FILED FOR PUBLICATION SEP 30 2009
MOLLY C. DWYER, CLERK UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 09-50161
Plaintiff - Appellant, D.C. No. 8:08-CR-00139-cjc-2
v. OPINION WILLIAM J. RUEHLE,
Defendant - Appellee.
Appeal from the United States District Court for the Central District of California Cormac J. Carney, District Judge, Presiding
Argued and Submitted September 1, 2009 Pasadena, California
Filed
Before: FISHER, GOULD, and TALLMAN, Circuit Judges.
Opinion by Circuit Judge Richard C. Tallman
TALLMAN, Circuit Judge:
We here explore 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. Defendant-Appellee William J. Ruehle is the former Chief Financial Officer
(“CFO”) of Broadcom Corporation, a California-based, publicly traded
semiconductor supplier that came under intense scrutiny for its suspected
backdating of company stock options. Following a government investigation,
Ruehle 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. The district court held an evidentiary hearing and, after evaluating the
extensive briefing and evidence presented, issued an order suppressing all evidence
reflecting Ruehle’s statements to attorneys from Irell & Manella LLP (“Irell”),
Broadcom’s outside counsel, regarding the stock option granting practices at
Broadcom. The court found that at the initial stages of the inquiry by Irell (called
the “Equity Review”) an attorney-client relationship also existed with the CFO
individually, and not just with Broadcom, and that the lawyers breached their
ethical duties to their client Ruehle in disclosing what he had told them in a
preliminary interview.
The government filed an interlocutory appeal. We have jurisdiction
pursuant to 18 U.S.C. § 3731, and we reverse and remand for further proceedings.
I
2 In March 2006, the Wall Street Journal published the first of a series of
articles called “The Perfect Payday,” which suggested that a number of public
companies were backdating stock options granted to their employees.1 Shortly
thereafter, in mid-May 2006, an investor rights group publicly identified Broadcom
as one of the corporations that appeared to have engaged in backdating. As a result
of the media attention and in anticipation of an inquiry from the Securities and
Exchange Commission (“SEC”), Broadcom’s Board of Directors and company
1 Stock options give individuals the right to buy shares of stock on a future date at a set price, commonly known as the “exercise” or “strike” price. Typically, as was the practice at Broadcom, stock options granted to employees could not be exercised until the end of a fixed vesting period. Once an option vested, the holder could exercise it and purchase stock from the company at the strike price. Thus, options that have a strike price below the current trading price in the stock market are commonly referred to as being “in the money,” whereas options with a strike price above the current trading price are considered “underwater.” The strike price is typically equal to the market price on the date that the option is granted. “Backdating” refers to the practice of recording an option’s grant date and strike price retrospectively. See United States v. Reyes, 577 F.3d 1069, 1073 (9th Cir. 2009). The ability to manipulate the strike price maximizes the benefit to the option holders. Selection of an initial grant date when the share price, and thus the strike price, is at its lowest during a given period will increase the amount an option is “in the money” or, in some cases, may determine whether an option is “in the money” at all, rather than “underwater.” In either case, the employee may immediately exercise the option to buy shares at the optimally low strike price, sell the stock at the current market price, and pocket any gain. “Backdating is not itself illegal, provided that the benefit to the employees is recorded on the corporate books as a non-cash compensation expense to the corporation, in accordance with an accounting convention promulgated in 1972 referred to as Accounting Principles Board Opinion No. 25.” Id.
3 management decided to bring in outside counsel to commence an internal review
of the company’s current and past stock option granting practices. Ruehle, as
Broadcom’s CFO, was among those intimately involved in that decision from the
outset. On May 18, 2006, Broadcom’s Audit Committee engaged Irell, a private
law firm with which it had longstanding ties, to conduct the Equity Review by
investigating the propriety of the measurement dates utilized by Broadcom in its
option granting process and identifying those grants which failed to meet the
measurement date requirements of generally accepted accounting principles.2 Irell
immediately commenced its review, which entailed collecting corporate documents
and records and conducting interviews with past and current Broadcom employees.
2 The relationship between Broadcom and Irell runs deep, as Ruehle contends, and dates back to before 1998 when Irell assisted Broadcom in its initial public offering of stock (“IPO”), which led to its becoming an investor-owned public company. Irell itself acquired stock during the IPO and its partners profited handsomely when the stock price rose. Since then, Irell has represented Broadcom in relation to numerous acquisitions and the firm has handled several litigation matters for Broadcom and its officers and directors. At the time it was engaged to conduct the Equity Review, the firm was counsel of record for Broadcom and its management employees named as individual defendants in a then-unrelated securities class action, Jin v. Broadcom Corp., pending in California state superior court. Moreover, Irell had recently represented Broadcom, as well as several of its officers and directors, including Ruehle, in an unrelated securities action referred to as the “warrants litigation.” The warrants litigation settled several months prior, in December 2005.
4 Broadcom representatives, including Ruehle, 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. Ruehle and other senior Broadcom executives, several
members of the Board, and Irell lawyers were among those present. During the
hour-long meeting, Irell partner David Siegel explained the nature of typical
“backdating” investigations and discussed the status of Irell’s internal review,
including 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. Siegel also
cautioned “that Irell can handle issues related to the proper accounting for option
grants but that if an issue of self-dealing or management or Board integrity arose, a
special committee of independent directors would need to be appointed and special
independent counsel engaged to conduct that inquiry.” The Audit Committee and
other representatives of Broadcom made clear that the intent was to turn over the
information obtained through the Equity Review to the auditors, to fully cooperate
5 with government regulators, and, if necessary, to self-report any problems with
Broadcom’s financial statements.
As many within Broadcom had anticipated, civil lawsuits soon followed the
media reports about the company’s backdating of stock options. On May 25, 2006,
a shareholder derivative suit captioned Murphy v. McGregor was filed in
California federal court. The following day, on May 26, the plaintiffs in the
ongoing securities class action in California state superior court, Jin v. Broadcom
Corp., filed an amended complaint. Both the Murphy action and the Jin amended
class action now alleged wrongdoing in relation to Broadcom’s stock option
granting practices; both suits named Broadcom and also personally named Ruehle,
among other Broadcom officers and directors, as an individual defendant.
On May 30, 2006, Broadcom’s in-house General Counsel David Dull sent an
e-mail to various Broadcom employees, including Ruehle, notifying them of the
Murphy action and of the amended complaint filed in the Jin securities class action.
Dull invited anyone with concerns to contact either him or Irell attorneys Siegel,
Kenneth Heitz, or Dan Lefler. Shortly after receiving Dull’s message, Ruehle
received a separate e-mail from Heitz, one of the Irell partners with whom Ruehle
had already conferred as part of the Equity Review. Heitz’s e-mail updated Ruehle
concerning the scheduling of interviews of three current or former Broadcom
6 employees and, finally, inquired, “if you have open time on Thursday Dan Lefler
and I would like to spend an hour or so with you . . . .”
As arranged, Heitz and Lefler met with Ruehle in his office on Thursday,
June 1, 2006, to discuss Broadcom’s stock option granting practices and his role as
the company’s CFO.3 Ruehle had subsequent, brief discussions with the Irell
lawyers as the Equity Review continued and the lawyers reported back to the CFO
their progress in unearthing the facts. At no point did the topic of the civil
securities lawsuits arise as it might relate to Ruehle personally. Nor did Ruehle
ever indicate to the lawyers that he was seeking legal advice in his individual
capacity. It is the substance of these June 2006 interactions that lies at the center
of the present dispute.
3 At the evidentiary hearing the Irell attorneys testified that they provided Ruehle a so-called Upjohn or corporate Miranda warning. Such warnings make clear that the corporate lawyers do not represent the individual employee; that anything said by the employee to the lawyers will be protected by the company’s attorney-client privilege subject to waiver of the privilege in the sole discretion of the company; and that the individual may wish to consult with his own attorney if he has any concerns about his own potential legal exposure. See Upjohn Co. v. United States, 449 U.S. 383, 393–96 (1981). Ruehle testified that he did not recall receiving any such warnings. As discussed infra, the district court seems to have disbelieved the Irell lawyers who took no notes nor memorialized their conversation on this issue in writing, and it apparently credited Ruehle’s testimony that no such warnings were given. We cannot say that this finding is clearly erroneous on the record before us.
7 In late June 2006, Irell advised Ruehle 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.
Nevertheless, Ruehle 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.
In August 2006, at Broadcom’s direction, Irell fully disclosed the
information obtained from the Equity Review to the Ernst & Young auditors. Irell
had a series of meetings with Ernst & Young in which the lawyers reported what
they had found, which necessarily included the substance of Ruehle’s June 1, 2006,
interview with Heitz and Lefler. Ruehle was present for at least some of these
meetings between Irell and the Ernst & Young auditors. 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.
The Equity Review revealed several accounting irregularities with respect to
certain stock option grants. In January 2007, on the advice of its outside counsel
and auditors, Broadcom restated its earnings as reported in its financial disclosure
8 statements to include a total of $2.2 billion in previously undisclosed compensation
expenses.
The SEC and the United States Attorney’s Office commenced formal
enforcement and grand jury investigations of several company executives in
relation to Broadcom’s stock option granting practices. In May and June 2007,
with Broadcom’s authorization, government investigators interviewed Irell
attorneys Heitz and Lefler by telephone regarding their conversations with Ruehle
in June 2006. The information they provided was summarized in FBI Form FD-
302 reports of investigation, which are part of the sealed record. When he learned
that the government intended to use this information against him in connection
with possible criminal charges, Ruehle objected and claimed that any statements to
the Irell attorneys were protected by his attorney-client privilege. Ruehle also
insisted, after the fact, that whatever he said to Irell could not be disclosed without
his prior written consent.
On June 4, 2008, a grand jury in the Central District of California indicted
Ruehle and Henry T. Nicholas III—Broadcom’s founder, and former President and
Chief Executive Officer—on charges of conspiracy, securities and wire fraud, and
various other violations of Title 15 of the United States Code. The indictment
alleges that beginning in or around 1999 and continuing until at least in or around
9 2005, Nicholas and Ruehle, among others, engaged in a fraudulent scheme and
conspiracy to disguise, conceal, understate, and mischaracterize compensation
expenses Broadcom was required to recognize in connection with granting its stock
options to various employees. Among the allegations of wrongdoing, the
indictment claims that as part of the backdating scheme the defendants paid a
former employee who threatened to expose the scheme, concealed the payoff from
Broadcom’s Board and its independent auditors, and took various steps to create
plausible deniability as to Broadcom’s option backdating practices.
On January 12, 2009, the government moved ex parte for a hearing to
resolve whether the statements Ruehle made to Irell lawyers in June 2006 were
privileged communications. Ruehle argued that he had an individual attorney-
client relationship with Irell arising from the securities lawsuits, in which he was a
named defendant. Beginning on February 23, 2009, the district court held a three-
day evidentiary hearing at which Ruehle and Irell attorneys Heitz and Lefler
testified. At Ruehle’s request, a substantial portion of the testimony and evidence
was received in camera outside the presence of the federal prosecutors. Both Irell
attorneys insisted that Irell’s individual representation of Ruehle in relation to the
10 civil securities lawsuits did not commence until after the June 1, 2006, interview.4
Among other things, the attorneys testified that they began the June 2006 meeting
with a so-called Upjohn or corporate Miranda warning, which included notice that
the Irell attorneys were acting as representatives of Broadcom—specifically, the
Audit Committee—and that the privilege therefore rested only with the company.
Ruehle, however, denied any recollection of receiving such cautionary warnings at
the June 1, 2006, interview. Ruehle testified that at the time he spoke with Heitz
and Lefler he 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.
At the conclusion of the hearing, the district court rendered its oral ruling
which strongly condemned the Irell attorneys’ behavior with respect to the firm’s
handling of the Equity Review. The court then found that Ruehle “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
4 On June 8, 2006, Irell filed a Status Conference Report on behalf of all defendants in the Jin class action and shortly thereafter accepted service of the amended complaint in order to avoid the need for service of legal process on each person named therein, including Ruehle.
11 parties, including Ernst & Young and the government.” Based on this reasoning,
the court ordered suppression. The district court subsequently issued a written
order, which included an additional finding that Ruehle intended his statements to
Heitz and Lefler to be confidential. The order stated that “all evidence reflecting
Mr. Ruehle’s statements to Irell regarding the stock option granting practices at
Broadcom is suppressed.”5 The court also referred Irell to the California State Bar
for possible discipline in light of numerous perceived violations of state rules of
professional conduct.
The government interlocutorily appealed the district court’s suppression
order and we consider it on an expedited basis.6
5 The order also directed the government to return all privileged documents within 14 days. That order is stayed pending the outcome of this appeal. 6 The district court and the parties label this a matter of “suppression.” We will do so as well for the sake of consistency. However, analytically, the court’s order is more accurately characterized as an order directing the exclusion of privileged evidence—akin to the grant of a motion in limine. Though courts in the past have used terms such as “suppress” and “exclude” interchangeably in similar contexts, see, e.g., United States v. Plache, 913 F.2d 1375, 1377, 1379–81 (9th Cir. 1990), “suppress” is better confined to a narrower meaning that would not apply here. “The attorney-client privilege is an evidentiary rule designed to prevent the forced disclosure in a judicial proceeding of certain confidential communications between a client and a lawyer.” United States v. Rogers, 751 F.2d 1074, 1077 (9th Cir. 1985). In contrast, “suppression” is generally understood to concern invocation of the judicially created exclusionary rule, which is intended to operate as a deterrent to governmental misconduct and, as a necessary corollary, may be (continued...)
12 II
The district court’s conclusion that statements are protected by an individual
attorney-client privilege is “a mixed question of law and fact which this court
reviews independently and without deference to the district court.” United States
v. Bauer, 132 F.3d 504, 507 (9th Cir. 1997) (quoting United States v. Gray, 876
F.2d 1411, 1415 (9th Cir. 1989)). That is, whether the party has met the
requirements to establish the existence of the attorney-client privilege is reviewed
de novo. Id. We also review de novo the district court’s rulings on the scope of
the attorney-client privilege. Id. Factual findings are reviewed for clear error. See
Al-Haramain Islamic Found. v. Bush, 507 F.3d 1190, 1196 (9th Cir. 2007). A
district court’s credibility determinations are given “special deference.” United
States v. Craighead, 539 F.3d 1073, 1082 (9th Cir. 2008) (citing United States v.
Nelson, 137 F.3d 1094, 1110 (9th Cir. 1998)).
III
6 (...continued) invoked to exclude other evidence discovered as the “fruit of the poisonous tree.” See Herring v. United States, 129 S. Ct. 695, 700 (2009). There is no allegation of government misconduct in the instant case as the record reveals there was no governmental participation in the acts of Broadcom, the Audit Committee, or Irell’s conduct of the Equity Review. Thus, the exclusionary rule does not apply here and “suppression” in that sense is not at issue.
13 The government raises several arguments challenging the district court’s
order excluding Ruehle’s statements to Irell attorneys. We begin with some basic
premises. First, there is no dispute that Broadcom had an existing attorney-client
relationship with Irell and, by electing to reveal the information gathered to Ernst
& Young (and later to various agencies of the United States), deliberately waived
any corporate attorney-client privilege it held with respect to all matters at issue.
Second, the Equity Review and the civil securities suits, to which Ruehle was a
party, both concerned the same general subject matter as of June 1, 2006—i.e., the
stock option granting practices of Broadcom. Finally, the district court concluded
as a fact that Ruehle reasonably believed that Irell represented him individually
with respect to the ongoing civil lawsuits when the June 1, 2006, meeting took
place. Because this factual finding is not clearly erroneous, we approach the
parties’ arguments from the perspective that Irell had attorney-client relationships
with both Broadcom and Ruehle individually.
We, however, must inquire further. After all, “[a] party asserting the
attorney-client privilege has the burden of establishing the relationship and the
privileged nature of the communication.” Bauer, 132 F.3d at 507 (citing Ralls v.
United States, 52 F.3d 223, 225 (9th Cir. 1995)) (emphasis added); accord In re
Grand Jury Subpoenas, 144 F.3d 653, 659 (10th Cir. 1998) (“In certain
14 circumstances, reasonable belief may be enough to create an attorney-client
relationship, but it is not sufficient here to create a personal attorney-client
privilege.”). We must determine whether Ruehle’s communications to the Irell
attorneys regarding Broadcom’s stock option granting practices are protected by a
personal attorney-client privilege belonging to Ruehle.
“The attorney-client privilege protects confidential disclosures made by a
client to an attorney in order to obtain legal advice, . . . as well as an attorney’s
advice in response to such disclosures.” Bauer, 132 F.3d at 507 (quoting United
States v. Chen, 99 F.3d 1495, 1501 (9th Cir. 1996)) (emphasis omitted). “The fact
that a person is a lawyer does not make all communications with that person
privileged.” United States v. Martin, 278 F.3d 988, 999 (9th Cir. 2002) (citing
Chen, 99 F.3d at 1501). “Because it impedes full and free discovery of the truth,
the attorney-client privilege is strictly construed.” Id. (quoting Weil v.
Inv./Indicators, Research & Mgmt., Inc., 647 F.2d 18, 24 (9th Cir. 1981); accord
United States v. Plache, 913 F.2d 1375, 1379 (9th Cir. 1990). “[T]he privilege
stands in derogation of the public’s ‘right to every man’s evidence’ and as ‘an
obstacle to the investigation of the truth,’ [and] thus, . . . ‘[i]t ought to be strictly
confined within the narrowest possible limits consistent with the logic of its
principle.’” In re Horowitz, 482 F.2d 72, 81 (2d Cir. 1973) (citations omitted).
15 Typically, an eight-part test determines whether information is covered by the
attorney-client privilege:
(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) unless the protection be waived.
In re Grand Jury Investigation, 974 F.2d 1068, 1071 n.2 (9th Cir. 1992) (quoting
United States v. Margolis (In re Fischel), 557 F.2d 209, 211 (9th Cir. 1977)).7 The
7 The government urges that the special problems presented by joint representation of a corporation and its individual officers counsel adoption of particularized requirements before the individual officer could assert an attorney- client privilege. The Third Circuit in In re Bevill, Bresler & Schulman Asset Mgmt. Corp., 805 F.2d 120, 123–24 (3d Cir. 1986), adopted a five-factor test intended to clarify that “any privilege that exists as to a corporate officer’s role and functions within a corporation belongs to the corporation, not the officer.” Several other circuits have adopted some form of tailored test for joint-representation scenarios. See Ross v. City of Memphis, 423 F.3d 596, 605 (6th Cir. 2005); In re Grand Jury Subpoena (Newparent), 274 F.3d 563, 571–72 (1st Cir. 2001); In re Grand Jury Subpoenas, 144 F.3d 653, 659 (10th Cir. 1998); United States v. Int’l Bhd. of Teamsters, 119 F.3d 210, 215–16 (2d Cir. 1997). We do not decide the propriety of adopting the specialized test of Bevill because, given Irell’s longstanding representation of Ruehle as an individual before the instant case arose and in light of the planned disclosure of facts gained in the Equity Review to the third-party independent auditor, this case can be resolved using our usual eight-part test. Accordingly, we leave for another day consideration of the extraordinary requirements of the Bevill five-prong test for establishing attorney-client privilege in a situation where both the executive and the corporation assert that they are dually represented. Similarly, we need not reach and decide in this case whether our circuit should adopt the rule of Newparent: that the corporation, without consent of an executive asserting privilege, can waive the attorney-client privilege (continued...)
16 party asserting the privilege bears the burden of proving each essential element.
United States v. Munoz, 233 F.3d 1117, 1128 (9th Cir. 2000).
A
At the outset we note a fundamental flaw in the district court’s analysis.
“Issues concerning application of the attorney-client privilege in the adjudication
of federal law are governed by federal common law.” Bauer, 132 F.3d at 510 n.4
(quoting Clarke v. Am. Commerce Nat. Bank, 974 F.2d 127, 129 (9th Cir. 1992));
see also United States v. Blackman, 72 F.3d 1418, 1423 (9th Cir. 1995) (“[S]ince
the adoption of the Federal Rules of Evidence, courts have uniformly held that
federal common law of privilege, not state law applies.” (citations omitted)). The
district court, however, applied a “reasonable belief” standard without ever
referencing the well-established eight-part test. Rather, in reaching its holding, the
court relied almost exclusively upon California state law to define both the
attorney-client relationship and the attorney-client privilege. Most significantly,
the court cited California Evidence Code section 917(a) for the proposition that all
7 (...continued) in a dual-representation context where the subject matter of the waiver concerns matters of interest to the corporation. 274 F.3d at 572–74. We also need not reach Newparent’s further holding that the executive can control the assertion of attorney-client privilege only as to matters segregable from those of concern to the corporation. Id. at 573.
17 “communications made in the course of an attorney-client relationship are
presumed confidential.”8
This legal error is critical in this case. The district court applied a liberal
view of the privilege that conflicts with the strict view applied under federal
common law, which governs here. See Martin, 278 F.3d at 999. By approaching
the exclusion question with a presumption that the privilege attached, the district
court inverted the burden of proof, improperly placing the onus on the government
to show what information was not privileged. See Gordon v. Superior Court of
L.A. County, 65 Cal. Rptr. 2d 53, 59 (Cal. Ct. App. 1997) (“[C]ommunications
between a lawyer and his client are presumed confidential, with the burden on the
party seeking disclosure to show otherwise.” (citations omitted)).
As the party asserting the privilege, Ruehle was obliged by federal law to
establish the privileged nature of the communications and, if necessary, to
8 Ruehle insists that federal privilege law also creates a prima facie presumption of privilege, citing Chen, 99 F.3d 1495. He misreads that opinion. At issue in Chen was whether the defendants’ attorneys were acting in the capacity of professional legal advisors—that is, whether the attorneys were providing legal advice, which is privileged, or non-legal business advice, which is not protected. Id. at 1500–01 (noting that “[i]f a person hires a lawyer for advice, there is a rebuttable presumption that the lawyer is hired ‘as such’ to give ‘legal advice’”). Ruehle extrapolates from the unremarkable and narrow principle in Chen to argue that “[w]here an attorney-client relationship exists, communications made in the context of that relationship are prima facie subject to the privilege.” This argument directly conflicts with our case law.
18 segregate the privileged information from the non-privileged information. See
Bauer, 132 F.3d at 507; see also 3 Jack B. Weinstein & Margaret A. Berger,
Weinstein’s Federal Evidence, § 503.20[4][b] (Joseph M. McLaughlin, ed.,
Matthew Bender 2d ed. 2009) (discussing rule that blanket claims of privilege are
generally disfavored). With respect to the latter obligation, Ruehle has made no
effort to identify with particularity which of his communications to the Irell
attorneys are within his claim of privilege, in either his public or sealed filings
before us. Under federal law, the attorney-client privilege is strictly construed.
Ruehle’s failure to define the scope of his claim of privilege weighs in favor of
disclosure; in any event, his claim cannot support the overly broad, blanket
suppression order entered here.
B
With the burden properly on Ruehle, and after carefully reviewing and
evaluating the record, we hold that Ruehle fails the fourth element of the traditional
eight-part privilege test. Ruehle’s statements to the Irell attorneys were not “made
in confidence” but rather for the purpose of disclosure to the outside auditors. That
he might regret those statements after later learning of the subsequent corporate
disclosure to law enforcement officials is not material to the privilege
determination as of June 2006.
19 The district court reached the contrary conclusion: “Mr. Ruehle intended his
statements to be confidential, and he had no reason to suspect that his
conversations with the Irell lawyers would be disclosed to third parties.” We are
unable to square this factual finding, which forms the linchpin of the suppression
order, with the evidence presented at the evidentiary hearing. The notion that
Ruehle spoke with Irell attorneys Heitz and Lefler with the reasonable belief that
his statements were confidential is unsupported by the record. Of particular
significance is what was said in the meetings he attended prior to June 1, 2006,
with Irell attorneys, company management, and the Audit Committee, as
acknowledged in Ruehle’s own testimony. He frankly admitted that he understood
the fruits of Irell’s searching inquiries would be disclosed to Ernst & Young in
order to convince the independent auditors of the integrity of Broadcom’s financial
statements to the public, or to take appropriate accounting measures to rectify any
misleading reports. We reject the district court’s contrary finding that an
expectation of confidentiality was established because, upon review of the record,
we are left with the “definite and firm conviction that a mistake has been
committed” and thus we determine that this factual finding was clearly erroneous.
United States v. Overton, 573 F.3d 679, 688 (9th Cir. 2009) (quoting Easley v.
Cromartie, 532 U.S. 234, 242 (2001)).
20 Ruehle was no ordinary Broadcom employee. He served as the public
company’s CFO—the senior corporate executive charged with primary
responsibility for Broadcom’s financial affairs. This was a sophisticated corporate
enterprise with billions of dollars in sales worldwide, aided by accountants,
lawyers, and advisors entrusted with meeting a multitude of regulatory obligations.
The duties undertaken by Ruehle broadly encompassed not only accurately and
completely reporting the company’s historical and current stock option granting
practices, but also Broadcom’s strict compliance with reporting and record keeping
requirements imposed through the Securities Exchange Act of 1934 and the
Sarbanes-Oxley Act of 2002, among many other federal and state rules and
regulations. See, e.g., 15 U.S.C. §§ 7241, 7262(a). As the head of finance, Ruehle
cannot now credibly claim ignorance of the general disclosure requirements
imposed on a publicly traded company with respect to its outside auditors or the
need to truthfully report corporate information to the SEC.
Ruehle was also intimately involved in all aspects of the Equity Review,
including the planning, investigatory, and disclosure stages. Ruehle was a full
participant in the initial May 2006 meetings with the Irell attorneys where the
scope of representation and the details of the Equity Review were decided and
agreed upon, even before convening the formal Audit Committee meeting. From
21 the outset, it was settled and made widely known to senior management that
Broadcom intended to fully cooperate with the SEC and the auditors. Ruehle, as
the primary contact with Ernst & Young over the years, personally introduced the
Irell attorneys to the team of outside auditors. Thereafter, he repeatedly met with
the Audit Committee, senior management, the Irell attorneys, and the auditors, and
remained fully apprised throughout the summer of 2006 of the status of Irell’s
investigation and the flow of information.
In his testimony at the evidentiary hearing, Ruehle acknowledged the broad
nature of the planned third-party disclosure, noting that Irell was directed, to his
knowledge, to freely share “all factual information” gleaned through the Equity
Review—whether “good, bad, or ugly.” As he explained, at the time of the June 1,
2006, interview, he understood that nothing would be withheld from Ernst &
Young:
Q: Did you think it was appropriate for Broadcom, represented by Irell . . . , to withhold information from the auditors in connection with their work in early June of 2006?
A: We were not withholding information from the auditors.
Q. They were not withholding information from the auditors; is that correct?
A: That’s correct.
22 Q: And you understood that to be the case at the time; correct?
Indeed, Ruehle confirmed over and over again his awareness that the substance of
his June 2006 interviews with the Irell lawyers was not to be held in confidence:
Q: You understood that Irell was going to be sharing the factual information they gathered to third parties?
Q: And fair to say you understood that Irell was there, among other things, to gather facts; correct?
A: Correct.
To dispel any doubt, Ruehle also confirmed that the information he provided to
Heitz and Lefler was largely factual in nature—the type of information he
understood would be disclosed to third parties.
Q: To be clear, the information you provided to Irell was factual information; correct?
A: It was a combination of factual information and some assumptions and some recollections.
***
Q: And you understood that Ernst & Young was going to be looking to you, among other people, to help them understand what had happened as part of Broadcom’s historical options review; correct?
23 As Ruehle anticipated when he met with the Irell attorneys in June 2006, the
information obtained through the Equity Review, including his input, was passed
on to Ernst & Young. He never raised any anxiety about the possible disclosure
over what he now claims was intended to be confidential and thus privileged
information. Ruehle had ample opportunity to raise any concern he might have
harbored. Ruehle not only attended meetings where the Audit Committee directed
Irell to disclose to Ernst & Young the fruits of the Equity Review, he was also
present at meetings where disclosures to the auditors actually occurred. He did not
object. Even after engaging independent counsel to apprise him of his legal rights,
Ruehle never claimed that he thought his statements to Irell during the Equity
Review, later shared with the auditors, were confidential—until the specter of
criminal liability arose in 2008.
On appeal, Ruehle tries to minimize the damning evidence confirming his
awareness that his interactions with Irell would not be held in confidence. He
places much weight on the assertion that he only learned of the details of Irell’s
disclosures to Ernst & Young and the government in 2008 and that he was
“shocked.” Ruehle contends that, notwithstanding his obligation to fully cooperate
in Broadcom’s internal review, he would not have provided information as part of
the Equity Review had he known it could be used in support of a criminal
24 investigation or an SEC enforcement action. The district court seems to have
agreed with Ruehle’s analysis, noting:
The Government argues that Mr. Ruehle knew that Irell would make some disclosure to Ernst & Young in connection with its investigation, and therefore Mr. Ruehle knew that his statements were not confidential. This argument is unpersuasive. Mr. Ruehle never understood that Irell might disclose statements adverse to Mr. Ruehle’s interests to the Government for use in a criminal case against him.
This analysis misses the mark. The salient point from a privilege perspective is
that Ruehle readily admits his understanding that all factual information would be
communicated to third parties, which undermines his claim of confidentiality to
support invoking the privilege. Ruehle’s subjective shock and surprise about the
subsequent usage 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.
In support of his case for invocation of the privilege, Ruehle also repeatedly
points to attorney Heitz’s testimony that he could not “split his mind” so as to
distinguish between facts relevant to the Equity Review and those relevant to the
defense of Ruehle in the pending civil securities litigation, because they both had at
their core Broadcom’s stock option granting practices. But his efforts to make
25 gold from lead are met with failure. The implicit concession on Ruehle’s
part—that the information underlying the Equity Review and the lawsuits was
largely inseparable, if not one and the same—is detrimental, not helpful, to his
case. His admitted awareness that anything relating to the former would not be
held in confidence but rather shared with at least one third party destroys the
confidentiality essential to establishing the privilege as to both.
Ruehle attempts to raise an exception to the full disclosure of all factual
information, insisting that he anticipated the disclosure of only factual information
“that was not otherwise privileged information.” In other words, Ruehle now
asserts an expectation of confidentiality only over statements that he claims were
really given in confidence. He does not distinguish what those statements might be
in his blanket invocation of the privilege. This circular reasoning is, analytically
speaking, unpersuasive and cannot overcome the concrete evidence in the record
before us. Even supposing he subjectively believed that some of the information
he conveyed to the Irell lawyers was confidential, upon asserting the attorney-
client privilege Ruehle was obliged to distinguish which particular statements
should be afforded the privilege. He made no effort to do so before the district
court and fares no better on appeal. His testimony at the evidentiary hearing,
despite being held in camera at his request, due ostensibly to the sensitive subject
26 matter to be discussed, did not delve into the details of his substantive
contributions to the Equity Review and, frankly, entailed largely non-privileged
matters. We are left guessing as to what particular facts Ruehle purportedly
believed were disclosed in breach of confidence.
Ruehle’s position is, at bottom, that some nebulous portion of his
communications with Heitz and Lefler was intended to be confidential as to him
personally and therefore everything said or not said to the attorneys should be
protected by his individual attorney-client privilege. That is not the law nor, in our
view, should it be. Having failed to better articulate his expectations regarding the
scope of disclosure to Ernst & Young, he has failed to carry his burden with
respect to any and all factual information arising from the Equity Review.
Moreover, Ruehle’s argument runs squarely into the settled rule that any
voluntary disclosure of information to a third party waives the attorney-client
privilege, regardless of whether such disclosure later turns out to be harmful. See
3 Weinstein & Berger, supra, § 503.40. Ruehle freely and voluntarily disclosed
the information in June 2006 and did not mention an individualized privilege until
nearly two years later, after having sat in on the very meetings where his allegedly-
privileged information was disclosed. Ruehle’s assertion about his subjective
intent in 2006 cannot sustain his privilege claim when he has freely admitted that
27 the disclosure to Ernest & Young was planned. See Weil, 647 F.2d at 24 (holding
subjective intent not dispositive and privilege waived).
In sum, the overwhelming evidence demonstrates that Ruehle’s statements
to Heitz and Lefler were not “made in confidence” but rather for the purpose of
outside disclosure. Accordingly, we hold that Ruehle has failed to meet his burden
of establishing the existence of an individual attorney-client privilege with respect
to the information provided to the Irell attorneys in the June 2006 time frame.
IV
A considerable portion of the district court’s suppression order was
dedicated to recounting perceived violations of the California Rules of Professional
Conduct committed by Irell attorneys. This portion of the order, which relates to
possible disciplinary action by the state bar, is not before us on appeal. Ruehle,
however, asserts that clear breaches of professional duties warrant suppression in a
criminal prosecution. We disagree and reject this novel argument, which stands
apart from the attorney-client privilege determination.9
“[A] state rule of professional conduct cannot provide an adequate basis for
9 At the evidentiary hearing, Ruehle’s counsel acknowledged that suppression was not a remedy for a breach of counsel’s duty of loyalty. Ruehle reversed course and argued otherwise in his briefs on appeal. He appears to have abandoned the position at oral argument.
28 a federal court to suppress evidence that is otherwise admissible.” United States v.
Lowery, 166 F.3d 1119, 1124 (11th Cir. 1999); accord United States v. Keen, 508
F.2d 986, 989 (9th Cir. 1974) (“[E]vidence obtained in violation of neither the
Constitution nor federal law is admissible in federal courts, even though obtained
in violation of state law.” (citations omitted)). To be clear, in some cases, material
protected by the attorney-client privilege may come to light as a result of counsel’s
breach of a duty of confidentiality. But it is the protected nature of the information
that is material, not the ethical violation by counsel. See Int’l Bhd. of Teamsters,
119 F.3d at 217 (holding that an individual could not assert individual privilege
even though the law firm failed to clarify that it represented only his employer, in
violation of state rules of professional responsibility).
Contrary to Ruehle’s contention, United States v. Rogers, 751 F.2d 1074
(9th Cir. 1985), provides him no support. As the government correctly
distinguishes it, Rogers involved government misconduct in acquiring evidence.
Id. at 1079 (holding that a federal agent’s “inducement of a violation of an ethical
obligation of confidentiality . . . does not warrant dismissal of an indictment”
where suppression is a possible remedy with respect to the improperly obtained
evidence). Read properly, that case supports the government’s position that the
suppression order was in error. Id. at 1077 (“The attorney-client privilege is an
29 evidentiary rule designed to prevent the forced disclosure in a judicial proceeding
of certain confidential communications between a client and a lawyer.”). There
has been no allegation that the government encouraged, was complicit in, or was
even aware of, any breach of ethical obligations on Irell’s part. It learned of the
information only after Broadcom made an intentional disclosure to the government
in response to regulatory inquiries as evidence of the company’s good faith efforts
to comply with its financial reporting obligations. Irell’s allegedly unprofessional
conduct in counseling Broadcom to disclose, without obtaining written consent
from Ruehle, while troubling, provides no independent basis for suppression of
statements he made in June 2006.
V
The district court erred in forbidding the United States from calling Irell
attorneys to testify to the information they learned from Ruehle in June 2006.
Consistent with his admitted understanding that Broadcom would fully disclose
what Irell learned as part of the Equity Review to Ernst & Young, Ruehle lacks an
expectation of confidentiality to support a blanket invocation of his individual
attorney-client privilege over all factual information he provided.10
10 We stress that our holding today should not be interpreted as carte blanche approval of all foreseeable testimony by the Irell attorneys as we read the proffer (continued...)
30 The district court’s order suppressing the Irell evidence is reversed and the
matter is remanded for trial.
REVERSED and REMANDED.
10 (...continued) summarized in the FBI Form FD-302 reports. The district court remains responsible for determining the admissibility of any testimony that may extend beyond factual information, and, to the extent consistent with our opinion, appropriate evidentiary objections, of course, remain viable.
31 COUNSEL
Daniel B. Levin (argued), Gregory W. Staples, Andrew D. Stopler, United States Attorney’s Office, Los Angeles, California; Robb C. Adkins, United States Attorney’s Office, Santa Ana, California; Thomas P. O’Brien, United States Attorney, for Plaintiff-Appellant United States of America.
Matthew D. Umhofer (argued), Richard Marmaro, Matthew E. Sloan, Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California, for Defendant- Appellee William J. Ruehle.