service obligations was not the consequence of wrongdoing, but instead resulted from factors which Marylander and Triad's Board could not have foreseen—including unreasonable conduct by OSHPD which caused much of Triad's losses and stymied Triad's efforts to restore the hospitals' profitability.... OSHPD previously had identified the Action Requests as relevant to OSHPD's claimed losses."

Instead, OSHPD by way of demurrer contends only that the documents are absolutely privileged and hence not discoverable. (See, e.g., Rittenhouse v. Superior Court (1991) 235 Cal.App.3d 1584, 1590, 1 Cal.Rptr.2d 595 [communications which are absolutely privileged, as distinguished from conditionally privileged based upon balancing the need for confidentiality against the litigant's interest in disclosure, are protected against discovery regardless of their relevance to the issues in the litigation and despite a litigant's interest in disclosure].) There is no merit to OSHPD's claim of an absolute privilege. The only applicable privilege, the privilege for official information in Evidence Code section 1040, subdivision (b)(2), is a conditional one, which requires the trial court to balance the interests.

OSHPD misplaces reliance on Government Code section 6254, subdivision (l), which exempts "[c]orrespondence of and to the Governor or employees of the Governor's office" from disclosure under the California Public Records Act, Government Code sections 6250-6268. (See Times Mirror Co. v. Superior Court (1991) 53 Cal.3d 1325, 1336-1337, 283 Cal.Rptr. 893 813 P.2d 240; California First Amendment Coalition v. Superior Court (1998) 67 Cal.App.4th 159, 167-169, 78 Cal. Rptr.2d 847.) The exemptions in the Public Records Act are in the context that, unless exempted, all public records may be examined by any member of the public, often the press, but conceivably any person with no greater interest than idle curiosity. (Gov.Code, §§ 6252, subd. (f), 6253, subds. (a), (b), 6258.) But a party to pending litigation has a stronger and different type of...