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Key Federal Ruling on Attorney-Client Privilege
A recent ruling from the Ninth Circuit clarifies the circumstances that will shield a confidential attorney-client discussion from disclosure in litigation. The case is United States v. Ruehle, ___ F.3d ___, 2009 WL 3152971 (Sept.30, 2009), which involved the options backdating scandal at publicly traded Broadcom Corporation. During an internal investigation of the backdating problem, the company’s chief financial officer (Ruehle) met with outside counsel. In the course of those discussions, the CFO discussed many aspects of what occurred at the company. He knew at the time that the attorneys were gathering facts for the company’s outside auditors. After indictments issued, a dispute arose between the CFO and the United States Attorney as to whether the statements he made to outside counsel were privileged and therefore not discoverable. The trial judge held that the attorney-client privilege protected the CFO’s statements. The Ninth Circuit reversed, noting that an eight-part test governs the issue. The attorney-client privilege applies: (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. The purpose of the privilege is to protect confidential discussions between clients and their attorneys, to help insure the free flow of sensitive information. In Ruehle, the CFO foundered on the fourth element of the 8-part test: he knew his statements to outside counsel during the investigation were not truly “confidential” because it was readily apparent (and the CFO admitted he knew) that the lawyers were going to pass their findings along to the company’s outside auditors who were also part of the investigation. The Ninth Circuit made clear that in federal court the burden is on the person claiming the privilege to establish all of these elements. “A party asserting the attorney-client privilege,” said the appellate panel, “has the burden of establishing the relationship and the privileged nature of the communication.” In state court proceedings, a different approach would govern, as California has adapted a statue that establishes a presumption that all statements made in the context of an attorney-client relationship are presumed to be confidential and therefore protected (see Evidence Code section 917(a)). In state court, the burden is on the third party seeking to pierce the attorney-client privilege to prove that it does not apply. Whether in state or federal court, problems can arise when there is "joint" representation. That is, when a lawyer may represent both the company and the executive. In such situations, it is helpful to clarify the relationship in writing, specifying who the “client” is and also clarifying the parties’ intent with respect to the confidential nature of the discussions.