Opinion
A111446
4-30-2007
I. BRAUN DEGENSHEIN, Cross-Complainant and Appellant, v. 21ST CENTURY TOYS, INC., et al., Cross-Defendants and Respondents.
NOT TO BE PUBLISHED
Defendants successfully moved to exclude attorney client communications from evidence in a wrongful termination action. When the plaintiff admitted he had no other evidence to prove his case, the court dismissed the action. Plaintiff challenges the exclusion of the evidence, arguing the communications were not privileged, any privilege was waived by defendants failure to object to their disclosure, and the crime-fraud exception to the privilege applied. We affirm.
BACKGROUND
Because of the meagerness of the record provided by appellant, the following statement of facts has been taken largely from the parties briefs.
I. Braun Degenshein worked as in-house counsel for 21st Century Toys, Inc. from January 1, 2000 to May 16, 2001. The four members of the Allen family (who are respondents in this appeal along with the company) were directors, officers and major shareholders of 21st Century Toys.
Antonio Lam, a Chinese national and a supplier for 21st Century Toys, filed a lawsuit alleging that he paid for but did not receive stock in the company. The defendants were 21st Century Toys, the Allens and Degenshein. Degenshein did not represent the defendants in this lawsuit. All of the defendants, including Degenshein, were represented by the same outside counsel and the company and the Allens also had additional outside counsel. While the lawsuit was pending, the Allens attempted to sell 21st Century Toys to Jakks Pacific, Inc. The sale was conditioned on settlement of the Lam lawsuit.
Degenshein represents that he alleged in the complaint, which is not in the record before us, that the Allens instructed him to participate in illegal and fraudulent schemes and he was fired when he refused. Specifically, he alleged that J. Scott Allen instructed him to conceal the fact that the Allens purchased a company called Small Blue Planet with 21st Century Toys funds. He alleges the Allens instructed him to conceal this fact so Small Blue Planet would not be recognized as a corporate asset that would be included in the potential sale to Jakks Pacific. Degenshein also alleges that J. Scott Allen instructed him to recommend illegal settlement terms for the Lam lawsuit, including delivery of stock to a U.S. resident on Lams behalf and a cash payment to Lam that would not be disclosed to Lams attorney. Defendants respond that Degenshein was terminated as part of a large reduction in force made necessary by the companys financial troubles and was unrelated to whistle-blowing activities.
Degenshein was terminated May 16, 2001. He filed a cross-complaint in the Lam action alleging wrongful termination in violation of public policy, among other causes of action. (See General Dynamics Corp. v. Superior Court (1994) 7 Cal.4th 1164 [recognizing cause of action for wrongful termination of in-house counsel in violation of public policy].) The cross-complaint was severed from the underlying lawsuit and Lam was ultimately dismissed as a cross-defendant. We refer to the cross-defendants (21st Century Toys and the Allens), who are the respondents in this appeal, as "defendants."
Degenshein represents that in his second amended complaint, which is not in the record before us, he described with specificity the alleged communications that led to his termination (that is, the Allens instructing him to commit illegal or fraudulent acts and his refusal to do so on legal and ethical grounds). Defendants did not object to disclosure of these communications by filing a motion to strike or to seal the complaint. During discovery, however, defendants repeatedly invoked the attorney-client privilege as a bar to disclosure of communications between them and Degenshein. In 2004, Degenshein sought a judicial ruling on the scope of the privilege, but the court denied the motion without prejudice, deferring the issue to a later stage in the proceedings.
Trial was scheduled for May 13, 2005. On that date, defendants filed a motion in limine on the ground of attorney-client privilege, seeking the exclusion of any communications between them and Degenshein during any time he performed services for 21st Century Toys. In his opposition to the motion, Degenshein provided a list of "contested communications." The list included summaries of the substance of the communications that were described in the second amended complaint and a list of seven other communications (two memorandums, three e-mails and two conversations) identified by date, participants and general subject matter.
Degenshein argued that the defendants had not met their burden of establishing that the communications fell within the attorney client privilege by showing that the dominant purpose of the communications was to obtain or provide legal advice. He also argued that the defendants waived the privilege by failing to object to the disclosure of a significant portion of the communications in the second amended complaint and in discovery. Finally, he argued that the crime-fraud exception to attorney client privilege applied and that he could breach the privilege in order to defend against defendants allegations that he breached his professional or ethical duties.
The trial court held two days of hearings on the motion in limine. Degenshein took the witness stand in an attempt to establish a prima facie case for application of the crime-fraud exception, but the court limited the scope of his testimony. While on the witness stand, Degenshein authenticated three draft settlement agreements prepared for the Lam action, but the court ruled the documents themselves inadmissible. The court found that Degenshein had failed to establish the crime-fraud exception and it granted defendants motion in limine. Degenshein represented that he could not prove his case without use of evidence the court had deemed privileged and he requested dismissal of the case. The court granted his request. Degenshein appeals the courts grant of the motion in limine and the dismissal of the action.
In his amended notice of appeal, Degenshein also identified trial court orders granting a limited stay of the action pending bankruptcy proceedings and ruling on defendants cost bill, but he does not address these matters in his appellate brief. Therefore, his challenges to those orders are forfeited. (Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115-1116.)
DISCUSSION
Our review of this appeal is limited by the inadequacy of the appellate record. As relevant to the issues argued on appeal, the record consists of the trial court briefs on the motion in limine, exhibits to one of defendants briefs, the reporters transcript of the hearing on the motion in limine, and the courts order dismissing the action. The record does not include any of the evidence excluded by the trial court, much of which was filed under seal in the trial court or produced in the form of a declaration by Degenshein. It does not include the second amended complaint or any other evidence establishing the factual background for Degensheins claims of a fraudulent scheme. We organize our analysis around various categories of evidence that were excluded by the trial court.
In their respondents brief, Defendants drew attention to the absence of the second amended complaint from the record. Degenshein filed a motion to augment the record, with a copy of the second amended complaint attached. The court denied the motion because the motion was untimely under First District Local Rule 6(b).
I. Communications Described in the Second Amended Complaint
Degenshein challenges the trial court rulings that certain communications were privileged attorney client communications, that defendants had not waived the privilege by failing to move to strike or to seal the complaint, and that Degenshein had not established a crime-fraud exception to the privilege. We begin by considering the communications Degenshein described with specificity in his second amended complaint and summarized in his list of "contested communications."
A. Privileged Attorney-Client Communications
The attorney client privilege applies to a "confidential communication between client and lawyer" where the dominant purpose of the communication is to obtain or provide legal advice, whether or not it was made in anticipation of litigation. (Evid. Code, § 954 ; Wellpoint Health Networks, Inc. v. Superior Court (1997) 59 Cal.App.4th 110, 120 (Wellpoint).) The party invoking the privilege has the burden of establishing the existence of an attorney-client relationship as to the communication in question. (Travelers Ins. Companies v. Superior Court (1983) 143 Cal.App.3d 436, 448.) Once that relationship is established, the communication is presumed to have been made in confidence. (§ 917, subd. (a).) The party seeking disclosure has the burden of establishing that it was not confidential, that the dominant purpose of the communication was not the rendering of legal advice, that the privilege has been waived, or that an exception to the privilege exists. (Ibid.; Wellpoint, at p. 124.) Unless a claim of privilege appears as a matter of law from the undisputed facts, we review a trial courts factual findings for substantial evidence. (HLC Properties, Ltd. v. Superior Court (2005) 35 Cal.4th 54, 60.)
All statutory references are to the Evidence Code unless otherwise indicated.
Degenshein urges the following standard of review: "Under the record presented, we conclude the trial courts grant of the motions in limine was tantamount to a nonsuit. We are bound by the same rules as the trial court. Therefore, on this appeal we must view the evidence most favorably to appellants, resolving all presumptions, inferences and doubts in their favor, and uphold the judgment for respondents only if it was required as a matter of law." (Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 28; R & B Auto Center, Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 358.) This proposed standard of review is not available where most of the evidence that was excluded by the trial courts grant of the motion in limine is absent from the appellate record. The only evidence in the record relates to the nature of the attorney client relationship between Degenshein and the defendants, and all of that evidence was produced by the defendants.
Defendants met their burden of establishing the communications described in the second amended complaint were privileged. Defendants produced undisputed evidence that Degenshein served as in-house counsel for 21st Century Toys. (See Wellpoint, supra, 59 Cal.App.4th at p. 123.) Defendants produced excerpts from Degensheins deposition in which he was asked to identify any nonlegal work he performed for the company specifically related to the Jakks Pacific sale or the Lam lawsuit. He was unable to do so. Degenshein cites deposition testimony where he identified various nonlegal roles he played for the company in general, but he failed to connect that nonlegal work with any of the communications he sought to introduce as evidence.
Degensheins own descriptions of the communications set forth in the second amended complaint establish that their dominant purpose was the rendering of legal advice. He alleges that he told J. Scott Allen that laws and professional ethics required disclosure of the fact that Small Blue Planet was a corporate asset and that concealment of this asset would create a conflict of interest between the Allens and the company. He alleges that he told the Allens that concealing certain documents and facts from the Internal Revenue Service, Jakks Pacific or an accounting firm auditing the company books created a conflict of interest with the company. He further alleges that he told three of the Allens that proposed settlement terms would violate laws and ethical duties and would create a conflict of interest with the company. These are all legal opinions that fall within the privilege.
The trial court correctly ruled that defendants met their burden of proving these communications were covered by attorney client privilege.
B. Waiver By Failing to Object to Disclosures in Complaint
Degenshein argues that defendants waived the privilege by failing to move to strike or to seal the second amended complaint.
The holder of an attorney-client privilege waives the privilege if he or she "without coercion, has disclosed a significant part of the communication or has consented to disclosure made by anyone. Consent to disclosure is manifested by any statement or other conduct of the holder of the privilege indicating consent to the disclosure, including failure to claim the privilege in any proceeding in which the holder has the legal standing and opportunity to claim the privilege." (§ 912, subd. (a).) A waiver is an intentional relinquishment of a known right. (Wells Fargo Bank v. Superior Court (2000) 22 Cal.4th 201, 211.) Inadvertent disclosure without the subjective consent of the holder of the privilege is not a waiver under California law. (State Compensation Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 652-654.) Courts do not have the power to recognize implied exceptions to the attorney-client privilege. (Wells Fargo Bank, at p. 206.)
Here, defendants did not fail to claim the privilege in Degensheins countersuit. (§ 912, subd. (a).) In September 2002, defendants instructed Degenshein to produce a privilege log to Lam rather than give him privileged materials. A December 2002 trial court order granting defendants motions to compel discovery responses from Degenshein similarly instructed Degenshein to produce a privilege log. At Degensheins October 2003 deposition, defendants repeatedly asserted the privilege and demanded that Degenshein protect client confidences. In May 2004, the trial court denied without prejudice Degensheins motion for a determination of the scope of the privilege, deferring its ruling on the issue. Defendants raised the issue again in May 2005 by filing a motion in limine before trial, asking the court to exclude privileged evidence. Defendants vigorously asserted the privilege during hearings on that motion and in supplemental briefing.
Degenshein argues that defendants nevertheless waived the privilege by failing to file a motion to strike or seal the second amended complaint, a public record that described the main disputed communications with specificity. Degensheins reliance on the plain language of section 912 is not persuasive. We do not easily find a waiver of the attorney client privilege, which is carefully safeguarded by the courts. (Solin v. OMelveny & Myers (2001) 89 Cal.App.4th 451, 457.) Degenshein cites no case authority for the proposition that failure to object to disclosures in pleadings, verified or unverified, amounts to a waiver. In our own research, we have found none. The trial court did not err in finding there was no waiver. (Cf. Wells Fargo Bank v. Superior Court, supra, 22 Cal.4th at p. 211.)
Degenshein cites authority that a party waives a privilege by failing to raise it in a timely objection to discovery requests. (See, e.g., Brown v. Superior Court (1986) 180 Cal.App.3d 701, 711.) Objections to discovery are generally subject to forfeiture if untimely raised. (Id. at p. 711, citing former Code Civ. Proc., § 2030, subd. (h) (Stats. 1991, ch. 1090, § 11); see current Code Civ. Proc., § 2030.260.) Defendants respond that failure to timely object to the disclosure of privileged communications in a pleading is not subject to a similar codified forfeiture rule.
Degenshein represents that defendants answer, which is not in the appellate record, includes a general denial of the allegations of the second amended complaint. He argues that defendants "cannot deny the existence of these communications and then assert that they were conducted in confidence, under the umbrella of attorney-client privilege." We do not address this argument because Degenshein did not raise it below. (Ward v. Taggart (1959) 51 Cal.2d 736, 742.)
C. Waiver by Production of Documents to Lam in Discovery
Degenshein argues the defendants waived the privilege as to documents Degenshein produced to Lam in discovery because defendants were aware of the production and failed to object. Degenshein has forfeited this argument by failing to provide an adequate record. (Rancho Santa Fe Assn. v. Dolan-King (2004) 115 Cal.App.4th 28, 46.) After he raised the argument at the hearing on the motion in limine, the court instructed him to produce evidence that the documents were produced to Lam. The evidence is not in the appellate record and there is no indication in the appellate record that he produced the evidence below.
D. Crime-Fraud and Breach of Duty Exceptions
Degenshein argues that attorney-client privilege does not apply to the communications described in the second amended complaint because defendants sought his participation in a fraud and because he has a right to use the evidence to defend against breach of duty allegations. (§§ 956, 958.)
To invoke the crime fraud exception, the proponent must make a prima facie showing that the services of the attorney were sought or obtained to aid someone in committing a crime or fraud. (§ 956; BP Alaska Exploration, Inc. v. Superior Court (1988) 199 Cal.App.3d 1240, 1262.) A court may not require disclosure of information claimed to be privileged in order to rule on a claim of privilege. (§ 915, subd. (a); State Farm Fire & Casualty Co. v. Superior Court (1997) 54 Cal.App.4th 625, 645.) Because we have determined that the communications described in the second amended complaint are privileged, Degenshein cannot rely on those communications to establish the crime fraud exception. For reasons set forth later in this opinion, he also cannot rely on the other "contested communications" he identified in his opposition to defendants motion in limine or on the draft settlement agreements he attempted to introduce at the court hearing. He proffers no other evidence to establish his prima facie case. Thus, the trial court correctly ruled that the exception did not apply.
Degenshein also argues that attorney-client privilege may be breached as to the communications described in the second amended complaint because they are relevant to his alleged breach of duty arising out of the attorney client relationship. (§ 958.) He represents that defendants answer, which is not in the appellate record, includes an affirmative defense of "unclean hands" and speculates that the basis for this defense will be a future allegation that Degenshein breached his ethical duties in his role as counsel for defendants. Even assuming defendants intended to raise this defense, Degensheins right to use privileged materials to rebut the defense does not provide a ground for reversing the dismissal of his action. As the trial court ruled, the right to use privileged materials to rebut an affirmative defense could not assist Degenshein in producing evidence to prove his case in chief. Degenshein admitted that he had no unprivileged evidence to establish his case in chief. Therefore, the action was properly dismissed. (See General Dynamics Corp. v. Superior Court, supra, 7 Cal.4th at p. 1190 [if wrongful termination claim cannot be proved without breaching attorney client privilege, suit must be dismissed].)
II. Additional "Contested Communications" Identified by Degenshein
In addition to the communications described in the second amended complaint, Degenshein identified two memorandums, three e-mails and two conversations as "contested communications" at issue in his opposition to defendants motion in limine. He identified these seven communications by date, participants and general subject matter and for each he provided a citation to exhibits attached to a declaration by Degensheins trial court attorney in the cross-complaint. Neither the declaration nor any of the exhibits is included in the appellate record. It is not clear whether the communications overlap with the communications described in the second amended complaint, which were also summarized in the list of "contested communications" but were not identified by date or format (i.e., e-mail, memorandum or conversation).
We conclude that the trial court properly excluded these communications as privileged. First, defendants met their burden of establishing that these communications arose in the attorney-client relationship. They all occurred during the time that Degenshein served as in-house counsel for 21st Century Toys. Degenshein has not shown that the dominant purpose of any of these communications was anything other than legal advice. He specifically argues on appeal that the May 9 and May 13 e-mails did not provide legal advice, but he provides no other information about the content of the e-mails and he did not include the e-mails themselves in the appellate record. Therefore, he has failed to meet his burden of establishing that the dominant purpose of the communications was nonlegal and he has forfeited his argument by failing to provide an adequate record.
Second, Degenshein argues defendants waived the privilege as to these communications because it consented to the disclosure of a significant portion of the communications in the second amended complaint. We have rejected the argument that defendants failure to object to disclosures in the second amended complaint amounted to a waiver.
Finally, Degenshein invokes the crime fraud exception to the privilege as to these communications. He cannot rely on the communications themselves to establish the exception. (§ 915, subd. (a).) He cannot rely on the communications described in the second amended complaint or on the draft settlement agreements to establish a prima facie case for application of the exception and he has not proffered any other evidence to do so.
III. Draft Settlement Agreements
Degenshein argues that three settlement agreements proposed for the Lam litigation should not have been excluded by the court. Degenshein, who was a defendant in that action, did not represent the company or the Allens in the action. All of the Lam defendants, including Degenshein, were represented by a separate law firm. The first draft settlement was drafted by Degenshein in April 2001 while he was still serving as 21st Century Toys in-house counsel. He received the other two draft settlements after he was terminated as in-house counsel. These settlements were apparently drafted by the law firm representing all of Lam defendants, including Degenshein, and by an attorney separately representing the company and the Allens.
Degenshein argues that these documents are not privileged or that any privilege was waived because they were disclosed to him in his role as a defendant in the Lam suit, not in the context of an attorney-client relationship. Therefore, he reasons, he can rely on these documents to establish a prima facie case for application of the crime-fraud exception to all of the allegedly privileged documents excluded by the trial court. Degenshein has forfeited this argument by failing to provide an adequate record. (Rancho Santa Fe Assn. v. Dolan-King, supra, 115 Cal.App.4th at p. 46.) He argued below that differences in the terms of the settlement agreements would demonstrate that a fraud was being perpetrated by the defendants. On appeal, however, he has provided no evidence to support this assertion, neither the draft settlements themselves nor a declaration as to the fraud those documents would corroborate.
DISPOSITION
The judgment is affirmed.
We Concur.
JONES, P.J.
SIMONS, J.