In re Broadcom Corp. Secs. Litig.
In re Broadcom Corp. Secs. Litig.
2005 WL 8188214 (C.D. Cal. 2005)
February 10, 2005
Waiver
Attorney-Client Privilege
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Summary
The Court granted Defendants' motion in limine to preclude evidence of individual stock sales, denied Plaintiff's motion to exclude evidence of reliance on counsel, and denied Plaintiff's motion to bifurcate. The Court also reopened discovery to allow Plaintiff to submit appropriate discovery requests for attorney-client communications.
Additional Decisions
In re BROADCOM CORPORATION SECURITIES LITIGATION
Josephine Tucker ARENSON,
v.
BROADCOM CORPORATION, et al.
Nos. SA CV 01275GLTMLGX, SACV02301GLTANX
United States District Court, C.D. California
February 10, 2005

Counsel

Adam D Miller, Walter J Lack, Engstrom Lipscomb & Lack, Thomas V Girardi, Girardi & Keese, Los Angeles, CA, for Josephine Tucker Arenson.
Daniel P Lefler, David Siegel, Harry Arthur Mittleman, Mary Ann Novak, Stephen S Hasegawa, Irell & Manella, Los Angeles, CA, Layn R Phillips, Irell & Manella, Newport Beach, CA, for Broadcom Corporation, et al.

ORDER ON PENDING MATTERS

*1 The Court rules on pending matters as follows.
The motion is GRANTED. The Court has already ruled on this matter in its November 24, 2004, Order denying Mr. Samueli's motion for summary judgment (pages 4-5). There has not been a significantly different fact showing which would give reason to change that ruling as to the other individuals. Howard v. Everex Systems, Inc., 228 F.3d 1057 (9th Cir.2000).
Although Defendant now disclaims reliance on advice of counsel, its pleading contained language strongly suggesting such reliance (“Plaintiffs' claims cannot be maintained ... because of each defendants' right to rely on the advice of others,” and “good faith reliance upon ... opinions, reports or statements” by others.). At the hearing on this motion, the Court took up the question of whether proposed defense testimony constituted a defense of reliance on the advice of counsel, which would waive the attorney-client privilege as to communications about the relevant topics, and the need for re-opened discovery on those communications. The Court finds the proposed testimony does amount to a defense of reliance on the advice of counsel, the privilege is waived on the subject topics, and renewed discovery is required.
The law is well-summarized, with citation to supporting authority, in Cox v. Administrator, U.S. Steel & Carnegie, 17 F.3d 1386 (11th Cir.1994). As the Court observed, the attorney-client privilege is intended as a shield, not a sword. A party waives the privilege if it injects into the case an issue that in fairness requires an examination of otherwise protected communications. The privilege is waived when a litigant puts protected information in issue through some affirmative act for its own benefit, and to allow the protection would be manifestly unfair to the opposing party. To waive the privilege, a party must do more than merely deny an opponent's allegations; the party must inject a new factual or legal issue into the case. A defendant need not raise an affirmative defense to inject a new issue. Cox at 1418-19, citing numerous cases.
A reliance on counsel privilege waiver does not require a party's direct statement that counsel was relied upon. It may also arise from more indirect evidence where a party affirmatively raises an inference of reliance on counsel for the party's own benefit.
For example, in Cox, supra, even though a party disclaimed any intent to assert the advice of counsel defense or rely on any privileged attorney-client communication, the party was held to have waived the privilege by taking the position that, at the time a certain company policy was implemented, it “believed the policy to be lawful.” The district court observed this position “necessarily implicates all of the information at its disposal” when it acted. The district court declined to let the party present evidence tending to show it intended to comply with the law, while not disclosing documents tending to show it might have known its actions did not conform to the law. Id. At 1418.
*2 In affirming the district court, Cox held the party could have denied scienter without affirmatively asserting it believed its action was legal. Having gone beyond mere denial to affirmatively assert good faith, the Court held, the party injected the issue of its knowledge of the law into the case and hereby waived the attorney-client privilege. Id. at 1419.
Although a criminal case, U.S. v. Bilzerian, 926 F.2d 1285 (2d Cir.), cert. denied, 502 U.S. 813, 112 S.Ct. 63, 116 L.Ed.2d 39 (1991) is instructive because it raises the same waiver issue in a securities fraud case. The district court ruled it would waive the attorney-client privilege on communications about the legality of his actions for the party to testify he believed in good faith that certain disclosures he made to the S.E.C. were legal. In affirming, the Second Circuit held the party's testimony he thought his actions were legal would have put his knowledge of the law and the basis for his understanding of what the law required in issue. His conversations with counsel about the legality of his actions, the Court said, would be directly relevant to his knowledge and intent. The party was free to deny scienter, the Court said, without asserting good faith. Id. at 1293.
The case at bar is more compelling than Cox or Bilzerian. In their brief on this motion, the individual defendants represented they would testify “they relied in good faith upon the assumption that others within Broadcom-including ... lawyers ...-were doing the jobs that these people were hired to do ...” Joint Stipulation, p. 29, lines 10-12. At the hearing on this motion, individual defendants made the offer of proof they would testify that each and every S.E.C. filing and disclosure document was reviewed by the company lawyers, defendants are not lawyers and don't have company responsibility for making the ultimate decision of what is legally required under applicable laws, the lawyers involved in the process were competent and skilled, and defendants understood and expected the lawyers faithfully and competently did their job.
This proposed testimony unequivocally puts in issue reliance upon counsel as a defense-reliance on the fact counsel came to the conclusion everything was legal and didn't warn defendants of a problem. Rather than simply deny scienter, defendants assert good faith based on an expectation the lawyers would tell them if anything illegal was happening. Defendants have injected an issue that requires examination of the attorneys' communications with defendants to see if defendants are corroborated. In effect, defendants are saying they relied on their excellent attorney to do a good job examining all the documents to tell them if anything was wrong, and their lawyers never said anything was wrong, with the unmistakable inference defendants felt assured the lawyers thought everything was legal. Plaintiffs are now entitled to review the attorneys' communications on the subject topics to see if defendants are telling the truth.
*3 The motion in limine to exclude this evidence is DENIED.
The Court reopens discovery so Plaintiff may submit appropriate discovery requests for attorney-client communications with defendants during the relevant period concerning the relevant transactions. Within 20 days, the parties shall advise the Court what additional discovery will be undertaken, the proposed time required for such discovery, and each party's opinion as to the effect such discovery delay will have on the scheduling of the trial.
Plaintiff's modified motion is DENIED. It would not be an appropriate exercise of discretion to split up the trial in the way Plaintiff suggests.
In general, to the extent possible, the Court favors trying this matter all at one time. However, due to pending matters, it is not yet appropriate for the Court to determine whether trial of this matter will be divided into parts. It appears appropriate for the Court to first determine the impact on the case made by re-opening discovery, any Daubert ruling, and any ruling on aggregate damages.