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Court of Appeals Reverses $2.28 Million Judgment to Former Employee Who Violated Employer’s Attorney/Client Privilege

By June 22, 2024June 26th, 2024No Comments

The Second District Court of Appeals has thrown out a $2.28 million award to a disgruntled employee who was fired after he disclosed confidential, attorney/client privileged information of his employer in Flanigan v. Rheumatology Diagnostics Laboratory, B318831.  

The employee, Matthew Flanigan, had been director of information technology for Rheumatology Diagnostics Laboratory (RDL).  He filed suit against his employer after he was terminated under Labor Code Section 1102.5 (retaliation).  Section 1102.5 prohibits an employer from retaliating against employees who engage in specified activity.  

His employer, RDL, countered the lawsuit by invoking subsection (g) of Section 1102.5 which holds that the retaliation statute is inapplicable to “actions by employers against employees who violate the confidentiality of the lawyer-client privilege.” 

Specifically, Flanigan had executed a legal declaration in a separate shareholders lawsuit, that disclosed confidential, attorney/client conversations he had with both RDL CEO and its legal counsel.  Because he had violated that attorney/client privilege, RDL contended that his conduct voided any Section 1102.5 claim and thus his lawsuit must be dismissed.

Flanigan sought to circumvent subsection (g) by invoking yet another statute, California Evidence Code Section 956(a), so the called “crime-fraud exception.”  That exception states 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 a crime or a fraud.”  Flanigan argued that because his legal declaration was provided to expose a company crime/fraud, subsection (g) was inapplicable, and thus he could proceed with this Section 1102.5 retaliation claim.  

The trial court agreed with Flanigan and allowed his case to proceed to trial.  He was awarded $2.28 million, which included $600,000 in punitive damages.  

On appeal, the Second District Court of Appeals reversed the award.  Specifically, the Court addressed the conflict between competing State statutes: 

“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.”

The Court concluded that in applying the statutes, the disclosed communications by Flanigan were not subject to the crime-fraud exception, and that RDL’s interest in terminating the employment of those who violate the attorney-client privilege prevails under those particular facts.  Because Flanigan disclosed RDL’s privileged communications, he was not entitled to the protections afforded by Labor Code section 1102.5.

So, what is the takeaway from the Court’s ruling?  Employees should tread carefully when disclosing any information to third parties that could be covered by the attorney/client privilege.  They do so at their own peril, as a retaliation or other employment claim could be stripped by virtue of their conduct.

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