In the latest opinion in a high-profile case which calls attention to “the treacherous path” that public companies and their counsel must tread in conducting internal investigations, the Ninth Circuit recently reversed a decision to suppress communications between the former Chief Financial Officer of Broadcom Corporation and a California law firm and remanded the case for trial. In United States v. Ruehle, the Ninth Circuit held that Broadcom’s former CFO had not adequately invoked the attorney-client privilege over information he had provided to lawyers simultaneously representing both Broadcom in an internal investigation of the company’s stock option practices as well as him individually. Soon after the Circuit’s remand, trial commenced against the former CFO for his alleged participation in a backdating scheme at Broadcom prompting a $2.2 billion restatement of earnings.
In United States v. Ruehle, 583 F.3d 600 (9th Cir. 2009), the Ninth Circuit, affording expedited consideration to the Government’s interlocutory appeal, addressed a vividly-worded trial court opinion finding that William J. Ruehle, the former Broadcom CFO, had never contemplated that his statements to counsel during the company’s internal investigation “would be disclosed to third parties, especially not the Government in connection with criminal charges against him.” See United States v. Nicholas, et al., 606 F. Supp. 2d 1109 (C.D. Cal. 2009); and see the Summer 2009 issue of Day Pitney’s White Collar Quarterly to read our coverage of the district court decision. As a result, the trial court had suppressed all evidence regarding Ruehle’s statements about Broadcom’s stock option practices to lawyers at a firm simultaneously representing Broadcom and Ruehle and referred the firm to the state bar for disciplinary proceedings.
In parsing a complicated set of facts regarding the roles of Broadcom’s lawyers, the Ninth Circuit made clear that Ruehle had been “intimately involved” in Broadcom’s decision to engage counsel to investigate the company’s stock option practices and that the information developed during the investigation would be disclosed to the company’s outside auditors. The court then recounted that, after the investigation had begun, Broadcom also notified Ruehle and others of the pendency of related civil lawsuits and invited them to contact the same firm conducting the investigation with any concerns about the lawsuits. Shortly thereafter, lawyers from the firm requested and obtained an interview with Ruehle regarding Broadcom’s stock option practices. The Ninth Circuit accepted, as not clearly erroneous, the trial court’s finding that counsel did not provide adequate Upjohn warnings to Ruehle before the interview.
Accepting the trial court’s conclusion that Ruehle reasonably believed that Broadcom’s counsel also represented him individually, the Ninth Circuit began with the premise that the firm had contemporaneous attorney-client relationships with both Broadcom and Ruehle. Critically, however, the court held that Ruehle was required to establish not only the existence of such a relationship, but also the privileged nature of the communications at issue. It held that the trial court erred in assuming that all communications made in the course of an attorney-client relationship are presumed to be confidential. Instead, the Ninth Circuit held that Ruehle was obliged to establish the privileged nature of the particular communications at issue. Here, Ruehle had failed to establish that his statements were “made in confidence” because, based on his involvement in initiating and monitoring the internal investigation, he had “understood the fruits of [counsel’s] searching inquiries would be disclosed” to Broadcom’s outside auditors. The court found it beside the point that Ruehle may not have understood that his statements might also be disclosed to the Government for use in a criminal prosecution.
Accordingly, notwithstanding its acceptance that Broadcom’s counsel also represented Ruehle, the Ninth Circuit held that it was error to forbid the Government from calling the lawyers at Ruehle’s criminal trial to testify to what they had learned from Ruehle. This result serves as one more important reminder regarding the complexities of and potential ramifications in navigating concurrent investigations, civil and criminal proceedings and simultaneous representations. Ruehle’s case was thus remanded for trial, which began in late October 2009. On December 15, after all the evidence had been heard, the charges against Ruehle were dismissed with prejudice due to prosecutorial misconduct. The trial court found that the government had improperly intimidated three defense witnesses.
The Ninth Circuit’s full opinion may be found at United States v. Ruehle, 583 F.3d 600 (9th Cir. 2009).