City of Petaluma v. Superior Court, 2016 WL 3342543 (Cal. Ct. App. 2016)

Andrea Waters, who worked as a firefighter and paramedic for the City of Petaluma, alleged she was harassed and discriminated against based upon her sex. Waters also claimed she suffered retaliation after she complained about the treatment. Waters took a leave of absence from her job, filed a complaint with the EEOC in which she alleged sexual harassment and retaliation and then resigned her employment. The City retained outside counsel to investigate Waters’ EEOC complaint and to assist it in preparing to defend the City in an anticipated lawsuit. The retention agreement with counsel stated that the lawyer was retained to conduct an impartial investigation and that the investigation would be subject to the attorney-client privilege. The retention agreement further stated that the lawyer would offer a “professional evaluation of the evidence based upon her experience in employment law,” but it also provided that “…in this engagement [the attorney] will not render legal advice as to what action to take as a result of the findings of the investigation.”

In defending the lawsuit, the City asserted the “avoidable consequences doctrine” as a defense, claiming that Waters had failed to take reasonable and necessary steps to avoid the harms and/or consequences that she allegedly had suffered. The City refused to produce the outside attorney’s investigative report and materials to Waters, asserting the attorney-client privilege and the work product doctrine. The trial court concluded the documents and other information sought by Waters were not privileged or subject to work-product protection and that, even if they were, the privilege had been waived because the City had put the investigation at issue by asserting the avoidable consequences doctrine. The Court of Appeal initially denied the City’s petition for a writ of mandate, but after the California Supreme Court granted a writ of review and transferred the matter back to the appellate court, the Court (in this opinion) changed its mind and held that the materials were privileged because the “dominant purpose of outside counsel’s factual investigation was to provide legal services to the employer in anticipation of litigation” and that the privilege was not waived by the employer’s assertion of the avoidable consequences defense.