State Compensation Insurance Fund v. WPS, Inc.
70 Cal. App. 4th 644, 99 Cal. Daily Op. Serv. 1695, 82 Cal. Rptr. 2d 799 (1999)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When a California attorney receives materials that obviously appear to be privileged and are reasonably apparent to have been provided inadvertently, the attorney must refrain from examining them more than is essential to ascertain their nature, and must immediately notify the sender.
Facts:
- In a lawsuit between State Compensation Insurance Fund (State Fund) and WPS, Inc., State Fund's attorneys were represented by Adam Telanoff of Telanoff & Telanoff.
- During discovery, State Fund's counsel inadvertently sent Telanoff three boxes of documents which included 273 pages of privileged 'Civil Litigation Claims Summary' forms.
- These forms were clearly marked with headings such as 'Attorney-Client Communication/Attorney Work Product,' 'Do Not Circulate or Duplicate,' and the word 'Confidential' was printed around the perimeter.
- After receiving the documents, Telanoff gave some of the privileged forms to H. Samuel Smith, an expert witness he had retained.
- Smith then provided the forms to another law firm that was representing a different client in a separate lawsuit against State Fund.
- When State Fund's lawyers discovered the error and demanded the return of the documents, Telanoff refused.
Procedural Posture:
- State Fund's assignee sued WPS, Inc. in trial court for underpayment of premiums, and WPS filed a cross-complaint against State Fund for bad faith.
- After discovering the inadvertent disclosure of privileged documents and Telanoff's refusal to return them, State Fund filed an ex parte application in the trial court.
- State Fund's application sought an order compelling the return of the documents and imposing monetary sanctions against WPS, Inc. and its attorneys.
- The trial court found that Telanoff had violated his ethical obligations and imposed sanctions of $6,070 jointly and severally against WPS, Inc., the firm of Telanoff & Telanoff, Adam Telanoff, and Ronald Telanoff, pursuant to Code of Civil Procedure section 128.5.
- WPS, Inc. and its attorneys (appellants) appealed the trial court's sanction order to the California Court of Appeal.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an attorney's refusal to return inadvertently disclosed, obviously privileged documents constitute sanctionable bad-faith conduct under California law when no specific state rule, statute, or case law governs such a situation?
Opinions:
Majority - Vogel (C. S.), P. J.
No. An attorney's conduct cannot be sanctioned as bad faith where there is no established California law, statute, or Rule of Professional Conduct proscribing that conduct. Although the American Bar Association (ABA) Formal Ethics Opinion No. 92-368 condemns the retention of inadvertently disclosed privileged documents, ABA opinions are not binding legal authority in California and do not establish an obligatory standard of conduct. Therefore, sanctioning an attorney for violating a non-binding ABA opinion, in the absence of controlling California authority, is an abuse of discretion. The court also held that the inadvertent disclosure by State Fund's counsel did not constitute a waiver of the attorney-client privilege, as waiver requires a voluntary and intentional relinquishment of a known right by the privilege holder.
Analysis:
This landmark decision establishes a clear ethical standard for California attorneys who receive inadvertently disclosed privileged materials. Prior to this case, California lacked a specific rule, leaving attorneys in a gray area. By articulating a duty to stop reading, notify the sender, and resolve the issue, the court created a binding precedent that protects the attorney-client privilege from being eroded by simple mistakes. This ruling ensures that future conduct of this nature will be considered bad faith and subject to sanctions, thereby promoting professionalism and safeguarding client confidences.
