Peter Schuman v. Microchip Technology Incorporated

• Court: District Court, N.D. California
• Decided: September 13, 2019
• Docket: 4:16-cv-05544
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 PETER SCHUMAN, et al., Case No. 16-cv-5544-HSG (TSH) 8 Plaintiffs, Case No. 17-cv-1864-HSG (TSH)

9 v. DISCOVERY ORDER 10 MICROCHIP TECHNOLOGY INCORPORATED, et al., Re: Dkt. Nos. 116, 117 11 Defendants. 12 13 ROBIN BERMAN, et al., 14 Plaintiffs, 15 v.

16 MICROCHIP TECHNOLOGY INCORPORATED, et al., 17 Defendants. 18

19 The parties submitted a joint discovery letter brief on July 23, 2019, requesting in camera 20 review of certain documents in Microchip and Wilson Sonsini’s privilege logs. ECF No. 116.1 In 21 an order dated July 3, 2019, the Court directed the parties to “meet and confer to identify a 22 representative sample of approximately ten to fifteen e-mails for the Court’s in camera review.” 23 ECF No. 115. In a joint letter brief dated July 26, 2019, the parties identified twelve emails that 24 would be submitted for in camera review. ECF No. 117. On August 2, 2019, Defendants 25 submitted the emails to the Court. 26 27 1 The main issue is whether these otherwise attorney-client privileged emails come within 2 the fiduciary exception to the privilege. “[T]he attorney-client privilege is, perhaps, the most 3 sacred of all legally recognized privileges.” United States v. Mett, 178 F.3d 1058, 1062 (9th Cir. 4 1999) (citations and quotation marks omitted). “The privilege is intended to encourage full and 5 frank communication between attorneys and their clients. In the words of the Supreme Court, 6 ‘[t]he privilege recognizes that sound legal advice or advocacy serves public ends and that such 7 advice or advocacy depends upon the lawyer’s being fully informed by the client.’” Id. (quoting 8 Upjohn v. United States, 449 U.S. 383, 389 (1981)). 9 “The Ninth Circuit, however, has joined a number of other courts in recognizing a 10 ‘fiduciary exception’ to the attorney-client privilege.” Id. “As applied in the ERISA context, the 11 fiduciary exception provides that ‘an employer acting in the capacity of ERISA fiduciary is 12 disabled from asserting the attorney-client privilege against plan beneficiaries on matters of plan 13 administration.’” Id. at 1063 (quoting Becher v. Long Island Lighting Co., 129 F.3d 268, 272 (2d 14 Cir. 1997)). Technically, “the fiduciary exception is not an ‘exception’ to the attorney-client 15 privilege at all.” Id. Rather, “as to advice regarding plan administration, a trustee is not ‘the real 16 client’” – the beneficiaries are – “and thus never enjoyed the privilege in the first place.” Id.; see 17 also Stephen v. Unum Life Ins. Co. of America, 697 F.3d 917, 931 (9th Cir. 2012). 18 However, “the fiduciary exception has its limits – by agreeing to serve as a fiduciary, an 19 ERISA trustee is not completely debilitated from enjoying a confidential attorney-client 20 relationship.” Mett, 178 F.3d at 1063. “Thus, the case authorities mark out two ends of a 21 spectrum.” Id. at 1064. “On the one hand, where an ERISA trustee seeks an attorney’s advice on 22 a matter of plan administration and where the advice clearly does not implicate the trustee in any 23 personal capacity, the trustee cannot invoke the attorney-client privilege against the plan 24 beneficiaries.” Id. “On the other hand, where a plan fiduciary retains counsel in order to defend 25 herself against the plan beneficiaries (or the government acting in their stead), the attorney-client 26 privilege remains intact.” 27 “There is no binding precedent in this circuit delineating precisely when the interests of a 1 longer applies.” Stephan, 697 F.3d at 933. “Courts that have considered the issue, however, have 2 repeatedly rejected the argument that the prospect of post-decisional litigation is enough to 3 overcome the fiduciary exception.” Id. (citations and quotation marks omitted). In Stephan, the 4 Ninth Circuit decided that “[t]he context of the documents” is the deciding factor. Id. If the 5 “goal” of the “communications” relates to “the determination” of benefits, that is “a matter of plan 6 administration,” and the fiduciary exception applies. Id. By contrast, “preparation for litigation” 7 does not trigger the exception. 8 Importantly, the Ninth Circuit has rejected the notion that the fiduciary exception is 9 “expansive” and reaches “otherwise privileged legal advice” that merely “‘relates to’ fiduciary 10 matters.” Mett, 178 F.3d at 1064. The Court explained that “[t]his expansive view of the 11 fiduciary exception . . . must be rejected for at least four reasons.” Id. at 1065. “First, this view of 12 the fiduciary exception threatens to swallow the entirety of the attorney-client privilege for ERISA 13 trustees.” Id. “Second, the expansive view unmoors the fiduciary exception from its justifying 14 rationales.” Id. “Third, and most importantly, where attorney-client privilege is concerned, hard 15 cases should be resolved in favor of the privilege, not in favor of disclosure.” Id. “Finally, from a 16 policy perspective, an uncertain attorney-client privilege will likely result in ERISA trustees 17 shying away from legal advice regarding the performance of their duties.” Id. 18 The Court turns, then, to the emails. WSGR Priv. Log Item Nos. 180 and 187 are not 19 100% on either end of the spectrum. But reading these emails fairly and in context, it cannot be 20 said that the goal of these communications was to interpret the plan or make a determination of an 21 entitlement to benefits. At most, if the fiduciary exception were expansive, there might be an 22 argument that these emails are “related to” plan administration. On the other hand, the subject line 23 makes them look like preparation for litigation. 24 WSGR Priv. Log Item Nos. 59, 130, 131, 150 and 152 and Microchip Priv. Log Item Nos. 25 309 and 310 are likewise not perfectly at either end of the spectrum. They don’t seem to be 26 preparation for litigation. But they’re also not advice about benefits owed or not owed or plan 27 interpretation. These documents are best categorized as being “related to” plan administration, 1 Finally, we come to Microchip Priv. Log Item Nos. 272, 273 and 274. The bulk of the 2 discussion in these emails is preparation for litigation. There is one paragraph in each of these 3 emails, however, that includes plan interpretation. Nonetheless, the Court finds that the fiduciary 4 exception does not apply, for two reasons. First, the plan interpretation is in the context of 5 preparation for litigation, not in the context of advising on plan administration. 6 Second, and more importantly, Microchip was not a fiduciary when it received those 7 emails. The emails are dated March 11, 2016, which is before the acquisition closed on April 4, 8 2016. As Judge Gilliam explained, “Plaintiffs fail to allege facts showing that Microchip 9 exercised or had discretionary authority or responsibility in the administration of the plan prior to 10 the merger . . .” ECF No. 54 at 13 (emphasis original, citation and quotation marks omitted). 11 Recall that the theory behind the fiduciary exception is that when an attorney advises a fiduciary 12 about how to administer a plan, the real client is the beneficiary. Mett, 178 F.3d at 1063. Before 13 Microchip closed the acquisition, the real client being advised was simply Microchip. 14 True, Microchip probably remembered the advice it received in March when it then 15 became a fiduciary in April. But that’s not a sufficient basis to apply the fiduciary exception. As 16 noted, there isn’t a good argument that before the acquisition closed, the real client receiving legal 17 advice was anyone other than Microchip. In March, at the time it received these emails, 18 Microchip didn’t owe fiduciary responsibilities to the plan beneficiaries. Surely the existence or 19 non-existence of the attorney-client privilege has to be determined by the facts and circumstances 20 existing as of the time of the communications, or legal advice will be chilled by uncertainty. As 21 the Ninth Circuit explained in Mett, exceptions to the attorney-client privilege need to be kept 22 limited and clear. Allowing the fiduciary exception to reach back in time to communications that 23 were made before an entity became a fiduciary threatens too much uncertainty. It would cast a 24 pall on due diligence review in corporate acquisitions, among other problems. 25 \\ 26 \\ 27 \\ 1 Accordingly, for the foregoing reasons, the Court finds that all twelve emails at issue are 2 attorney-client privileged, and the fiduciary exception does not apply to any of them. 3 4 IT IS SO ORDERED. 5 6 || Dated: September 13, 2019 TAN. Ip THOMAS S. HIXSON 8 United States Magistrate Judge 9 10 11 12

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