presents erisa fiduciary exception to the attorney-client

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ERISA Fiduciary Exception to the Attorney-Client Privilege

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PrivilegeProtecting Confidential Communications With Plan Fiduciaries

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features:Ronald S. Kravitz, Partner, Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor, San Francisco

James P. McElligott, Partner, McGuire Woods, Richmond, Va.

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

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Thursday, June 24, 2010

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ERISA Fiduciary Exception to theERISA Fiduciary Exception to the Attorney-Client Privilege

Th d J 24 2010Thursday, June 24, 2010

Ronald S. KravitzLiner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor LLPLiner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor LLP.199 Fremont Street, 20th FloorSan Francisco, California 94105-2255415.489.7761 [email protected]

James P. McElligott, Jr.McGuireWoods LLPOne James CenterOne James Center901 East Cary StreetRichmond, Virginia 23219(804)775-4329 [email protected]

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OverviewOverview

• The law of attorney client privilege, workThe law of attorney client privilege, work product, waiver, and the fiduciary exception form a complex and still developing area of the law.

• A substantial body of case law has developed, some of which is in conflict and much of which is not settled.

• This presentation outlines the basic rules, but d ’ di ll hdoesn’t attempt to discuss all the cases or issues.

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The Attorney-Client PrivilegeThe Attorney Client Privilege• Upjohn Co. v United States, 449 U.S. 383 pj

(1981) (“The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends y pupon the lawyer's being fully informed by the client.”)

• Upjohn held that a corporation could invoke• Upjohn held that a corporation could invoke privilege to protect communications between company lawyers and non-management employees rejecting the narrower “controlemployees, rejecting the narrower control group test” and expanded the scope of the work product doctrine.

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Federal Common Law of P i ilPrivilege

• Federal Rule of Evidence 501 provides that "the privilege f it h ll b d b th i i l fof a witness . . . shall be governed by the principles of

the common law as they may be interpreted by the courts of the United States in light of reason and experience " The attorney client privilege is the oldest ofexperience. The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law.

• The privilege applies to confidential communications• The privilege applies to confidential communications from a client to the lawyer, whether oral or written, as well as advice, opinions, and similar communications from the lawyer to the client. y

• The Model Rules of Professional Conduct comment that the obligation of confidentiality requires the lawyer to invoke the attorney-client privilege when it applies.

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Restatement (Third) of Law G i L §68Governing Lawyers §68

Requirements for Attorney-Client PrivilegeRequirements for Attorney Client Privilege• A communication

M d b t i il d• Made between privileged persons• In confidence• For the purpose of obtaining or providing

legal assistance to the client.g

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Waiver of PrivilegeWaiver of Privilege

• Restatement §§78-80Restatement §§78 80.• Privilege can be waived by disclosing the

communication by putting the assistancecommunication, by putting the assistance or communication in issue, by failing to object or otherwiseobject, or otherwise.

• Critical to obtain all the elements of i il d d i t i t d dprivilege and guard against unintended

waiver.

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Protecting Privilege and Work ProductProtecting Privilege and Work Product

• FRCP 26(b)(5): “When a party withholds information ( )( ) p yotherwise discoverable by claiming that the information is privileged or subject to protection as trial-preparation material, the party must:p y– expressly make the claim; and– describe the nature of the documents, communications, or

tangible things not produced or disclosed – and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.”

• Anticipate that you will need to describe the communication in a privileged log, identifying who made the communication, who else received it, when it was received, etc.

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Fiduciary Exception to Attorney-Cli P i ilClient Privilege

• Restatement § 84:§“In a proceeding in which a trustee of an express trust or similar fiduciary is charged with breach of fiduciary duties by a beneficiary, a communication otherwise within [theby a beneficiary, a communication otherwise within [the attorney-client privilege] is nonetheless not privileged if the communication:

(a) is relevant to the claimed breach; and

(b) was between the trustee and a lawyer (or other(b) was between the trustee and a lawyer (or other privileged person within the meaning of § 70) who was retained to advise the trustee concerning the administration of the trust ”

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administration of the trust.

Non-ERISA ExceptionsNon ERISA Exceptions

• Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir.Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), cert. denied, 401 U.S. 974 (1971) (“where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as th f th ti d f th bli ithose of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause whythe right of the stockholders to show cause why it should not be invoked in the particular instance.”).

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)

In re Long Island Lighting Co., 129 F 3d 268 272 (2d Ci 1997)F.3d 268, 272 (2d Cir. 1997)

“An ERISA fiduciary has an obligation to provide full and accurate information to the plan beneficiaries regarding the administration of the plan As part of this obligationthe administration of the plan. As part of this obligation, the ERISA fiduciary must make available to the beneficiary, upon request, any communications with

tt th t i t d d t i t i than attorney that are intended to assist in the administration of the plan. Thus, an employer acting in the capacity of ERISA fiduciary is disabled from

ti th tt li t i il i t lasserting the attorney-client privilege against plan beneficiaries on matters of plan administration."

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Is the client a fiduciary?Is the client a fiduciary?• Lawyer advising the employer on an ERISA plan amendment is not

d i i fid i d h h i i i i il dadvising a fiduciary and thus the communications remain privileged against plan participants & beneficiaries. In re Long Island Lighting Co., supra.

• But see Washington-Baltimore Newspaper Guild v. Washington Star Co., 543 F. Supp. 906 (D.D.C. 1982), implying that separate counsel is needed for plan or to preserve employer’s privilege.p p p y p g

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Joint Defense DoctrineJoint Defense Doctrine• The joint defense privilege "is an extension of the attorney client privilege." Waller v.

Financial Corp of America 828 F 2d 579 583 n 7 (9th Cir 1987)Financial Corp. of America, 828 F.2d 579, 583 n. 7 (9th Cir.1987). • Hanover Ins. Co. v. Rapo & Jepsen Ins. Servs., Inc., 449 Mass. 609, 614–617, 870

N.E.2d 1105, 1110–1112 (2007) recognized the “common interest doctrine” and adopted the following principle of Restatement §76(1):“If two or more clients with a common interest in a litigated or non-litigated matter are

t d b t l d th t h i f ti irepresented by separate lawyers and they agree to exchange information concerning the matter, a communication of any such client that otherwise qualifies as privileged . . . that relates to the matter is privileged as against third persons. Any such client may invoke the privilege, unless it has been waived by the client who made the communication.”

• See also Restatement § 76 comment (e) (2000).• United States v. Bay State Ambulance and Hosp. Rental Service, Inc., 874 F.2d 20,

28 (1st Cir. 1989) applied the joint defense doctrine in a case of joint representation.• Joint Defense doctrine potentially applies to work product. In re Grand Jury

Subpoena 274 F 3d 563 574 (2001)Subpoena, 274 F.3d 563, 574 (2001).• Counsel and client must understand and follow joint defense principles or risk loss of

the privilege and attorney disqualification.

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Why does the fiduciary seek legal d i ?advice?

U.S. v. Mett, 178 F.3d 1058, 1064 (9th Cir. (1999):

• "On the one hand, where an ERISA trustee seeks an attorney's advice on a matter of planseeks 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 attorneycapacity, the trustee cannot invoke the attorney-client privilege against the plan beneficiaries.”

• “On the other hand, where a plan fiduciary i l i d d f d h lfretains counsel in order to defend herself

against the plan beneficiaries . . ., the attorney-client privilege remains intact."

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Divergent Interests of Fiduciary d P i iand Participant

• Wachtel v. Health Net, Inc., 482 F.3d 225,Wachtel v. Health Net, Inc., 482 F.3d 225, 234 (3d Cir. 2007) (utilizing a four-factor test to distinguish an insurer fiduciary from g yother ERISA fiduciaries).

• Wildbur v Arco Chemical, 974 F.2d 631 (5th Ci 1992) ffi d i t t ’(5th Cir. 1992) affirmed magistrate’s decision that attorney’s post-lawsuit communications with plan administratorcommunications with plan administrator were protected, but questioned whether “divergent interests” created an excep

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divergent interests created an excep

Communications that may be S bj t t Fid i E tiSubject to Fiduciary Exception

• Legal advice for preparing draft communications --T t R J R ld T b C 247 F R D 488Tatum v. R.J.Reynolds Tobacco Co., 247 F.R.D. 488, 496(M.D.N.C. 2008).

• Legal advice for responding to participant inquiries ( t li ti h l l d i ) Fi h l Th(stylistic changes v. legal advice) -- Fischel v. The Equitable Life Assurance, 191 F.R.D. 606, 610 (N.D. Cal. 2000).Legal advice regarding management of assets• Legal advice regarding management of assets.

• Legal advice for benefits determinations.• Legal advice regarding benefits determinations and

t L i U C S Pl 203payments -- Lewis v. Unum Corp. Severance Plan, 203 F.R.D. 615, 620 (D. Kan. 2001).

• Legal advice for plan evaluation -- Anderson v. S th b ’ I S Pl 2005 U S Di t LEXIS

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Sotheby’s Inc. Severance Plan, 2005 U.S. Dist. LEXIS 9033, at *32 (S.D.N.Y. May 13, 2005).

Attorney Communications During B fi Cl i P dBenefit Claims Procedure

• Documents created before the final denial of benefits were not privileged, including e-mails and memos to and from the employer's corporate counsel regarding themails and memos to and from the employer s corporate counsel regarding the termination of benefits and the progress of the appeal of the benefits decision. With respect to these documents, the court reasoned that “[t]here [was] no indication ... that [counsel] was consulted for the purpose of defending [the employer] against any decision made as to Plaintiff's claim. Rather, it appears that [counsel] was consulted in the context of the claims review process itself ” Lewis v UNUM Corp Severancein the context of the claims review process itself. Lewis v. UNUM Corp. Severance Plan, 203 F.R.D. 615 (D. Kan. 2001).

• Asuncion v. Metropolitan Life Ins. Co., 493 F. Supp. 2d 716 (S.D.N.Y. 2007) (fiduciary exception applies to communications between insurer and its counsel about t i ti di bilit b fit b f l ti i ti ti f th l i )terminating disability benefits before completing investigation of the claim).

• Lack of mutuality of interests: The Third Circuit, in a case involving communications between insurers and their attorneys with respect to health insurance benefit determinations, held that the fiduciary exception did not apply. Wachtel v. Health Net, Inc., 482 F.3d 225, 234 (3d Cir. 2007) (utilizing a four-factor test to distinguish an , ( ) ( g ginsurer fiduciary from other ERISA fiduciaries).

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Work ProductWork Product

FRCP 26(b)(3) N t b l t i il b t lifi d ti t• FRCP 26(b)(3). Not absolute privilege, but qualified exception to discovery: “Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or trial . . . [unless party shows substantial need and undue hardship in obtaining equivalent materials ]” Protects “mental impressionsobtaining equivalent materials.] Protects mental impressions, conclusions, opinions and legal theories” of counsel.

• Hickman v Taylor, 329 US 495, 510-511 (1947).• Wildbur v Arco Chemical, 974 F.2d 631 (5th Cir. 1992)(attorney’s

communications with plan administrator after suit filed werecommunications with plan administrator after suit filed were protected by work product doctrine.)

• Donovan v. Fitzsimmons, 90 FRD 583 (N.D. Ill. 1981) (finding no fiduciary exception to work product doctrine).

• Helt v Metropolitan District Comm'n 113 F R D 7 12• Helt v. Metropolitan District Comm n, 113 F.R.D. 7, 12 (D.Conn.1986) (plaintiff does “not stand in the same position with respect to the attorney, for whom the work-product rule is designed to benefit, as [he does to his] own trustees.” (quoting Donovan).

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General Plan AdministrationGeneral Plan Administration– Varity v. Howe, 516 US 489 (1996): “There is more to plan (or

) d i i i h i l l i i h h ifitrust) administration than simply complying with the specific duties imposed by the plan documents or statutory regime; it also includes the activities that are ‘ordinary and natural means’ of achieving the ‘objective of the plan.’” 516 U.S. atmeans of achieving the objective of the plan. 516 U.S. at 504 citing Bogart on Trusts.

– “[A]dvice regarding how to communicate Plan changes to the Plan participants and beneficiaries” held to be discoverable because of the fiduciary exception. Tatum v. R.J. Reynolds Tobacco Co., 247 FRD 488, 49 (M.D. N.C. 2008).

– Breach of fiduciary duty claims may be joined with benefit claims possibly requiring the fiduciary to seek legal counselclaims, possibly requiring the fiduciary to seek legal counsel before suit. Consider retaining separate counsel to protect privilege regarding potential liability and whether joint defense doctrine might apply.

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Limitations to the Fiduciary E iException

• Settlor functions: Employers are notSettlor functions: Employers are not acting as fiduciaries when considering plan design amendments or terminationplan design, amendments, or termination.

L kh d S i k 517 U S 882 890Lockheed v. Spink, 517 U.S. 882, 890 (1996)

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Limitations to the Fiduciary ExceptionLimitations to the Fiduciary Exception

– Communications about amending plan g pbenefits by spinning off assets to new plan privileged. Tatum, 247 F.R.D. at 496C i i b i l– Communications about creating new plan committee to supervise plan privileged. Beesley v Int’l Paper co 2008 WL 2323849Beesley v. Int l Paper co., 2008 WL 2323849, at *2-3 (S.D.Ill. June 3, 2008)

– Legal advice about draft 204(h) notices and SPDs privileged. In re JP Morgan Cash Balance Litig., 2007 U.S.Dist.LEXIS 31964, at *2-3 (S D N Y Apr 30 2007)

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2-3 (S.D.N.Y.Apr.30, 2007)


• Personal Defense LimitationPersonal Defense Limitation

E l t ti fid i i hEmployers are not acting as fiduciaries when seeking legal advice to defense against a personal lawsuit Mett 178 F 3d at 1063personal lawsuit. Mett, 178 F.3d at 1063.

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• Fiduciary Liability AdviceFiduciary Liability Advice

– Fiduciary’s retention of counsel to defend againstFiduciary s retention of counsel to defend against claim. Mett, 178 F.3d 1064

– Fiduciary acting to defend an act of administration against a participant’s claim, the fiduciary acting in own interests not in the participant’s interest Shieldsown interests, not in the participant s interest. Shields v. Unum Provident Corp., 2007 U.S.Dist.LEXIS 17836, at *13-14(S.D. Ohio Mar 9, 2007)

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• Claim Denial LettersClaim Denial Letters– Advice after claim denial privileged. Fortier v.

Principal Life Ins. Co., 2008 WL 2323918, at *2 (E.D.N.C. June 2, 2008)

– Advice after participant retains counsel privileged. Halbach 2006 U S Dist LEXIS 84591 at *18Halbach, 2006 U.S.Dist.LEXIS 84591, at 18

– Advice after participant threatens litigation privileged. Geissal v. Moore Med. Corp., 192 F.R.D. 620, 625-26 (E.D.Mo. 2000)

– Advice about trustees’ personal exposure privileged. Fischel 191 F R D at 610

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Fischel, 191 F.R.D. at 610.


• Compliance with ERISA or IRCp– Legal advice regarding ERISA compliance in

plan redesign privileged. Halbach v. Great-W t Lif & A it I 2006 U SWest Life & Annuity Ins., 2006 U.S. Dist.LEXIS 84591, at *15-16 (E.D.Mo.Nov.21, 2006)2006)

– Legal advice about plan’s compliance with IRC statutory obligations discoverable. Fischel v. The Equitable Life Assurance, 191 F.R.D. 606, 610 (N.D.Cal. 2000)

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Burden of Proof Re: Application f h Fid i E iof the Fiduciary Exception

• Party asserting privilege has the burden ofParty asserting privilege has the burden of showing communications relate solely to employer’s settlor functions

• See Aull v. Cavalcade Pension Plan, 185 F.R.D. ,618, 627 (D.C.1998) (burden not met where court could not conclude documents relating to h i h l l l l d lchanging the plan were solely related to settlor

functions)

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Burden then shifts to party seeking production to show fiduciary exceptionproduction to show fiduciary exception applies; doubt resolved in favor of privilege and against disclosure Mett 178 F 3d atand against disclosure – Mett, 178 F.3d at 1064

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• Majority rule – presumption fiduciaryMajority rule presumption fiduciary exception bars application of attorney-client privilege relating to plan p g g padministration and rejecting good faith requirement Washington-Baltimore Newspaper Guild Local35 v. Washington Star Co., 543 F. Supp. 906 (D D C 1982)(D.D.C. 1982)Martin v. Valley National Bank of Arizona, 140 F R D 291 (S D N Y 1991)

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F.R.D. 291 (S.D.N.Y. 1991)


• Minority Rule – applies good cause test toMinority Rule applies good cause test to determine if fiduciary exception applies

– Quintel Corp. v. City Bank, 567 F.Supp. 1357 (S D N Y 1983)(applies good cause test)(S.D.N.Y. 1983)(applies good cause test)

– Felts v. Masonry Welfare Trust, 3 E.B.C. 2490 (D Ore 1982)(considers Garner factors and(D. Ore. 1982)(considers Garner factors and applies good cause test)

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Ethical Concerns for ERISA Pl d Fid i iPlans and Fiduciaries

• Conflicts of Interest – rules of professional conduct pprohibit attorneys from representing more than one entity if an actual or potential conflict of interest exists:– Multiple fiduciaries—adversity may exist among fiduciaries e.g. p y y g g

co-fiduciary liability and one fiduciary may be required to sue another

– Plan and fiduciaries—e.g. plan may be required to deny benefits to otherwise eligible fiduciary due to an error by a fiduciary

Pl d I Fid i f b fi f l– Plan and Insurer or Fiduciary--recovery of benefits from plan assets (benefits claim) or insurance policy (fiduciary breach claim) may require separate counsel

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Ethical Concerns for ERISA Pl d Fid i iPlans and Fiduciaries

• Multiple counsel may be advisablep y– Fiduciary breach allegations commingled with plan

administration issues See Martin v. Valley National Bank of Arizona, 140See Martin v. Valley National Bank of Arizona, 140 F.R.D. at 324-25 (suggesting fiduciary could protect communications with counsel hired “at his own expense and for his own protection” as a result of D t t f L b i ti ti b t fi diDepartment of Labor investigation, but finding privilege waived, in part because the same counsel was used to defend investigation as had provided administrative advice to the plan)administrative advice to the plan).

– Plan interpretation issues – employing attorney who drafted plan as a witness

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drafted plan as a witness

Special Concerns for In-House C lCounsel

• Serious consideration issuesSerious consideration issues– Fischer v. Philadelphia Electric Co., 96 F.3d 1533,

1538 –1539 (3d Cir. 1996)• Pre-litigation work-product less likely to qualify

for protection– Wildbur v. ARCO Chemical Co., 974 F2d 631 (6th Cir.

1992)• Business v legal advice• Business v. legal advice

– Stout v. Illinois Farmers Ins. Co., 852 F.Supp. 704 (S.D.Ind.1994)

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( )

Best Practices for Preserving the P i ilPrivilege

• Significance of defining roles inSignificance of defining roles in Engagement Letter

Initiation of investigation courts analyze– Initiation of investigation – courts analyze whether it was primarily motivated by legal advice and/or anticipated litigationp g

– Course of investigation – focus on attorney’s involvement

– Use of investigation results

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• Sandra T E v South Berwyn SchoolSandra T.E. v. South Berwyn School District 100, 600 F.3d 612 (7th Cir. 2009)

7th Cir reversed district court finding that law– 7th Cir. reversed district court finding that law firm’s investigation- related materials concerning a molestation investigation were g gnot protected

– Circuit court focused on engagement letter g gthat specified that firm was to provide legal advice

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• Educating the clientEducating the client

Fid i t i i– Fiduciary training

C /S– Continuing education/Seminars

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• Implementing procedures to avoidImplementing procedures to avoid inadvertent waivers

Engagement letter– Engagement letter– Document controls

Consideration of privilege issues when– Consideration of privilege issues when communicating with third-party providers

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Always remember the statements of you and your client may not be privileged fromand your client may not be privileged from plan, trust, or estate beneficiaries

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• Who holds the privilege?Who holds the privilege?

E if i il d it’ t i ilEven if privileged, it’s not your privilege, and may be waived only by the client

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• Advice of CounselAdvice of Counsel

Oft d i b f t li tOften your advice may be a fact your client will want to establish, and this may open up all communications to discoveryall communications to discovery

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Ronald S KravitzRonald S. Kravitz• Mr. Kravitz is a partner in the San Francisco office of Liner Grode p

Stein Yankelevitz Sunshine Regenstreif & Taylor LLP. He is a Fellow of the American Bar Foundation and is listed in S L d E l B fit H h t dSuperLawyers under Employee Benefits. He has represented numerous fiduciaries, plan administrators, broker-dealers, and registered representatives in plan administration and investment matters. He is a member of the Employee Benefits Committee of the ABA Section of Labor and Employment Law., and a co-chair of the Fiduciary sub committee Mr Kravitz is a graduate of Miamithe Fiduciary sub-committee. Mr. Kravitz is a graduate of Miami University of Ohio and received his law degree from Temple University School of Law.

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James P McElligott JrJames P. McElligott, Jr.

Mr McElligott is a partner in the Richmond Virginia office ofMr. McElligott is a partner in the Richmond, Virginia office of McGuireWoods LLP. He handles employee benefits, executive compensation, and labor relations matters for employers and fiduciaries, and has an active litigation and arbitration practice. He is a Fellow of the College of Labor and Employment Attorneys andis a Fellow of the College of Labor and Employment Attorneys, and is listed in Chambers USA, Best Lawyers in America, and SuperLawyers under both Employee Benefits and Labor and Employment. He is a member of the Employee Benefits Committees of the ABA Sections of Labor and Employment Law andCommittees of the ABA Sections of Labor and Employment Law and Taxation, a member of the US Chamber of Commerce Employee Benefits Committee, former President of the Federal Bar Association, Richmond Chapter, and former president of the Central Virginia Employee Benefits Council Mr McElligott is a Phi BetaVirginia Employee Benefits Council. Mr. McElligott is a Phi Beta Kappa graduate of the University of Illinois and received his law degree, cum laude, from Harvard Law School, where he served as Note Editor on the Harvard Journal on Legislation.

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