What is the fiduciary exception? Protecting privilege when advising on employee benefit plan issues

Examining the fiduciary exception with Solis v. Food Employers Labor Relations Ass’n

It is increasingly important today for companies of all sorts to make sound decisions regarding the benefits they offer to employees — from health, life, and disability coverage to retirement and pension plans. The rules governing employee benefits are complex, and it pays to seek good legal advice.

Employers should be aware, however, that some courts have applied the “fiduciary exception” to the attorney-client privilege to certain communications between counsel and the administrators of employee benefit plans. The exception does not apply to all such communications, so it is important to understand which types of communications will be privileged and which might not. The need to address these issues may arise in the context of responding to a discovery request in a benefits dispute or in complying with a document subpoena from a regulatory agency.

In order to “encourage ‘full and frank communication between attorneys and their clients,’” courts have long recognized the attorney-client privilege. The privilege is not without limits, however, and one such boundary has arisen in the context of certain fiduciary relationships. Derived from the law of trusts, the fiduciary exception is based upon the “rationale that the benefit of any legal advice obtained by a trustee regarding matters of trust administration runs to the beneficiaries.” Nevertheless, the fiduciary exception has been applied outside of the context of trust administration.

The Employee Retirement Income Security Act of 1974 (ERISA) governs employee benefit plans. The administrator of an employee benefit plan, often the employer or its designee, is a fiduciary under ERISA. As recognized by the 4th Circuit in Solis, a number of circuit courts have recognized the fiduciary exception to the assertion of the attorney-client privilege by ERISA fiduciaries in some situations. According to the 4th Circuit, the fiduciary exception applies to communications between an ERISA plan fiduciary “and a plan attorney regarding plan administration.”

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As the 4th Circuit acknowledged, however, the fiduciary exception is “not without limits” and will not apply when the communications implicate the plan fiduciary in a personal capacity, such as advice related to defense of a claim against the fiduciary. Furthermore, advice regarding “non-fiduciary matters, such as adopting, amending, or terminating an ERISA plan, are not subject to the fiduciary exception.” Ultimately, the privilege determination “turns on the context and content of the individual communications at issue.”

The 4th Circuit in Solis also noted in dicta that the fiduciary exception could apply to the work product doctrine, but did not reach that question because the parties asserting the work product protection failed to carry their burden to demonstrate its applicability by supplying appropriate privilege logs.

Counsel should thus be mindful that advice given to a plan fiduciary on the subject of plan administration could be subject to disclosure under the fiduciary exception. Such communications should therefore be crafted so that there will be no unintended consequences if subsequently viewed by an audience beyond the initial recipient.

To avoid questions and potential problems, it is crucial for counsel to understand upfront what type of advice the client is seeking and in what capacity the client is acting at the time. It is also important to segregate communications with the fiduciary concerning plan administration from those pertaining to personal legal advice or defense, or concerning non-fiduciary matters, so that documents can be distinguished for production or logging as appropriate should the need arise.

If a discovery request seeks information relating to personal advice or defense of a plan administrator or to non-fiduciary matters, it is also paramount that sufficient detail be included in a privilege log to establish the basic elements of the attorney-client privilege or work product protections and the inapplicability of the fiduciary exception. A detailed privilege log may help avoid a motion to compel by the party seeking the material in the first instance and will also give the court the proper basis to evaluate and uphold the privilege assertion.

Knowledge of the fiduciary exception and how it applies — or does not apply — to communications regarding employee benefit plan topics will assist counsel in making sure that their advice remains in the appropriate and intended hands.

Contributing Author

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Andrew P. Sherrod

Andrew P. Sherrod is a partner in the litigation section of Hirschler Fleischer (Richmond, Va.), who has an active practice before federal and state courts,...

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