A former U.S. Attorney told us a few years ago: “The Justice Department has found a way to subcontract out its FCPA investigations. Now the company lawyers are taking the statements and doing the document work. It’s great for the government but really bad for the employees.”
The government’s practice is now at the center of two securities-related prosecutions. As the Law Blog reported here, Los Angeles federal district court judge Cormac Carney has suppressed most of the government’s evidence against the former CFO of Broadcom, William Ruehle. The company waived the privilege and released his statements, even though he thought the lawyers representing Broadcom were also representing him.
In suppressing Ruehle’s statements to Irell & Manella, the judge couldn’t have been clearer. He said:
The Government now argues that it can use Mr. Ruehle’s statements to the Irell lawyers against him at the trial in this criminal case. The Government is mistaken. Mr. Ruehle’s statements to the Irell lawyers are privileged attorney-client communications. Mr. Ruehle reasonably believed that the Irell lawyers were meeting with him as his personal lawyers, not just Broadcom’s lawyers. Mr. Ruehle had a legitimate expectation that whatever he said to the Irell lawyers would be maintained in confidence. He was never told, nor did he ever contemplate, that his statements to the Irell lawyers would be disclosed to third parties, especially not the Government in connection with criminal charges against him. Irell had no right to disclose Mr. Ruehle’s statements, and Irell breached its duty of loyalty when it did so. Accordingly, the Court must suppress all evidence reflecting Mr. Ruehle’s statements to the Irell lawyers regarding stock option granting practices at Broadcom.
The judge then went further, saying:
The Court must also ensure the fair administration of justice and promote the public’s confidence in the legal profession. By failing to comply with its duties under the Rules of Professional Conduct, Irell compromised these important principles. The Court simply cannot overlook Irell’s ethical misconduct in this regard and must refer Irell to the State Bar for appropriate discipline.
The LawBlog said a spokesman for Irell & Manella, Charles Sipkins, called the judge’s ruling an “error” and said all of the law firm’s disclosures were proper. The government, the Law Blog said, is planning to appeal.
A similar issue has surfaced in the government’s prosecution for obstruction of justice of Allen Stanford’s chief investment officer, Laura Pendergest-Holt. The evidence includes statements she made in sworn testimony to the SEC. During that testimony, a lawyer from Proskauer Rose, Thomas Sjoblom, was present. He said he represented Stanford and officers and directors of his affiliated companies. But Pendergest-Holt says she believed he represented her personally. Now she’s suing Sjoblom for malpractice, negligence and breach of fiduciary duty. The Law Blog’s report is here. No doubt she’ll raise the same issues at her criminal trial.
In a typical FCPA investigation, those giving statements to the company’s lawyers probably don’t know all the relevant facts — the investigation is ongoing, after all. They can’t possibly understand the implications of their words, have no idea their statements might end up outside the company, don’t receive help from lawyers representing them, and probably don’t even know they should have their own counsel.
And it gets worse. According to the 33 former U.S. Attorneys who wrote to Senator Patrick Leahy last year, some recent cases show that employees “can be prosecuted for making false statements to the government, even though the statements were made only to company counsel.”
When threats of indictment are used to force corporations to become part of the prosecution, individual employees don’t stand a chance. This aspect of the government’s win-at-all-costs approach to white collar prosecutions isn’t justice, and it has nothing to do with corporate compliance.
Download the trial court’s April 1, 2009 Order Suppressing Privileged Communications in US v. Henry T. Nicholas III and William J. Ruehle et al here
The implication of this post, and frankly, of all the coverage I have seen of this case, is that all outside counsel who conduct interviews are hiding the ball about who is truly the client. That is absurd. For many years, responsible outside counsel conducting internal investigations have been providing Upjohn warnings to avoid exactly this problem. This ruling is nothing new — it simply points the finger at attorneys who (allegedly) did not adhere to what has been a long-held standard of a sophisticated internal investigations practice. Moreover, to imply that DOJ routinely encourages this type of behavior in its FCPA cases is irresponsible and inaccurate.
Another important point is that, often times, the employees are foreign nationals working in their home countries. They have little understanding of the US legal system and the possibility that they can incriminate themselves by speaking to their “own” lawyers, be extradited, and put in a US jail is beyond all comprehension.
If anyone would like to post more detailed comments rebutting any suggestions in the original post, please let us know. We’ll devote whatever space is needed to present a fair picture of the issue.
The Broadcom ruling is notable because it seems to appear to require some kind of written acknowledgement from each employee interviewed that he or she was given the Upjohn warnings and understood them. That certainly has not been standard internal investigation practice. The ABA has a task force on Upjohn Warnings that is supposed to release a report soon with best practices going forward.
The significant difference in the Ruehle case, as we noted more than a week ago in our post at The American Lawyer’s Litigation Daily, is that Irell had a pre-existing client relationship with Ruehle, whom the firm was representing as an individual defendant in a securities case. The judge felt Irell owed Ruehle a particular duty because it was already his personal counsel at the time the internal investigation began.
The ruling doesn’t really say Upjohn warnings have to be written, it says there was no written evidence of Upjohn being given and Ruehle didn’t recall being given Upjohn. What needed to be in writing was the waiver of the conflict – there was an attorney/client relationship between Ruehle and Irell separate from the Broadcom investigation. The Court states:
“[T]he Court has serious doubts whether any Upjohn warning was given to Mr. Ruehle. Mr. Ruehle did not remember being given any warning, no warning is referenced in Mr. Lefler’s notes from the meeting, and no written record of the warning even exists….
Perhaps most critically, however, whether an Upjohn warning was or was not given is irrelevant in light of the undisputed attorney-client relationship between Irell and Mr. Ruehle. An Upjohn warning is given to a non-client to advise the employee that he is not communicating with his personal lawyer, no attorney-client relationship exists, and any communication may be revealed to third parties if disclosure is in the best interest of the corporation. Here, Mr. Ruehle was represented by Irell in litigations related to the identical subject matter as Irell’s internal investigation on behalf of Broadcom. An oral warning, as opposed to a written waiver of the clear conflict presented by Irell’s representation of both Broadcom and Mr. Ruehle, is simply not sufficient to suspend or dissolve an existing attorney-client relationship and to waive the privilege. An oral warning to a current client that no attorney-client relationship exists is nonsensical at best-and unethical at worst.”
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