Southern Cal. Gas Co. v. Public Utilities Com., S006168

• Decision Date: 29 January 1990
• Docket Number: No. S006168,S006168
• Court: California Supreme Court
• Parties: , 784 P.2d 1373 SOUTHERN CALIFORNIA GAS COMPANY, Plaintiff and Appellant, v. PUBLIC UTILITIES COMMISSION, Defendant and Respondent.

Page 801

265 Cal.Rptr. 801

50 Cal.3d 31, 784 P.2d 1373

SOUTHERN CALIFORNIA GAS COMPANY, Plaintiff and Appellant, v. PUBLIC UTILITIES COMMISSION, Defendant and Respondent.

No. S006168.

Supreme Court of California In Bank.

Jan. 29, 1990.

Leslie E. LoBaugh, Jr., Thomas D. Clarke, Woodrow D. Smith, Glen J. Sullivan, Robert B. Keeler and David C. Keitel, Los Angeles, for plaintiff and appellant.

O'Melveny & Myers, Ralph J. Shapira, Hufstedler, Miller, Kaus & Beardsley, Shirley M. Hufstedler, Ronald A. Zumbrun, Anthony T. Caso, Loeb & Loeb and Fred B. Griffin as amici curiae on behalf of plaintiff and appellant.

Janice E. Kerr, Michael B. Day and Carol Dumond, San Francisco, for defendant and respondent.

BROUSSARD, Justice.

In this proceeding we are called upon to determine whether the California Public Utilities Commission (the commission) erred in concluding that Southern California Gas Company (SoCalGas) has impliedly waived its attorney-client privilege in this proceeding to recover the cost of certain fuel expenditures. (Cal.P.U.C.Dec. No. 87-12-071; as modified by Cal.P.U.C.Dec. No. 88-06-029.) We conclude that it has erred, and we vacate the commission's order that SoCalGas produce the privileged documents or withdraw its application.

FACTS

In 1978, SoCalGas entered into a long-term gas supply contract with the predecessor in interest to Getty Synthetic Fuels, Inc. (Getty). Under the terms of the contract, SoCalGas agreed to purchase gas as long as Getty could produce economically viable quantities from a landfill in Monterey Park, California. In 1983, the terms of the contract called for the price of the gas to be determined by a "cost-plus" formula that required SoCalGas to pay prices that were much higher than other sources of gas available to it.

On August 23, 1984, in an informal phone conference between several representatives of SoCalGas and the commission, SoCalGas explained why the contract with Getty was undesirable and "requested permission" from the commission to negotiate a buyout to escape from the contract. In response to a question from the commission, SoCalGas stated that its attorneys had looked over the contract and found no way that SoCalGas could unilaterally terminate the contract without being subject to liability. The commission's staff members approved the negotiations. In February 1986, SoCalGas negotiated a buyout of the contract for $7.4 million.

On March 21, 1986, SoCalGas submitted an informal advice letter to the commission seeking approval of the buyout agreement. ¹ In this letter, SoCalGas noted that it had consulted SoCalGas legal staff prior to negotiating the agreement and that "staff indicated its concurrence with the plan." In response, the commission's Division of Ratepayer Advocates (DRA) ² sent a data request to SoCalGas on June 9, 1986, seeking, among other information, the identity of staff consulted, the basis of staff's concurrence, and copies of notes and memoranda taken in preparing for or summarizing any meetings regarding the negotiations. SoCalGas abandoned this informal procedure when the commission would not approve its buyout without the information from its attorneys.

In September 1986, SoCalGas applied for a consolidated adjustment mechanism (CAM) proceeding to determine that its buyout was prudent and reasonable. In this proceeding SoCalGas sought the commission's authorization to recover its purchased gas costs and a finding from the commission that its gas purchases were reasonable. ³ The commission questioned the reasonableness of the buyout because it believed that Getty may have been in breach of the contract and that SoCalGas could have terminated the contract without having to negotiate the $7.4 million buyout. ⁴

The DRA requested discovery of documents with any legal analyses regarding early termination of the Getty contract. SoCalGas identified 15 confidential memos written by its attorneys, but refused to disclose them on grounds of the attorney-client privilege. SoCalGas stated that it would not rely on advice of counsel as a justification for its decision to buy out the Getty contract. Nonetheless, the presiding administrative judge ordered SoCalGas to produce the documents for an in camera review. SoCalGas refused to comply and appealed the judge's order to the full commission.

In December 1987, the commission decided that SoCalGas had impliedly waived the attorney-client privilege and ordered it to submit the documents in question to an administrative judge other than the one presiding in the matter for an in camera review or to withdraw its application to recover the cost of its expenditures. ⁵ (Cal.P.U.C.Dec. No. 87-12-071.) The commission did not determine whether the attorney-client privilege applied in its CAM proceedings. It concluded that there is "little guidance in statute and case law by which we can determine to which of our proceedings or activities the privilege is meant to apply and to which of them it is not." ⁶ (Cal.P.U.C.Dec. No. 87-12-071, p. 40.) The commission determined that even if the privilege applied, an implied waiver arose from SoCalGas's CAM application under the specific facts of this case. On June 18, 1988, the commission issued an order (Cal.P.U.C.Dec.No. 88-06-029) that modified its December decision to clarify its reasoning and deny rehearing. We granted review of that order and conclude the attorney-client privilege does apply in this proceeding, and SoCalGas has not waived its privilege.

I. Applicability of Attorney-client Privilege

The attorney-client privilege, codified in Evidence Code section 954, provides in pertinent part: "Subject to Section 912 and except as otherwise provided in this article, the client, whether or not a party, has a privilege to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and lawyer...." The attorney-client privilege has been a well established part of Anglo-American jurisprudence for over 400 years. (McCormick, Evidence (2d ed.1972) § 87, pp. 175-179.) It has been part of California statutory law in one form or another since 1851. (See Cal.Civil Practice Act, Stats. 1851, ch. 5, §§ 395-399, p. 114.) As this court has previously noted, "the privilege seeks to insure 'the right of every person to freely and fully confer and confide in one having knowledge of the law, and skilled in its practice, in order that the former may have adequate advice and a proper defense.' " (Mitchell v. Superior Court (1984) 37 Cal.3d 591, 599, 208 Cal.Rptr 886, 691 P.2d 642, citing Baird v. Koerner (9th Cir.1960) 279 F.2d 623, 629). If a lawyer could not promise to maintain the confidentiality of his client's secrets, the only advice he or she could provide would be, " 'Don't talk to me.' " (Welfare Rights Organization v. Crison (1983) 33 Cal.3d 766, 771, fn. 3, 190 Cal.Rptr. 919, 661 P.2d 1073.) Application of the privilege will occasionally shield relevant information which may very well create obstacles for the party seeking the privileged information; however, the Legislature and the courts of this state have determined that the party's concern is "outweighed by the importance of preserving confidentiality in the attorney-client relationship." (Mitchell v. Superior Court, supra, 37 Cal.3d at p. 599, 208 Cal.Rptr. 886, 691 P.2d 642.)

The United States Supreme Court has commented on the importance of the privilege in a regulatory setting. ⁷ In United States v. Louisville & Nashville Railroad Co. (1915) 236 U.S. 318, 336, 35 S.Ct. 363, 369, 59 L.Ed. 598, the Interstate Commerce Commission (ICC) sought to examine confidential communications between the railroad and its lawyers, based on its power to examine records and correspondence pursuant to the Interstate Commerce Act. The court rejected the ICC's position, stating: "The desirability of protecting confidential communications between attorney and client as a matter of public policy is too well known and has been too often recognized by text-books and courts to need extended comment now. If such communications were required to be made the subject of examination and publication, such enactment would be a practical prohibition upon professional advice and assistance." (Ibid.) The court's ruling in Louisville & Nashville Railroad Co., supra, is particularly relevant to the instant proceedings because the commission, as did the ICC in Louisville & Nashville Railroad Co., claims its investigatory powers may permit it to examine confidential communications between a regulated company and its attorneys.

There is no indication in the relevant statutes that the privilege is limited to judicial proceedings. On the contrary, it is evident that the privilege applies in the administrative law setting. Evidence Code section 910, which codifies the scope of several evidentiary privileges including the attorney-client privilege, provides: "Except as otherwise provided by statute, the provisions of this division apply in all proceedings. The provisions of any statute making rules of evidence inapplicable in particular proceedings, ... do not make this division inapplicable to such proceedings." (Italics added.) Evidence Code section 901 defines a "proceeding" to include "any action, hearing, investigation, inquest, or inquiry (whether conducted by a court, administrative agency, hearing officer, arbitrator, legislative body, or any other person authorized by law) in which, pursuant to law, testimony can be compelled to be given." (Italics added.) ⁸

We agree with the comment of the district court in Civil Aeronautics Board v. Air Transport Association of America (D.D.C.1961) 201 F.Supp. 318, that when an agency has the power to compel testimony, its power must be tempered by the attorney-client privilege, unless there is unambiguous statutory directive to the contrary. Although the commission is granted broad powers under the Constitution, ⁹ no provision exempts it from ...