For those who missed it, Schiff Hardin's Investment Management team presented a webinar examining whether communications between independent trustees and their counsel are protected by the attorney-client privilege in the wake of Kenny v. PIMCO. The discussion sparked a lively Q&A session. Here are our answers to the top questions:
Q: Can the fiduciary exception be applied in communications between internal counsel to the investment adviser (who has a fiduciary duty to the client/fund)?
SH: It seems you are referring to communications between internal counsel and the trustees, which is the scenario we referenced in the beginning of the webinar. Plaintiffs sought disclosure of communications between internal counsel and trustees, arguing that internal counsel was not a counsel to the trustees and that even if they were, that the fiduciary exception applies. The short answer is we do not know yet but plaintiffs are making that argument.
An argument could—and likely will—be made that the independent trustees have their own counsel. Internal counsel for the adviser could potentially have a conflict if it were advising the trustees. Given that scenario, there is no attorney-client privilege. A further question is whether fund counsel communications with independent trustees, assuming they are not employed by the adviser, would be able to avail themselves of the privilege. There is a stronger argument there, which has not been tested, but given that there is not a conflict between the fund or the trust and the trustees, there is a stronger case for upholding the privilege in that instance. Though again, as far as we know it has not been put forth to a court and so has not been decided.
Q: Does an email request for a conference call open up the need to disclose the topic of the conference call?
SH: If this were only an email that says “can we talk?” then it would not be a communication involving legal advice and it is not privileged. Whether someone can delve into what was discussed on the call touches on the question regarding the fiduciary exception.
It is often the case that the subject for which advice is being requested is described in a way that it would contain privileged material. In terms of whether any of that would need to be disclosed. To review the order in which this situation is likely to occur—typically all communications that are either attorney-client privileged communications or contain work product would be withheld if they were otherwise properly discoverable. A privilege log would be prepared that identifies each such document, with some general categories that are provided for by the Federal Rules, and then the fight as we saw in Kenny v. PIMCO ensues. There is typically briefing before the court and sometimes oral argument. It is only at that point that the decision would be made whether any of that information needed to be disclosed. If something is privileged, then there would not be a reason to disclose it unless ordered to do so.
Q: How worried or concerned should fund boards be about this issue? Should it be at the top of boards' agendas?
SH: It serves as an important reminder to all boards not to make assumptions that your communications are privileged. If you have not been the subject of a discovery order, then it can be hard to appreciate how lengthy, how painful, and how expensive it can be. Everyone should take this opportunity to revisit the protections you already have in place and to think about your communications before you write an email or prepare a memo. Ask yourself how this communication would appear if it were to be produced, because there is a degree of uncertainty here. Of course there are reasons to communicate both in email and in writing. Take care to ensure that communications that are advice are properly crafted.
Also be sure that communications that are not advice and are not likely to be protected are not communicating something that could be the source of liability. Careless words or incomplete phrases can certainly be used against you if they are discussed in the wrong context. Take care when you do commit something to writing that it is clear and is directed only to those who must receive the communication.