The fiduciary exception to the attorney-client privilegehas its roots in 19th-century English common-law casesholding that, “when a trustee obtained legal advice relating to his administration of the trust, and not in antici-pation of adversarial legal proceedings against him, thebeneficiaries of the trust had the right to the production of that advice.” Ibid. (collecting cases). The fiduciary excep-tion is now well recognized in the jurisprudence of both federal and state courts,1 and has been applied in a widevariety of contexts, including in litigation involving com-mon-law trusts, see, e.g., Riggs Nat. Bank of Washington, D. C. v. Zimmer, 355 A. 2d 709 (Del. Ch. 1976), disputesbetween corporations and shareholders, see, e.g., Garner v. Wolfinbarger, 430 F. 2d 1093 (CA5 1970), and ERISA enforcement actions, see, e.g., United States v. Doe, 162 F. 3d 554 (CA9 1999).

United States v. Jicarilla Apache Nation, 564 U.S. ___ (June 13, 2011)

Though not an ERISA case, the Jicarilla opinion holds interest for ERISA practitioners.   The primary holding addressed the scope of the attorney-client privilege in a controversy over the United States government’s management of funds held in trust for Indian tribes.   The Supreme Court reversed the Federal Circuit, holding that the common-law fiduciary exception to the attorney-client privilege did not apply to the trust relationship at issue.

In the course of its opinion, however, the Court noted application of the fiduciary exception in the context of ERISA litigation.  Moreover, the Court explained the rationale of the exception with reference to the leading case on the issue, Riggs Nat. Bank of Washington, D. C. v. Zimmer, 355 A. 2d 709 (Del. Ch. 1976).

The Court observed that the Riggs court focused on who the “real clients” were, stating that:

. . .  the trustees had obtained the legal advice as “mere representative[s]” of the beneficiaries because the trustees had a fiduciary obligation to act in the beneficiaries’ interest when administering the trust. Ibid.

For that reason, the beneficiaries were the “real clients” of the attorney who had advised the trustee on trust-related matters, and therefore the attorney-client privilege properly belonged to the beneficiaries rather than the trustees.

The Court also noted the use of a balancing test in Riggs:

Second, the court concluded that the trustees’ fiduciaryduty to furnish trust-related information to the beneficiaries outweighed their interest in the attorney-client privilege. “The policy of preserving the full disclosure necessary in the trustee-beneficiary relationship,” the court explained, “is here ultimately more important than the protection of the trustees’ confidence in the attorney for the trust.” Id., at 714. Because more information helped the beneficiaries to police the trustees’ management of the trust, disclosure was, in the court’s judgment, “a weightier public policy than the preservation of confidential attorney-client communications.”

The Court stated that [t]he Federal Courts of Appeals apply the fiduciary exception based on the same two criteria” and cited the following cases in support of that conclusion:

In re Long Island Lighting Co., 129 F. 3d 268, 272 (CA2 1997);
Wachtel v. Health Net, Inc., 482 F. 3d 225, 233–234 (CA3 2007);
Solis v. Food Employers Labor Relations Assn., 2011 U. S. App. LEXIS 9110, *12 (CA4, May 4, 2011);
Wildbur v. Arco Chemical Co., 974 F. 2d 631, 645 (CA5 1992); and
United States v. Evans, 796 F. 2d 264, 265–266 (CA9 1986) (per curiam).

Note: Factors which may assist in determination of who the “real client” may be derived from the following points taken from Riggs and noted by the Supreme Court: (1) when the advice was sought, no adversarial proceedings between thetrustees and beneficiaries had been pending, and thereforethere was no reason for the trustees to seek legal advice in a personal rather than a fiduciary capacity; (2) the court saw no indication that the memorandum was intended for any purpose other than to benefit the trust; and (3) the law firm had been paid out of trust assets. While not stated in such terms, the third factor appears to create a virtual presumption that the real client was the trust, not the fiduciaries.

See also – I have several posts about this case going back to the lower court’s opinion on Also, some useful practice pointers may be found in article published by Hayne & Boone attorneys on this site.