Judge: Mitchell L. Beckloff, Case: 23STCP00843, Date: 2023-04-12 Tentative Ruling
Case Number: 23STCP00843 Hearing Date: April 12, 2023 Dept: 86
ATLAS CAPITAL MANAGEMENT, INC. v. OFFICE OF
ADMINISTRATIVE HEARINGS
Case No. 23STCP00843
Hearing Date: April 12, 2023
[Tentative] ORDER
DENYING REQUEST FOR STAY
Petitioners, Atlas Capital Management, Inc. and Tracy
Dennis Towner, filed their petition for writ of mandate and declaratory relief
on March 16, 2023. Petitioners seek an order directing Respondent, the Office
of Administrative Hearings (OAH) to rescind its Order Granting Motion to Compel
Discovery filed February 23, 2023 (the Discovery Order). They also seek other
orders including an order directing Real Party in Interest, Clothilde V.
Hewlett as Commissioner of the Department of Finance Protection and Innovation
for the State of California (the Department), “to accept the surrender of the
Investment Adviser Certificate” of Petitioner Atlas Capital Management, Inc.
and dismiss the Department’s action now pending before the OAH. (Pet., Prayer ¶ 2.)
Petitioners and the Department are currently litigating
a matter before the OAH. In the course of those proceedings, the Department
filed its motion to compel discovery from Petitioners. (Notice of Ruling by
Petitioners filed 3-29-2023, Ex. 1.) Petitioners responded to the motion. (Id.,
Ex. 3.) After considering the motion papers, the OAH ruled on the discovery
motion without a hearing and issued the Discovery Order. (Id., Exs. 7,
8.)
Petitioners thereafter sought a stay of the Discovery
Order from OAH. (Id., Ex. 9.) Petitioners sought the stay from OAH “to
afford reasonable time for [Petitioners] to evaluate filing an application for
reconsideration or a petition for writ of mandate to address serious potential
prejudice, consequence and the potential error” of the Discovery Order.
Petitioners expressed concern over the Discovery Orders alleged finding
Petitioners had waived their attorney-client privilege in the proceedings
before the OAH.
On March 13, 2023, the OAH granted Petitioners relief.
The OAH stayed the Discovery Order until March 20, 2023 to allow Petitioners to
file a motion for reconsideration or a petition with this court. (Id., Ex.
12.)
On March 16, 2023, Petitioners initiated this
proceeding. Shortly thereafter, on March 23, 2023, they filed their ex parte
application to stay the proceedings before the OAH. Petitioners sought “an
emergency order briefly staying the [Discovery Order] issued by Respondent OAH
and the hearing in the underlying [enforcement action] currently scheduled to
be held May 15-17, 2023 until 30 days after its ruling on” the petition. Petitioners
argued the infringement of their attorney-client privilege created the necessary
exigency for ex parte relief.
The Department opposed Petitioners’ application. The
Department argued the matter was not urgent requiring ex parte relief. The
Department also asserted Petitioners had not exhausted their administrative
remedies prior to seeking judicial review.
This court heard the ex parte application on March 24,
2023. The court continued the matter to obtain a more complete record of the
proceedings before the OAH concerning the Discovery Order.
ANALYSIS
Petitioners’ concerns arise from the belief the
Discovery Order concludes Petitioners have waived their attorney-client
privilege in the context of the proceedings before the OAH.
In addition to the names and addresses of all
witnesses Petitioners intended to call at the hearing before the OAH, the
Department sought the following discovery from Petitioners:
“2. A copy of any of the following in the possession or custody or
under the control of the Respondents or any of its employees, agents, or
attorneys.
(a) A statement of a person, other than the Respondents, named in the
initial administrative pleading, or in any additional pleading, when it is
claimed that the act or omission of the Respondents as to this person is the
basis for the administrative proceeding;
(b) A statement pertaining to the subject matter of the proceeding made
by any party to another party or person;
(c) Statements of witnesses then proposed to be called by the party and
of other persons having personal 4 knowledge of the acts, omissions or events
which are the basis for the proceeding, not included in (a) or (b) above;
(d) All writings, including, but not limited to, reports of mental,
physical and blood examinations and things which the party then proposes to
offer in evidence;
(e) Any other writing or thing which is relevant and which would be
admissible in evidence;
(f) Investigative reports made by or on behalf of Respondents
pertaining to the subject matter of the proceeding, to the extent that these
reports (1) contain the names and addresses of witnesses or of persons having
personal knowledge of the acts, omissions or events which are the basis for the
proceeding, or (2) reflect matters perceived by the investigator in the course
of his or her investigation, or (3) contain or include by attachment any
statement or writing described in (a) to (e), inclusive, or summary thereof.
For the purpose of this section, ‘statements’ include written
statements by the person signed or otherwise authenticated by him or her,
stenographic, mechanical, electrical or other recordings, or transcripts
thereof, of oral statements by the person, and written reports or summaries of
these oral statements.” (Notice of Ruling by Petitioners filed 3-29-2023, Ex. 7.)
The conflict about the Discovery Order is based on a
dispute about whether Petitioners intend to argue advice of counsel to defend against
the Department’s accusation. The Department argued in its moving papers Petitioners’
counsel represented Petitioners “would be introducing evidence and documents at
the administrative hearing to support the claim [Petitioners] relied on the advice
of counsel.” (Id., Ex. 1 5:9-10.) Petitioners argue otherwise. (Id., Ex.
3 3, ¶ 3.)
The court need not resolve the parties’ factual
dispute on this issue to decide this application for a stay. While Petitioners read
the Discovery Order as finding a waiver of the attorney-client privilege, the
court does not. Petitioners do not read the Discovery Order in its entirety.
For example, in their request to the OAH for a stay of the Discovery Order,
Petitioners recited the order as follows:
“1. Respondents ‘have waived the attorney-client privilege and
shall be ordered to provide the Commissioner with copies of communications and
other documents responsive to Request No. 2.’ (Discovery Order at 8) (emphasis
added).
2. Respondents shall provide the Commissioner with a copy of any and
all responsive documents, writings, statements, and investigative reports in
their possession, custody, or control, including communications with former
counsel[.]’ (Discovery Order at 9) (emphasis added).” (Id., Ex. 9 p.
2, 3.)
The language of the Discovery Order, in its
entirety, demonstrates Petitioner’s request for a stay from this court is
unnecessary. The Discovery Order requires production of attorney-client
communications ONLY to the extent Petitioners intend to rely on an advice of
counsel defense. For example, as to item 1 above, the entire sentence in the
Discovery Order reads:
“To the extent [Petitioners] are defending themselves on the basis
of advice received from former counsel, they have waived the
attorney-client provide and shall be ordered to provide [the Department] with
copies of communications and other documents responsive to Request No. 2.” (Id.,
Ex. 7 p. 8 [emphasis added].)
As to item 2 above, the entire sentence in the Discovery Order reads:
“For each of subparagraphs (a) through (f) of Request No. 2,
Respondents shall provide the Commissioner with a copy of any and all
responsive documents, writings, statements, and investigative reports in their
possession, custody, or control, including communications with former counsel to
the extent Respondents are defending themselves on the basis of advice received
from former counsel.” (Id., Ex. 7 p. 9 [emphasis added].)
A full reading of the entire sentences in the
Discovery Order demonstrates the OAH did not find a wholesale waiver of Petitioners’
attorney-client privilege—the OAH did not make that finding. Instead, the OAH
made clear waiver of the privilege turns on whether Petitioners intend to rely
on their former counsel’s advice to defend against the accusation. To the
extent they do, the communications are discoverable, but even then—as noted by
the OAH—any waiver is narrowly defined. That is, Petitioners have complete control
over their attorney-client privilege and any waiver. As discussed by the OAH in
the Discovery Order, “. . . the deliberate injection of the advice of counsel
into a case waives the attorney-client privilege as to communications and
documents related to the advice.” (Transamerica Title Ins. Co. v.
Superior Court (1987) 188 Cal.App.3d 1047, 1053 [emphasis added].)
The court finds for purposes of this application the
Discovery Order is consistent with the law. The Department may discover
communications between Petitioners and their former counsel if, and only if,
Petitioners intend to rely on their former counsel’s advice to defend against
the Department’s accusation. Any waiver of the privilege based on the defense,
as noted by the OAH, is “narrowly defined and the information required to be
disclosed must fit strictly within the confines of the waiver.” (Id. at
1052.)
The Discovery Order also states:
“If [Petitioners] claim that any such communications are privileged
from disclosure, [Petitioners] shall lodge those documents with OAH for review
by the ALJ or another ALJ by MARCH 10, 2023, pursuant to Evidence Code
section 915, subdivision (b).” (Notice of Ruling by Petitioners filed
3-29-2023, Ex. 7 p. 9 [emphasis added].)
The court acknowledges the Discovery Order’s reference
to “any such communications” makes this order somewhat unclear. The court
finds, however, this specific order does not refer to documents Petitioners
assert are protected by the attorney-client privilege—it applies to other
documents Petitioners claim are privileged. That is, the Discovery Order does
not require production of attorney-client privileged documents for review by
the administrative law judge (ALJ).
The paragraph preceding the specific order related to
ALJ review requires Petitioners to produce all documents responsive to the Department’s
discovery request. The Discovery Order notes this ALJ review provision is
authorized by Evidence Code section 915, subdivision (b). Evidence Code section
915, subdivision (b) allows a judicial officer to review certain claims of
privilege, not including the attorney-client privilege. Evidence Code
section 915, subdivision (b) allows a judicial officer to review claims of
privilege based on “Article 9 (commencing with Section 1040) of Chapter 4
(official information and identity of informer) or under Section 1060 (trade
secret) or under subdivision (b) of Section 2018.030 of the Code of Civil
Procedure (attorney work product) . . . .” (Evid. Code, § 915, subd. (b).) Evidence Code section 915,
subdivision (b) does not authorize a judicial officer to review documents
claimed to be protected by the attorney-client privilege.
In addition, considered in context, the ALJ review
provision in the Discovery Order does not apply to any documents Petitioners
assert are protected by the attorney-client privilege. The order makes clear
Petitioners cannot claim attorney-client privilege for the communications
related to any defense based on advice of counsel. Thus, no ALJ review is
necessary to determine privilege related to an advice of counsel defense.
Finally, the Department notes Petitioners can seek
judicial review if they are aggrieved by the ultimate decision of the OAH on the
accusation. The OAH has no authority to find a party or counsel in contempt
based on failing to comply with a discovery order. Instead, the OAH may
preclude the introduction of evidence at hearing that should have been produced
during discovery. (Notice of Ruling by Petitioners filed 3-29-2023, Ex. 7 p.
9.) If the OAH has wrongfully excluded evidence during the hearing, Petitioners
may raise such error before this court.
CONCLUSION
Based on the foregoing, Petitioners’ request for a
stay of the Discovery Order as well as the OAH proceedings until after this
matter is resolved is denied.
The court cannot find the agency is “unlikely to
prevail” on the merits of Petitioners’ claim the OAH “denied Petitioners
procedural due process of law by waiving the attorney-client privilege without
any factual support and in direct violation of established law.” (Pet., ¶
49.) (Code Civ. Proc., § 1094.5, subd. (h)(1).)
IT IS SO ORDERED.
April
12, 2023 ________________________________
Hon.
Mitchell Beckloff
Judge
of the Superior Court