Alert June 15, 2011

Another Circuit Court Adopts Fiduciary Exception to Attorney-Client Privilege in ERISA Context

On May 4, the Fourth Circuit followed four other circuits in adopting the fiduciary exception to the attorney-client privilege in the context of relationships governed by ERISA. The decision, Solis v. The Food Employers Labor Relations Association, et. al, No. 10-1687 (4th Cir.), is available here.

The background is as follows: the Department of Labor (“DOL”) initiated an investigation under ERISA Section 504, 29 U.S.C. Section 1143, into investments made by two multi-employer funds (the “Funds”). The Funds had invested in hedge funds, that in turn had invested in Bernard L. Madoff Investment Securities, LLC. As part of its investigation, the DOL subpoenaed the Funds. The Funds objected to some of the subpoena’s requests on the basis of the attorney-client privilege and work product doctrine. The DOL sought judicial enforcement of the subpoenas. The district court ordered the Funds to produce the withheld documents.

On appeal, a panel of the Fourth Circuit affirmed the decision of the district court that the fiduciary exception to the attorney-client privilege applied under ERISA. It began with the rationale for the rule under common law, “that the benefit of any legal advice obtained by a trustee regarding matters of trust administration runs to the beneficiaries.” The court then went on to identify other circuit courts that have applied the fiduciary exception in the ERISA context (the Second, Fifth, Seventh and Ninth Circuits). It then formally extended the fiduciary exception to the attorney-client privilege “to communications between an ERISA trustee and a plan attorney regarding plan administration.” That the context was a regulatory subpoena under Section 504, as opposed to litigation arising under Section 502, did not affect the court’s view of the applicability of the exception.

The court explained that the exception “is not without limits,” however. It followed other courts holding that the exception does not apply to (i) a fiduciary’s defense in an action charging breach of fiduciary duty or (ii) non-fiduciary activities “such as adopting, amending, or terminating an ERISA plan.” The court also held that the DOL does not need to show good cause to establish the existence of the exception.

The Fourth Circuit then addressed whether the fiduciary exception should similarly apply to the attorney work product doctrine. It found persuasive several district court authorities that extended the exception to apply equally to the work product doctrine. Ultimately, however, the Fourth Circuit held that it did not need to reach this question because the Funds did not otherwise meet their burden of proving that the work product doctrine applied at all, regardless of the exception.