#ERISA ACI’s 8 th National Forum on ERISA Litigation Joseph M. Hamilton Partner Mirick O’Connell Stephen D. Rosenberg Of Counsel The Wagner Law Group October 27 - 28, 2014 Tweeting about this conference? The Fiduciary Exception to Attorney-Client Privilege and Ethical Issues That Arise in ERISA Litigation
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The Fiduciary Exception to Attorney-Client Privilege and Ethical Issue that Arise in ERISA Litigation
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#ERISA
ACI’s 8th National Forum on ERISA Litigation
Joseph M. Hamilton
Partner
Mirick O’Connell
Stephen D. Rosenberg
Of Counsel
The Wagner Law Group
October 27 - 28, 2014
Tweeting about this conference?
The Fiduciary Exception to
Attorney-Client Privilege and
Ethical Issues That Arise in ERISA
Litigation
#ERISA
The Fiduciary Exception to the Attorney-Client Privilege
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ATTORNEY-CLIENT PRIVILEGE
The attorney-client privilege “is the oldest of the privileges for confidential communications known to the common law.”
Upjohn v. United States, 449 U.S. 383, 389 (1981). 3
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FIDUCIARY EXCEPTION
What is it?
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•Arose under English common law.
1. If a trustee obtains legal advice
2. to guide the administration of the trust
3. beneficiaries of the trust are entitled to the production of documents regarding that advice.
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SHOULD IT APPLY IN THE CONTEXT OF ERISA?
No.
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DOES IT APPLY IN THE CONTEXT OF ERISA?
Yes.
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DOES IT MAKE SENSE?
No.
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THEN WHY DO WE HAVE IT?
Because it’s ERISA.
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GENERAL RULE
Applies to legal advice on matters of “plan administration.”
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RATIONALE
1. A fiduciary has a duty to disclose to plan beneficiaries all information regarding plan administration.
2. The fiduciary is a representative of the plan beneficiary and is not the real client.
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FEDERAL CIRCUIT COURTS OF APPEAL WHICH HAVE RECOGNIZED
THE FIDUCIARY EXCEPTION • Second – In re Long Island Lighting Co., 129 F.3d 268, 272 (2nd Cir.
1997)
• Fourth – Solis v. Food Employers Lab. Rel. Ass’n, 644 F.3d 221, 228 (4th Cir. 2011)
• Seventh – Bland v. Fiatallis N. Am. Inc., 401 F.3d 779, 787 (7th Cir. 2005)
• Ninth – Stephan v. Unum Life Insurance Company of America, 697 F.3d 917 (9th Cir. 2002)
• Eleventh – Cox v. Adm’r U.S. Steel & Carnegie, 17 F.3d 1386, 1415-16 (11th Cir. 1994)
• DC – In Re Lindsey, 158 F.3d 1263, 1276 (D.C. Cir. 1998) cert. denied, 525 U.S. 996 (1998)
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EXCEPTIONS
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ADVICE REGARDING NON-FIDUCIARY MATTERS
• Examples – Plan adoption, amendments or termination.
See In re Long Island Co., Solis, Bland. 14
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BREACH OF FIDUCIARY DUTY
•Where the advice concerns a fiduciary’s personal liability, the exception does not apply.
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WHEN INTERESTS OF THE FIDUCIARY AND BENEFICIARY
DIVERGE
• After final benefit decision has been made. • After litigation has been filed. • Prospect of post-decision litigation generally not enough.
Moss v. Unum Life Ins. Co., 2012 WL 3553497 (6th Cir. 2012) Stephan, 697 F.3d at 933.
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DOES THE FIDUCIARY EXCEPTION APPLY TO
INSURANCE COMPANIES?
Generally, yes.
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BUT
See Wachtel v. Health Net, Inc., 482 F.3d 225 (3rd Cir. 2007).
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WACHTEL RATIONALE
• Plan beneficiaries are not the “real” clients obtaining legal advice.
• An ERISA beneficiary has no ownership interest in the insurer’s assets before a benefit is paid.
• Insurers pay for legal services out of their own assets, not trust assets.
• Insurers owe duties to all of their customers, not just the beneficiaries of the plan at issue.
• Conflicts with conflict of interest argument. 19
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• “Insurer who sells insurance contracts to ERISA-regulated benefit plans is itself the sole and direct client of counsel retained by the insurer, not the mere representative of client-beneficiaries, and not a joint client with its beneficiaries.”
Wachtel, 482 F.3d at 236. 20
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DISAGREEING WITH WACHTEL
• Stephan v. Unum Life Ins. Co. of America, 697 F.3d 917,
931-932, n.6 (9th Cir. 2012).
• Krase v. Life Ins. Company of North America, 962
F.Supp.2d 1033, 1037-1038 (N.D. Ill. 2013).
• Smith v. Jefferson Pilot Financial Insurance Company,
245 F.R.D. 45, 46 (D.Mass. 2007).
• Buzzanga v. Life Ins. Company of North America, 2010
WL 1292162 (E.D. Mo. 2010).
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Ethical Issues That Arise in ERISA Litigation
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•Ethical Issues
•Conflicts of Interest
•Who is the Client?
•The Engagement Letter
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CONFLICTING INTERESTS INHERENT IN THE SYSTEM
• A Universe of Actors
• With Different Interests
• With Different Legal Duties
• The Central Questions: Whose interest is being served?
• Whose Interest Was Supposed to Have Been Served?
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• The Work of the Fiduciaries:
• “RJR failed to engage in a prudent decision-making process. The court found that the working group's decision in March 1999 was made with virtually no discussion or analysis and was almost entirely based upon the assumptions of those present and not on research or investigation. Indeed, the court found that the group's discussion of the Nabisco stocks lasted no longer than an hour and focused exclusively on removing the funds from the Plan. . . .Rather, those involved in the October discussion expressed their view that the employees who cashed out their Nabisco stock at a loss were a problem, and there was fear that [these] early sellers might sue RJR. The court found that the discussion focused around the liability of RJR, rather than what might be in the best interest of the participants”.