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Attorney-Client Privilege Issues Challenge Corporate Investigations

By Henry R. Chalmers, Litigation News Associate Editor – November 25, 2009

With its decision in United States v. Ruehle [PDF], the Ninth Circuit has confirmed the perils to clients and attorneys alike when a company and its officers are jointly represented by the same outside counsel. The court ruled that a corporate officer’s statements to attorneys hired by Broadcom Corporation to conduct an internal investigation and to defend the officer were not privileged because the officer knew they would be shared with the corporation’s outside auditor.


The statements can now be used against the officer in his upcoming criminal prosecution, and the outside attorneys are left to defend themselves against ethics complaints of disloyalty and conflict of interest.


“This case is a stern reminder,” says Bruce Rubin, Portland, OR, chair of the Legal Ethics Subcommittee for the ABA Section of Litigation’s Corporate Counsel Committee. “Outside counsel need to remember that a fundamental question in this type of engagement is, ‘who is my client,’” Rubin advises.


Rubin also warns that in this situation, “there is almost always personal exposure for corporate officers and a risk that personal interests might diverge from the company’s interests.”


Background of the Dispute
When Broadcom Corporation found itself accused of backdating stock options, it hired outside counsel, Irell & Manella, to investigate the accusations. Irell also assumed representation of several Broadcom officers—including its CFO, William J. Ruehle—who were named with Broadcom as defendants in related civil actions.


Ruehle participated in Broadcom’s retention of Irell and approved the company’s decision to have Irell turn all relevant information over to an outside auditor. Irell attorneys then interviewed Ruehle as part of their investigation, and with Ruehle’s knowledge, passed their findings on to the outside auditor.


When the SEC and United States Attorney’s office began investigating Ruehle and other Broadcom executives, Broadcom authorized Irell to share its investigation results with the government.


Ruehle objected and sought to prevent the government’s use of the statements he made to Irell’s attorneys, arguing that they were protected by his attorney-client privilege.


The trial court agreed with Ruehle, but the Ninth Circuit reversed, applying a strict, eight-part federal common law test for privilege.


Key to the reversal was Ruehle’s failure to prove that he made his statements to the Irell attorneys in confidence. To the contrary, Ruehle acknowledged his understanding that information gathered by the attorneys, including information gleaned from their interview with him, would be given to Broadcom’s outside auditors.


Issues Ignored by the Court
To the disappointment of several court watchers, the Ninth Circuit did not address the larger question of how to treat the privilege generally in joint representations of a corporation and its individual officers.


“In an ordinary joint representation, if one client makes disclosures in confidence, the other client can’t waive the privilege,” notes Professor Bruce Green, New York, former cochair of the Section’s Ethics and Professionalism Committee. According to Green, though, precedent from at least one other circuit has implied that, “if it is a joint representation with a company and its officer, a different standard may apply, and the company may be able to waive the privilege unilaterally.” In re Bevill, Bresler & Schulman Asset Management Corp.


The Ninth Circuit also did not address directly the ethics of the Irell attorney’s conduct, commenting only that evidence obtained in violation of attorney ethics rules was admissible, provided constitutional and federal law were not violated.


There was some debate in Ruehle as to whether outside counsel had warned Ruehle of the joint representation and that the statements made in his interview could be disclosed by the corporation. “Even if they did make such a disclosure,” says Green, “he was still a client, and the attorneys still owed him their loyalty.”


Green questions whether any warnings could have been enough to overcome the ethical rules regarding loyalty and conflicts of interest.


Ultimately, the case serves as another warning to outside counsel conducting internal investigations to warn individual officers, in writing, that their statements will not necessarily be protected by an attorney-client privilege, and to give careful thought to whether a joint representation is permissible --even with such a disclosure.


Keywords: attorney-client privilege, Ninth Circuit, corporate investigations


 
Related Resources
  • » The Section of Litigation’s Corporate Counsel Committee is presenting a program titled, “‘I’m Not Your Lawyer’—Ethical Considerations Concerning Upjohn Warnings and Internal Investigations” at the Corporate Counsel CLE Seminar in Rancho Mirage, California, on February 11, 2010.

 

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