Free Other Notice - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

SUSAN MARTIN (AZ#014226) DANIEL L. BONNETT (AZ#014127) JENNIFER KROLL (AZ#019859) MARTIN & BONNETT, P.L.L.C. 3300 N. Central Avenue, Suite 1720 Phoenix, Arizona 85012-2517 Telephone: (602) 240-6900 [email protected] [email protected] [email protected] Attorneys for Plaintiffs IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Barbara Allen, Richard Dippold, Melvin Jones, Donald McCarty, Richard Scates and Walter G. West, individually and on behalf of all others similarly situated, Plaintiffs, vs. Honeywell Retirement Earnings Plan, Honeywell Secured Benefit Plan, Plan Administrator of Honeywell Retirement Earnings Plan and Plan Administrator of Honeywell Secured Benefit Plan, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

No. CV04-0424 PHX ROS

Plaintiffs Reply in Further Support of Renewed Motion to Compel Disclosure of Documents Withheld By Defendants on Claim of Attorney-Client and/or Work Product Privilege

19 20 21 22 23 24 25 26 27 28

INTRODUCTION Defendants opposition to Plaintiffs Renewed Motion is premised on factually and/or legally false propositions and is without merit. Plaintiffs motion to compel the production of documents listed on Defendants privilege log should be granted and, following in camera inspection to enable the Court to order redaction of the portions of documents, if any, that address Defendants personal liability as fiduciaries, Defendants should be ordered to produce all documents that relate to the administration of the Plan, including any documents

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 1 of 12

1 2 3 4 5 6

that address the implementation of amendments or compliance with ERISA statutory obligations. I. THE COMPANY WAS A FIDUCIARY AT ALL RELEVANT TIMES Contrary to Defendants claims that the Company was not acting in the capacity of ERISA fiduciary during the claims and appeals process, Honeywell was at all relevant times the plan administrator and named fiduciary under the Plan. Given this, Defendants defense

7 8 9 10 11 12 13 14 15 16 17 18

to the production of documents 7-14, 19, 28, 31-40, 47-48, 50-58, 66, 68, 87, 101-106 is without merit and those documents should be produced. Honeywell s purported delegation of authority dated July 29, 2002 (the same day Plaintiffs claims were received by Defendants) (Doc. 16, Exh. I), did not relieve Honeywell of any of its fiduciary responsibilities. Rather, the cited resolution merely and conditionally permitted the sharing of the Company s pre-existing fiduciary responsibilities emphasizing that the authorization to act was expressly without limitation to any previously granted authority. (Doc. 225, Exh. B, at Exh. 1 and Exh. 2, at HW0012270 (emphasis added).) As it is undisputed that Honeywell was the Plan Administrator and named fiduciary before the resolution, (Defs. Br. p. 6), the quoted text preserved its previously granted authority afterwards, as well. Further, Honeywell did not, as a factual matter, delegate to Marcotte any of its fiduciary

19 20 21 22 23 24 25 26 27 28 2

authority and responsibilities with respect to Plaintiffs claims. Defendants purported authorization to Marcotte to act was expressly limited to actions that do not materially increase the cost to or liability of the Corporation, (Doc. 225, Exh. B, at Exh. 2, at HW0012270 (emphasis supplied)), which granting of Plaintiffs claims clearly would have done.1 In effect, Marcotte was authorized to deny Plaintiffs claims but not to grant them.

Honeywell has admitted that Plaintiffs claims would materially increase the cost to the corporation. Even after the partial settlement agreement which limits Defendants exposure on the remaining claims to an additional $500 million dollars, Honeywell s October

1

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 2 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

This half pregnant grant of authority is not a delegation of fiduciary responsibility cognizable under ERISA.2 By retaining its broader authority to act on the same matters upon which Marcotte was conditionally permitted to act (only if his actions did not materially increase the cost to Honeywell), Honeywell continued as a fiduciary in all relevant respects under the Plan and ERISA.3

19, 2007 Form 10-Q states that Plaintiffs victory on one of more of the Remaining Claims of the lawsuit, could have a material adverse effect on our results of operations in the period recognized... See relevant portions of October 19, 2007 Form 10-Q attached hereto as Exhibit A. ERISA defines a fiduciary, in relevant part, as any person who, with respect to a plan has any discretionary authority or discretionary responsibility in the administration of such plan and any person who exercises any discretionary authority or discretionary control respecting management of such plan... ERISA § 3(21)(A)(iii) and (i), 29 U.S.C. § 1002(21)(A)(iii) and(i) (emphasis supplied). The 2000 Plan document and prior documents provided that the Company was the Plan Administrator and named fiduciary under the Plan. (See, e.g., Doc. 16, Exh. P, Section 1.34, at HW0000550.) As the entity in possession of the authority to grant the claim and as the only entity specifically designated as the plan administrator and named fiduciary, Honeywell was a fiduciary. See 29 C.F.R. § 2509.75-8 D-3 ( Some offices or positions of an employee benefit plan by their very nature require persons who hold them to perform one or more of the functions described in section 3(21)(A) of the Act. For example, a plan administrator or a trustee of a plan must by the very nature of his position, have discretionary authority or discretionary responsibility in the administration of the plan with the meaning of section 3(21)(A)(iii) of the Act. Persons who hold such positions will therefore be fiduciaries..... ). Further, Defendants have never produced any evidence showing that even the limited 2002 authorization to Marcotte was ever effective. Under the Plan, any delegations of authority shall not be effective unless and until it is consented to in writing by the person or persons appointed to perform the fiduciary duty being delegated. (Promislo Decl., Doc. 16, Exhibit P, at HW 0000596.) Defendants have not offered into evidence any signed acceptance of Marcotte s limited authority to act. See Nelson v. EG & G Energy Measurements Group, 37 F.3d 1384, 1388-89 (9th Cir. 1994). The documents produced by Defendants also belie their claim that the Company was no longer a fiduciary with respect to the Plan. As late as September 2005, Marcotte himself identified Honeywell as the named Plan Administrator in the official Form 5500 return, filed with the federal government. See Exhibit B hereto, at HW0013102, question 3a.
3
3 2

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 3 of 12

1 2 3 4 5 6

ERISA requires that the plan administrator be specifically designated by the terms of the instrument under which the plan is operated and in the absence of such a specific designation, the plan sponsor is the plan administrator. ERISA Section 3(16)(A), 29 U.S.C. § 1002(16)(A). See also ERISA Section 402(a), 29 U.S.C. § 1102(a) (requiring plans to identify named fiduciaries). Even if the purported delegation to Marcotte had not been flawed and even if Honeywell had not preserved its pre-existing authority to act, Honeywell would

7 8 9 10 11 12 13 14 15 16 17 18

necessarily have continued as a fiduciary under ERISA because it was the only entity specifically so designated under the Plan documents. Honeywell continued as a fiduciary in all relevant respects, at least until October 1, 2005, (a date after the date of any document at issue here), when Honeywell appears to have amended the Plan to replace the Company as the plan administrator and named fiduciary. See Exhibit C hereto, at HW0035517. Because Honeywell was a fiduciary, Defendants argument that the fiduciary exception did not apply because no fiduciary sent, received or was copied on documents post-dating July 2002 is completely without merit.4 Therefore, documents 7-14, 19, 28, 31-40, 47-48, 50-58, 66, 68, 87, 101-106 should be produced for an in camera inspection and disclosed after redacting any matters pertaining to Honeywell s potential fiduciary liability. II. DEFENDANTS AND HONEYWELL ARE JOINT CLIENTS AS TO WHOM THE ATTORNEY CLIENT PRIVILEGE WAS WAIVED
4

19 20 21 22 23 24 25 26 27 28

Defendants allege that some of the documents relate to the company s potential liability. This argument is ipse dixit because the description of the documents does not support that claim and there is also no claim for breach of fiduciary duty here. If there had been, only a fiduciary would have been liable for that breach. In any event, to the extent the Court finds, following an in camera inspection, that a particular document deals with matters of plan administration and also provides advice to Honeywell regarding its individual liability under ERISA, the latter matters can be redacted. United States v. Mett, 178 F.3d 1058, 1065-66 (9th Cir. 1999) (calling for communication by communication analysis which while perhaps untidy ensures that while the fiduciary exception does apply on matters of plan administration, the attorney client privilege reasserts itself as to any advice the fiduciary obtains to protect herself from civil or criminal liability ).
4

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 4 of 12

1 2 3 4 5 6

Contrary to Defendants claims that there was no waiver of the attorney client privilege by allegedly engaging Covington & Burling both for the Plan and the Company on the same issue (Plaintiffs claims), Honeywell (which has never appeared in this lawsuit to assert the privilege), is barred from asserting the attorney client privilege against Covington & Burling s joint clients, the Plan.5 By providing documents to Covington & Burling and having Covington & Burling draft documents on the subject matter of the joint

7 8 9 10 11 12 13 14 15 16 17 18

engagement, Honeywell waived any right to assert a privilege against Plaintiffs as the true clients of the counsel for the Plan. As Plaintiffs established in their moving brief, until the claims were finally denied on appeal, there was no divergence of interests between the Company and the beneficiaries. As such, even if the Company had not been acting in a fiduciary capacity with respect to Plaintiffs claims, the joint retention of the same law firm to advise both entities on the same issue precludes the assertion of the privilege. See, e.g., Southern Union Co. v. Southwest Gas Corp. 205 F.R.D. 542, 548 (D.Ariz. 2002) ( An exception to waiver of the privilege where disclosures are made to third parties exists if the attorney simultaneously represents two or more clients on the same matter, but there must be a community of interests between the joint clients. ) (citations omitted); In re Regents of the Univ. of Cal., 101 F.3d 1386, 1390 (Fed. Cir. 1996); In re Teleglobe Communications

19 20 21 22 23 24 25 26 27 28 5
5

Corp., 493 F.3d 345, 366 (3d Cir. 2007) ( When former co-clients sue one another, the default rule is that all communications made in the course of the joint representation are discoverable. ) (citations omitted). See also Restatement (Third) of the Law Governing Lawyers § 75 (2000) (an otherwise privileged communication is not privileged as between

Under the fiduciary exception to the attorney client privilege, Plaintiffs as Plan participants and beneficiaries are the clients. Mett, 178 F.3d at 1063.

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 5 of 12

1 2 3 4 5 6

the co-clients in a subsequent adverse proceeding between them. ).6 See also Martin v. Valley Nat. Bank of Arizona, 140 F.R.D. 291, 319 (S.D.N.Y. 1991). Defendants reliance on In Re Long Island Lighting, 129 F.3d 268 (2d Cir. 1997) is misplaced. The case does not stand for the proposition that no waiver exists by providing documents to the same lawyers on the same issue. In that case, as the Second Circuit noted, the magistrate found that the documents at issue were generated in connection with the

7 8 9 10 11 12 13 14 15 16 17 18

company s retention of the same lawyers regarding unrelated non-fiduciary matters that in no way implicated the employer s fiduciary obligations at issue in that case (as discerned through the court s in camera inspection). The court therefore found that the joint client exception and the fiduciary exception did not apply to the company s unrelated communications with its attorneys on non-fiduciary matters. The magistrate judge found that all communications at issue were patently non-fiduciary. Id. at 273. Contrary to

Defendants arguments, no court has ever blessed the proposition advanced here, that Defendants can somehow utilize the same lawyers for the same issues yet shield communications and documents from disclosure under the pretext that somehow the documents relating to Plaintiffs claims do not involve matters relating to administration of the plan. See Everett v. USAir Group, Inc., 165 F.R.D. 1, 4 (D.D.C.1995) ( The employer

19 20 21 22 23 24 25 26 27 28 6

cannot subordinate the fiduciary obligations owed to the beneficiaries to [its] own private interests under the guise of attorney-client privilege. ) (quoting Washington-Baltimore Newspaper Guild, Local 35 v. Washington Star Co., 543 F.Supp. 906, 909 (D.D.C. 1982)). Here, the communications appear to relate to plan administration. To allow Defendants to assert the attorney client privilege on behalf of the Company would shield documents under the guise of a corporate attorney-client privilege on matters on which This is true even if Plaintiffs were unaware of the documents that had been created or reviewed at the time. See id., illustration.
6

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 6 of 12

1 2 3 4 5 6

Honeywell owed a fiduciary obligation to Plaintiffs. Unless the documents relate to matters of individual fiduciary liability, a result that would be surprising given the descriptions of the documents and that the case asserts no breach of fiduciary duty, they should be disclosed.7 III. `PLAN ADMINISTRATION DOCUMENTS MUST BE DISCLOSED Defendants novel assertion that documents relating to plan administration could be shielded from disclosure if they were not technically directed to a fiduciary, misstates the

7 8 9 10 11 12 13 14 15 16 17

fiduciary exception to the attorney client privilege. As the Ninth Circuit explained, the fiduciary exception is rooted in two distinct rationales. United States v. Mett, 178 F.3d

1058, 1063 (9th Cir. 1999). One is that the fiduciary exception can be understood as an instance of the attorney-client privilege giving way in the face of a competing legal principle [an ERISA trustee s duty to disclose to beneficiaries all information regarding plan administration] and the other reflecting the fact that, at least as to advice regarding plan administration, a trustee is not the real client and thus never enjoyed the privilege in the first place. Id. (citations omitted). Therefore, under Mett (except as qualified for advice given to a plan fiduciary to defend itself against Plan beneficiaries), under either rationale,

18 19 20 21 22 23 24 25 26 27 28 7

advice relating to plan administration must be disclosed to plan participants regardless of whether the advice was technically given to a plan fiduciary, a plan consultant, lower level employee or other functionary. Therefore even if Honeywell was somehow not a fiduciary, to the extent the advice provided by Covington related to matters of plan administration (and not to Honeywell s personal liability as a fiduciary), Defendants are required to disclose such

The fact that Plaintiffs claim letter mentioned a fiduciary responsibility on two issues that Plaintiffs later dropped and never asserted in this case could not convert all legal advice prepared by Covington to advice regarding Honeywell s potential fiduciary liability.

7

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 7 of 12

1 2 3 4 5 6 7 8 9 10

advice. IV. DEFENDANTS DOCUMENTS ARE NOT SHIELDED FROM DISCLOSURE AS SETTLOR FUNCTIONS Defendants misleading citation to Hudson v. General Dynamics, 73 F.Supp. 2d 201, 203 (D.Conn. 1999) cited by Defendants on page 10, underscores the need for an in camera inspection to determine the purpose of the advice that was rendered. There, the court stated that [i]n determining which side of the line the documents fall for discovery purposes, the Court examines their context and content in order to determine whether they relate to plan administration or are limited to mere settlor functions. Id.

11 12 13 14 15 16 17 18 19 20 21 22 23

Documents in which counsel has reviewed and commented on . . . the plan s compliance with its statutory obligations are not privileged because they assist the fiduciaries with fulfilling their obligations. Fischel v. Equitable Life Assurance, 191 FRD 606 (N.D. Cal. 2000). See Curtiss-Wright v. Schoonejongen, 514 U.S. 73, 82 (1995) (citing 29 U.S.C. § 1104(a)(1)(D)) (responsibility of deciding whether plan amendments have been duly adopted and are consistent with ERISA s mandates involves the exercise of fiduciary responsibilities). See also Loewy v. Retirement Committee, No. CV03-2284-PHX-FJM (MS) (Order entered May 10, 2005). (Doc. 225, Exh.A at Exh. 6.) Defendants descriptions of the documents and the declarations they submitted indicate that the documents Plaintiffs seek are documents related to advice rendered on plan administrative functions. For example, it

24 25 26 27 28 8

is difficult to fathom why numerous legal summaries and legal analyses of Plaintiffs claims were made for purposes divorced from plan administration. (See, e.g., Exhibit A to

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 8 of 12

1 2 3 4 5 6 7

Doc. 332, Documents 7, 8, 10.) Nor does it make sense that Document 44, a memo apparently discussing a draft of a plan that had been purportedly amended six days earlier would relate to a settlor and not a plan administrative function or that counsel for Honeywell would obtain the document for any purpose other than responding to Plaintiffs claims regarding whether the February 1984 plan controlled the outcome of Plaintiffs claims. (See, e.g., Exhibit A to Doc. 332, Document 44). Moreover, communications about plan changes

8 9 10 11 12 13 14 15 16

are clearly a fiduciary function when those changes are under serious consideration. Bins v. Exxon Co. U.S.A., 189 F.3d 929, 934 (9th Cir. 1999) (en banc) ( Conveying information about the likely future of plan benefits, thereby permitting beneficiaries to make an informed choice about continued participation implicates ERISA s fiduciary obligations.) (See, e.g., Exhibit A to Doc. 332, Documents 43-46, 108-22.) Additionally, redaction on some of the documents may be appropriate. Accordingly, in camera inspection and review is appropriate for the documents that appear to relate to plan administration and not to individual liability

17 18 19 20 21 22 23 24 25 26

of the fiduciaries and as to which the attorney client privilege was not waived. V. DEFENDANTS HAVE NOT ESTABLISHED THE PRIVILEGE WITH RESPECT TO DOCUMENTS PROVIDED TO LOW LEVEL EMPLOYEES, ACTUARIES AND UNIDENTIFIED INDIVIDUALS Defendants fail to establish the existence of the attorney client privilege or absence of waiver with respect to documents that were distributed to low level or unidentified employees or documents distributed to third parties. It is the burden of the proponent of the privilege, however, to establish all the elements of the attorney-client privilege, including that ...the communications were made in confidence, and ...to the client. Southern Union Co.

27 28 9

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 9 of 12

1 2 3 4 5 6 7

v. Southwest Gas Corp., 205 F.R.D. 542, 548 (D. Ariz. 2002).

See also Weil v.

Investment/Indicators, Research and Management, Inc. 647 F.2d 18, 25 (9th Cir. 1981). As this Court has noted, if the documents containing confidential communications are disclosed to third parties, the privileged status of the communications within the documents is lost. Southern Union Co. , 205 F.R.D. 542, 548 (citing Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1162 (9th Cir.1992) (documents disclosed to auditor lost privilege status); United

8 9 10 11 12 13 14 15 16

States v. Palmer, 536 F.2d 1278, 1281 (9th Cir.1976)). Although Defendants attempt to rely on Uphohn v. United States, 449 U.S. 383, 391 (1981), for their claim that documents regarding communications with lower level employees are privileged, Upjohn highlights the deficiencies of Defendants claims of privilege. In Upjohn, the Supreme Court emphasized that the information was necessary and not available from upper-echelon management. Id. at 394-95. The court also emphasized that the communications concerned matters within the scope of the employees' corporate duties, and the employees themselves were sufficiently

17 18 19 20 21 22 23 24 25 26 27 28 10

aware that they were being questioned in order that the corporation could obtain legal advice. Id. Defendants have made absolutely no showing that the communications to or from lower level employees meet the Upjohn criteria. Accordingly, documents sent to, received from or copied to low level Honeywell employees or unidentified individuals8 and to actuaries, outside consultants and others Defendants have not established the privilege with respect to the following individuals, as set forth in Plaintiffs brief, (Doc. 332 pp. 14-15): Jean Payne (Documents 31,41,105,109, 111,114,116-120); F. Morgan (Document 44); Sharon Himmele (Document 108); Margarit Prokopik (Document 109); Donna Formes (Document 109); T. Goulet (Document 114). Documents shared or created by Hewitt employees and consultants
8

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 10 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

including documents 10, 31, 38, 41, 44, 101-105, 109, 111, 114, 116-20 should be disclosed without need for an in camera inspection. Respectfully submitted this 7th day of January, 2007. MARTIN & BONNETT, P.L.L.C. By: s/Susan Martin Susan Martin Daniel L. Bonnett Jennifer L. Kroll 3300 North Central Avenue, Suite 1720 Phoenix, AZ 85012-2517 (602) 240-6900 Attorneys for Plaintiffs

(including Kurt Denlinger, B. Rigby and F. D Ariano) as to whom Defendants have not established the privilege include documents 10, 38, and 101-105.
11

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 11 of 12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

CERTIFICATE OF SERVICE I hereby certify that on January 7, 2007, I electronically transmitted the attached document to the Clerk s Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: David B. Rosenbaum Dawn L. Dauphine Osborn Maledon, P.A. 2929 North Central Ave., Suite 2100 Phoenix, AZ 85012-2794 Michael Banks Azeez Hayne Morgan Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103 Howard Shapiro Proskauer Rose LLP 909 Poydras Street, Suite 1100 New Orleans, LA 70112 Amy Covert Proskauer Rose LLP One Newark Center, 18th Floor Newark , NJ 07102-5211 Christopher Landau Eleanor R. Barrett Kirkland & Ellis LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005 Attorneys for the Defendants s/.J. Kroll

Case 2:04-cv-00424-ROS

Document 366-2

Filed 01/08/2008

Page 12 of 12