Free Lodged Proposed Document - District Court of Arizona - Arizona

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David B. Rosenbaum, Atty. No. 009819 Dawn L. Dauphine, Atty. No. 010833 OSBORN MALEDON, P.A. 2929 North Central Avenue Suite 2100 Phoenix, AZ 85012-2794 Telephone: (602) 640-9000 [email protected] [email protected] Michael L. Banks, Pro Hac Vice William J. Delany, Pro Hac Vice Azeez Hayne, Pro Hac Vice MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Telephone: (215) 963-5000 [email protected] [email protected] [email protected] Attorneys for Defendants 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, No. CV04-0424 PHX ROS

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REPLY IN SUPPORT OF DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION TO COMPEL PRODUCTION OF PRIVILEGED DOCUMENTS

vs.
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Honeywell Retirement Earnings Plan, Honeywell Secured Benefit Plan, Plan Administrator of Honeywell Retirement Earnings Plan, and Plan Administrator of Honeywell Secured Benefit Plan, Defendants.

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INTRODUCTION Defendants submit this reply memorandum in further support of their opposition to

Plaintiffs' motion to compel production of privileged documents to correct certain legal and factual inaccuracies in Plaintiffs' response brief. Plaintiffs advance a conception of the fiduciary exception that is at odds with controlling Ninth Circuit authority and common sense. They contend that the Court should require Defendants to produce all attorney-client privileged and work product documents based on the overly simplistic and legally unsupported proposition that any documents created prior to the final conclusion of the administrative exhaustion process are discoverable, irrespective of the purpose for creating the documents. Plaintiffs create the erroneous impression that a plan administrator cannot wear two hats ­ that fairly considering and determining their administrative claims is mutually exclusive of seeking advice in the face of threatened litigation by hundreds of plan participants asserting a myriad of claims, many of which by Plaintiffs' own protestations were statutory claims that they need not exhaust. Plaintiffs have offered no compelling reason that the Court should exclude from the important protections of the attorney-client privilege and work product doctrines multiple documents created to analyze and prepare for anticipated litigation with hundreds of participants, including documents focused on assessing participants' claims for defense and settlement purposes. Finally, Plaintiffs' argue that Defendants failed to establish the claimed privileges with respect to certain documents. But, again, Plaintiffs' case citations do not support their contentions. Thus, for the reasons set forth below and in Defendants' opening brief, Defendants respectfully request that this Court deny Plaintiffs' motion to compel production of privileged material. ARGUMENT Plaintiffs' Argument ­ That All Legal Advice Rendered During the Administrative Claims Process Falls Within The Fiduciary Exception ­ Conflicts With Controlling Precedent And Would Create An Untenable Result
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Setting aside the question of whether the challenged legal advice was provided to a

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person acting in a fiduciary capacity, the question at the heart of the instant dispute is whether a fiduciary can obtain privileged legal advice while an administrative claim is pending. It is well established that a fiduciary can wear two hats. See, e.g., Becher v. Long Is. Lighting Co., 129 F.3d 268, 271 (2d Cir. 1997). Legal advice rendered on nonfiduciary matters falls outside the fiduciary exception by definition and, thus, is not discoverable. U.S. v. Mett, 178 F.3d 1058 (9th Cir. 1999) (exception applies to advice provided to an individual, acting in a fiduciary capacity, on matters of plan administration); see also, e.g., Long Is. Lighting, 129 F.3d at 272-73 (legal advice rendered on non-fiduciary matters ­ e.g., plan amendment and design ­ does not fall within the fiduciary exception). Moreover, as the Court held in Mett, even advice to a fiduciary regarding plan administration is privileged and protected from discovery if it is requested under circumstances in which the fiduciary is not expected to be seeking advice on behalf of the participants. Mett, 178 F.3d at 1065. Notwithstanding this binding precedent, Plaintiffs ask the Court to adopt the novel proposition that a plan administrator can never obtain privileged legal advice while administrative claims are pending. Not only does that argument run afoul of Mett, but it is wholly illogical, insofar as it would destroy the ability of plan fiduciaries, administrators and others integrally involved in the sponsorship and administration of a plan to obtain confidential legal advice at a critical stage of a process that may result in costly litigation. In advancing their argument, Plaintiffs misconstrue Mett, arguing that "advice pertaining to a fiduciary's `personal civil and criminal exposure'" is mutually exclusive of advice "regarding administration of the plan." (Pls.' Resp. Br. at 12.) This argument, however, ignores the explicit language of the opinion that recognizes that legal advice rendered in connection with an administrative function retains its protection: When an ERISA trustee seeks legal advice for his own protection, the legal fiction of "trustee as representative of the beneficiaries" is dispelled, notwithstanding the fact that the legal advice may relate to the trustee's administration of the trust.
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Mett, 178 F.3d at 1065 (emphasis added).1 Indeed, Mett clearly contemplates that legal advice to a fiduciary regarding an administrative claim can be privileged. Mett, 178 F.3d at 1065 (noting that fiduciary exception does not apply to advice about litigation arising out of a denied benefit claim). Thus, as the Ninth Circuit emphasized, the mere fact that advice allegedly relates to "plan administration" does not dispose of the privilege issue; rather, the controlling question is whether the advice was rendered for the benefit of the participants or the trustees/fiduciaries. Furthermore, Plaintiffs' proposed bright-line rule ­ that pre-decisional advice is always discoverable ­ runs afoul of Mett's admonition that the legal standard for applying the fiduciary exception should not discourage fiduciaries from obtaining legal advice. Mett, 178 F.3d at 1065 (noting that uncertainty about the scope of the privilege "will likely result in ERISA trustees shying away from legal advice regarding the performance of their duties"). Under Plaintiffs' interpretation, a plan administrator faced with threats of litigation during the claims process would be precluded from obtaining any privileged legal advice before rendering a decision on the claims. The instant case presents a perfect example of why such a rule should not be adopted. Plaintiffs have asserted consistently since their first claim letter that their statutory claims were not subject to the exhaustion requirement that applies to claims for benefits under the terms of a plan. (See claim letter attached to the Declaration of Harry O'Neill, Ex. 9 at 2.) This Court agreed, holding that the primary complaints presented to the Plan Administrator were legal in nature, (Doc. # 73 at 12), and these claims were, therefore, not subject to the exhaustion requirement. See, e.g., Chappel v. Lab. Corp. of Am., 232 F.3d 719, 724 (9th Cir. 2000). Now, Plaintiffs argue that any advice from counsel regarding the law applicable to those statutory claims ­ including advice concerning potential
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Mett also bars Plaintiffs' argument that the fiduciary exception applies only when the fiduciary seeks advice regarding "solely" non-fiduciary activities. (Pls.' Resp. Br. at 14-15.) See Mett, 178 F.3d at 1066 (rejecting argument that exception applies unless advice relates "solely" to non-fiduciary matters).
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litigation over such claims (see, e.g., Sandstrom Decl. ¶ 11; Hayne Decl. Ex. 3 at #87 (memo analyzing Plaintiffs' claims and potential litigation defenses to those claims) ­ is discoverable simply because it was rendered while claims were pending in an administrative process. They advance the vague notion that discovery of legal advice to the plan administrator is necessary so that plan fiduciaries can be held "accountab[le] to those they are charged to protect." (Pls.' Resp. Br. at 4.) Plaintiffs' argument that advice regarding statutory claims is discoverable is illogical, given that such advice is irrelevant to any fact at issue in subsequent litigation. As this Court recognized, (Doc. # 73 at 12), plan administrators have no discretion to decide statutory claims, and consequently, courts review their decisions on such claims de novo. Thus, evidence regarding the reasons underlying the fiduciary's decision (including any legal advice) is simply irrelevant to whether that claim will ultimately prevail in court. Plaintiffs also contend that legal advice rendered during the administrative process is discoverable unless the parties' positions have "hardened;" again, however, Plaintiffs provide no legal support for their proposed standard. (Pls.' Resp. Br. at 12.) In Mett, the Ninth Circuit focused not on whether the parties' positions had "hardened," but on whether the justifying rationale for the exception, i.e., the "legal fiction of `trustee as representative of the beneficiaries,'" was "dispelled." Mett, 178 F.3d at 1065. Nor do Plaintiffs' cited cases support their proposed "hardening" standard. See Wildbur v. ARCO Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992) (focusing on whether the parties' interests had "diverged"); Lewis v. UNUM Corp. Severance Plan, 203 F.R.D. 615, 619-20 (D. Kan. 2001) (same); Geissal v. Moore Medical Corp., 192 F.R.D. 620, 625 (E.D. Mo. 2000) (same); Coffman v. Metro. Life Ins. Co., 204 F.R.D. 296, 299 (S.D. W. Va. 2001) (not mentioning "hardening" of positions). In addition to being inconsistent with Ninth Circuit precedent, Plaintiffs proposed standard is illogical and ignores reality. A party can assess and prepare for impending litigation, even though a matter may ultimately conclude before a lawsuit is ever filed, perhaps as a result of a claims administrative review process, settlement, or even a plaintiffs' own decision not to resort to litigation.
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Accordingly, the Court should reject Plaintiffs' proposed standard and apply Mett. Finally, Plaintiffs' argue that adoption of Defendants' argument would "swallow[]" the fiduciary exception. (Pls.' Resp. Br. at 12.) Yet, it is Plaintiffs' proposed formalistic approach ­ that all advice rendered prior to the termination of the administrative claims process is discoverable irrespective of the nature of the claims or the context in which the advice was rendered ­ that would completely eviscerate the important attorney-client privilege and work product protections recognized in Mett. Mett, 178 F.3d at 1062 (noting that the attorney-client privilege is "perhaps, the most sacred of all legally recognized privileges"); see also, e.g., U.S. v. Bauer, 132 F.3d at 504, 510 (9th Cir. 1997) (noting that the attorney-client privilege is "essential to the just and orderly operation of our legal system"). Indeed, in Mett, the Ninth Circuit specifically expressed concern that the fiduciary exception would "swallow" the attorney-client privilege if it was construed too broadly. Mett, 178 F.3d at 1065. It is with that recognition in mind that the Ninth Circuit has cautioned that, "where attorney-client privilege is concerned, hard cases should be resolved in favor of the privilege, not in favor of disclosure." Moreover, Plaintiffs' scare tactic ­ that protection of the privilege here would "swallow" the exception ­ is misplaced. The very unique set of circumstances of this case that mitigate in favor of protection of the privilege and the rejection of the fiduciary exception distinguish this case from the typical scenario presented by a denied claim for benefits, where the fiduciary exception developed. In a more common benefits case, a participant asks the plan administrator to make a determination about his or her individual circumstances (e.g. his amount of credited service, or whether she is "totally disabled"). In such a dispute, litigation is not necessarily anticipated, lawyers are not as frequently involved, the issue is one of plan interpretation only, and pure legal opinions about matters of statutory interpretation are not likely to be at issue. (See, e.g., O'Neill Decl. ¶ 7) (noting that neither the Company nor the Plan Administrator anticipated litigation stemming from the majority of other benefit claims). By contrast, here, litigation with hundreds, perhaps thousands, of participants was clearly anticipated for the reasons set
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forth in Defendants' opening memorandum.2 (Defs.' Op. Br. at 3-5, 11-14.) Indeed, even before an administrative claim was filed, the company obtained concrete evidence that a group of retirees had formed a committee, hired an attorney, and begun soliciting donations to challenge the SBA and Social Security offsets. (See Supplemental Declaration of Craig Chapman ¶¶ 1-9, Exs. A, B, and C; see also O'Neill Decl. ¶ 10.) Thus, notwithstanding the variety of possible outcomes of the Retirees' administrative claims (including the decision of the administrator to grant one claim), at the time the claims were presented, the Company believed litigation was imminent and, therefore, sought legal advice.
B.

Defendants Met Their Burden Of Establishing The Underlying Privileges

Plaintiffs argue that a number of documents are discoverable because Defendants allegedly failed to meet their burden of establishing the claimed privileges. (Pls.' Resp.
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Br. at 18-20.) In particular, Plaintiffs contend that documents 13, 57, and 119, which
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were shared with Kurt Denlinger, a benefits consultant, are discoverable because the work
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product privilege does not apply to documents shared with non-lawyers unless they are
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working under the "direct supervision" of an attorney in anticipation of litigation. (Id. at
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18.) Plaintiffs' arguments, however, are both factually and legally unsupported, and it is
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Plaintiffs take a statement from the Declaration of Harry O'Neill out of context, suggesting that "Defendants also appear to be arguing that they predetermined the outcome of Plaintiffs' claims . . ." (Pls.' Resp. Br. at 9.) Mr. O'Neill, a former inhouse Honeywell attorney, simply declared that he believed litigation to be inevitable after receiving Ms. Martin's claim letter on behalf of several hundred retirees. The fact that a former Honeywell in-house attorney believed that litigation was inevitable demonstrates absolutely nothing about what Brian Marcotte, the Plan Administrator, believed about Retirees' claims. Moreover, Mr. O'Neill's statement is more logically read as a prediction of Retirees' counsel's intentions than as a purported admission that the claims were pre-determined. Nothing about the statement even suggests that the Retirees' claims were not fully and fairly considered and determined. Indeed, the administrator granted one of the Retirees' claims, a fact that negates any suggestion that the claims were "predetermined."

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clear that Defendants met their burden of establishing the claimed privileges.3 First, even assuming that Plaintiffs were correct that the work product privilege applies only if non-lawyers are working under the "direct supervision" of an attorney, that standard would be met here. The record evidence clearly demonstrates that Mr. Denlinger was working with Honeywell's in house and outside counsel to assist them to provide legal advice to the Company and to prepare for anticipated litigation. (O'Neill Decl. ¶ 21; Shea Decl. ¶ 8; Denlinger Decl. ¶ 1.) Moreover, even assuming Mr. Denlinger was not working under the "direct supervision" of attorneys, Plaintiffs' argument must fail because it is built on a faulty premise. There is no requirement that a non-lawyer be supervised by a lawyer for the work product privilege to attach. Indeed, the Federal Rules of Civil Procedure clearly contemplate that a non-lawyer's work product can be privileged. Fed. R. Civ. P. 26(b)(3) (documents prepared by or for a party or its representative in anticipation of litigation are privileged). Furthermore, Plaintiffs' cited case law does not support their claimed "direct supervision" standard. See Hoptowit v. Ray, 682 F.2d 1237, 1262 (9th Cir. 1982) (holding only that a report created by nonlawyers that "was not done with the apparent purpose of preparing for litigation, and was eventually made public" was not privileged); United States v. Ackert, 169 F.3d 136, 139140 (2d Cir. 1999) (ruling only that an attorney's conversation with a third party accountant to obtain facts related to a proposed transaction was not privileged).

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Note that Plaintiffs claim that the documents provided to Mr. Denlinger are not work product. Although Plaintiffs are clearly wrong, the Court need not reach this question if it determines that the documents are attorney-client privileged and not within the fiduciary exception. (See Defs.' Op. Br. at 7-15; see also supra at 1-6.)
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Documents 13, 57, and 119, therefore, remain privileged.4 Thus, for the reasons set forth above, and in Defendants' opening brief, Defendants request that this Court deny Plaintiffs' motion to compel. Respectfully submitted this 2nd day of October, 2006.
OSBORN MALEDON, P.A. By: /s/ Azeez Hayne_____________________ David B. Rosenbaum Dawn L. Dauphine Osborn Maledon, P.A. 2929 North Central Avenue, Suite 2100 Phoenix, AZ 85012-2794 Michael L. Banks (Pro Hac Vice) William J. Delany (Pro Hac Vice) Azeez Hayne (Pro Hac Vice) MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philadelphia, PA 19103 Attorneys for Defendants

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Plaintiffs also appear to suggest that documents 70, and 90-91 are discoverable because Defendants failed to establish an additional factor they claim U.S. v. Chen, 99 F.3d 1495, 1502 (9th Cir. 1996) requires in order to prove the privilege in a corporate context. (Pls.' Resp. Br. at 19.) The section in Chen that Plaintiffs cite, however, does not address the standard necessary to prove the existence of a privilege in the first instance, but rather, which corporate employees have the power to waive the privilege. Chen does not support Plaintiffs' argument, and Defendants sufficiently established that the challenged documents are privileged. (Defs.' Op. Br. at 5-7.)
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CERTIFICATE OF SERVICE
I do certify that on October 2, 2006, 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: Susan Martin Martin & Bonnett P.L.L.C. 3300 N. Central Avenue, Suite 1720 Phoenix, Arizona 85012-2517 Attorney for Plaintiff

/s/ Azeez Hayne Azeez Hayne

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