District Court Rules That Government Is Precluded From Using Attorney-Client Privileged Information Obtained By Corporate Counsel And Turned Over Following Internal Investigation

On April 1, 2009, the United States District Court for the Central District of California issued a key ruling regarding attorney-client privileged information obtained by corporate counsel during an internal investigation and subsequently turned over to the government in connection with the prosecution of a corporate executive.
United States Criminal Law
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On April 1, 2009, the United States District Court for the Central District of California issued a key ruling regarding attorney-client privileged information obtained by corporate counsel during an internal investigation and subsequently turned over to the government in connection with the prosecution of a corporate executive.

In United States v. Nicholas, 606 F. Supp.2d 1109 (C.D. Cal. 2009), the district court ruled that the government could not utilize information that had been obtained by corporate counsel from a company executive during the course of an internal investigation because the executive reasonably believed that company counsel represented him as well. As a result, the Court held that information and documents obtained through counsel's interviews of the executive constituted attorney-client privileged information that was improperly turned over to the government, and therefore had to be suppressed in the criminal prosecution of that executive. By way of background, beginning in May 2006, the law firm of Irell & Manella LLP ("Irell") undertook three separate, but related, representations of Broadcom Corporation and its chief financial officer, William J. Ruehle. Specifically, Irell represented the company in an internal investigation of the company's stock option granting practices. In addition, Irell represented Ruehle in connection with two shareholder lawsuits filed against him regarding those same stock option granting practices. Id. at 1111-14. Irell did not seek Ruehle's informed consent before agreeing to undertake these representations of clients with adverse interests. Id.

One month later, Irell attorneys interviewed Ruehle regarding Broadcom's stock option granting practices. Before questioning Ruehle, the Irell attorneys failed to advise Ruehle that they were representing Broadcom only at that meeting, not him individually, and that whatever he said to them could be disclosed to the company or third parties. Id. Subsequently, Broadcom directed Irell to disclose Ruehle's statements during that interview to the company's outside auditors as well as to the Securities and Exchange Commission and the United States Attorney's Office in connection with ongoing investigations. Id. Prior to making these disclosures, Irell never obtained Ruehle's informed written consent. Id.

Ruehle was subsequently indicted, and the government sought to introduce Ruehle's statements to Irell attorneys against him during the criminal trial. Id. Ruehle objected, contending that his statements to Irell attorneys were privileged attorney-client communications because, at the time of the interview, Ruehle reasonably believed that the Irell attorneys were jointly representing both him and the company. Id. The district court ruled in favor of Ruehle.

First, the Court concluded that Ruehle's statements to Irell attorneys were privileged attorney-client communications, based upon Ruehle's reasonable belief that Irell was representing him personally as well as the company and that he was communicating with his counsel in the context of this relationship for the purpose of seeking legal advice. Id. at 1115-16. The Court further found that Ruehle reasonably intended his statements to Irell attorneys to be confidential, and had no reason to suspect that his conversations would be disclosed to third parties. Id. at 1116.

Second, the Court found that Irell breached its duty of loyalty to Ruehle by (1) failing to obtain his informed written consent to the firm's simultaneous representation of clients with adverse interests; (2) interrogating Ruehle for the benefit of another firm client (Broadcom); and (3) disclosing Ruehle's privileged communications to third parties without his informed written consent. Id at 1117-20.

Third, despite expressing concerns about the impact on the government's case, the Court held that whether or not the government knew of the breach, it could not rely on information obtained in violation of the attorney-client privilege nor employ this information at trial. Id. at 1121. The Court indicated that such a determination was necessary to protect the integrity of and the public's confidence in the legal profession, as well as to ensure the fair administration of justice.

As a remedy for these violations, the district court ordered suppression of all evidence reflecting Ruehle's statements to Irell regarding the company's stock option granting practices, and referred Irell to the state bar for appropriate discipline. In a concluding paragraph of its opinion, the district court observed:

Suppressing relevant evidence is obviously not helpful to the Government in that regard, but more importantly, it hinders the adversarial process and the jury's search for the truth. Irell should not have put the parties and the Court in this position. The Rules of Professional Conduct are not aspirational. The Court is at a loss to understand why Irell did not comply with them here. Because Irell's ethical misconduct has compromised the rights of Mr. Ruehle, the integrity of the legal profession, and the fair administration of justice, the Court must refer Irell to the State Bar for discipline. Mr. Ruehle, the Government, and the public deserve nothing less.

Id.

While it remains to be seen how the Nicholas decision will be received in other districts, the district court's holding nevertheless serves to reiterate that a practitioner conducting an internal investigation bears special responsibilities to ensure against confusion as to who the attorney is representing, and to ensure adequate protection for the attorney-client privilege. More importantly, the Court noted that the government cannot be allowed to take advantage of situations where a conflict arises as the result of an internal investigation by utilizing information obtained in violation of the attorney-client privilege.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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