Ethics for In-House
Counsel
Real-Life, Cutting-Edge Issues
from Today’s Headlines
Presented By:
David Maggiore-Anet, Esq.
Corporate Legal Consultant
December 9, 2010
For Educational Purposes Only
David Maggiore-Anet, Esq.
David Maggiore-Anet, Esq. is a Corporate Legal Consultant with LexisNexis. As
a consulting attorney, Mr. Maggiore-Anet works exclusively with corporate legal
departments and their related business units to help them identify and meet their
legal and business information needs. In addition, Mr. Maggiore-Anet is a
member of LexisNexis’ National Faculty Team, conducting substantive CLE
courses for Fortune 500 legal departments and a variety of organizations,
including the Association of Corporate Counsel, Los Angeles County Bar
Association, Orange County Bar Association, American Bankers’ Association,
and California Bankers’ Association.
Prior to joining LexisNexis in 2003, Mr. Maggiore-Anet practiced law for five
years at the Los Angeles and San Diego offices of Littler Mendelson, the largest
law firm in the United States engaged exclusively in the practice of employment
and labor law on behalf of employers. As an attorney, Mr. Maggiore-Anet
litigated numerous cases in federal and state court, and counseled and made
presentations to employers regarding a wide range of employment law issues.
Mr. Maggiore-Anet received his B.A. in Political Science from the University of
California, Santa Barbara and his J.D. from the University of San Diego.
david.maggiore-anet@lexisnexis.com / (951)-296-1701
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CORPORATE COUNSEL SOLUTIONS
HEADLINE #1
“Why Do Lawyers In Companies Believe They
Hold Higher Moral Standards Than Other
Employees?”
Legal Ethics
• In-house counsel are governed by:
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State professional rules
State Bar rules
ABA Model Rules
State laws
Federal laws
Case law
Legal Ethics
• In-house counsel must navigate
multiple relationships:
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Legal department
The government
Corporate officers
Outside counsel
Opposing counsel
Roles Viewed Differently
• Zealous advocate
– “[A]n advocate, in the discharge of his duty, knows
but one person in all the world, and that person is
his client.” (Lord Henry Brougham)
• Truth seeker
– “The world has its fling at lawyers sometimes, but
its very denial is an admission. It feels, what I
believe to be the truth, that of all secular
professions this has the highest standards.” (Oliver
Wendell Holmes, Jr.)
In-House Counsel
As “Gatekeepers”
“The notion that lawyers, and especially
corporate counsel, are expected to serve as
“gatekeepers,” protecting the public and
investors against wrongful actions of their
clients, is being supported by efforts to
impose personal liability, both civil and
criminal, on corporate counsel when they
are perceived as falling short of that goal.”
“ACC Reports – In-House Counsel in the Liability Crosshairs”
(Sept 2007)
Purdue Pharma
• GC Howard Udell pleads guilty to federal crime of
misbranding
– Company wrongly claimed that OxyContin was less addictive, less
subject to abuse, and less likely to cause withdrawal symptoms than other
pain medications
– Company avoided criminal charges by agreeing to pay $634.5 million in
restitution and penalties
– GC and 2 execs pled guilty to criminal misdemeanor (in exchange for no
jail time) for failing to prevent, detect or correct federal drug violations
• Strict liability for responsible corporate officers - proof of misconduct not
necessary
– GC ordered to pay $8 million in past comp for role in the false marketing
– GC sentenced to probation / 400 hrs of community service w/ a drug
abuse treatment program
– Dept of Health and Human Services debarred execs from working at
companies that do business with federal agencies for 12 years
Tenet Healthcare
• DOJ files civil suit against former GC Christi Sulzbach
– Alleges that she knowingly allowed one of Tenet’s hospitals to submit
fraudulent bills to Medicare
– After executive brought it to her attention, GC wrote internal memo to
CEO asking for the situation to be rectified - but she continued to
submit certifications to the Government that the company was in
complete compliance with all legal requirements, even though it was not
– Government claims that GC should be held to an even higher standard
b/c she also headed company’s corporate integrity program
– Complaint states that GC was “personally responsible for investigating
any alleged violations by Tenet employees of any federal program legal
requirements, and for reporting to the government the existence and
status of any such investigation”
– Trial was set for mid-2010 - could have been liable for up to $31.5
million in damages – but judge dismissed case based on statute of
limitations (government likely to appeal)
New Century Financial
• GC Terry Theologides
– Once nation’s second largest subprime mortgage lender
– Filed for bankruptcy in 2007 - Bankruptcy examiner conducted analysis
– In 2004, GC wrote memo warning senior managers about the high risk of
subprime mortgages
• “We should not be making loans where the inability to refinance after
two years leaves the borrower at very high risk of default.”
– GC continued to be member of senior management group that decided to
keep offering risky loans / also sat on compliance committee
– Report also blames O’Melveny & Myers (lack of proper process &
cooperation in investigation) and KPMG (improper accounting)
– “New Century was clearly in a situation where the lawyers raised
some of the right questions but never followed through, never pushed
hard.”
– December 2009: SEC filed civil fraud case against former CEO / CFO /
Controller alleging they concealed info that company’s subprime
mortgage business was at risk of collapse
Whistleblower Protection
for In-House Counsel
• General Dynamics Corp. v. Superior Court, 7 Cal. 4th
1164 (1994)
– Facts
• In-House Counsel (Andrew Rose) in line to become GC
• Spearheaded investigation into employee drug use at plant
• Protested company's failure to investigate bugging of office of
chief of security – potential criminal conduct
• Raised possibility of potential violations of the Federal Fair Labor
Standards Act.
• Fired abruptly after 14 years with Company
– Holding
• Retaliatory discharge claim allowed where counsel discharged for
reasons that contravene mandatory ethical obligations
Whistleblower Protection
for In-House Counsel Outside
• Kidwell v. Sybaritic, 784 N.W.2d 220 (2010)
– Facts
• GC Brian Kidwell notified management re “pervasive culture of
dishonesty” - failed to investigate dishonest salespeople / allowed
employee to engage in unauthorized practice of medicine / failed to pay
CA taxes
• Management addressed issues but still terminated Kidwell 3 weeks later
• Jury awarded Kidwell $197K in damages
– Holding
• Jury award reversed b/c Kidwell merely fulfilling job duties – not
protected conduct under state whistleblower statute
HEADLINE #2
“Toyota's Worst Nightmare: Where Will
the Carmaker's Dispute With a Former InHouse Lawyer End?
Biller vs. Toyota Motor Sales
• Facts / Allegations
– Biller was former partner at Pillsbury Winthrop
– Hired by Toyota in 2003 as the National Managing Counsel in
charge of Toyota's National Rollover Program
– Key Toyota executives / in-house counsel conspired to unlawfully
withhold evidence from plaintiffs and obstruct justice in lawsuits
against it
– Repeatedly confronted executives / in-house counsel re need to turn
over evidence - told Toyota would not comply with its legal and
ethical duties
– Subjected to intimidation, harassment, and an uncertain future, both
at Toyota and elsewhere, as a result of his efforts to comply with
legal and ethical obligations
Biller vs. Toyota Motor Sales
• Facts / Allegations
– In June 2007, Biller suffered a complete mental
and physical breakdown as a result of Toyota's
campaign to quiet his efforts
– In September 2007, Biller had no other choice
but to resign b/c Toyota would not stop
concealing evidence
• Cites CA Rules of Professional Conduct 3-700 / 5220
– Forced to withdraw from representation and resign
Biller vs. Toyota Motor Sales
• CA Rule of Professional Conduct 5-220
– “A member shall not suppress any evidence that the
member or the member's client has a legal obligation to
reveal or to produce.”
• CA Rule of Professional Conduct 3-700
– A member “shall withdraw from employment,
if…[t]he member knows or should know that
continued employment will result in violation of these
rules or of the State Bar Act.”
Biller vs. Toyota Motor Sales
• CO Rule of Professional Conduct 3.4
– “A lawyer shall not: (a) unlawfully obstruct another party's
access to evidence or unlawfully alter, destroy or conceal a
document or other material having potential evidentiary
value. A lawyer shall not counsel or assist another person
to do any such act.”
• CO Professional Conduct Rule 1.16
– “[A] lawyer shall not represent a client or, where
representation has commenced, shall withdraw from the
representation of a client if: (1) the representation will
result in violation of the Rules of Professional Conduct or
other law.
Biller vs. Toyota Motor Sales
• Facts / Allegations
– Shortly after his resignation, Biller claimed “constructive wrongful
discharge”
– Parties ultimately settled - without having filed a lawsuit - for $3.7
million
– Severance agreement included confidentiality clause, nondisparagement clause, liquidation of damages clause (250K for each
violation) & arbitration clause
– Biller certified that he returned all confidential documents to Toyota
– In January 2008, Biller claimed defamatory statements were made
by in-house counsel Alicia McAndrews
– In April 2008, parties entered into a second settlement agreement
whereby new GC Christopher Reynolds wrote letter of
recommendation for Biller
Biller vs. Toyota Motor Sales
• Facts / Allegations
– Later in 2008, Biller started own litigation, discovery
and trial consulting company – LTD Consulting – and
created website with Toyota endorsement and info
– In 2009, Toyota filed complaint / TRO in LA Superior
against Biller / LTD for violating confidentiality clause
in severance agreement
– In May 2009, Biller hired by LA County District
Attorney’s Office as Deputy District Attorney I – but
terminated just a few months later
– Biller then filed suit against DA’s office for wrongful
discharge / violation of ADA - claims fired after
complaining about Sheriff Deputies not appearing for
hearing
Biller vs. Toyota Motor Sales
• Facts / Allegations
– In July 2009, Biller filed suit in federal district court in CA
against Toyota and 6 in-house attorneys (including current and
former GCs)
• Alleged violation of Civil Racketeer Influenced Corrupt Organization
Act, constructive wrongful termination in violation of public policy,
and intentional infliction of emotional distress
– Claims confidentiality clause in severance agreement
unenforceable
• Suffering from major depression and heavily medicated when agreed to
those terms
• Confidentiality clause is illegal and against public policy b/c being used
to silence Biller and conceal evidence
– In late 2009, both suits forced into single arbitration
Biller vs. Toyota Motor Sales
• Toyota’s statement
“We are disappointed that Mr. Biller has elected
to file this lawsuit in an attempt to avoid what
we believe are his obligations as an attorney
formerly employed by Toyota. In our view, Mr.
Biller has repeatedly breached his ethical and
professional obligations, both as an attorney and
in his commitments to us, by violating attorneyclient privilege in defiance of a court restraining
order that Toyota obtained against him.”
Attorney-Client Privilege
• Oldest common law privilege re confidentiality
• Encourages full and frank communications
between attorneys and their clients
– Upjohn Co. v, U.S. 449 U.S. 383, 389 (1981)
• Since 1915, the Supreme Court has recognized
that corporations may assert the attorney-client
privilege
– U.S. v. Louisville & Nashville R. Co., 236 U.S. 318
(1915)
Attorney-Client Privilege
• Elements of the privilege are:
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Where legal advice of any kind is sought
From a professional legal advisor in that capacity
The communications relating to that purpose
Made in confidence
By the client
Are at his instance permanently protected
From disclosure
Except the protection may be waived
Duty of Confidentiality
•
CA Business & Professions Code section 6068
–
It is the duty of an attorney to do all of the following:
(1) To maintain inviolate the confidence, and at every peril to
himself or herself to preserve the secrets, of his or her client.
(2) Notwithstanding paragraph (1), an attorney may, but is not
required to, reveal confidential information relating to the
representation of a client to the extent that the attorney
reasonably believes the disclosure is necessary to prevent a
criminal act that the attorney reasonably believes is likely to
result in death of, or substantial bodily harm to, an
individual.
Crime-Fraud Exception
To Attorney-Client Privilege
• CA Evidence Code 956
– There is no privilege under this article if the
services of the lawyer were sought or obtained
to enable or aid anyone to commit or plan to
commit a crime or a fraud
Duty of Confidentiality
•
CO Rule of Professional Conduct 1.6
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(a) A lawyer shall not reveal information relating to
the representation of a client unless the client gives
informed consent, the disclosure is impliedly
authorized in order to carry out the representation, or
the disclosure is permitted by paragraph (b).
Duty of Confidentiality
•
CO Rule of Professional Conduct 1.6
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(b) A lawyer may reveal information relating to the
representation of a client to the extent the lawyer
reasonably believes necessary:
(1) to prevent reasonably certain death or substantial
bodily harm;
(2) to reveal the client's intention to commit a crime and
the information necessary to prevent the crime;
(3) to prevent the client from committing a fraud that is
reasonably certain to result in substantial injury to the
financial interests or property of another and in
furtherance of which the client has used or is using the
lawyer's services;
Duty of Confidentiality
•
CO Rule of Professional Conduct 1.6
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(4) to prevent, mitigate or rectify substantial injury to the financial
interests or property of another that is reasonably certain to result or has
resulted from the client's commission of a crime or fraud in furtherance
of which the client has used the lawyer's services;
(5) to secure legal advice about the lawyer's compliance with these
Rules, other law or a court order;
(6) to establish a claim or defense on behalf of the lawyer in a
controversy between the lawyer and the client, to establish a defense to
a criminal charge or civil claim against the lawyer based upon conduct
in which the client was involved, or to respond to allegations in any
proceeding concerning the lawyer's representation of the client; or
(7) to comply with other law or a court order.
Waiving Attorney-Client
Privilege
• Who is the holder of privilege in a
corporation?
– "[T]he power to waive the corporate
attorney-client privilege rests with the
corporation's management and is normally
exercised by its officers and directors.”
– Commodity Futures Trading Com. v. Weintraub, 471
U.S. 343, 348 (U.S. 1985)
Revealing Client’s
Confidential Information
• General Dynamics Corp. v. Superior Court, 7 Cal. 4th 1164
(1994)
– “Members of corporate legal departments are as fully subject to
the demands of the privilege as their outside colleagues. It is
likely, however, that many of the cases in which in-house
counsel is faced with an ethical dilemma will lie outside the
scope of the statutory privilege.”
• Matters involving the commission of a crime or a fraud pursuant to
California Evidence Code section 956
• Circumstances in which the attorney reasonably believes that
disclosure is necessary to prevent the commission of a criminal act
likely to result in death or substantial bodily harm pursuant to
California Business & Professions Code section 6068
Revealing Client’s
Confidential Information
• General Dynamics Corp. v. Superior Court, 7 Cal. 4th 1164
(1994)
– “[A] concern for protecting the fiduciary aspects of the
relationship in the case of a client who confides in
counsel for the purpose of planning a crime or practicing
a fraud is misplaced; such disclosures do not violate the
privilege.”
Revealing Client’s
Confidential Information
• General Dynamics Corp. v. Superior Court, 7 Cal. 4th 1164
(1994)
– Judges can minimize dangers to the privilege
• Protective orders
• Sealed records
• In camera proceedings
• Limited admissibility of evidence
• Orders restricting use of testimony in successive proceedings
Revealing Client’s
Confidential Information
• General Dynamics Corp. v. Superior Court, 7 Cal. 4th 1164
(1994)
– In-house counsel still deterred from filing bad faith suits
• Plaintiff bears burden of establishing the unequivocal
requirements of the ethical norm at issue
• Disagreements over policy are not actionable
• Ethical norm at issue must be one that is intended for the
protection of the public at large
• Attorney who unsuccessfully pursues a suit against a client, and
in doing so discloses privileged client confidences, may be
subject to State Bar disciplinary proceedings
Consequences for Toyota
• Contempt proceedings in former lawsuit
– Pennie Green became a quadriplegic after rollover
• In 2007, settled case for $1.7 million
– In his complaint, Biller specifically alleged Green case as one
where evidence was wrongfully withheld
– TX Supreme Court ruled Green could seek contempt action
against Toyota for allegedly hiding evidence
– District court judge ordered Biller to turn over all documents
for his review
• Will determine whether Toyota should be held in contempt of court
and fined based on Biller's allegations
Consequences for Toyota
• Congressional Investigation
– Biller documents subpoenaed by House oversight
committee (Feb 2010)
• Demanded all docs related to safety and defects in litigation
• Toyota concerned that if House makes documents public, could
affect privilege due to loss of confidentiality
– Differing views on Biller documents
• Rep. Towns (D-NY)
– Documents provide evidence that Toyota deliberately withheld
evidence
• Rep. Issa (R-CA)
– Towns mischaracterizes documents
Consequences for Biller
• Potential disciplinary action
– In Toyota’s suit against Biller’s consulting company,
Biller referred to State Bar for possibly violating rules of
professional conduct by disclosing confidential attorneyclient info
– Distinguished Biller’s conduct in state suit from that in
federal court
• “Personal gain” vs. “protecting the public from danger”
Biller vs. Toyota Motor Sales
• Lawsuit pushes on through arbitration
– Biller’s lawyers (Allen & Wohrle) withdraw from case
• Lawyers cite “breakdown in the attorney-client relationship”
• Biller claims his lawyers wanted to settle and he insists on going
to trial – “I’m interested in getting a verdict and proving my case
and clearing my name”
– Arbitrator rules Biller can submit documents protected
by attorney-client privilege / confidentiality as evidence
• Applied crime-fraud exception
– Arbitration not confidential
• JAMS requires both parties to agree to confidentiality
ACC Position
• GC Susan Hackett
– “The rules are pretty darn clear," said general counsel
Susan Hackett, who emphasized that she's speaking
generally. “The lawyer doesn't own the right to
determine when the rules of confidentiality apply.” A
lawyer may be compelled by professional obligations to
report wrongdoing, and may even be justified in using
privileged documents. But that lawyer “can't introduce
attorney-client information gleaned during the course of
employment to make a case for remuneration.”
HEADLINE #3
“Truth and Consequences: The Fallout from
Qualcomm”
Ethical Obligations of Producing
Party: ABA Model Rules
• Model Rule 3.4: Obligation to not
obstruct discovery
– A lawyer shall not:
• 3.4(a) unlawfully obstruct another party’s access
to evidence or unlawfully alter, destroy or
conceal a document or other material having
potential evidentiary value. A lawyer shall not
counsel or assist another person to do any such
act; . . .
Ethical Obligations of Producing
Party: ABA Model Rules
• Comment to Model Rule 3.4
– 3.4(b) Subject to evidentiary privileges, the right of
an opposing party, including the government , to
obtain evidence through discovery or subpoena is an
important procedural right. The exercise of that
right cannot be frustrated if relevant material is
altered, concealed or destroyed . . .
– Paragraph 3.4(a) applies to evidentiary material
generally, including computerized information
Ethical Obligations of Producing
Party: Federal
• Federal Rule of Civil Procedure 26(g)
– Every disclosure…must be signed by at least one attorney of
record in the attorney's own name….By signing, an attorney
or party certifies that to the best of the person's knowledge,
information, and belief formed after a reasonable inquiry:
(A) with respect to a disclosure, it is complete and correct as
of the time it is made
– Comment
• Rule 26(g) does not require the signing attorney to certify the
truthfulness of the client's factual responses to a discovery
request. Rather, the signature certifies that the lawyer has made
a reasonable effort to assure that the client has provided all the
information and documents available to him that are responsive
to the discovery demand
Qualcomm vs. Broadcom
• Initial Facts
– In 2001, two industry organizations launch the Joint Video
Team (JVT) to create new standards for video compression
– In 2003, JVT releases its new standards for video compression
(used today in media like Blu-ray DVDs)
– In 2005, Qualcomm files patent infringement suit against
Broadcom pertaining to video compression technology
– Broadcom claims that Qualcomm participated in the JVT in
2002 and 2003 – and JVT participants holding patents
associated with the content of the standards cannot sue over
those patents
– Throughout the trial, Qualcomm insists that it did not
participate in the JVT before the release of the new standards,
and claims it was unable to find documentary evidence of any
such involvement
Qualcomm vs. Broadcom
• Concealing the “smoking gun?”
– During trial prep of a Qualcomm engineer (Ms. Viji Raveendran),
Qualcomm's outside counsel discovers 21 emails on her laptop
(which had not been previously searched) regarding a JVT "ad
hoc“ group in 2002
– Qualcomm's trial team decides that the emails are “not
responsive” to Broadcom's requests and does not disclose /
conducts no further investigation
– During cross examination at trial, Raveendran discloses the
existence of the 21 emails and that they had been searched for and
located during her trial testimony preparation
– Qualcomm later searches the email archives of five Qualcomm
witnesses (including Raveendran) for search terms such as “JVT”
and “Joint Video Team” and discovers over 46,000 additional
emails (200,000 total documents) that should have been produced
Qualcomm vs. Broadcom
• Jury returns unanimous verdict in favor of Broadcom
• Court ordered Qualcomm to pay $8.6 million for fees and
costs due to misconduct
• Court ordered Qualcomm to come up with a plan to
modify its case management and legal discovery process
• Court ordered 5 in-house Qualcomm lawyers to undergo a
“comprehensive” program for preventing future trial
abuses
• Qualcomm’s GC resigned
• In April 2009, Qualcomm paid $891M to settle all
disputes with Broadcom
Qualcomm vs. Broadcom
• 6 attorneys (5 from Day Casebeer / 1 from Heller Ehrman)
sanctioned and referred to the California State Bar for possible
ethics violations and disciplinary action
– During motion for sanctions, Qualcomm filed four declarations of
employees exonerative of Qualcomm and critical of the services
and advice of their retained counsel (none were filed under seal)
– Judge found that the attorneys “assisted Qualcomm in committing
this incredible discovery violation by intentionally hiding or
recklessly ignoring relevant documents…then used the lack of
evidence to repeatedly and forcefully make false statements and
arguments to the court and jury.”
• Day Casebeer and Heller Ehrman replaced as outside counsel
• In 2008, Heller Ehrman shut down and filed bankruptcy
• In 2009, Day Casebeer dissolves and joins Howrey LLP
Revealing Client’s
Confidential Information
•
CA Business & Professions Code section 6068
–
It is the duty of an attorney to do all of the
following:
(1) To maintain inviolate the confidence, and at every peril to
himself or herself to preserve the secrets, of his or her client.
(2) Notwithstanding paragraph (1), an attorney may, but is not
required to, reveal confidential information relating to the
representation of a client to the extent that the attorney
reasonably believes the disclosure is necessary to prevent a
criminal act that the attorney reasonably believes is likely to
result in death of, or substantial bodily harm to, an
individual.
Duty of Confidentiality
•
CO Rule of Professional Conduct 1.6
–
(b) A lawyer may reveal information relating to the representation of a
client to the extent the lawyer reasonably believes necessary:
(6) to establish a claim or defense on behalf of the lawyer in a
controversy between the lawyer and the client, to establish a defense to
a criminal charge or civil claim against the lawyer based upon conduct
in which the client was involved, or to respond to allegations in any
proceeding concerning the lawyer's representation of the client.
Self-Defense Exception to the
Attorney-Client Privilege?
• LACBA - Professional Responsibility and Ethics
Committee – Opinion No. 519 (2007)
– Under current California law, an attorney cannot, without
his or her former or present client's consent, disclose the
client's privileged communications with the attorney or the
client's confidential information, for the purpose of
defending allegations brought against the attorney by a
third party. No matter how critical the client's
information is to the lawyer's defense, there is no
statutory "self-defense" exception to the attorney-client
privilege or the lawyer's duty to maintain the
confidentiality of client information under Business and
Professions Code Section 6068(e).
Self-Defense Exception to the
Attorney-Client Privilege?
• LACBA - Professional Responsibility and Ethics
Committee – Opinion No. 519 (2007)
– In the absence of an explicit rule, the committee concludes
that so long as there is the potential for a conflict between
the attorney's interest in being able to use confidential
communications to mount a defense and the client's right to
keep such communications confidential, the
attorney…should follow the guidelines common to both
Rule 3-300 and Rule 3-400 and obtain the client or former
client's written informed consent.
The Qualcomm 6:
Self-Defense Exception
• District Court Magistrate – January 2008
– Sanctioned attorneys claim cannot present full defense b/c
Qualcomm refuses to waive attorney-client privilege
– “Court does not have access to all of the information
necessary to reach an informed decision regarding the
actual knowledge of the attorneys.”
BUT
– “If there is no sanction for the misconduct, then where is
the deterrence?”
The Qualcomm 6:
Self-Defense Exception
• District Court Judge overrules Magistrate –
March 2008
– “[Qualcomm] introduced accusatory adversity between
Qualcomm and its retained counsel regarding the issue of
assessing responsibility for the failure of discovery.”
– “The attorneys have a due process right to defend
themselves under the totality of circumstances presented in
this sanctions hearing where their alleged conduct
regarding discovery is in conflict with that alleged by
Qualcomm concerning performance of discovery
responsibilities.”
The Qualcomm 6:
Self-Defense Exception
• Outside counsel defend themselves
– “[A]ttorneys in Qualcomm’s legal department…failed
to provide critical information they had.”
– “Qualcomm paralegals did not search [engineering
group’s] archive established in 2002…”
– “[Outside counsel] asked the right people the right
questions at the right time and got wrong – no, false –
answers.”
The Qualcomm 6:
Self-Defense Exception
• Magistrate reverses sanctions (April 2010)
– “[T]here is still no doubt…that this massive discovery failure
resulted from significant mistakes, oversights, and
miscommunication on the part of both outside counsel and [the
plaintiff's] employees.”
– There were “ineffective and problematic interactions” between the
plaintiff's employees and most of the outside attorneys, and that the
attorneys “made significant errors to comply with their discovery
obligations.”
– “[A]n incredible breakdown in communication…permeated all of
the relationships," including plaintiff engineers and in-house legal
staff, between plaintiff employees and outside counsel, and
between outside counsel
– While “significant errors” were made by some of the attorneys,
there was insufficient evidence to prove “bad faith”
HEADLINE #4
“Hey, Don’t Look at Me: Broadcom’s Ex-GC
Says, Look, I Was Only On the Periphery”
Broadcom, Irell & Ruehle
• The Facts
– Beginning in 2002, Irell represented both Broadcom and CFO
William Ruehle personally in several securities-related actions
– In the course of that representation, Irell informed Ruehle in
writing of the potential conflicts inherent in dual representation
and obtained his written consent to proceed
– In May 2006, Broadcom retained Irell to investigate its stock
option granting practices after becoming aware it might be
investigated by the Government or sued for those practices
– Shortly thereafter in May 2006, shareholders filed derivative
action against Ruehle personally and other officers re stock
option granting practices
– Irell accepted representation of Ruehle (GC David Dull
confirmed) – but Irell never obtained his written consent to
dual representation
Duty of Loyalty
• CA Rule of Professional Conduct 3-600(E)
– A member representing an organization may also
represent any of its directors, officers, employees,
members, shareholders, or other constituents,
subject to the provisions of rule 3-310.
Duty of Loyalty
• CA Rule of Professional Conduct 3-310(C)
– A member shall not, without the informed written
consent of each client:
(1) Accept representation of more than one client in a
matter in which the interests of the clients potentially
conflict; or
(2) Accept or continue representation of more than one
client in a matter in which the interests of the clients
actually conflict
Duty of Loyalty
• CO Rule of Professional Conduct 1.13
– (g) A lawyer representing an organization may also
represent any of its directors, officers, employees,
members, shareholders or other constituents,
subject to the provisions of Rule 1.7.
Duty of Loyalty
• CO Rule of Professional Conduct 1.7
– (a) [A] lawyer shall not represent a client if the
representation involves a concurrent conflict of interest.
A concurrent conflict of interest exists if:
(1) the representation of one client will be directly
adverse to another client; or
(2) there is a significant risk that the representation of
one or more clients will be materially limited by the
lawyer's responsibilities to another client, a former client
or a third person or by a personal interest of the lawyer.
Duty of Loyalty
• CO Rule of Professional Conduct 1.7
– (b) Notwithstanding the existence of a concurrent conflict of
interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to
provide competent and diligent representation to each affected
client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by
one client against another client represented by the lawyer in the
same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in
writing.
Duty of Loyalty
• CO Rule of Professional Conduct 1.13
– (f) In dealing with an organization's directors, officers,
employees, members, shareholders or other constituents,
a lawyer shall explain the identity of the client when the
lawyer knows or reasonably should know that the
organization's interests are adverse to those of the
constituents with whom the lawyer is dealing.
Broadcom, Irell & Ruehle
• The Facts
– On June 1, 2006, 2 Irell lawyers interviewed Ruehle re stock
option granting practices
– Ruehle believed purpose of interviews to gather information in
preparation for civil litigation
– Irell lawyers claim they gave Ruehle an Upjohn warning,
intending to make clear that Broadcom – not Ruehle – was the
client and controlled the privilege
• Never told Ruehle they were not his lawyers / should consult
with another lawyer
• They did tell Ruehle that his statements could be shared with
outside auditor Ernst & Young – but did not say they could be
shared with the Government
Broadcom, Irell & Ruehle
• The Facts
– On June 13, 2006, SEC commenced investigation of stock
option granting practices at Broadcom
– Throughout June-July 2006, Ruehle continued to receive legal
advice from Irell
– In August 2006, Irell disclosed (at direction of Broadcom and
GC) substance of Ruehle’s interviews to outside auditor Ernst
& Young, SEC, and US Attorney’s Office - Ruehle never
consented to disclosures
– 2 years later, Ruehle found out statements were disclosed in
connection w/ Government’s criminal case against him
– Broadcom ultimately restated its earnings to account for extra
$2.2 billion in expenses due to stock option granting practices
– Ruehle’s criminal trial began in October 2009 - has pleaded not
guilty to 14 counts of fraud, conspiracy, falsifying Broadcom's
books and lying to auditors and securities regulators
US vs. Ruehle
(District Court)
• Ruehle’s statements to Irell are privileged and
cannot be used against him
– Attorney-client relationship existed between Irell and Ruehle
– Upjohn warning “woefully inadequate”
•
•
•
•
Never told Ruehle they were not his lawyers
Never told Ruehle to consult with another lawyer
Never told Ruehle statements could be shared w/ Government
Upjohn warning given to a non-client – not current client
“An oral warning to a current client that no attorney-client
relationship exists is non-sensical at best – and unethical at
worst”
US vs. Ruehle
(District Court)
• Irell committed 3 violations of duty of loyalty
to Ruehle
1) Irell failed to obtain Ruehle’s informed written
consent to dual representation
• When Irell accepted representation of Broadcom and
Ruehle, should have known that interests conflicted
and were adverse to each other
• If any wrongdoing, potential conflict - Broadcom
might contend that Ruehle was responsible for it and
acted without the knowledge and approval of the
company
US vs. Ruehle
(District Court)
• Irell committed 3 violations of duty of loyalty
to Ruehle
2) Irell interrogated Ruehle for the benefit of another
client
• Irell should not have interviewed Ruehle on behalf
of Broadcom alone
• Irell should have known Ruehle might provide
incriminating evidence about his role
• Irell should never have permitted and encouraged
Ruehle to disclose incriminating info about himself
without full knowledge of the consequences
US vs. Ruehle
(District Court)
•
Irell committed 3 violations of duty of
loyalty to Ruehle
3) Irell disclosed Ruehle’s privileged
communications to third parties without his
consent
•
•
Ruehle did not consent to any disclosures
Had Ruehle suspected that his statements would be
turned over to the Government in a criminal
proceeding, he never would have made them to Irell
US vs. Ruehle
(District Court)
•
Court referring Irell to State Bar for
discipline
–
–
–
“Irell’s ethical breaches of the duty of loyalty are
very troubling.”
“The Rules of Professional Conduct are not
aspirational. The Court is at a loss to understand
why Irell did not comply with them here.”
“Irell’s ethical misconduct has compromised the
rights of Mr. Ruehle, the integrity of the legal
profession, and the fair administration of
justice…”
US vs. Ruehle
(9th Circuit Reverses)
•
Ruehle’s statements to Irell not privileged
–
Statements were not “made in confidence” / should not be
suppressed
•
•
•
•
Ruehle admitted that he understood the fruits of Irell's searching
inquiries would be disclosed to outside auditor
As head of finance, Ruehle cannot credibly claim ignorance of the
general disclosure requirements with respect to its outside auditor
Ruehle's subjective shock and surprise about the subsequent usage
of the information – given to the government - is “frankly of no
consequence here”
“Irell's allegedly unprofessional conduct in counseling Broadcom
to disclose, without obtaining written consent from Ruehle, while
troubling, provides no independent basis for suppression of
statements he made in June 2006.” [emphasis added]
More Broadcom Woes
•
Derivative Lawsuit
–
–
•
Derivative suit settled for $118 million
19 Broadcom directors and officers (including
Ruehle) racked up legal tab of $130 million
Plea deal for co-founder Henry Samueli
struck down
–
Samueli pleaded guilty to lying to SEC in
exchange for probation / $12 million fine – but
District Court said NO
•
“The court cannot accept a plea agreement that gives
the impression that justice is for sale.”
More Broadcom Woes
•
Co-Founder / CEO Nicholas Awaiting Trial
–
Indictment for drug distribution
•
•
Over 9-year period, obtained and distributed ecstasy,
cocaine, and methamphetamine
SEC Civil Case
–
–
Against individual officers and General Counsel Dull
Claim they engaged in “a massive, five-year scheme
that involved fraudulent backdating of dozens of
option grants, falsifying corporate records,
intentionally false accounting and lying to
shareholders.”
Broadcom’s Luck
Turns Around
•
January 2010: Criminal / civil cases against all
executives (including Ruehle) dismissed
–
For alleged prosecutorial misconduct
•
•
Government allegedly threatened witnesses (including
GC) with perjury charges depending on their testimony
“This is probably the most significant case in the past
decade for the U.S. attorney in the Central District of
California - for the wrong reason, this national airing of
the allegations of prosecutorial misconduct.”
»
John C. Hueston, a former head prosecutor for the U.S.
attorney's office in Santa Ana
HEADLINE #5
“Hey Execs, Don’t Rest Easy, the Government
Is Getting…Tricky”
Under Investigation:
Waiving Attorney-Client Privilege
• Deputy Attorney General Thompson’s Memo
re “Principles of Federal Prosecution of
Business Organizations” (2003)
– “In conducting an investigation, determining whether to
bring charges, and negotiating plea agreements,
prosecutors should consider the following factors in
reaching a decision as to the proper treatment of a
corporate target:”
• “the corporation's timely and voluntary disclosure of
wrongdoing and its willingness to cooperate in the
investigation of its agents, including, if necessary, the waiver
of corporate attorney-client and work product protection”
(emphasis added)
Under Investigation:
Precarious Catch-22
• Option 1
– Disclose the results of your otherwise privileged
investigation to government, without a guarantee that
your company will avoid indictment
– Expose company to the risk of civil litigation by
waiving the attorney-client privilege as to those
documents turned over to the government
• Option 2
– Refuse to disclose privileged information to the
government and risk being labeled uncooperative,
which invariably increases the likelihood of being
indicted
Consequences of
Turning Over Privileged Info
• In re Syncor ERISA Litig., 229 F.R.D. 636 (C.D.
Cal. 2005)
– Disclosure of privileged documents to government
waived privilege as to plaintiff class
– Reasoning
• “[A] corporation should not be permitted to pick and
choose among its opponents, waiving the privilege for
some and resurrecting the claim of confidentiality to
obstruct others”
• “[T]here is absolutely no evidence demonstrating that the
disallowance of selective waiver would impede the
voluntary cooperation of a corporation with the
Government” (emphasis added)
Consequences of
Turning Over Privileged Info
• In re Qwest Communications, 450 F.3d 1179 (10th
Cir 2006)
– Disclosure of privileged documents to government
waived privilege as to plaintiff class
– Reasoning
• “the record in this case is not sufficient to justify adoption
of a selective waiver doctrine”
• “The record does not establish a need for a rule of
selective waiver to assure cooperation with law
enforcement, to further the purposes of the attorney-client
privilege or work-product doctrine, or to avoid unfairness
to the disclosing party.”
Attorney-Client Privilege
Protection Act
• Introduced by Senator Specter (D-Pa.)
– Re-introduced to Senate: February 2009 (S 445)
• Prohibits any U.S. agent or attorney from:
– (1) demanding or requesting that an organization
waive the protections of the attorney-client
privilege or attorney work product doctrine;
– (2) offering to reward or actually rewarding an
organization for waiving such protections; or
– (3) threatening adverse treatment or penalizing an
organization for declining to waive those
protections.
Proposed Changes to
Federal Sentencing Guidelines
• U.S. Sentencing Commission unanimously
passed amendments to Federal Sentencing
Guidelines re sentencing of organizations
– Submitted to Congress on April 29, 2010
– Effective on November 1, 2010
Proposed Changes to
Federal Sentencing Guidelines
• Organization convicted of crime may receive
reduced sentence if “effective compliance and
ethics program” in place at time of offense
– Exercise due diligence to prevent and detect criminal
conduct
– Promote organizational culture that encourages ethical
conduct and a commitment to compliance with the law
Proposed Changes to
Federal Sentencing Guidelines
• Minimum requirements
– Standards and procedures to prevent and detect
criminal conduct
– Communicate standards and procedures throughout the
organization, including through effective training
programs
– Process in place for confidential reporting of issues
– Regularly monitor effectiveness of program
Proposed Changes to
Federal Sentencing Guidelines
• Minimum requirements
– After criminal conduct detected, take reasonable steps
to respond appropriately to the criminal conduct and to
prevent further similar criminal conduct
– Appropriate disciplinary measures for engaging in
criminal conduct and for failing to take reasonable
steps to prevent or detect criminal conduct
– “High-level personnel” shall be assigned overall
responsibility
Proposed Changes to
Federal Sentencing Guidelines
• Per se disqualification from having an
“effective program” if “high-level
personnel” participated in, condoned, or
were willfully ignorant of the offense
Proposed Changes to
Federal Sentencing Guidelines
• Per se disqualification eliminated if 4 conditions met:
– Individual with “operational responsibility” for compliance
and ethics program has “direct reporting obligations” to
board of directors or appropriate committee of the board
– Program detected offense before its discovery outside the
organization or before such discovery was reasonably likely
– Organization promptly reported offense to proper
governmental authorities
– No person with “operational responsibility” for compliance
and ethics program participated in, condoned, or was
willfully ignorant of the offense
Proposed Changes to
FASB Requirements
• New disclosure requirements
– On July 20, 2010, released its “Disclosure of Certain Loss
Contingencies” plan
– Stiffens requirements for disclosing lawsuits / other loss
contingencies
“to address concerns of investors and other users of
financial statements that the existing disclosures do not
provide enough information, soon enough, to help them
evaluate the possible outcome of a loss contingency.”
Proposed Changes to
FASB Requirements
• New disclosure requirements
– Proposes that public companies provide enhanced
disclosures about their loss contingency accruals
by including in the notes a tabular schedule
explaining the period-to-period change in the
accrual account, by class of contingency.
Proposed Changes to
FASB Requirements
• New disclosure requirements
– Proposes that all entities, both public and private, provide
enhanced “over-the-lifecycle” disclosures about loss
contingencies deemed reasonably possible or probable.
– Early in the life cycle of a contingency, the disclosures
would be limited to factual information such as the
contentions of each party and publicly available
information about the claim amount.
– The disclosures would become more robust as the
contingency nears settlement and the likelihood of a loss
increases.
Proposed Changes to
FASB Requirements
• New disclosure requirements
– Proposes that all entities provide information
about contingencies with an outcome assessed as
remote if the potential impact is severe.
Proposed Changes to
FASB Requirements
• Public company
– Must provide the enhanced disclosures for fiscal
years ending on or after December 15, 2010, and
for interim periods in subsequent fiscal years.
• Private company
– Must provide the enhanced disclosures for fiscal
years beginning on or after December 15, 2010,
and for interim periods in subsequent fiscal years
(one year later than a public company).
Proposed Changes to
FASB Requirements
• ACC / 100 Legal Executives Protesting
– In-house lawyers who comply could be considered to have
waived attorney-client privilege
– Setting up reporting process expensive and difficult
– System is not broken / does not need to be fixed
“Because of the significant problems that the proposal
would cause for companies, their shareholders and
financial statement users and the lack of any significant
benefit, we urge the [board] to refrain from proceeding
with the proposed amendments in their current form.”
HEADLINE #6
“Too Much Information: Blogging Lawyers
Face Ethical and Legal Problems”
Lawyers & Online
Social Networking
• Recent Study
– 70% of lawyers are members of an online social network (up
nearly 25% over past year)
• 86% ages 25-35
• 66% over 46
– More than 50% of attorneys think online networks have the
potential to change the business and practice of law
– 65% expressed interest in joining an online professional network
designed specifically for their profession
– 6% of lawyers participate in microblogging (Twitter, etc.)
– Corporate counsel most interested in accessing exclusive content
– Law firm attorneys most interested in expanding professional
network / managing professional reputation
Revealing Client Confidences
• IL Assistant PD fired / facing discipline by Bar
– Kristine Ann Peshek accused of revealing client
confidences in blog published over year time
– Blog open to public and not password protected
– Described clients in a way that made it possible to
identify them – by first names / derivative of first
names / jail identification numbers
– Also mused about judges
– Fired in 2008 when supervisor became aware of the
blogging
Revealing Client Confidences
• IL Asst PD fired / facing discipline by Bar
– Judge was “clueless” and another was an “_ _ _hole”
– Client “taking the rap for his drug-dealing dirtbag of
an older brother”
– Client “stoned” while in court
– Client lied to judge about drug use
Officer of the Court
• Florida lawyer disciplined
– Defense lawyer Sean Conway angry with Ft.
Lauderdale Judge Cheryl Aleman b/c regularly gave
just one week to prepare for trials
– Conway blogged about her, saying she was an “Evil,
Unfair Witch.”
– Reprimanded by FL Bar / fined $1,200
– FL State Supreme Court affirmed – not protected
speech b/c not trying to expose a “valid problem”
– “All I had left were my words.”
Trial Conduct
• Young associate caught by Judge in lie
– Requested trial delay due to death in the family
– Judge Susan Criss in TX granted the delay – but checked
lawyer’s Facebook page
– “There was a funeral, but there wasn’t a lot of grief
expressed online. All week long, as the week is going
by, I can see that this lawyer is posting about partying.
One night drinking wine, another night drinking
mojitos, another day motorbiking.”
– Disclosed to firm when lawyer asked for second delay
– Lawyer has since removed Judge from “Friends List”
Lawyer As Juror
• Warnings not to discuss the case include blogging
– Frank Wilson on jury – was a lawyer but not working as
one at the time
– While serving on jury, posted details of case on his blog
– Caused criminal conviction to be set aside / sent back to
lower court
– Claimed that warnings not to discuss case did not ban
blogging
– Bar disagreed: 45-day suspension / $14,000 in legal fees
– Wilson also fired from job
Zealous Advocacy
• Defamation lawsuit by plaintiffs’ attorney over blog post
by in-house counsel
– In 2007, Eric Albritton filed suit on behalf of ESN against Cisco for
alleged patent infringement
– Cisco in-house counsel Richard Frenkel blogged about case on popular
IP lawyer blog Patent Troll Tracker as anonymous blogger
– Frenkel encouraged to blog about case by Cisco’s top patent lawyer
and public relations manager
– Frenkel alleged that Albritton conspired with clerk for District Court to
alter documents
– In 2008, Albritton filed defamation suit against Cisco and Frenkel
– Shortly thereafter, Frenkel resigned and joined Wilson Sonsini
– Cisco and Frenkel claimed statements were true
– In September 2009, parties settled (shortly after trial began)
Zealous Advocacy
• Defamation lawsuit by plaintiffs’ attorney over
blog post by in-house counsel
– “The parties are happy to report that the dispute among
them has been resolved to their mutual satisfaction, and
Rick Frenkel and Cisco apologize for the statements of
Rick Frenkel on the Troll Tracker blog regarding Eric M.
Albritton.”
Judicial Restraint
• NY Criminal Court Judge caught Facebooking
– Judge Matthew Sciarrino Jr. transferred to different court in
NY due, in part, to activities on social-networking sites
– For several months, Sciarrino allowed public to view his
Facebook page
• Frequently gave details of his location and schedule
• Updated his Facebook “status” while sitting on the bench
• Took photo of his crowded courtroom and put it on Facebook
(trying to make case for additional judge to alleviate caseload)
– Sciarrino’s profile is currently set to private.
Ex-Associate Rage
• Legal blog badmouths law firm partners
– “Levinson Axelrod Sucks” blog by attorney Edward
Harrington Heyburn
– Heyburn reportedly fired in 2004 – claims b/c he intended
to start his own practice
– Offers a number of unflattering opinions of the partners
• “After one week police call off search for any friends of Adam
Rothenberg.”
• “Levinson has won the right to purchase 2 small Ethiopian
children…has named the children ‘Step’ and ‘Fetch.’”
• “When all is said and done, you are still rich and you are not a fat
slob.”
10 Ways To Avoid Being Sued
On Twitter
1) Take Your Mother’s Advice
2) Avoid “Twitter Rage”
3) Send A Direct Message Instead of a
Straight Tweet
4) State Your Opinion Instead of a Factual
Assertion
5) Don’t Use Your Name As Your Twitter
Handle
10 Ways To Avoid Being Sued
On Twitter
6) Check Your Sources
7) Lay Off The Booze
8) Don’t Violate Copyright Laws
9) Don’t Violate Trademark Laws
10) Don’t Impersonate Another Person