White Collar: U.S. Court Suppresses Evidence Based on Attorney Misconduct

A U.S district court in Los Angeles suppressed incriminating statements made by a defendant in a prosecution alleging impropriety in a company's granting of stock options. In the case of U.S. v. Ruehle, et al., the court found that the attorneys representing Broadcom Corporation and its CFO William Ruehle had violated the attorney client privilege. As a result, the court suppressed statements of Ruehle that the government wished to offer in evidence.

The court found that in May 2006, particular attorneys at the law firm Irell & Manella had undertaken three linked representations of Broadcom and its CFO. These representations included two shareholder suits alleging impropriety in the granting of stock options. The representation in these two suits included the personal representation of Ruehle. The third representation was in internal corporate investigation into the granting of such stock options, undertaken for the corporate entity, Broadcom. The court pointed out that the subject matter of the three representations, the granting of stock options, inexorably linked the three investigations.

As part of its internal investigation, Irell attorneys interviewed Ruehle. The attorneys claim that they provided an Upjohn warning before this interview. An Upjohn warning advises a member of an organization that the attorney represents the organization and not the member. Most importantly, the warning informs the organization member that the attorney client privilege applies to the organization and not to the member. Therefore, the organization may disclose the member's statements to third parties without obtaining consent.

The court held that an Upjohn warning was insufficient under the facts of the case. Because Irell represented Ruehle in a matter in which his interests were adverse to the Broadcom investigation representation, the court determined that Irell had to obtain written consent from Ruehle for disclosures to third parties. Because the attorneys failed to obtain such consent, the court ruled that disclosure to third parties, including the government, was a breach of the attorney client privilege. Therefore, the court suppressed Ruehle's statements at trial.

The court pointed out that Irell was defending Irell from the allegations made against him in the civil suit. At the same time, the attorneys knew that evidence uncovered in its internal investigation from an interview of Ruehle might prove adverse to him. If the attorneys wanted to turn over incriminating evidence against one of its clients, they had to obtain a written conflict of interest waiver. The attorneys failed to do so. As a result, the court suppressed the statements and referred the matter to the California State Bar for possible disciplinary action against the attorneys.

Perhaps the most interesting aspect of this case is that, at least initially, the most significant blow is being suffered by the government. The court's opinion makes no mention of any possible wrongful actions by the government attorneys or investigators. Nevertheless, the government suffers suppression of its important evidence based on the purportedly improper conduct of attorneys representing the target corporations and individual.

The government is appealing the order to the Ninth Circuit Court of Appeals. However, a few lessens may be drawn from this matter. First, the government is likely to look far more closely at the process of internal investigations to ensure against suppression of evidence generated by such investigations. Second, internal investigations are best handled by independent law firms that do not have ongoing business relationships with the entity under investigation. And three, internal investigations should only be undertaken by those with experience conducting criminal investigations. It is not an area for the novice.

Finally, I will keep watch to see how the appellate court handles this case.