United States v. Henke
2000 WL 1206226, 222 F.3d 633 (2000)
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Rule of Law:
A joint defense agreement creates an implied attorney-client relationship between a defendant's counsel and all co-defendants party to the agreement. An actual conflict of interest arises, impairing the Sixth Amendment right to counsel, when a co-defendant becomes a government witness, and defense counsel's duty of confidentiality to that witness prevents effective cross-examination.
Facts:
- Chan Desaigoudar was the CEO and Steven Henke was the CFO of California Micro Devices, Inc. ('Cal Micro').
- In 1993, to make the company appear more attractive for a public offering and strategic partnerships, some Cal Micro executives initiated a scheme to fraudulently inflate revenue.
- The scheme involved practices like recognizing revenue before shipment, shipping unwanted orders, creating false orders, and executing false 'title transfers'.
- While the scheme was ongoing, Desaigoudar and Henke sold portions of their personal stock in Cal Micro.
- After the scheme was discovered, the company's Board of Directors launched an investigation and removed Desaigoudar as CEO.
- Prior to trial, defendants Desaigoudar, Henke, and another indicted executive, Surendra Gupta, participated in confidential meetings under a joint defense privilege agreement to coordinate their legal strategy.
Procedural Posture:
- Chan Desaigoudar and Steven Henke were indicted in federal district court on charges of conspiracy, making false statements, securities fraud, and insider trading.
- A co-defendant, Surendra Gupta, entered a plea agreement with the government and agreed to testify against Desaigoudar and Henke.
- Defense counsel moved to withdraw and for a mistrial, arguing a conflict of interest arising from a joint defense agreement with Gupta.
- The district court denied the motion to withdraw but granted a mistrial to allow the defense to regroup.
- Following a new trial in the district court, a jury convicted Desaigoudar and Henke on all counts.
- Desaigoudar and Henke (appellants) appealed their convictions to the U.S. Court of Appeals for the Ninth Circuit, and the government (appellee) cross-appealed their sentences.
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Issue:
Does an attorney's duty of confidentiality under a joint defense agreement create an actual conflict of interest that impairs a defendant's Sixth Amendment right to counsel when a co-defendant becomes a key government witness, preventing effective cross-examination?
Opinions:
Majority - Per Curiam
Yes. A joint defense agreement can create a disqualifying conflict of interest for defense counsel when a co-defendant who shared confidential information becomes a key government witness. The joint defense privilege is an extension of the attorney-client privilege and establishes an implied attorney-client relationship between the defendants' attorneys and the co-defendant, Gupta. This relationship imposed a duty of confidentiality upon Desaigoudar's and Henke's attorneys regarding information learned from Gupta in their joint meetings. When Gupta became a government witness, counsel's ability to cross-examine him was impaired because doing so effectively might require using confidential information learned from him, thereby breaching their ethical duty. This actual conflict of interest deprived the defendants of their right to effective assistance of counsel and the right to cross-examine a key witness, necessitating a new trial. The court also held it was error to admit lay opinion testimony from the replacement CEO that the defendants 'must have known' about the fraud, as this invaded the province of the jury.
Concurring - Beezer
I concur only in the judgment to reverse the convictions and remand for a new trial. The dispositive issue is the district court's error in admitting prejudicial lay opinion testimony regarding the defendants' knowledge. Because this error was not harmless and is sufficient grounds for reversal, I would not reach the other issues addressed by the majority, including the conflict of interest claim.
Analysis:
This decision solidifies the legal principle that a joint defense agreement (JDA) can create an implied attorney-client relationship, with attendant duties of confidentiality that survive one member's decision to cooperate with the government. It serves as a significant warning to defense attorneys about the inherent risks of JDAs in multi-defendant criminal cases. The ruling establishes that when a co-defendant 'flips,' the remaining defense counsel may be placed in an untenable ethical position, creating an actual conflict of interest that can lead to the reversal of a conviction. This precedent forces prosecutors and defense lawyers to carefully consider the ramifications of cooperation deals on the viability of an ongoing trial and may lead to more cautious use of JDAs.
