The Fiduciary Exception to the Attorney-Client Privilege
The ERISA statute requires that an employer, as administrator of an ERISA plan, must communicate forthrightly with the plan beneficiaries about the interpretation and administration of the plan. Because of this critical responsibility, a number of courts, including the U.S. Court of Appeals for the Ninth Circuit, recognize a “fiduciary exception” to the attorney-client privilege. The fiduciary exception prevents an employer acting as an ERISA fiduciary from asserting the attorney-client privilege against a plan beneficiary on matters concerning plan administration.
Courts have offered two rationales to support the exception. First, courts reason that the exception is grounded in an ERISA trustee’s statutory duty to disclose to plan beneficiaries all information related to plan administration. Thus, the attorney-client privilege must yield to the competing legal principle established by the ERISA statute itself.
Second, in matters related to plan administration and interpretation in the ERISA context, courts conclude that the plan beneficiary is the client, not the lawyer for the ERISA trustee. In that context, the fiduciary exception is not an “exception” at all, but merely a recognition that in matters of plan administration, an ERISA trustee is not the real “client” and, thus, never had the privilege to begin with. Under either rationale, however, courts also recognize that when an ERISA trustee faces its own liability, whether civil or criminal, then the trustee’s communications with its counsel in support of its own defense is subject to protections of the attorney-client privilege.
How Courts Analyze the Issue
When a plaintiff challenges an employer’s assertion of the attorney-client privilege based on the fiduciary exception, the court must examine the nature of the disputed communications. First, does the lawsuit involve an ERISA plan? Is the employer a plan fiduciary? Are the communications identified on the party’s privilege log? Do the communications involve the employer’s counsel? If so, is privilege waived by inclusion of any third party in the communications? Finally, and most importantly, does the communication in question involve information concerning the interpretation or administration of the ERISA plan? Or does the communication contain advice or discussion pertaining to the fiduciary’s own defense against civil or criminal liability?
This last step in the inquiry is often difficult to determine without in camera review of the document in question. The court may need to examine the contents of the disputed communications. It is not always clear just from a privilege log entry whether a given communication about the plan is for the purpose of conveying information about the plan interpretation or administration to a plan beneficiary, or if instead, the communication is related to the fiduciary’s own potential liability to disgruntled plan beneficiaries or regulators.
A key fact that courts consider is whether, at the time of the communication, the fiduciary and the beneficiary(ies) have become legally adverse. When that is the case, then the employer/fiduciary may indeed shield communications with its counsel that are for the employer’s own defense. In United States v. Mett, the appellate court held that the exception did not apply to require disclosure. The court emphasized that the defendants had already been convicted of improperly withdrawing plan funds to pay for the organization’s operations. The communications at issue related to strategy discussions between the fiduciaries and their defense counsel as opposed to the improper withdrawals and, thus, were shielded by privilege.
Tips for Practitioners
This discovery issue is important, but often overlooked in ERISA cases. Counsel needs to be prepared to effectively challenge or defend the assertion of the fiduciary exception to the attorney-client privilege. For defense counsel, if the client seeks to withhold documents otherwise responsive to discovery requests based on the fiduciary exception, you will first need to confirm that your client was indeed serving as an ERISA fiduciary during the relevant period.
Section 3(21) of the ERISA statute defines a “fiduciary” as anyone who “has any discretionary authority or responsibility in the administration of an ERISA plan,” but only when performing the functions outlined by the statute. If the client qualifies as an ERISA fiduciary, the defendant must identify on a privilege log any documents withheld based on the fiduciary exception to the attorney-client privilege. On the other hand, if the defendant cannot meet the requirements of an ERISA fiduciary, it may be appropriate to assert other privileges or the attorney work-product doctrine, but the fiduciary exception to the attorney-client privilege will not apply. To avoid disclosure, it will be imperative to present evidence that at the time of the challenged communications, the fiduciary itself was subject to personal criminal or civil liability.
For plaintiff’s counsel seeking production of documents withheld based on the fiduciary exception, a motion to compel production of the documents needs to include declarations or deposition testimony to establish that the defendant was acting in its fiduciary capacity in the administration or interpretation of the ERISA plan at the time of the communications and not for its own defense. Ultimately, the court may need to conduct in camera review of the documents to resolve the issue.