ComplianceAugust 24, 2011

Attorney-Client Privilege Extends to DoL Audit

The fiduciary exception to the attorney-client privilege rule extends to plan administration between an ERISA trustee and a plan attorney, the 4th U.S. Circuit Court of Appeals has ruled in Solis v. The Food Employers Labor Relations Association.

Reported by Tara Cantore

Accordingly, law firm Wolters Kluwer reports, two multiemployer funds must comply with a district court’s order to turn over certain plan administration materials related to the funds’ ill-fated decision to invest in entities related to Bernard Madoff.

As part of an ERISA §504 audit, the U.S. Department of Labor (DoL) ordered two multiemployer plans to turn over documents relating to a $10 million loss of plan assets as result of investments in entities related to Madoff. The funds refused, citing both attorney-client privilege and the work-product privilege. The district court held the privileges did not apply and ordered the documents to be produced. The funds appealed.

Wolters Kluwer explained that the fiduciary exception to the attorney-client privilege stems from trust law and is based on the rationale that the benefit of any legal advice obtained by a trustee regarding matters of trust administration runs to the beneficiaries of the trust, and not to the trustees.

While the exception is limited, the funds conceded the exception extends to the DoL when it acts on behalf of beneficiaries in the context of an ERISA enforcement action under ERISA §502. However, the funds argued, the fiduciary exception should not extend to a DoL compliance investigation under ERISA §504.

The 4th Circuit disagreed, finding no “principled basis” on which to differentiate between enforcement actions and investigative actions when applying the fiduciary exception. As a practical matter, effective enforcements under ERISA §502 will depend upon effective investigations under ERISA §504.

The law firm explained that the work-product privilege belongs to the attorney and confers a qualified privilege on documents prepared by an attorney in anticipation of litigation. While the appellate court noted several courts have found the fiduciary exception to apply to the work-product privilege in the ERISA context, it declined to make any ruling and allowed the district court’s order to remain in effect. The funds bore the burden of proving the applicability of the privilege to specific documents, yet they failed to provide “privilege logs” or identify the litigation for which specific documents were prepared.