In the landmark decision of Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, the Supreme Court of California held that a contractual indemnitor incurs a duty to defend its indemnitee as soon as the indemnitee tenders its defense to the indemnitor. The decision had a significant impact on construction defect lawsuits, which typically involve subcontractors who are contractually obligated to defend and indemnify the developer of a project. In order for a subcontractor to determine the value of a developer’s Crawford claim, the subcontractor must review the developer’s legal invoices. Construction defect Case Management Orders therefore typically permit subcontractors to obtain copies of the developer’s legal invoices after privileged information is redacted.
A recent Supreme Court of California decision that addressed a seemingly unrelated issue may have unintended consequences on the manner in which Crawford obligations are handled in construction defect lawsuits. In Los Angeles County Board of Supervisors v. Superior Court of Los Angeles County, the Supreme Court of California addressed whether invoices for legal services transmitted to a government agency by outside counsel were categorically protected by the attorney-client privilege and therefore exempt from disclosure under the California Public Records Act. The Court’s written decision regarding that issue includes several statements that have been interpreted by some to be broad enough to apply to all matters related to the production of legal invoices in pending and active matters. Notably, the Court held:
“When a legal matter remains pending and active, the [attorney-client] privilege encompasses everything in an invoice, including the amount of aggregate fees. This is because, even though the amount of money paid for legal services is generally not privileged, an invoice that shows a sudden uptick in spending might very well reveal much of [the client’s] investigative efforts and trial strategy…[When cumulative fee] totals are communicated during ongoing litigation, this real-time disclosure of ongoing spending amount can indirectly reveal clues about legal strategy, especially when multiple amounts over time are compared.”
Based on the foregoing, the Court concluded that the attorney-client privilege “protects the confidentiality of invoices for work in pending and active legal matters.” The Court therefore declined to compel the production of legal invoices in pending and active matters, even if the invoices were heavily redacted.
The Los Angeles County Board of Supervisors decision has the potential to significantly impact the adjudication of Crawford claims. Some have argued that the only way to reconcile Crawford with Los Angeles County Board of Supervisors is to bifurcate and stay discovery regarding Crawford claims so they can be litigated only after all other issues have been adjudicated or settled. However, this solution has the potential to stall or prevent comprehensive settlements of all claims. While different trial courts have come to different conclusions on the issue thus far, it remains to be seen how the appellate courts will reconcile these issues.
For more information regarding the attorney-client privilege, Crawford, and Los Angeles County Board of Supervisors, contact Rich Reese in LGC’s San Diego office.