Firm Faces Disciplinary Action for Disclosures

(CN) - A prominent entertainment law firm in Southern California has been referred to the state bar for potential disciplinary action after a judge ruled it violated attorney-client privilege by disclosing potentially damaging information to third parties, including the federal government, which has exposed the client to a potential lengthy prison sentence.

In May 2006 the firm of Irell & Manella undertook to represent a company called Broadcom Corp. and its chief financial officer, William Ruehle. Specifically, the firm represented Broadcom in connection with the company's internal investigation of its stock option granting practices. At the same time, Irell also represented Ruehle personally in connection with two shareholder lawsuits filed against him relating to those same stock option granting practices.

In June of 2006 Irell lawyers Kenneth Heitz, and Daniel Lefler interviewed Ruehle about Broadcom's stock option granting practices. The Irell lawyers did not inform Ruehle they were acting in their capacity as Broadcom's attorneys, and not as his own personal attorneys, during the interview.

Several days after the interview the Securities and Exchange Commission launched an investigation into Broadcom's stock option granting practice. Two months later, in August 2006, Irell disclosed the substance of Ruehle's interviews to Broadcom's outside auditors Ernst & Young. Irell then disclosed the same information to the SEC and the United States Attorney's Office.

Ruehle first learned that his interview statements had been turned over to the government in December 2008, as part of the government's prosecution of Ruehle for securities violations. Ruehle promptly objected to the disclosures.

Judge Cormac Carney of the Central District ordered suppression of the statements made by Ruehle during the interview, and referred Irell & Manella to the California Bar for discipline.

"The existence of an attorney-client relationship hinges upon the client's belief that he is consulting a lawyer in that capacity and his manifested intention to seek professional legal advice. There is no serious question in this case that when Mr. Ruehle met with the Irell lawyers on June 1, 2006, Mr. Ruehle reasonably believed that an attorney-client relationship existed, he was communicating with his attorneys in the context of this relationship for the purposes of obtaining legal advice, and that any information he provided to Irell would remain confidential.

"Prior to his initial meeting with the Irell lawyers, Mr. Ruehle received an email from Broadcom's general counsel Mr. [David] Dull, on which an Irell litigation partner was copied, confirming that Irell would be representing him personally in both litigations [then facing the company]. In the days leading up to their June 1, 2006 interview, the Irell lawyers frequently updated Mr. Ruehle on the progress of their investigation of the stock option practices at Broadcom. But more than mere progress reports, Mr. Heitz discussed his strategy for defending the corporation and its directors and summarized the fact-finding that would be necessary to support that strategy.

"In these emails, which were sent to Mr. Ruehle individually as opposed to the entire board of directors, Mr. Heitz asked Mr. Ruehle to review and obtain specific information and advised him how this information would be relevant to preparing a defense.

"The evidence establishes that Mr. Ruehle had a reasonable belief that an attorney-client relationship existed prior to his initial interview with the Irell lawyers on June 1, 2006.

"The most fundamental aspect of the attorney-client relationship is the duty of undivided loyalty owed by a lawyer to his client, and ultimately all of the ethical rules are derived from this fundamental principle.

"In this case, Irell committed at least three clear violations of its duty of loyalty to Mr. Ruehle. First, Irell failed to obtain Mr. Ruehle's informed written consent to Irell's simultaneous representation of Mr. Ruehle individually on the one hand and Broadcom in its internal investigation on the other hand.

"Second, Irell breached its duty of loyalty to Mr. Ruehle, a current client, by interrogating him for the benefit of another client, Broadcom. Finally, Irell disclosed Mr. Ruehle's privileged communications to third parties without his consent.

"Irell's ethical breaches of the duty of loyalty are very troubling. The government's case against Mr. Ruehle is a serious one, and Mr. Ruehle faces a significant prison sentence if convicted on all counts charged in the indictment. It must be disconcerting to Mr. Ruehle to know that his own lawyers at Irell disclosed his confidential and privileged information to the government. And now the court has had to intervene and suppress relevant evidence in the government's case against Mr. Ruehle.

"Suppressing relevant evidence is obviously not helpful to the government but more importantly it hinders the adversarial process and the jury's search for the truth. Irell should not have put the parties and the court in this position.

"The Rules of Professional Conduct are not aspirational. The court is at a loss to understand why Irell did not comply with them here. Because Irell's ethical misconduct has compromised the rights of Mr. Ruehle, the integrity of the legal profession, and the fair administration of justice, the court must refer Irell to the state Bar for discipline.

"Mr. Ruehle, the government, and the public deserve nothing less."

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