When companies are in the middle of big deals – say a massive merger between a New York investment bank and a Southern-based national bank occurring over a long and frenzied weekend – it’s of course common for attorneys to be around.
This is not only to draft the documents and opine about what must be disclosed. Sometimes it is just to sit in on conversations in case legal advice is needed, with the hope of keeping internal and sensitive discussions behind the wall of privilege.
But, as a 9th Circuit opinion released yesterday reminds us, it’s important to remember that just because you are talking to your attorney about a delicate subject does not mean it’s privileged.
Former Broadcom CFO William Ruele was heavily involved in a backdating investigation occurring at the company in 2006 (a time when countless such internal stock backdating investigations were occurring). Broadcom hired the law firm Irell & Manella to assist its internal investigation and report to outside auditors Ernst & Young.
Ruele talked to Irell, Irell passed along information to EY. The SEC eventually became involved and Ruele and a Broadcom co-founder were indicted on charges relating to secretly backdating options grants. Ruele objected to the government’s use of information obtained from his conversations with Irell, claiming it was privileged.
The 9th Circuit’s opinion basically says, “No way.” Ruele knew when he was talking to the attorneys that they would be passing the information along to EY, and there is no accountant/client privilege.
One of the requirements to trigger attorney-client privilege is that the client expects the information will be kept secret. And here, Ruele knew it would be passed along.
In hindsight a case like this seems simple. But often when clients are sitting down with their counsel, and because the privilege is usually (recent ill-advised Congressional demands of BofA notwithstanding) such a highly respected tenet of the legal relationship, it’s easy to forget the attorney in the chair must be acting in her capacity as one and that you think the information you are sharing will not be shared with anyone else.
Yesterday’s ruling provides a nice “note to self.”
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