1. #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

2. #ERISA
The Fiduciary Exception to the Attorney-Client Privilege
2

3. #ERISA
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

4. #ERISA
FIDUCIARY EXCEPTION
What is it?
4

5. #ERISA
•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.
5

6. #ERISA
SHOULD IT APPLY IN THE CONTEXT OF ERISA?
No.
6

7. #ERISA
DOES IT APPLY IN THE CONTEXT OF ERISA?
Yes.
7

8. #ERISA
DOES IT MAKE SENSE?
No.
8

9. #ERISA
THEN WHY DO WE HAVE IT?
Because it’s ERISA.
9

10. #ERISA
GENERAL RULE
Applies to legal advice on matters of “plan administration.”
10

11. #ERISA
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.
11

12. #ERISA
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)
•Fifth – Wildbur v. ARCO Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992)
•Sixth – Fausek v. White, 965 F.2d 126, 132-133 (6th Cir. 1992)
•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)
12

13. #ERISA
EXCEPTIONS
13

14. #ERISA
ADVICE REGARDING NON-FIDUCIARY MATTERS
•Examples – Plan adoption, amendments or termination.
See In re Long Island Co., Solis, Bland.
14

15. #ERISA
BREACH OF FIDUCIARY DUTY
•Where the advice concerns a fiduciary’s personal liability, the exception does not apply.
15

16. #ERISA
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.
16

17. #ERISA
DOES THE FIDUCIARY EXCEPTION APPLY TO INSURANCE COMPANIES?
Generally, yes.
17

18. #ERISA
BUT
See Wachtel v. Health Net, Inc., 482 F.3d 225 (3rd Cir. 2007).
18

19. #ERISA
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

20. #ERISA
•“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

21. #ERISA
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).
21

22. #ERISA
Ethical Issues That Arise in ERISA Litigation
22

23. #ERISA
•Ethical Issues
•Conflicts of Interest
•Who is the Client?
•The Engagement Letter
23

24. #ERISA
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 are you protecting?
24

25. #ERISA
AN EXEMPLAR OF THE INHERENT CONFLICT
•Tatum v. RJR Pension Inv. Committee, 761 F.3d 346 (4th Cir. 2014).
•Whose Interest Was Being Served?
•Whose Interest Was Supposed to Have Been Served?
25

26. #ERISA
•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”.
•Tatum v. RJR Pension Inv. Committee, 761 F.3d 346 (4th Cir. 2014).
26

27. #ERISA
•“[I]n light of the fiduciary duty to act solely in the interest of participants and beneficiaries, it was clearly improper for the fiduciaries to consider their own potential liability as part of the reason for not changing course on their decision to divest the Plan of Nabisco stocks. The district court concluded that [t]he lack of effort on the part of those considering the removal of the Nabisco Funds—from March 1999 until the stock was removed from the plan on January 31, 2000—compel[led] a finding that the RJR decision-makers in this case failed to exercise prudence in coming to their decision to eliminate the Nabisco Funds from the Plan.”
•Tatum v. RJR Pension Inv. Committee, 761 F.3d 346 (4th Cir. 2014).
27

28. #ERISA
Broad Range of Defendants in the Typical Case
•the Plan
•the Plan Sponsor
•the Named Fiduciary
•Deemed Fiduciaries
•Company Officers and Directors Who Appointed Named Fiduciaries
•Company Officers and Directors Who Operate the Plan or Control its Asset
•Outside Vendors
28

29. #ERISA
•Typical of the Class Action Case
•A Suit Filed by a Single Participant May Likewise Name Many of Them
•Finger Pointing and the Potential Conflict
29

30. #ERISA
Who is Watching the Hen House?
• Potential Conflicts Among the Plan Sponsor, Named Fiduciary, Participants
• The ESOP Example
• The Independent Fiduciary Solution
30

31. #ERISA
Potential Conflict Between the Plan and its Advisors
•Potential Conflict Subgenre - Santomenno ex rel. John Hancock Trust v. John Hancock Life Ins. Co., --- F.3d ----, 2014 WL 4783665 (3rd Cir.(N.J.) Sep 26, 2014).
•Relationship Between/Among the Plan Sponsor/Named Fiduciary on One Side, and Plan Vendor/Service Provider On the Other
31

32. #ERISA
32
•Is it Cured by Fiduciary Warranties and Agreements to Indemnify?

33. #ERISA
The D&O Wrinkle
•The Tripartite Relationship
•Conflicted Counsel
•Waiver of Conflict versus Separate Counsel
33

34. #ERISA
Conflicts in Insurer Provided Benefits – Group LTD
•Usual Structure – Employer as Plan Sponsor and Named Fiduciary; LTD Insurer as Claim Administrator and/or Claim Fiduciary
•Both, Along with Plan Itself, Will Often Be Named as Defendants
•Need Separate Counsel?
•Impact of Recovery Sought by the Plaintiff?
•Impact of a Claim for ERISA Penalties?
•Impact of Amara Remedies?
34

35. #ERISA
A Variation: Group Life Provided by Insurer
•Usual Structure – Employer as Plan Sponsor and Named Fiduciary; LTD Insurer as Claim Administrator and/or Claim Fiduciary
•Both, Along with Plan Itself, Will Often Be Named as Defendants
•Need Separate Counsel?
•The Conversion Coverage War Story:
* What Is Conversion Coverage?
* What Does the Plan Say About Notice to Employee/Participant?
* Amara Remedies: Who Is Responsible for Not Informing or Wrongly Informing Participant About Conversion Rights?
* Is there a Conflict Requiring Separate Counsel?
35

36. #ERISA
Ethical Issues with Smaller Clients
•Ethical Issues in Representing Participants or Smaller Plans with Less Internal Expertise
•State Rules of Professional Conduct/Lawyer Ethical Rules
•Informed Consent
•Meaning in this Context
•Exposure, Risks, and Obligations
•The 204(h) War Story
36

37. #ERISA
The Engagement Letter
•What Does All of This Mean for the Engagement Letter?
•Identify the client
•Identify the scope
37

38. #ERISA
ETHICAL ISSUES AND THE FIDUCIARY EXCEPTION
Joseph M. Hamilton
Partner
Mirick O’Connell
Stephen D. Rosenberg
Of Counsel
The Wagner Law Group
Questions?
Thank You.