Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-05566/USCOURTS-cand-3_06-cv-05566-31/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 28:1001 E.R.I.S.A.

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

BEVERLY KANAWI, et al.,

Plaintiffs,

 v.

BECHTEL CORP., et al.,

Defendants. /

No. C-06-05566 CRB (EDL)

ORDER FOLLOWING IN CAMERA

REVIEW

On July 1, 2008, following the hearing on Plaintiffs’ Motion to Compel and Plaintiffs’

Motion to Set Expedited Discovery Procedures, the Court issued an order requiring the Bechtel

Defendants and Fremont to lodge sample documents for in camera review to determine whether the

fiduciary exception to the attorney-client privilege applied to the thousands of documents listed on

Defendants’ privilege logs. The Court permitted the Bechtel Defendants to lodge fifteen documents

from their privilege logs and Fremont to lodge ten documents from its privilege log (two documents

from each of the five categories listed in Fremont’s opposition to the motion to compel) as

representative samples for the Court’s in camera review. The Court also permitted Plaintiffs to

choose the same number of documents (fifteen from the Bechtel Defendants’ privilege logs and two

from each of the five categories listed by Fremont in its opposition) for the Court’s in camera

review. The Court has reviewed the fifty sample documents and issues the following order

addressing the majority of the documents submitted.

“As applied in the ERISA context, the fiduciary exception provides that ‘an employer acting

in the capacity of ERISA fiduciary is disabled from asserting the attorney-client privilege against

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plan beneficiaries on matters of plan administration.’” See United States v. Mett, 178 F.3d 1058,

1063-64 (9th Cir. 1999) (“On the one hand, where an ERISA trustee seeks an attorney’s advice on a

matter of plan administration and where the advice clearly does not implicate the trustee in any

personal capacity, the trustee cannot invoke the attorney-client privilege against the plan

beneficiaries. On the other hand, where a plan fiduciary retains counsel in order to defend herself

against the plan beneficiaries (or the government acting in their stead), the attorney-client privilege

remains intact.”) (quoting Becher v. Long Is. Lighting Co., 129 F.3d 268, 272 (2d Cir. 1997));

Fischel v. Equitable Life Assurance, 191 F.R.D. 606, 608 (N.D. Cal. 2000) (finding that

attorney-client privilege fiduciary exception applied where defendant asserted the privilege against

the ERISA plan’s beneficiaries, but not where defendant requested advice from counsel regarding its

efforts to protect itself from liability; ordering some papers, but not other papers to be produced). 

Fiduciaries have certain privileges, and the fiduciary exception does not apply when plan fiduciaries

seek advice pertaining to personal liability of fiduciaries. See Mett, 178 F.3d at 1065 (“by agreeing

to serve as a fiduciary, an ERISA trustee is not completely debilitated from enjoying a confidential

attorney-client relationship”). The Mett court further rejected an expansive approach to the

fiduciary exemption. See id. 

In Fischel, the court applied Mett and stated that the fiduciary exception applies to

communications relating to “plan administration by excluding from it any advice whose goal is to

advise the trustee about the legal implications of actions and decisions undertaken while performing

its fiduciary obligations.” Fischel, 191 F.R.D. at 609. Specifically, the court read Mett as

“endorsing a test that focuses on the intended recipient of the advice and the purpose for which it is

sought.” Id. Accordingly, the Fischel court applied the exception to require production of otherwise

privileged documents: (1) intending to describe or communicate changes in plan benefits to

beneficiaries; and (2) regarding the structure and design of the plan, including the plan’s compliance

with statutory obligations under the Internal Revenue Code. See id. at 610. The Fischel court

denied production of documents under the exception with respect to documents showing the legal

implications and potential liabilities in amending or designing the ERISA plan, and showing certain

changes in benefits because the advice was given in anticipation of litigation. See id. 

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Keeping in mind the principles from Mett as interpreted in Fischel, the Court issues the

following order on the majority of the fifty sample documents:

Documents designated by Fremont Investment Advisors 

1. Category 1: Communications Between Fremont Employees and Fremont Counsel

Regarding the Rights and Liabilities of Fremont

a. Document 9: This document summarizes key components of the agreement between

Fremont and the Bechtel Trust and Thrift Committee. This document is not subject

to the fiduciary exception because the advice contained in the memo does not relate

to the Plan benefits or changes thereto. This document is not subject to production. 

b. Document 85: This document is an e-mail exchange between Fremont’s counsel and

a Fremont executive regarding the agreement between Bechtel and Fremont. Because

this document reflects an evaluation of the agreement as it relates to the Plan, it is

subject to the fiduciary exception in that it relates to the structure and design of the

plan. This document must be produced. 

2. Category 2: Drafts of Communications Sent by Fremont Employees to Fremont Counsel but

Not Sent Outside of Fremont

a. Documents 67, 170: These documents are e-mails from a Fremont executive to

Fremont’s counsel attaching a draft of a letter to Peggi Knox at Bechtel. These

documents need not be produced because they relate to legal advice regarding

potential liability by Fremont. 

3. Category 3: Communications Between Fremont Employees and FIA Counsel Regarding

Contract Negotiations Between Fremont and PIMCO 

a. Documents 55, 64: Document 55 is an e-mail chain from David Hearth, Fremont’s

outside counsel, and Fremont’s counsel Westover as well as a Fremont executive

referring to changes made in the Fremont/PIMCO agreement. Document 64 is the

actual draft agreement with attorney revisions. These documents relate to changes to

the structure or design of a sub-advisory agreement, rather than the Plan itself, so the

fiduciary exception does not apply. This document need not be produced. 

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4. Category 4: Documents Reflecting Communications of Dechert LLP

a. Documents 18, 30: These documents are communications that include Dechert

lawyer Robert Robertson that address any potential liability on the part of Fremont. 

Therefore, they are not subject to the fiduciary exception to the attorney-client

privilege, and need not be produced. 

5. Documents Reflecting Communications with Attorneys of Thelen

a. Document 32: This document is a memo from attorney Foster, who was paid by the

Plan, to the Chief Operating Officer of Fremont recommending revisions to the

agreements between the parties. This memo addresses changes to the structure and

design of the Plan to the extent the agreements among the parties are part of the Plan. 

Accordingly, this document is subject to the fiduciary exception and must be

produced. 

b. Document 203: This is a memo from attorney Foster to a Fremont executive

regarding whether the Plan could bear Fremont’s accounting services charges under

certain circumstances. This document is in the nature of legal advice to Fremont

regarding its potential liability, so it is not subject to the fiduciary exception. This

document need not be produced. 

Fremont documents designated by Plaintiffs

Plaintiffs designated three documents that Fremont had already included in its submission. 

The rulings on those documents, number 67, 18 and 30, are discussed above. 

1. Documents 173, 174: This memo relates to proposed changes in the Plan. Accordingly, the

fiduciary exception to the attorney-client privilege applies, and this document must be

produced.

2. Document 217: This memo to in-house counsel describes observations and

recommendations to the Plan 2002 audit, and also addresses fee structures through Fund A

and task force. This document relates to Plan administration, so it is subject to the fiduciary

exception and must be produced.

3. Document 169: This document is identical to documents 67 and 170. Accordingly, as stated

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above, these documents need not be produced because they relate to legal advice regarding

potential liability by Fremont. 

4. Document 42: This e-mail chain from a Fremont VIce-President to an executive assistant

and copied to in-house counsel Westover, addresses the consolidation of Bechtel’s holdings

in PIMCO accounts. This document relates to plan administration rather than liability, and

so is subject to the fiduciary exception and must be produced.

5. Document 44: This e-mail to in-house counsel and others attaches the draft sub-advisory

agreement with Fremont and PIMCO. This relates to plan structure and design, therefore, it

is subject to the fiduciary exception and must be produced. 

6. Document 200: This e-mail chain originating from outside counsel Foster to Bechtel and

Callen executives addresses approval of changes to managers of certain Funds and approval

of purchasing Fremont funds. This document goes to potential liability of Fremont, which

would not be subject to the fiduciary exception. This document need not be produced. 

7. Document 252: This e-mail from outside counsel Foster to Fremont executives relates to

changes to the draft Investment Management Agreement with Barclays Global Investors. 

Although the e-mail and the attached draft agreement are in the nature of plan administration, 

there are also aspects of the document regarding potential liability. On balance, this

document addresses edits to the plan documents, rather than legal advice on the question of

the advisability of those changes. Therefore, the fiduciary exception applies to this

document and it must be produced. 

Documents designated by Bechtel

In connection with Plaintiffs’ motion to compel, the Bechtel Defendants argued that the

fiduciary exception does not apply in this case because the Bechtel Defendants are not trustees and

the actual trustee, State Street Bank and Trust Company, is not a defendant. See Wachtel v. Health

Net, Inc., 482 F.3d 225, 233 (3d Cir. 2007) (stating that Washington Star focused on trustees and did

not consider whether exception would apply to other fiduciaries); Washington-Baltimore Newspaper

Guild, Local 35 v. Washington Star Co., 543 F. Supp. 906, 909 (D. D.C. 1982) (“When an attorney

advises a fiduciary about a matter dealing with the administration of an employees’ benefits plan,

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the attorneys’ client is not the fiduciary personally but, rather, the trust’s beneficiaries.”). At the

July 1, 2008 hearing, the Court rejected this argument. Even in light of that rejection, the Bechtel

Defendants again raised the issue in their submission regarding privileged documents for in camera

review, surprisingly without acknowledging that the Court had already ruled to the contrary. The

Court will not revisit its decision on this issue. As stated at the hearing, the fiduciary exception is

not limited to fiduciaries with the title of “Trustee.” 

1. Category 1: Communications from Plan counsel to Committee

a. Document 1: This document is similar to Fremont’s document number 203, such that

document 203 appears to be a draft of document 1. As with document 203 above,

document 1 is not subject to the exception and need not be produced. 

b. Document 2: This letter from attorney Foster to the Committee regarding the

fiduciary nature of the responsibilities of the Committee. This document is not

subject to the exception, and need not be produced, because it addresses the liability

of the Committee rather than plan administration. 

2. Category 2: Communications from Bechtel counsel to Committee

a. Document 3: This e-mail chain from Bechtel’s in-house counsel Quazzo regarding

the Fremont and Bechtel relationship. Because the document addresses possible

liability of Bechtel or Fremont, it is not within the fiduciary exception and need not

be produced. 

b. Document 4: The redacted portion of this document addresses how costs to the plan

are allocated and whether the charges can be paid by the plan. Although this

document relates somewhat to the Committee’s liability arising from proposed

changes to the plan, it also largely addresses plan administration. On balance, this

document should be largely unredacted and produced. Bechtel may redact the first

two sentences of the fourth paragraph of CTRL_FT_00033683 (beginning “The

Committee. . . .”), and the last sentence of that paragraph (beginning “We . . . .”)

Bechtel may also redact the last sentence of the third full paragraph of

CRTL_FT_00033684 (beginning with “We . . . .”). 

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3. Category 3: Communications from Bechtel counsel to Bechtel staff

a. Document 5: This e-mail from attorney Quazzo forwards an e-mail from outside

counsel regarding whether the plan complies with ERISA 404(c) disclosure

requirements. Because this document addresses the liability of Bechtel, it is not

subject to the exception and need not be produced.

b. Document 6: This e-mail chain begins with an email from attorney Quazzo regarding

outside counsel’s advice regarding whether the Plan could pay for Bechtel in-house

costs associated with administration of the Plan. Because this e-mail relates to

Bechtel’s potential liability, it is not subject to the exception and need not be

produced.

c. Document 7: This e-mail chain advises on the legality of a potential Plan investment. 

Although this document pertains to the structure and design of the plan, it also

pertains to the potential liability of the entities. On balance, this document does not

fall within the exception and need not be produced. 

4. Category 4: Communications between Plan counsel and Fremont counsel

a. Document 8: This document addresses counsel’s response to several questions posed

by Bechtel about management of the plan. Although this document presents a close

question, the document is primarily focused on potential liability, so it is not subject

to the exception and need not be produced. 

b. Document 9: These e-mails triggered the memo that is document 8. Because the emails are also focused on avoiding liability as described in document 8, this

document is not within the exception and need not be produced. 

5. Category 5: Communications between plan counsel and Bechtel counsel

a. Document 10: This e-mail from attorney Quazzo to outside counsel relates to

restructuring the plan and the Fremont/Bechtel relationship. This document

addresses reducing liability. On balance, the document addresses reduction of

liability. Therefore, the exception does not apply and the document need not be

produced. 

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b. Document 11: This document, which was recently acquired by Bechtel, focuses on

liability rather than plan administration, the exception would not apply and the

document need not be produced. 

c. Document 12: This letter contains legal advice regarding payment of fees from the

Master Trust. Because this document addresses the potential liability of the entities,

it is not subject to the exception and need not be produced. 

d. Document 13: This memo from outside counsel addresses whether the plan may

reimburse certain costs associated with the Plan, and if so, what requirements must be

satisfied. Because this document contains legal advice regarding potential liability of

a fiduciary, it is privileged and not within the fiduciary exception. 

e. Document 14: This memo from outside counsel addresses the Committee’s fiduciary

duties in connection with the proposed changes to the Plan. This document contains

legal advice regarding potential liability of a fiduciary, so it is not subject to the

fiduciary exception and need not be produced. 

f. Document 15: This document, which is similar to document 13 above, from outside

counsel addresses the question of the appropriateness of charging the trust for the

Plan for certain costs. Because this document contains legal advice regarding a

fiduciary’s potential liability, it is privileged and not within the fiduciary exception

Bechtel documents designated by Plaintiffs

In their submission of documents designated by Plaintiffs for in camera review, the Bechtel

Defendants did not include any explanatory information regarding the documents because they read

the Court’s order as not authorizing such an explanation. The Court’s order may have been

ambiguous on this point. Therefore, no later than August 11, 2008, the Bechtel Defendants may file

a brief explanation of the documents designated by Plaintiffs. Accordingly, the Court defers ruling

on the application of the fiduciary exception to those documents.

Conclusion

With the Court’s ruling on these sample documents, Defendants shall produce in good faith a

revised privilege log for the documents that were not part of the Court’s in camera review, no longer

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withholding documents that fall within the fiduciary exception as construed and applied in this

Order, because such claims of privilege have been overruled. 

IT IS SO ORDERED.

Dated: August 6, 2008 

ELIZABETH D. LAPORTE

United States Magistrate Judge

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