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This week's ruling by the Ninth Circuit Court of Appeals on attorney-client privilege holds at least one key lesson for general counsel: If you are contemplating an internal investigation, you might want to document that corporate employees being interviewed understand that the company owns the privilege, not them, and can waive it.

The court spelled out the theme perfectly in the opening lines of its opinion: "We here explore the treacherous path which corporate counsel must tread under the attorney-client privilege when conducting an internal investigation to advise a publicly traded company on its financial disclosure obligations."

Also See: Privilege Didn't Apply to Ex-Broadcom Executive, 9th Circuit Rules (from NLJ)

The court went on to rule that statements made by William Ruehle, Broadcom Corp.'s chief financial officer, to outside lawyers brought in to investigate allegations of stock options backdating at the company were not protected by the privilege. The case arose after Ruehle was criminally indicted for his role in the backdating scheme that resulted in Broadcom restating its earnings to account for an extra $2.2 billion in expenses.

Craig Bradley, a criminal law professor at Indiana University Maurer School of Law, says the appeals court ruling "is clearly right" in finding there was no privilege. "The outside lawyers were representing the company, not Ruehle," Bradley adds.

The record shows that then-Broadcom general counsel David Dull had brought in his former law firm, Irell & Manella, to conduct the internal investigation into backdating. The appeals court cites an e-mail that Dull sent to employees, including Ruehle, inviting anyone with legal concerns about backdating to contact him or the Irell lawyers. But the e-mail didn't say anything about confidentiality. (Dull, along with three other Broadcom officers, was later charged in a civil complaint by the Securities and Exchange Commission with knowing about the backdating scheme.)

The outside lawyers told the lower court that they gave Ruehle the corporate version of a Miranda warning—that anything he said could be used later by outside auditors and the government. But Ruehle claimed they didn't warn him, and the lower court believed him absent any documentation.

So the lower court ruled that Ruehle's statements to Irell attorneys about his involvement should be excluded from trial. The government appealed.

Reversing the lower court ruling, the appeals court said the record clearly showed that Ruehle knew his statements could be given to outside auditors, and even to SEC investigators. So there was no privilege.

Bradley, the law professor, explains the ruling: "Ruehle wasn't seeking personal legal advice here, so there was no privilege. This guy understood when he met with the lawyers that this material would be disclosed to the company's accountants, Ernst & Young."

Would documentation that he understood his statements could be disclosed make a difference? "Well, it would have helped in the lower court," Bradley says, but it isn't absolutely necessary.

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