A federal judge’s ruling in Los Angeles is getting attention among corporate lawyers because it suggests they need to issue more explicit warnings during internal company investigations that they don’t represent individual employees.
The ruling earlier this month by U.S. District Judge Cormac Carney threw out portions of the government’s criminal case against a former executive of semiconductor company Broadcom Corp. Judge Carney said Irell & Manella LLP, a Los Angeles law firm hired by Broadcom to review possibly illegal stock-option grants, failed to explain clearly to the executive that it wasn’t representing him.
The judge went so far as to refer the law firm to the California state bar for disciplinary action, citing “ethical misconduct.”
A spokesman for Irell & Manella, Charles Sipkins, called the judge’s ruling an “error” and said all of the law firm’s disclosures were proper. The government is appealing the ruling, which suppresses all statements to the firm by former Broadcom Chief Financial Officer William Ruehle.
The decision is reverberating among law firms. The credit crunch and stock-market turmoil have spurred dozens of government investigations and shareholder lawsuits, triggering internal investigations where lawyers interact with employees.
Lawyers say it already is widespread practice to give some kind of notice in contacts with employees that the lawyer represents the company or its board of directors, not the employee. The Broadcom ruling is likely to make that warning even more precise.
“We’re going to see the interview warnings turn into something akin to the Miranda warning the police give to suspects,” said Steve Crimmins, a former Securities and Exchange Commission lawyer now at Mayer Brown. In the Miranda warning, criminal suspects are told they have the right to a lawyer and anything they say may be used against them in court.
Some attorneys say employees may balk at speaking to company lawyers if given such a warning, adding to the difficulty of internal investigations. Companies could err on the side of caution and provide personal lawyers to senior executives much earlier in an investigation, raising litigation expenses.
In the Broadcom matter, Mr. Ruehle said in court papers that since the lawyers had represented him personally as well as the company in previous shareholder lawsuits, he thought the same terms applied.
