Supreme Court Should Tread Carefully In Case Regarding Fiduciary Exception to Attorney-Client Privilege

March 04, 2011

On April 20, 2011, the United States Supreme Court will hear arguments in United States v. Jicarilla Apache Nation, a case involving a Native American tribe’s suit against the United States for breaching fiduciary duties by mismanaging tribal trust assets and other funds.[1] The Supreme Court’s handling of the case could threaten the ongoing viability of a powerful discovery tool for beneficiaries in litigation against fiduciaries — the so-called “fiduciary exception” to attorney-client privilege.

Generally in litigation, parties must produce relevant information concerning the topic of the dispute.  However, this general disclosure requirement does not apply to confidential communications between a party and its lawyer made for the purpose of obtaining or providing legal assistance to the client.  Such communications are said to be privileged attorney-client communications, and exempt from disclosure of their contents (although parties must disclose the date, parties to, and general broad subject of such communications in a privilege log in order to properly assert the privilege).

The attorney-client privilege developed out of public policy concerns — namely, that a party could only obtain high quality legal advice if they were free to fully disclose all of their legal problems and facts to counsel, and candor in revealing such confidences would only occur if these communications were protected from public disclosure.  The attorney-client privilege would allow a party and its attorney to “shield” these communications from later discovery in litigation.

The attorney-client privilege’s “shield” has one unfortunate side-effect: it can obscure the truth, which is the ultimate goal of litigation and our justice system.  Courts, therefore, have held that “since the privilege has the effect of withholding relevant information from the fact finder, it applies only where necessary to achieve its purpose.”[2]

Thus, a long-held exception to the attorney-client privilege has been the fiduciary exception, which precludes a fiduciary from asserting the attorney-client privilege against beneficiaries in a variety of contexts (including corporation-shareholders,[3] union-union members,[4] and pension plan administrators-pension beneficiaries[5]) upon a showing of “good cause” by the beneficiary for discovery of the otherwise privileged communications.  As the Restatement (Third) of the Law Governing Lawyers states, the fiduciary exception to attorney-client privilege recognizes that while directors and managers of a company/fund/organization are there to advance the interests of shareholders/beneficiaries/members and thus should not keep information from their constituents, these fiduciaries nonetheless have an incentive in litigation between themselves and their beneficiaries of placing their own interests above those of the company/fund/organization in deciding whether to waive the attorney-client privilege.[6]

Thus, the fiduciary exception remains a vital tool in discovery for plaintiff beneficiaries to obtain relevant evidence in support of their claims — allowing plaintiff beneficiaries to use relevant communications made between fiduciaries and counsel to prove that a fiduciary breached their obligations to the beneficiaries.  Notably, however, the Supreme Court has never ruled on the viability of the fiduciary exception to attorney-client privilege.

United States v. Jicarilla Apache Nation presents the Court with the first opportunity to do so, should the Court wish.  In Jicarilla, the United States seeks to vacate an order by the Court of Federal Claims compelling the United States to produce 155 documents containing attorney-client communications regarding the government’s management of tribal trust accounts under the fiduciary exception.  According to the Court of Federal Claims (and, later, the Court of Appeals for the Federal Circuit), the United States was a fiduciary to the Jicarilla Apache Nation in terms of its management of tribal assets, and thus privileged communications concerning those assets had to be produced to the Jicarilla Apache Nation under the fiduciary exception.

It is certainly our hope that the Supreme Court either upholds the fiduciary exception, or otherwise decides this case on narrow grounds that do not implicate the ongoing viability of the exception (such as holding that the United States and Jicarilla Apache Nation are sovereign nations, and thus not fiduciaries-beneficiaries in the traditional sense).  Beneficiaries — whether they are shareholders in a company or pension beneficiaries of a pension trust — should have the right to discover relevant information in communications between the fiduciaries appointed to look after the beneficiaries’ interests and the attorneys that a fiduciary hires to counsel them in serving the beneficiaries’ interests.  Too often fiduciaries not only breach their duties to serve faithfully and responsibly in the service of beneficiaries, but later compound that breach in subsequent litigation by using the attorney-client privilege to “shield” beneficiaries from learning facts contained in attorney-client communications concerning that wrongdoing.

The truth is the ultimate goal of litigation, and shareholders/beneficiaries should receive evidence of such truth over a self-dealing or negligent fiduciary’s objections regarding attorney-client privilege.  The Supreme Court should remember that, and uphold the ongoing viability of the fiduciary exception while deciding United States v. Jicarilla Apache Nation.

Sources:

[1] Case No. 10-382.  For copies of the briefing in the case and the decision below, please see: http://www.scotusblog.com/case-files/cases/united-states-v-jicarilla-apache-nation/ .

[2] Haines v. Liggett Group, Inc., 975 F.2d 81, 84 (3d Cir. 1992).

[3] Garner v. Wolfinbarger, 430 F.2d 1093, 1102-04 (5th Cir. 1970).

[4] Nellis v. Air Line Pilots Ass’n, 144 F.R.D. 68, 70-71 (E.D. Va. 1992); Aguinaga v. John Morrell & Co., 112 F.R.D. 671, 676-82 (D. Kan. 1986).

[5] In re Occidental Petroleum Corp., 217 F.3d 293, 297-98 (5th Cir. 2000); Wildbur v. ARCO Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992); Henry v. Champlain Enters., Inc., 212 F.RD. 73, 83-88 (N.D.N.Y. 2003); Washington-Baltimore Newspaper Guild Local 35 v. Washington Star Co., 543 F. Supp. 906, 909-10 (D.D.C. 1982).

[6] Restatement (Third) Of The Law Governing Lawyers § 85 cmt. b.


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