Circuit Court Reverses Decision Critical of Irell & Manella, but Lawyers Should Not Breathe Easy

November 4, 2009

The May 6, 2009, “Privilege Point” (United States v. Nicholas, 606 F. Supp. 2d 1109 (C.D. Cal. 2009)) described a district court decision criticizing Irell & Manella for disclosing a corporate executive client’s confidences to the government in an effort to help another firm client (Broadcom). The Ninth Circuit has reversed the lower court’s decision, but reiterated the basic principles that should guide every corporate lawyer’s actions.

In United States v. Ruehle, No. 09-50161, 2009 U.S. App. LEXIS 21450, at *9 n. 3, *27, *38, *38 n.10 (9th Cir. Sept. 30, 2009), the court (1) found that Irell & Manella had represented both Broadcom and its former CFO Ruehle in connection with possible option backdating; (2) agreed with Ruehle that Irell & Manella had not provided the proper Upjohn warning to Ruehle, despite the lawyers’ contrary claims (pointedly noting that the Irell lawyers “took no notes nor memorialized their conversation on this issue in writing”); (3) held that the district court had improperly applied California law rather than federal law to the privilege question (meaning that the district court might have been upheld if it had made the same findings under the federal standard); (4) noted that Ruehle “was no ordinary Broadcom employee” because he knew that Irell & Manella was sharing information with Broadcom’s auditor Ernst & Young (a fact that will not be present in most situations involving law firms representing both corporations and executives); (5) labeled as “troubling” Irell’s “allegedly unprofessional conduct”; (6) emphasized that “our holding today should not be interpreted as carte blanche approval” of Irell lawyers’ testimony about their communications with Ruehle (implying that Irell’s proffer to the FBI might have included impermissible disclosures).

Law firms can avoid nightmares like this by explaining at the beginning of any joint (or separate but related) representations how the law firm will handle the communication flow, and how it will address any adversity that arises among the clients.