Posted Sep 30, 2009 10:32 pm CDT
A former chief financial officer of Broadcom Corp. says he expected his 2006 conversations with Irell & Manella about stock options grants to be confidential, because the law firm was representing his employer as outside counsel in an internal probe. And a federal district court judge found that Irell & Manella also represented former CFO William Ruehle–who was then a named defendant in civil litigation over alleged options backdating–on an individual basis.
But the 2006 talks weren’t protected by attorney-client privilege, the 9th U.S. Circuit Court of Appeals says in a written opinion (PDF) today, because Ruehle knew the information he revealed would be provided by the law firm to accountants for the chip manufacturer.
A company earnings restatement resulted, once the accountants were informed, and federal prosecutors then asked questions of Irell & Manella attorneys. In 2008, both Ruehle and Broadcom co-founder Henry Nicholas III were indicted on charges of conspiracy and securities fraud for allegedly secretly backdating options grants between 1999 and 2005, according to the opinion and the Money & Company blog of the Los Angeles Times.
The ruling today decides an interlocutory appeal by the government of an evidentiary ruling in an ongoing criminal case against Ruehle.
The federal district court missed a turn in “the treacherous path which corporate counsel must tread under the attorney-client privilege when conducting an internal investigation to advise a publicly traded company on its financial disclosure obligations,” the opinion says, because it incorrectly applied California state law on attorney-client privilege rather than the narrower parameters of federal common law.
Citing what it terms “damning evidence” that Ruehle knew his 2006 conversations with Irell were not confidential, since the facts he disclosed would be provided to company auditors, the 9th Circuit says that this privilege waiver by Broadcom also applied to him. Hence, he had no basis to object to the law firm’s later provision of information to prosecutors.
“Ruehle’s subjective shock and surprise about the subsequent use of the information he knew would be disclosed to third-party auditors–e.g., information subsequently shared with securities regulators and the Justice Department now used to support a criminal investigation and his prosecution–is frankly of no consequence here,” the appeals court writes.
Hat tip: Am Law Daily.