on Pesky Voicemails, privilege waivers, and just plain stupidity

[irishgrl]

The Voicemail Message That Has GCs Talking
Monday June 27, 3:00 am ET
Sue Reisinger, Corporate Counsel


There are dumb mistakes, and then there are really dumb mistakes. Four years ago Matthew Gloss, the general counsel of Marvell Semiconductor Inc., and two of his colleagues phoned the legal chief of a rival company, Jasmine Networks Inc. The call went straight to voicemail, so Gloss left a message and hung up.

At least, he thought he did. Though the Marvell officials didn't know it, the Jasmine lawyer's voicemail was still taping them as they continued to talk on speakerphone -- allegedly about how they were stealing their rival's trade secrets.

Gloss' little boo-boo has turned into a major headache, not just for Marvell but potentially for in-house lawyers everywhere. That's because when Jasmine filed its inevitable lawsuit against Marvell, it tried to enter the voicemail as evidence. Marvell moved to exclude the tape, arguing that it was protected by attorney-client privilege, since two company lawyers took part in the conversation.

The trial judge sided with Marvell, but a California appellate court backed Jasmine. By failing to disconnect his phone, Gloss had waived privilege, the appellate court ruled last year. Moreover, since he is also a company officer -- he holds the title of vice president for business affairs -- Gloss had the authority to waive privilege on Marvell's behalf.

The appellate decision so worried the Association of Corporate Counsel that it asked the California Supreme Court to review the case. The justices agreed, and Marvell and Jasmine are currently preparing their briefs. ACC is also backing a proposed state law that says privilege can only be waived intentionally and not inadvertently. The measure cleared the state assembly in February.

Susan Hackett, ACC's senior vice president and general counsel, is particularly concerned about the appellate court's ruling that Gloss could waive Marvell's privilege because he's a company officer. Hackett notes that more than 4,000 of her group's 16,000 national members also hold a vice president title. "Since [Gloss] was performing a legal function, his inadvertent disclosure should be treated in the same manner as it would be for any other lawyer, regardless of any business title the in-house lawyer may carry," Hackett says.

This not-so-Marvell-ous story started in August 2001, when Gloss called Virginia Wei, Jasmine's director of legal and business affairs. Sunnyvale, Calif.-based Marvell, which makes semiconductors for telecommunications, was pursuing a buyout of Jasmine, a privately held company based in San Jose that has since gone out of business.

Gloss placed the call on speakerphone because he was accompanied by Kaushik Banerjee, Marvell's vice president of engineering, and Eric Janofsky, an in-house patent attorney. According to the California appeals court, which listened to their conversation as captured on Wei's voicemail, Gloss and his colleagues "openly discussed theft of Jasmine's trade secrets and the unlawful hiring of [Jasmine's] engineering group, as well as the potential consequence of jail for [this] conduct."

Three weeks after the voicemail accident, Jasmine sued Marvell in Santa Clara County Superior Court for misappropriation of trade secrets and related claims. (Jasmine also sued several of its former employees, alleging they conspired with Marvell.) The trial judge refused to allow the voicemail tape as evidence without even bothering to hear it, citing attorney-client privilege. The judge said that because Marvell executive Banerjee had been talking with two in-house lawyers -- Gloss and Janofsky -- their conversation was privileged.

But in April 2004 a state appeals court reversed that ruling, saying that the tape should be allowed because attorney-client privilege had been waived for three reasons:

First, the conversation fell within the crime-fraud exception to privilege. (In California, as in most states, there is no privilege if a lawyer's services are used "to commit, or plan to commit, a crime or a fraud.")

Second, Marvell's "uncoerced disclosure" -- even though it wasn't intentional -- also waived the company's privilege. This finding ran counter to traditional doctrine, which holds that inadvertent disclosure doesn't waive privilege.

Third, the appellate court said that because Gloss was a company officer, he could waive privilege on Marvell's behalf. (The California Supreme Court has depublished the appellate opinion, which means that it cannot be legally cited until the high court rules.)

Gloss is still at Marvell despite his slipup. He referred questions to the company's attorney, Peter Bertrand, a partner in the San Francisco office of Buchalter, Nemer, Fields & Younger. Bertrand argues that the appeals court created at least two new standards for waiving attorney-client privilege, "and both are dead wrong." Bertrand adds that Marvell rejects Jasmine's claims of trade-secret theft.

According to Jasmine's court-appointed bankruptcy counsel, James McManis, the buyout deal fell through after Jasmine filed its suit. Litigation costs subsequently drove Jasmine into bankruptcy, says McManis, a partner at McManis Faulkner & Morgan in San Jose. Wei, Jasmine's former legal officer, is now with the Sacramento firm of Bartel Eng & Schroder. At press time, she was on maternity leave, and did not respond to requests for comment.

Whatever the California Supreme Court decides about inadvertent waivers of attorney-client privilege, McManis believes the justices will still uphold the appellate court's basic ruling -- that the Marvell case is a crime-fraud exception to privilege. So in McManis' view, corporate counsel shouldn't worry about any erosion of attorney-client privilege. "Honest in-house lawyers, and that's about 99.9 percent of them, have nothing to worry about as a result of this case," he says.

But until the appellate decision is overturned, many attorneys will be fretting about Matthew Gloss' mistake all the same.