United States v. Nicholas
606 F.Supp.2d 1109 (2009)
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Rule of Law:
When a law firm simultaneously represents a corporation and one of its officers in related matters, communications between the officer and the firm are protected by attorney-client privilege. The law firm breaches its duty of loyalty if it discloses those communications to third parties at the corporation's direction but without the officer's informed, written consent.
Facts:
- Irell & Manella LLP ('Irell') had a long-standing attorney-client relationship with both Broadcom Corporation and its Chief Financial Officer, William J. Ruehle.
- In May 2006, Broadcom retained Irell to conduct an internal investigation into its stock option granting practices.
- Shortly thereafter, shareholders filed two civil lawsuits against Ruehle personally concerning the same stock option practices, and Irell accepted individual representation of Ruehle in those lawsuits.
- Irell failed to obtain Ruehle's informed written consent to the dual representation, which presented a potential conflict of interest between Ruehle and Broadcom.
- On June 1, 2006, Irell lawyers interviewed Ruehle regarding the stock option practices without advising him that his statements could be disclosed or used against him.
- Subsequently, at Broadcom’s direction, Irell disclosed the substance of Ruehle's statements to Broadcom’s outside auditors, the Securities and Exchange Commission, and the United States Attorney’s Office.
- Ruehle never consented to the disclosure of his confidential communications with Irell.
Procedural Posture:
- The United States initiated a criminal prosecution against William J. Ruehle in the U.S. District Court.
- During discovery, the Government produced memoranda summarizing interviews with Irell lawyers about their confidential conversations with Ruehle.
- Ruehle's counsel filed a motion to suppress these statements, asserting they were protected by the attorney-client privilege.
- The Government filed an application for an evidentiary hearing to determine the applicability of the privilege.
- The District Court held a three-day evidentiary hearing on the matter.
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Issue:
Are a corporate officer's statements to a law firm, which represents both the corporation in an internal investigation and the officer individually in related civil lawsuits, protected by attorney-client privilege and thus inadmissible against the officer in a criminal case, even if the corporation directs the firm to disclose those statements?
Opinions:
Majority - Cormac J. Carney
Yes. The statements are protected by attorney-client privilege and are inadmissible because an attorney-client relationship existed between the officer and the law firm, and the firm breached its duty of loyalty by disclosing the officer's confidential communications without his consent. The court found that Ruehle reasonably believed Irell was his personal counsel based on their prior relationship, Irell's simultaneous representation of him in pending lawsuits, and direct communications confirming the representation. Any purported 'Upjohn' warning was both inadequate and irrelevant, as such warnings are meant for non-clients, and an existing attorney-client relationship cannot be negated by an ambiguous oral statement. Irell committed clear ethical violations by: 1) failing to obtain informed written consent for a conflict-ridden dual representation; 2) interrogating one client (Ruehle) for the benefit of another (Broadcom); and 3) disclosing a client's privileged communications to third parties without permission. These breaches of the fundamental duty of loyalty required the suppression of the evidence.
Analysis:
This decision serves as a significant warning to law firms engaged in the dual representation of a corporation and its employees, particularly during internal investigations. It establishes that a firm's duty of loyalty to an individual client cannot be subordinated to the interests of a corporate client without explicit, informed, and written consent. The ruling reinforces that an existing attorney-client relationship cannot be casually disclaimed with a boilerplate oral warning, thereby heightening the requirements for creating ethical firewalls. For future cases, this opinion strengthens the position of corporate officers who communicate with company counsel under a reasonable belief of personal representation, making it more difficult for corporations to unilaterally waive privilege over such communications to the officer's detriment.
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