The Fiduciary Exception to the Attorney-Client Privilege — History and Circuit Survey

From In re United States, 2009 U.S. App. LEXIS 28598 (Fed. Cir. Dec. 30, 2009):

The United States petitions for a writ of mandamus to direct the Court of Federal Claims ("trial court") to vacate its orders requiring the United States to produce documents that it asserts are protected by the attorney-client privilege. Jicarilla Apache Nation ("Jicarilla") opposes. We hold that the United States cannot deny an Indian tribe's request to discover communications between the United States and its attorneys based on the attorney-client privilege when those communications concern management of an Indian trust and the United States has not claimed that the government or its attorneys considered a specific competing interest in those communications. Accordingly, we adopt the fiduciary exception in tribal trust cases. Under the fiduciary exception, a fiduciary may not block a beneficiary from discovering information protected under the attorney-client privilege when the information relates to fiduciary matters, including trust management. Because we find that the trial court correctly applied the fiduciary exception to the United States' privileged communications, we deny the United States' petition for a writ of mandamus. ***

I. The Attorney-Client Privilege and the Development of the Fiduciary Exception

The attorney-client privilege is the client's right to refuse to disclose confidential "communications between attorney and client made for the purpose of obtaining legal advice." Genentech, Inc. v. U.S. Int'l Trade Comm'n, 122 F.3d 1409, 1415 (Fed. Cir. 1997); see also Fisher v. United States, 425 U.S. 391, 403 (1976) ("Confidential disclosures by a client to an attorney made in order to obtain legal assistance are privileged."); Black's Law Dictionary 1235 (8th ed. 2004). The privilege "encourag[es] full and frank communication between attorneys and their clients" and "recognizes that sound legal advice . . . depends upon the lawyer's being fully informed by the client." Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). But the privilege "belongs to the client, who alone may waive it." In re Seagate Tech., LLC, 497 F.3d 1360, 1372 (Fed. Cir. 2007) (en banc). An attorney may not assert the privilege against the client's wishes or against the client himself. See Am. Standard, Inc. v. Pfizer, Inc., 828 F.2d 734, 745 (Fed. Cir. 1987) ("The privilege is that of the client, not that of the attorney.").

While "[t]he attorney-client privilege is the oldest of the privileges for confidential communications known to the common law," Upjohn, 449 U.S. at 389, it is not "an ironclad veil of secrecy," Garner v. Wolfinbarger, 430 F.2d 1093, 1101 (5th Cir. 1970). The Supreme Court has recognized exceptions to the privilege, for example, holding that it does not protect communications made in the furtherance of a crime or fraud. See United States v. Zolin, 491 U.S. 554, 562-63 (1989) ("[T]he purpose of the crime-fraud exception to the attorney-client privilege [is] to assure that the seal of secrecy between lawyer and client does not extend to communications made for the purpose of getting advice for the commission of a fraud or crime." (internal quotation marks omitted)); see also In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 807 (Fed. Cir. 2000) (discussing the crime-fraud exception). Moreover, we have recognized the joint client or community of interest doctrine: "When the same attorney represents the interests of two or more entities on the same matter, those represented are viewed as joint clients for purposes of privilege." In re Regents of the Univ. of Cal., 101 F.3d 1386, 1389 (Fed. Cir. 1996). Under this doctrine, "communications between a client and the attorney may be privileged as to outsiders, [but] they are not privileged" between clients in a community of interest relationship. Wachtel v. Health Net, Inc., 482 F.3d 225, 231 (3d Cir. 2007). Several courts have recognized another limitation on the attorney-client privilege, known as the fiduciary exception.

As early as 1855, English courts required a trustee to produce legal advice to a beneficiary when the beneficiary sued the trustee for mismanagement and the advice related to trust administration. Devaynes v. Robinson, 20 Beav. 42, 43, 52 Eng. Rep. 518, 518 (1855) ("[C]ases and opinions taken by the . . . trustees must be produced" to the beneficiaries as long as the trustee did not obtain them in contemplation of litigation); Recent Cases, In re Whitworth, 1 Ch. 320 (1919), 33 Harv. L. Rev. 120 (1919). However, the attorney-client privilege still applied to advice that the trustee sought in anticipation of litigation. Id. After Devaynes, English courts have followed the so-called exception to the attorney-client privilege in beneficiary suits against a trustee for trust mismanagement. See, e.g., Talbot v. Marshfield, 2 Dr. & Sm. 549, 551 62 Eng. Rep. 728, 729 (1865) ("[I]f a trustee properly takes the opinion of counsel to guide him in the execution of the trust, he has a right to be paid the expense of so doing out of the trust estate; and that alone would give any [beneficiary] a right to see the case and opinion."); Wynne v. Humbertson, 27 Beav. 421, 423, 54 Eng. Rep. 165, 166 (1858) ("[T]he rule is that, where the relation of trustee and [beneficiary] is established, all cases submitted and opinions taken by the trustee to guide himself in the administration of his trust, and not for the purpose of his own defense in any litigation . . ., must be produced to the [beneficiary]."); In re Mason, 22 Ch. D. 609, 609 (1883) (holding that the trustees must produce documents containing "communications by and to the trustees and their solicitors in relation to the trust estate, made before the action was brought"). These English courts reasoned that a beneficiary was entitled to access the advice of counsel because the trustee sought the advice on how to execute the trust for the beneficiary's benefit and because the trust fund paid for the advice. See Wynne, 27 Beav. at 423-24, 54 Eng. Rep. at 166; Talbot, 2 Dr. & Sm. at 550-51, 62 Eng. Rep. at 729.

Though much later, courts in the United States also adopted the fiduciary exception. In 1970, the Fifth Circuit held that shareholders could pierce a corporation's attorney-client privilege to discover legal advice given to corporate management in a suit for breach of fiduciary duty upon a showing of good cause. Garner, 430 F.2d at 1103-04. The Fifth Circuit identified nine factors courts should consider in finding good cause. *** In reaching its conclusion, the court recognized that a corporation or its managers may sometimes have conflicting interests with shareholders and that shareholders may have conflicting interests among themselves. *** "But when all is said and done management is not managing for itself," rather it "has duties which run to the benefit ultimately of the stockholders." *** Analogizing to the crime-fraud exception and the community of interest doctrine, the Fifth Circuit reasoned that the attorney-client privilege had limits when the person seeking legal advice had a superseding obligation to shareholders or some other client was entitled to the advice. ***

[Footnote 1] The nine Garner factors are as follows:

[1] [T]he number of shareholders and the percentage of stock they represent; [2] the bona fides of the shareholders; [3] the nature of the shareholders' claim and whether it is obviously colorable; [4] the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources; [5] whether, if the shareholders' claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality; [6] whether the communication related to past or to prospective actions; [7] whether the communication is of advice concerning the litigation itself; [8] the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; [9] the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.

Garner, 430 F.2d at 1104.

Since Garner, U.S. courts have applied the fiduciary exception in contexts other than derivative shareholder actions. For example, courts have applied the exception in trust cases when trustees assert the attorney-client privilege against beneficiaries, as in the leading American case Riggs Nat'l Bank of Wash., D.C. v. Zimmer, 355 A.2d 709 (Del. Ch. 1976). Courts have also relied on the exception in other fiduciary relationships, such as when employers managing plans regulated under the Employee Retirement Income Security Act (ERISA) have asserted privilege against plan beneficiaries and when unions have asserted privilege against union members. See Becher v. Long Island Lighting Co. (In re Long Island Lighting Co.), 129 F.3d 268, 271-72 (2d Cir. 1997) (employer acting as an ERISA fiduciary asserting privilege against plan beneficiaries); Aguinaga v. John Morrell & Co., 112 F.R.D. 671, 679-81 (D. Kan. 1986) (union asserting privilege against union members).

The fiduciary exception to the attorney-client privilege is now well established among our sister circuits. At least five circuits recognize some form of the exception, including the Second, Fifth, Sixth, Ninth, and D.C. Circuits. See, e.g., United States v. Mett, 178 F.3d 1058, 1062 (9th Cir. 1999); In re Lindsey, 158 F.3d 1263, 1276-79 (D.C. Cir. 1998); Becher, 129 F.3d at 272 (recognizing the fiduciary exception in the Second Circuit); Wildbur v. ARCO Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992); Fausek v. White, 965 F.2d 126, 132-33 (6th Cir. 1992); cf. Sandberg v. Va. Bankshares, Inc., 79 F.2d 332, 352 (4th Cir. 1992), vacated, No. 91-1873(L), 1993 WL 524680 (4th Cir. Apr. 7, 1993). Though we are aware of some state courts that have expressly rejected the fiduciary exception, no federal court of appeals has rejected the principle, but have only declined to apply the exception in cases where the facts did not justify its application. Compare Wells Fargo Bank, N.A. v. Superior Court, 990 P.2d 591, 594-96 (Cal. 2000) (rejecting the fiduciary exception in a trustee-beneficiary case because statutory attorney-client privilege did not permit judicially created exceptions), and Huie v. DeShazo, 922 S.W.2d 920, 922-25 (Tex. 1996) (rejecting the fiduciary exception in a trustee-beneficiary case), with Wachtel, 482 F.3d at 236-37 (declining to apply the fiduciary exception to an insurer who sells, but does not manage, insurance to ERISA-regulated parties), and Bland v. Fiatallis N. Am., Inc. 401 F.3d 779, 788-89 (7th Cir. 2005) (declining to apply the fiduciary exception to an employer amending or terminating an ERISA plan), and Cox v. Adm'r U.S. Steel & Carnegie, 17 F.3d 1386, 1415-16 (11th Cir. 1994) (declining to apply the Garner doctrine to a union in a suit brought by union members because only a tiny percentage of union members were members of the class and the union class members' interests conflicted with union members not in the class).

As developed in the United States, courts have based the fiduciary exception on two justifications. *** First, the fiduciary is not the attorney's exclusive client, but acts as a proxy for the beneficiary. See, e.g., Mett, 178 F.3d at 1063 ("[A]t least as to advice regarding plan administration, a trustee is not the real client and thus never enjoyed the privilege in the first place." (internal quotation marks omitted)); Riggs, 355 A.2d at 713 ("As a representative for the beneficiaries of the trust which he is administering, the trustee is not the real client in the sense that he is personally being served."). Under this justification, the fiduciary exception is but a logical extension of the client's control of the attorney-client privilege. Second, the fiduciary has a duty to disclose all information related to trust management to the beneficiary. See e.g., Becher, 129 F.3d at 72 ("[An] ERISA fiduciary must make available to the beneficiary, upon request, any communications with an attorney that are intended to assist in the administration of the plan."); Riggs, 355 A.2d at 714 ("[T]rustees . . . cannot subordinate the fiduciary obligations owed to the beneficiaries to their own private interests under the guise of attorney-client privilege."). Under this second justification, "the fiduciary exception can be understood as an instance of the attorney-client privilege giving way in the face of a competing legal principle," the duty to disclose.

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