Litigation: Who else might be listening?

A notable exception to the attorney-client privilege may affect litigation pertaining to employee benefit plans.

A central role of counsel is to provide legal advice to the client. As any law student knows, the communications transmitting legal advice are regularly protected should they be subject to litigation. However, there is a potentially significant exception that comes into play when the advice is provided in the context of employee benefit plans. That is the fiduciary exception to the attorney-client privilege—an exception that could otherwise expose counsel to discovery of their communications.

The elements of the attorney-client privilege are well-known: a confidential communication made between an attorney and his client for the purpose of obtaining or providing legal advice. The Supreme Court has long recognized that this privilege serves the salutary goal of affording “full and frank” communications between a lawyer and his client. But the goals served by the privilege are not absolute.

Well before Congress federalized the law governing employee benefit plans, the common law of trusts developed a fiduciary exception to the attorney-client privilege. This exception is based on the rationale that legal advice obtained by a trustee regarding matters of trust administration is intended to ultimately benefit the trust beneficiaries, not to personally benefit the trustees. As such, courts reasoned, the advice should not be withheld from the beneficiary.

Earlier this year, the United States Court of Appeals for the 4th Circuit followed four other circuits (2nd, 5th, 7th and 9th Circuits) in adopting this fiduciary exception to the attorney-client privilege to relationships governed by ERISA.

The decision, Solis v. The Food Employers Labor Relations Association, et. al, involved a subpoena issued by the United States Department of Labor (DOL) as part of an investigation into investments made by two retirement funds. The funds had invested in hedge funds that in turn had invested in Bernard L. Madoff Investment Securities LLC. The DOL subpoenaed the retirement funds as part of its investigation. The funds objected to some of the subpoena’s requests on the basis of the attorney-client privilege. The DOL disagreed that the privilege applied and sought judicial enforcement of its subpoenas. The district court ordered the retirement funds to produce the withheld documents. The appeals court affirmed that decision.

That the context of the dispute over the existence of the privilege and its exception was a regulatory subpoena as opposed to litigation did not affect the court’s view of the applicability of the exception. Given the explosion of litigation involving retirement plan investments, this exception is being litigated more and more often in district courts around the country.

This does not mean that every communication that an in-house counsel has regarding an ERISA plan is necessarily subject to discovery. Like other circuits, the 4th Circuit recognized that the exception does not apply to, for example: (1) a fiduciary’s defense in an action charging breach of fiduciary duty, or (2) non-fiduciary activities such as adopting, amending, or terminating an ERISA plan.

As the contours of the privilege are debated in courts, however, in-house counsel asked to give a legal opinion involving administration of an employee benefit plan should make sure to ask themselves: Who else might be listening?

Contributing Author

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Jamie Fleckner

Jamie Fleckner is a partner in Goodwin Procter’s Litigation Department and heads the firm’s ERISA Litigation Practice. He can be reached at jfleckner@goodwinprocter.com

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