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Fourth Circuit Applies Fiduciary Exception to Attorney-Client Privilege

Fourth Circuit Applies Fiduciary Exception to Attorney-Client Privilege

ERISA and Life Insurance News
(October 17, 2011)

Solis v. Food Employers Labor Relations Ass’n, 644 F.3d 221 (4th Cir. 2011)

The Secretary of Labor is authorized by ERISA, 29 U.S.C. § 1134(a), to conduct an investigation to determine whether a violation of Title I of ERISA, or of regulations or orders issued thereunder, has occurred or is about to occur.

The Secretary is empowered to "require the submission of reports, books, and records" by ERISA plan fiduciaries, and "to inspect such books and records and question such persons as he may deem necessary to enable him to determine the facts relative to such investigation, if he has reasonable cause to believe there may exist a violation …." Id.

Such an investigation may include the issuance of administrative subpoenas to ERISA plans to obtain records maintained by plan fiduciaries. In some cases, such subpoenas have been challenged by plan fiduciaries on the ground that the requested documents were protected from disclosure, either by the attorney-client privilege or the work product doctrine.

In Solis, two multi-employer benefit plans were involved – a pension fund and a health fund. Both funds had invested in entities related to Bernard Madoff, who later was convicted of securities fraud, resulting in the loss of more than $10 million in ERISA plan assets.

The Secretary of Labor issued subpoenas duces tecum to the funds, calling for the production of documents concerning the decision by plan fiduciaries to commit fund assets to the Madoff-related investments. The funds produced some documents, but they redacted parts of certain documents and withheld others, claiming that they were protected as attorney-client communications or work product.

The Secretary filed a petition in federal court to require compliance with the subpoenas. The district court held that the fiduciary exception applied to the privileges asserted by the funds and ordered the documents produced.

The court excluded from production, however, documents dealing with benefit disputes, individual claims for benefits, and similar matters, as well as attorney-client communications and work product documents that were dated after the subpoenas were served and that were prepared in connection with the Secretary’s investigation.

The funds appealed. In a case of first impression in the Fourth Circuit, the court separately analyzed the attorney-client privilege and the work product doctrine in the context of ERISA.

Acknowledging that the attorney-client privilege is "the oldest of the privileges for confidential communications known to the common law" (quoting Upjohn v. U.S., 449 U.S. 383, 389 (1981)), the Fourth Circuit recognized an exception to the privilege when it is asserted in the context of fiduciary relationships, relying on ERISA cases from the Second, Third, Fifth, Seventh, and Ninth Circuits.

Comparing the role of an ERISA fiduciary to that of a trustee at common law, the court noted that its sister circuits have applied one of two related rationales to find an exception to the attorney-client privilege:

● "[S]ome courts have concluded that the ERISA fiduciary’s duty to act in the exclusive interest of beneficiaries supersedes the fiduciary’s right to assert the attorney-client privilege." Citing, e.g., Bland v. Fiatallis N. Am. Inc., 401 F.3d 779, 787 (7th Cir. 2005), and Becher v. Long Island Lighting Co., 129 F.3d 268, 271-72 (2d Cir. 1997).

● "Other courts … have reasoned that the ERISA fiduciary, as a representative of the beneficiaries, is not the real client in obtaining advice regarding plan administration and ‘thus never enjoyed the privilege in the first place.’" Citing U.S. v. Mett, 178 F.3d 1058, 1063 (9th Cir. 1999).

"Under either rationale," the Fourth Circuit wrote, "‘where an ERISA trustee seeks an attorney’s advice on a matter of plan administration and where the advice clearly does not implicate the trustee in any personal capacity, the trustee cannot invoke the attorney-client privilege against the plan beneficiaries.’" Citing Mett, 178 F.3d at 1064.

The court said, however, that the fiduciary exception does not apply to communications with an attorney concerning non-fiduciary matters, such as the ERISA fiduciary’s personal defense in a breach of fiduciary duty action, or advice regarding the adoption, amendment, or termination of an ERISA plan.

With regard to the subpoenas issued by the Secretary of Labor, the court held that the requested documents were subject to production, because "the fiduciary exception extends to the Secretary acting on behalf of beneficiaries in the context of an ERISA enforcement action."

The court concluded that it could "discern no principled basis on which to distinguish between enforcement actions and investigations," noting that the Secretary has "well-established subpoena power in the context of investigating potential ERISA violations," and that Congress "sought to provide the Secretary with a wide range of tools to protect the interests of beneficiaries and participants."

Applying the fiduciary exception to the attorney-client privilege, the Fourth Circuit upheld the district court’s order, which required plan fiduciaries to produce the minutes of board of trustees meetings, handwritten notes distributed and taken during those meetings, and correspondence concerning the Madoff-related investments.

The court dealt separately and briefly with the funds’ argument that the work product doctrine applied to certain documents covered by the Secretary’s subpoenas.

Because the funds had not provided privilege logs and had not identified the litigation for which specific documents were prepared, the court said "we see no reason to reach the issue of whether the work product doctrine is subject to the fiduciary exception," concluding that the funds had "failed to carry their burden to demonstrate the applicability of the work product doctrine."

The court did say, however, that "there is no legitimate basis on which to distinguish between the [attorney-client privilege and the work product doctrine] in the application of the fiduciary exception in the ERISA context."

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H. Sanders Carter
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