ERISA Lawyers: The Exceptionally Privileged FewFebruary 2012 – Newsletters For Your Benefit
Many litigators take two things for granted beyond death and taxes: first, that under the attorney-client privilege, they can freely communicate with their clients either electronically or in writing without fear of having to turn over their communications to other parties in litigation; and second, that under the attorney work-product privilege, the notes or memoranda created by the attorney need not be produced at the request of an opposing litigant. However, those who have handled ERISA fiduciary litigation matters recently might have learned that blind faith in the efficacy of these privileges may lead to disaster in the courtroom and to uncomfortable conversations with malpractice carriers.
The attorney-client privilege shields from third parties confidential communications between an attorney and client for the purposes of seeking and obtaining legal advice. It is the oldest of the privileges for confidential communications known to common law. Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interest in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer being fully informed by the client
Attorney Work-Product Privilege
In Hickman v. Taylor, 329 U.S. 495 (1947), the U.S. Supreme Court recognized the attorney work-product privilege, whereby information obtained or produced by or for attorneys in anticipation of litigation may be protected from discovery under the Federal Rules of Civil Procedure. The privilege enables attorneys to prepare for and pursue litigation without fear that their strategy and preparation will be available to their adversaries. The plaintiff in Hickman sought, without asserting necessity or justification, to secure written statements, private memoranda and personal recollections prepared or formed by an adverse party’s counsel in the course of his legal duties. As such, the court held that it falls outside the arena of discovery and contravenes the public policy underlying the orderly prosecution and defense of legal claims. In performing his or her various duties, however, it is essential that a lawyer work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel.
Fiduciary Exception to Privileges
In Riggs Nat. Bank of Washington, D.C. v. Zimmer, 355 A. 2d 709 (Del. Ch. 1976), which has been followed in the federal circuit courts of appeal, the Delaware Chancery Court held that trust beneficiaries could compel trustees to produce a legal memorandum related to the trust’s administration because: (1) the trustees had obtained the legal advice as “mere representative[s]” of the beneficiaries, who were the “real clients” of the attorney; and (2) the fiduciary duty to furnish trust-related information to the beneficiaries outweighed the trustees’ interest in the attorney-client privilege. The court relied on well-established English common law that when a trustee obtained legal advice to guide his trust administration - and not for his own defense in litigation - the beneficiaries were entitled to the production of documents related to that advice on the rationale that the advice was sought for their benefit and obtained at their expense in that trust funds were used to pay the attorney.
Application to ERISA Litigation
The rationale of the Riggs decision has been held applicable in the ERISA litigation context. See, e.g., In re Long Island Lighting Co., 129 F.3d 268 (2d Cir. 1997); Wildbur v. Arco Chem. Co., 974 F.2d 631 (5th Cir. 1992); and Geissal v. Moore Med. Corp., 192 F.R.D. 620 (E.D. Mo. 2000). When an ERISA fiduciary seeks legal advice, she typically does so in carrying out her duties as a fiduciary, and thus is seeking legal advice on behalf of the plan participants and their beneficiaries. Thus, the fiduciary exception applies in such circumstances and allows a litigating participant to obtain the substance of such communications between a fiduciary and an attorney because the attorney-client and attorney work-product privileges are outweighed by the need of the plan participants and beneficiaries to have the otherwise protected information. The exception does not apply, however, to settlor functions, such as decisions to establish or terminate a plan, or to advice sought by a fiduciary in connection with the fiduciary’s personal defense of a breach of fiduciary duty claim. Thus, a fiduciary who is accused of having breached her fiduciary duties may consult with an attorney in defending against such allegations, and her communications with her attorney should be privileged. (In such circumstances, however, the fiduciary should consult counsel other than the attorneys representing the plan in order to avoid conflicts of interest.)
Whether the participants and beneficiaries have to prove they have good cause for obtaining the information is in dispute, but a number of courts have held that good cause is not required in light of the rationale for the exception. At least one court, in Donovan v. Fitzsimmons, 90 F.R.D. 583 (N.D. Ill. 1981), has also found that, in litigating alleged breaches of fiduciary duty, the U.S. Department of Labor effectively steps into the shoes of the plan participants and beneficiaries, entitling the federal agency to obtain documents that would otherwise be protected by the attorney-client and work-product privileges.
Recent Litigation Interpreting the Exception
These ERISA exceptions were interpreted and applied recently in Carr v. Anheuser-Busch Companies, Civ. Action No. 4:10-CV-1729, an unreported 2011 decision in the United States District Court for the Eastern District of Missouri. Mr. Carr was a former Anheuser-Busch employee whose employment had been involuntarily terminated. Mr. Carr brought suit under ERISA after his former employer denied his claim for severance benefits on the grounds that his termination was for “willful misconduct in violation of company policy.” The District Court decision resolved a dispute between the parties regarding whether the former employer would be required to produce certain documents in discovery relating to the denial of his claim for severance benefits.
The plaintiff sought production of certain e-mails regarding his claim that had been exchanged between the plan administrator and an associate general counsel in the defendant’s legal department. The first e-mail was sent by the attorney while the plan administrator was adjudicating the plaintiff’s administrative appeal of the initial denial of his claim for severance benefits. It contained general guidance from the attorney for use by the plan administrator while reviewing the appeal of the denied claim. The second set of e-mails had been generated approximately two months later, after a determination had been made to deny the appeal, but before this denial had been communicated to the plaintiff. This second set of e-mails did not contain advice as to the general procedural duties owed to each beneficiary, but rather related to the substantive merits of the plaintiff’s specific claim for severance benefits and the content of the final decision letter denying the severance benefits that was to be transmitted to the participant.
After conducting an in-camera review of the documents in dispute, the court directed the defendant to produce the first e-mail, but held that the second set of e-mails was protected by the attorney-client privilege. With respect to the first e-mail, the court determined that it is related directly to how the plan administrator interprets and conducts the appeals procedure contained in the severance plan and did not constitute advice to the plan and its beneficiaries as parties adverse to the plaintiff. Rather, the court concluded that the first e-mail constituted advice to the plan administrator as to the fiduciary duties owed to all beneficiaries, including, but not limited to, the plaintiff.
The court distinguished the second set of e-mails and held that they were protected from disclosure under the attorney-client and work-product privileges. Unlike the first e-mail, the second set of e-mails related to the substantive merits of the plaintiff’s individual claim and the content of the final decision letter denying the severance benefits he was seeking. At that point, the decision to deny the plaintiff’s appeal had already been made and the plaintiff’s only recourse was litigation. The court concluded that the second set of e-mails was protected from disclosure under the attorney-client and work-product privileges because, by the time they were prepared, the plaintiff’s interests had become sufficiently adverse to those of the plan administrator.
As noted above, the court in Carr conducted an in-camera review of the disputed documents, and it is likely that the specific content of those documents informed the court’s decision regarding disclosure of their contents. The authors caution that not all federal judges may be as protective of the interests of plan fiduciaries as was the case in Carr.
Fiduciaries and attorneys providing advice to plan fiduciaries should proceed with caution and assume that communications regarding their administration the plan, including their adjudication of specific claims, will be subject to disclosure. Accordingly, trustees and other fiduciaries should remain ever mindful that, when acting as fiduciaries, they must act solely in the interest of the participants and beneficiaries of the plan and disregard other considerations. If the fiduciary and her advisor proceed in this matter, their communications will reflect this fact and disclosure of such communications will be of less concern.
For more information regarding this topic, please contact Mark H. Hess , Brian D. Sullivan or any member of Fox Rothschild’s Employee Benefits & Compensation Planning Practice Group.