United States v. Ruehle

583 F.3d 600 (9th Cir. 2009)

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Nature of the Case

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Facts

D is the former CFO of Broadcom Corporation. Broadcom came under intense scrutiny for its suspected backdating of company stock options. Following a government investigation, D was criminally indicted for his involvement in an alleged backdating scheme that ultimately resulted in Broadcom's restatement of its earnings to account for approximately $2.2 billion in additional stock-based compensation expenses. Broadcom's Board of Directors and company management decided to bring in outside counsel to commence an internal review of the company's current and past stock option granting practices. D was among those intimately involved in that decision from the outset. The Audit Committee engaged Irell, a private law firm. Irell immediately commenced its review, which entailed collecting corporate documents and records and conducting interviews with past and current Broadcom employees. Broadcom representatives, including D, met with Irell lawyers on May 24 and 25, 2006, to discuss the scope of the Equity Review. It was agreed that Irell would report the results of its inquiries to the Audit Committee. It was also decided that the Board would not appoint a panel of independent, outside directors to oversee the Equity Review. On May 26, 2006, a formal meeting of the Audit Committee was convened. D was present. Irell discussed the necessary involvement of Broadcom's outside independent auditors, Ernst & Young LLP, who would have to review and opine on the accuracy of the company's audited financial statements and regulatory filings. Irell also indicated that a special committee of independent directors might be appointed and special independent counsel engaged to conduct an inquiry that involved the board. The first civil lawsuit was taken on May 25, 2006 and others soon followed. On May 30, 2006, Broadcom's in-house General Counsel sent an e-mail to various Broadcom employees, including D, notifying them of the actions. He invited anyone with concerns to contact either him or Irell attorneys Siegel, Kenneth Heitz, or Dan Lefler. D received a separate e-mail from Heitz, one of the Irell partners with whom D had already conferred as part of the Equity Review about D to meet to discuss issues. At no point did the topic of the civil securities lawsuits arise as it might relate to D personally. In late June 2006, Irell advised D to secure independent counsel with respect to the investigations and the pending civil suits. Ruehle retained the law firm Wilson Sonsini Goodrich & Rosati to represent him individually. D remained heavily involved in the company's internal review and he was privy to Irell's reports to the Audit Committee of its findings and ultimately the disclosures of the information gathered by Irell to Ernst & Young. There is no dispute that the Irell lawyers regularly updated Ruehle and others in senior management about the progress of the Equity Review and their meetings and contacts with the auditors. In January 2007, Broadcom restated its earnings as reported in its financial disclosure statements to include a total of $2.2 billion in previously undisclosed compensation expenses. In May and June 2007, government investigators interviewed Irell attorneys Heitz and Lefler by telephone regarding their conversations with D in June 2006. D learned that the government intended to use this information against him in connection with possible criminal charges, D objected and claimed that any statements to the Irell attorneys were protected by his attorney-client privilege. D was indicted and P moved ex parte for a hearing to resolve whether the statements D made to Irell lawyers in June 2006 were privileged communications. Both Irell attorneys insisted that Irell's individual representation of D in relation to the civil securities lawsuits did not commence until after the June 1, 2006, interview. D denied any recollection of receiving such cautionary warnings at the June 1, 2006, interview. D believed Irell represented everyone named in the civil suits, including him, and that Heitz and Lefler were acting at least in part as his personal attorneys during the interview. The court then found that D 'had a reasonable belief that Irell and Manella were his lawyers prior to the June 1, 2006 interrogation by Irell and that he never gave informed written consent, either to the dual representation by Irell or the disclosure of privileged information to third parties, including Ernst & Young and the government.' P appealed.