United States v. Ruehle
583 F.3d 600 (2009)
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Rule of Law:
A corporate officer cannot assert a personal attorney-client privilege over communications with corporate counsel during an internal investigation if the officer knew the communications were intended for disclosure to a third party. The party asserting the privilege bears the burden of proving that the communication was made in confidence, a requirement that is not met when disclosure to third parties like outside auditors is anticipated.
Facts:
- In mid-May 2006, following media reports about stock option backdating, Broadcom Corporation's Board of Directors initiated an internal review.
- Broadcom's Audit Committee engaged its outside counsel, Irell & Manella LLP ('Irell'), to conduct an 'Equity Review' of the company's stock option granting practices.
- William J. Ruehle, Broadcom's CFO, was involved in the decision to hire Irell and understood that the results of the review would be turned over to the company's independent auditors, Ernst & Young.
- While the Equity Review was ongoing, shareholders filed civil lawsuits against Broadcom, naming Ruehle as an individual defendant for his role in the stock option practices.
- On June 1, 2006, two Irell attorneys interviewed Ruehle in his office as part of the Equity Review to gather facts about the stock option grants.
- Ruehle did not indicate during the interview that he was seeking personal legal advice, nor did he object to the subsequent disclosure plan.
- At Broadcom's direction, Irell later disclosed the substance of Ruehle's interview to Ernst & Young and, eventually, to government investigators.
Procedural Posture:
- A federal grand jury in the Central District of California indicted William J. Ruehle on charges of conspiracy and securities fraud.
- The government moved ex parte for a hearing in the district court to resolve whether Ruehle's statements to Irell lawyers were protected by attorney-client privilege.
- After a three-day evidentiary hearing, the district court found that Ruehle had a reasonable belief Irell represented him personally and that his statements were confidential.
- The district court granted Ruehle's request and issued an order suppressing all evidence reflecting his statements to Irell.
- The government (appellant) filed an interlocutory appeal of the suppression order to the U.S. Court of Appeals for the Ninth Circuit, with Ruehle as the appellee.
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Issue:
Does a corporate officer's communication with corporate counsel during an internal investigation fall under a personal attorney-client privilege when the officer understood that the information gathered would be disclosed to a third party?
Opinions:
Majority - Tallman, J.
No. A corporate officer's communication with corporate counsel is not protected by a personal attorney-client privilege if the officer cannot prove the communication was made in confidence. Under federal common law, the party asserting the privilege bears the burden of proving every element, including confidentiality. Here, Ruehle, as CFO, was a sophisticated executive who participated in meetings where it was decided that the factual findings of Irell's internal review would be disclosed to Broadcom's outside auditors. Ruehle's own testimony confirmed he understood that factual information gathered by Irell was not to be withheld from the auditors. Because he was aware of the planned disclosure to a third party, he could not have had a reasonable expectation of confidentiality at the time of the interview, thus failing a critical element of the attorney-client privilege test. His subsequent surprise that the disclosed information was used in a criminal prosecution is irrelevant to his expectation of confidentiality when the statements were made.
Analysis:
This decision reinforces the narrow construction of the attorney-client privilege in the corporate context and clarifies the high burden on corporate officers seeking to claim a personal privilege for communications with company counsel. It establishes that an officer's knowledge of planned disclosure to any third party, such as auditors, is sufficient to destroy the confidentiality required for the privilege to attach. The ruling serves as a stark warning to corporate employees that corporate counsel represents the corporation, and in the absence of an explicit agreement to the contrary, their communications may be disclosed at the corporation's discretion. This holding incentivizes officers to secure independent personal counsel early in any internal investigation where their own conduct is at issue.
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