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$2.28 Million Award in Retaliatory-Discharge Case Axed
C.A. Opinion Says Plaintiffs’ Disclosure of Conversations Protected by Attorney-Client Privilege Deprives Him of Benefit of Labor Code Section; Contention Rejected That Crime-Fraud Exception to Privilege Applies
By a MetNews Staff Writer
The Court of Appeal for this district yesterday upset a $2.28 million award to a man who was fired after he declined to sign a declaration under penalty of perjury that a jury found contained false statements, holding that his disclosure to plaintiffs in a shareholders’ action of conversations covered by the attorney-client privilege stripped him of protection.
San Bernardino Superior Court Judge Corey Lee, sitting on assignment to Div. Five, authored the opinion. It reverses a judgment and a postjudgment order by then-Los Angeles Superior Court Judge Terry A. Green, now a mediator/arbitrator.
The judgment—which included $600,000 in punitive damages—was in favor of Matthew Flanigan, who had been director of Information technology for defendant Rheumatology Diagnostics Laboratory, Inc. (“RDL”). He sued under Labor Code §1102.5 which generally bars employer from retaliating against employees who engage in specified protected activities.
RDL invoked subd. (g), rendering §1102.5 inapplicable to “actions by employers against employees who violate, the confidentiality of the lawyer-client privilege.”
Flanigan, in turn, disputed the applicability of subd. (g) in light of the crime-fraud exception, contained in Evidence Code §956(a) providing that the attorney-client privilege does not apply “if the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit a crime or a fraud.”
Allegation of Crime
The allegation of criminal activity related to an effort to secure Flanigan’s signature on as declaration under penalty of perjury.
Flanigan had met behind closed doors with RDL’s attorney, as well as its chief executive officer. At that meeting, he discussed what he viewed as unlawful conduct by an employee.
RDL was being sued in a shareholders’ action. The declaration presented to Flanigan contained factual allegations contradicting those he presented at the meeting, and he declined to sign it.
He did execute a declaration in support of the shareholders’ action disclosing the conversations in the meeting with the attorney and CEO.
Lee’s Opinion
In her opinion stripping Flanigan of his victory, Lee said:
“We are tasked with determining whether, in view of these statutes and the competing interests they further, Flanigan’s lawsuit for retaliation (1) is barred under Labor Code section 1102.5, subdivision (g) because he disclosed RDL’s attorney-client privileged communications to third parties, or (2) is not barred because, under the crime-fraud exception, RDL’s request that Flanigan sign a declaration he believed to be false stripped the disclosed communications of any attorney-client privilege.
“Applying the statutes involved, we conclude that the disclosed communications are not subject to crime-fraud exception, and that the employer’s interest in terminating employment of those who violate the attorney-client privilege prevails under these circumstances. Because Flanigan disclosed RDL’s privileged communications, he is not entitled to the protections afforded by Labor Code section 1102.5.”
Potential Consequence
The visiting jurist commented:
“Allowing the crime-fraud exception to apply here would significantly undermine the purpose of the privilege. Each time an attorney sent anyone a declaration for review that turned out to contain inaccurate statements, that attorney would be running the risk of waiving attorney-client privilege….
“Indeed, the plain language of subdivision (g) of Labor Code section 1102.5 highlights the primacy of the attorney-client privilege in that it strips employees who violate the privilege of protection from retaliation whether or not they also engaged in a protected activity, and regardless of the reasons for termination.”
The case is Flanigan v. Rheumatology Diagnostics Laboratory, B318831.
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