Lower-court cases have generally ruled that ERISA fiduciaries’ communications with legal counsel may be subject to disclosure to plan beneficiaries under the “fiduciary exception” to the attorney-client privilege. In United States v. Jicarilla Apache Nation, 131 S. Ct. 2313 (U.S. 2011), the U.S. Supreme Court considered the “fiduciary exception” for the first time in a non-ERISA setting and found that the United States, as trustee of tribal property, was entitled to confidential communications with its legal counsel despite its fiduciary status. The Supreme Court’s rejection of the “fiduciary exception” in this context has raised hope that ERISA fiduciaries may be entitled to greater confidentiality in obtaining legal advice regarding plan administration.
The Fiduciary Exception
In Jicarilla, the Supreme Court reiterated that the attorney-client privilege is intended to encourage clients to seek, and attorneys to give, full and frank legal counsel. The Court recognized that many lower courts have applied a “fiduciary exception” to the attorney-client privilege and precluded a fiduciary from asserting the privilege against beneficiaries of the trust or ERISA plan where the fiduciary has sought legal advice with regard to administration of the trust or ERISA plan.
This fiduciary exception has been based on two principles. First, the “real client” is the beneficiary, not the fiduciary. Second, the fiduciary has a duty of full disclosure to the beneficiary.
Solis v. Food Employers Labor Relations Ass’n , 644 F.3d 221 (4th Cir. 2011) (decided before the Supreme Court’s decision in Jicarilla) relied on both these reasons in ruling that the fiduciary exception entitled the U.S. Department of Labor to obtain privileged communications between ERISA multiemployer plans and their legal counsel. The case may be explained in part because the multiemployer plans evidently failed to provide a proper privilege log to support the claim of attorney-client privilege and work product. However the court of appeals used exceptionally broad language in finding that the government could obtain privileged attorney-client documents.
The fiduciary exception generally does not apply to attorney-client communications regarding settlor functions, such as adopting, amending or terminating an ERISA plan. Likewise, the fiduciary exception usually does not apply to an ERISA fiduciary’s communications with counsel regarding the fiduciary’s personal defense against a breach of fiduciary duty action or when litigation is threatened in a benefits claim case.
Supreme Court Questions Appropriateness of Fiduciary Exception
In Jicarilla, the Supreme Court declined to find a fiduciary exception to the attorney-client privilege in the context of the general trust relationship between the United States and Native American tribes. The Court determined that the government, not the beneficiary of the trust, was the real client, with distinct and conflicting interests from the trust beneficiaries. Assuming, but not deciding, that a fiduciary exception might exist in the context of a private trust, the Court concluded that the federal government did not have the same common-law disclosure obligations as a private trustee.
The Court gave great weight to the source of the funds used to pay for the legal counsel. In Jicarilla, the government attorneys were paid out of congressional appropriations at no cost to the tribe, and the Court noted that the source of funds is a strong indicator of precisely who the real clients are and a significant factor influencing who ought to have access to the legal advice.
The Court also concluded that the government did not have the same fiduciary duty to disclose all information related to trust management to the beneficiary as required of a private trustee under common law. The Court reasoned that the government’s disclosure obligations as a fiduciary to the tribes were imposed pursuant to relevant Native American trust statutes that did not mention such a disclosure obligation. Citing its decisions in certain ERISA cases, the Court declined to expand the list of specific statutory disclosure obligations beyond those expressly enumerated in the statute.
Post-Jicarilla Court Decisions
Only a few lower-court decisions have considered Jicarilla, and so far those courts have continued to apply the fiduciary exception. In Harvey v. Standard Ins. Co., 2011 U.S. Dist. LEXIS 107834, 2-3 (N.D. Ala. Sept. 15, 2011), and in Moore v. Metropolitan Life Ins. Co., 2011 U.S. Dist. LEXIS 75725 (M.D. Ala. July 13, 2011), two U.S. district courts in Alabama held that the fiduciary exception could be applied to compel the production of privileged attorney-client communications between a disability insurer and its in-house attorney regarding an ERISA participant’s claims for disability benefits.
Both courts distinguished Jicarilla as limited to the federal government’s special role as trustee of Indian funds and found the Supreme Court’s decision did not impact the availability of the fiduciary exception in the context of ERISA.
Lessons for ERISA Fiduciaries
No court has yet cited Supreme Court’s decision in Jicarilla to limit application of the fiduciary exception to ERISA fiduciaries. Accordingly, ERISA fiduciaries can have no confidence that communications with legal counsel regarding plan administration will be treated as privileged from disclosure to participants or even the government.
However the Court’s analysis in Jicarilla will bolster the arguments of fiduciaries who seek to protect their attorney-client privilege, particularly where the fiduciary can show that (i) a genuine conflict of interest existed with the participant or the government and (ii) the attorney advising the fiduciary was not paid with plan assets.
Jicarilla emphasized the public interest for “full and frank communications between attorneys and their clients” to further the observance of law and administration of justice.” This principle may yet motivate courts to protect the attorney-client privilege of ERISA fiduciaries.
For further information, please contact the authors or any other members of McGuireWoods’ Employee Benefits Team.