Ethics for In-House Counsel Real-Life, Cutting-Edge Issues from Today’s Headlines Presented By:...

Ethics for In-HouseCounsel

Real-Life, Cutting-Edge Issuesfrom 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.

[email protected] / (951)-296-1701

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HEADLINE #1

“Why Do Lawyers In Companies Believe They Hold Higher Moral Standards Than Other

Employees?”

Legal Ethics

• In-house counsel are governed by:– State professional rules

– State Bar rules

– ABA Model Rules

– State laws

– Federal laws

– Case law

Legal Ethics

• In-house counsel must navigate multiple relationships:– 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 CounselAs “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 Protectionfor 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 Protectionfor 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 In-

House 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


• 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 / 5-220

– Forced to withdraw from representation and resign


• 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.”


• 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.


• 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, non-

disparagement 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


• 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


• 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


• 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 attorney-client 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:– 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 ExceptionTo 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


• CO Rule of Professional Conduct 1.6– (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).


• 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:(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

– (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-ClientPrivilege

• 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’sConfidential 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


• 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.”


• 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


• 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 attorney-client info

– Distinguished Biller’s conduct in state suit from that in federal court

• “Personal gain” vs. “protecting the public from danger”


• 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


• 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


• 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


• 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.


• 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 theAttorney-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 theAttorney-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?”


• 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.”


• 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.”


• 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.


– 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


– 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”


• Irell committed 3 violations of duty of loyalty to Ruehle1) 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


• Irell committed 3 violations of duty of loyalty to Ruehle2) 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


• 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


• 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 LuckTurns 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 ofTurning 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 ofTurning 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 toFederal 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


• 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


• 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


• 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


• Per se disqualification from having an “effective program” if “high-level personnel” participated in, condoned, or were willfully ignorant of the offense


• 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.”


• 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.


• 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.


• New disclosure requirements– Proposes that all entities provide information

about contingencies with an outcome assessed as remote if the potential impact is severe.


• 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).


• 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 & OnlineSocial 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 SuedOn Twitter

1) Take Your Mother’s Advice2) Avoid “Twitter Rage”3) Send A Direct Message Instead of a

Straight Tweet4) State Your Opinion Instead of a Factual

Assertion5) Don’t Use Your Name As Your Twitter

Handle

10 Ways To Avoid Being SuedOn 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

Ethics for In-House Counsel Real-Life, Cutting-Edge Issues from Today’s Headlines Presented By:...

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