Edelstein et al v. Optimus Corporation
MEMORANDUM AND ORDER - The plaintiffs' objection (Filing No. 165 ) to the order of the magistrate judge (Filing No. 162 ) is sustained in part. The magistrate judges finding that the documents at issue are protected from disclosure by the w ork product privilege is set aside. Optimus and Silverstone are directed to provide plaintiffs with a copy of the January 16, 2009; August 25, 2009; and September 2009 notes within 7 days of the date of this order. Ordered by Judge Joseph F. Bataillon. (GJG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
STANLEY EDELSTEIN, IVAN GERARD,
PAT HOY, BARRY BLUE, ROBERT
CAMPNEY, GROVONDA COLEMAN,
WAYNE COREY, PETER DANIELSON,
WILLIAM GOLDMAN, DANA HAMIK,
MICHAEL HICKS, BILL KELLER,
RICHARD NEVINS, JOE SCHUETTE,
CHRISTL UPCHURCH, LORRAINE
VASHON, TIM WHITTINGHILL,
AMENDED AND RESTATED KEY
EXECUTIVE RETIREMENT PLAN,
MEMORANDUM AND ORDER
This matter is before the court on the plaintiff’s objection, Filing No. 165, to the
magistrate judge’s order on plaintiff’s motion to compel, Filing No. 162.1 In that order,
after in camera review, the magistrate judge found certain documents were protected
from discovery by the work product doctrine. This is an action to recover retirement
benefits the plaintiffs allege they are entitled to under the terms of The Pacesetter
Corporation Amended and Restated Key Executive Retirement Plan (the “Plan” or
“KERP Plan”), pursuant to under ERISA, 29 U.S.C. § 1001 et seq.
The defendant filed a motion for oral argument on the matter, Filing No. 166. That motion was
granted and the court heard oral argument on June 1, 2012.
The court has previously determined that releases executed by the plaintiffs in
connection with the termination of the Plan are unenforceable because the plaintiffs
were not provided with material information. Filing No. 138, Memorandum and Order at
8-9; Filing No. 122, Order of Attachment at 5-6. The remaining issue for resolution is
calculation of the plaintiffs’ benefits under the Plan.
The discovery dispute at issue involves a subpoena for documents in the
possession of SilverStone Group. Filing No. 154, Index of Evid. Ex. 3, Subpoena (Doc.
# 154-4, Page ID 1869-72).
Defendant asserted attorney-client and work product
privilege with respect to four documents. Id., Ex. 5, Privilege Log (Doc. # 154-6, Page
ID 1876). The plaintiffs then moved to compel production of the documents. Filing No.
145. The magistrate judge conducted an in camera review and held that the notes were
protected by the work product privilege. Filing No. 162, Order at 6-7. The magistrate
judge found the notes contained mental impressions and legal analysis, and had been
prepared in anticipation of litigation. Id. at 7. The magistrate judge did not address
Three documents are presently at issue—all are sets of notes authored by Tom
Von Riesen, a principal of SilverStone, regarding discussions with Optimus
representatives in January, August and September of 2009.
On appeal of the
magistrate judge’s order, plaintiffs argue that the work product privilege does not protect
the documents at issue from discovery because the plaintiffs are participants in the Plan
and should be allowed to see all information relating to the termination of the Plan and
the calculation of the benefits owed to the plaintiffs.
The plaintiffs also seek
reconsideration of their motion for sanctions. Defendant argues that the order of the
magistrate judge should be affirmed.
The evidence shows Don Kluthe, President and Chief Administrative Officer
(CEO) of defendant Optimus Corporation, formerly known as the Pacesetter
Corporation, is responsible for administration of the Plan. Filing No. 154, Ex. B, Affidavit
of Don Kluthe at 1. SilverStone Group is the Plan’s actuary, and has provided tax,
accounting and actuarial services for the purposes of administering the Plan. Id. Don
Kluthe stated in his affidavit that he consulted with outside counsel Randy Limbeck and
Jim Miller, Optimus Corporation’s general counsel, on issues relating to the Plan. Id.
This action was filed on February 11, 2010.
The parties agree that the Plan is a
nonqualified plan under ERISA.
The court has conducted an in camera review of the documents at issue. That
review shows that the notes consist of handwritten notes and typed memoranda “to the
Optimus file” from Von Reisen regarding telephone conversations with Ivan Gerard, a
Plan beneficiary; Don Kluthe, Optimus’s President and CEO; and Randy Limbeck,
Optimus’s outside attorney, as well as notes regarding a meeting with Don Kluthe
regarding lump-sum calculations. Von Riesen’s notes make reference to statements
made by Jim Miller, Optimus’s general counsel, to Don Kluthe, and to statements made
by Randy Limbeck to Jim Miller and then relayed by Kluthe to Von Reisen. The subject
of the conversations is the termination of the Plan, calculation of benefits to the
beneficiaries, and a letter proposal to the beneficiaries from Phil Schrager, former
Chairman of the Board and Director of Pacesetter Corporation.
On review of a decision of the magistrate judge on a pretrial matter, the district
court may set aside any part of the magistrate judge’s order that it finds is clearly
erroneous or contrary to law. 28 U.S.C. § 636 (b)(1)(A); Fed. R. Civ. P. 72(a); In re
Lane, 801 F.2d 1040, 1042 (8th Cir. 1986). See also Bialas v. Greyhound Lines, Inc.,
59 F.3d 759, 764 (8th Cir. 1995) (noting “a magistrate is afforded broad discretion in the
resolution of nondispositive discovery disputes”).
In the absence of a relevant federal rule, statute, or constitutional provision,
federal common law governs questions of privilege in federal-question jurisdiction
proceedings. Fed. R. Evid. 501; Hollins v. Powell, 773 F.2d 191, 196 (8th Cir. 1985).
The party who claims the benefit of the attorney-client or work product privilege has the
burden of establishing the right to invoke its protection.
Diversified Indus., Inc. v.
Meredith, 572 F.2d 596, 609 (8th Cir. 1978) (en banc).
“‘The attorney-client privilege is the oldest of the privileges for confidential
communications known to the common law.’” United States v. Yielding, 657 F.3d 688,
707 (8th Cir. 2011) (quoting Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)).
This privilege protects confidential communications between a client and his or her
attorney made for the purpose of facilitating the rendition of legal services to the client.
Yielding, 657 F.3d at 707. When a matter is committed to a professional legal advisor, it
is “prima facie committed for the sake of legal advice and [is], therefore, within the
privilege absent a clear showing to the contrary.”
Id. at 610.
privilege is applicable to the communications of an employee of the client if: (1) the
communication was made for the purpose of securing legal advice; (2) the employee
making the communication did so at the direction of his corporate superior; (3) the
superior made the request so that the corporation could secure legal advice; (4) the
subject matter of the communication is within the scope of the employee’s corporate
duties; and (5) the communication is not disseminated beyond those persons who,
because of the corporate structure, need to know its contents. Diversified Indus., Inc.,
572 F.2d at 609 (noting that the mere receipt of routine reports by the corporation’s
counsel will not make the communication privileged, either because the communication
will have been made available to those who do not need to know or because the
communication was not made for the purpose of securing legal advice).
independent consultant can be a representative of the client for purposes of applying
the attorney-client privilege if the consultant possesses a significant relationship to the
client and the client’s involvement in the transaction that is the subject of legal services.
In re Bieter Co., 16 F. 3d 929, 938 (8th Cir. 1994) (involving a nonemployee relationship
in the nature of a partnership or joint venture). The attorney-client privilege is generally
lost when communications are disclosed to a third party. See, e.g., United States v.
Hatcher, 323 F.3d 666, 674 (8th Cir. 2003).
The privileged nature of attorney-client communications, “however, is not
absolute, for ‘[u]nder the crime-fraud exception, attorney-client privilege does not extend
to communications made for the purpose of getting advice for the commission of a fraud
or a crime.’” In re Grand Jury Proceedings, G.S., F.S., 609 F.3d 909, 912 (8th Cir.
2010) (quoting United States v. Zolin, 491 U.S. 554, 563 (1989)) (noting that, similarly,
a client who has used his attorney’s assistance to perpetrate a crime or fraud cannot
assert the work product privilege as to any documents generated in furtherance of his
A district court's finding of probable cause that a client sought an
attorney’s advice in furtherance of fraud satisfies the evidentiary showing necessary to
compel production of privileged documents under the crime-fraud exception. Id. The
party urging discovery must present facts warranting a reasonable belief that the
deponent obtained legal advice to further a crime or fraud. Kilpatrick v. King, 499 F.3d
759, 766 (8th Cir. 2007) (holding that threshold showing warrants an in camera review).
Courts have also recognized an exception to the attorney–client privilege in the
context of fiduciary relationships. See Solis v. Food Employers Labor Relations Ass'n,
644 F.3d 221, 226-27 (4th Cir. 2011).
“Rooted in the common law of trusts, the
fiduciary exception is based on the rationale that the benefit of any legal advice
obtained by a trustee regarding matters of trust administration runs to the beneficiaries.”
Id. at 226. Several circuits have recognized the exception to assertions of attorneyclient privilege by ERISA fiduciaries. See, e.g., id. at 228 (finding that the fiduciary
exception to attorney-client privilege extends to communications between an ERISA
trustee and a plan attorney regarding plan administration); Bland v. Fiatallis N. Am. Inc.,
401 F.3d 779, 787–88 (7th Cir. 2005) (the ERISA fiduciary’s duty to act in the exclusive
interest of beneficiaries supersedes the fiduciary’s right to assert attorney-client
privilege); United States v. Mett, 178 F.3d 1058, 1062 (9th Cir. 1999) (reasoning that the
ERISA fiduciary, as a representative of the beneficiaries, is not the real client in
obtaining advice regarding plan administration and “thus never enjoyed the privilege in
the first place”); United States v. Doe, 162 F.3d 554, 557 (9th Cir. 1998); Becher v. Long
Island Lighting Co., 129 F.3d 268, 272 (2d Cir. 1997); Wildbur v. ARCO Chem. Co., 974
F.2d 631, 645 (5th Cir. 1992). The fiduciary exception has also been held to apply to
the work product doctrine in the context of ERISA litigation. Solis, 644 F.3d at 232
(reasoning that a trustee attorney should not withhold work product from the actual
client, i.e., the trust beneficiaries).
In the Eighth Circuit, a top-hat2 administrator has no fiduciary responsibilities
under ERISA. Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th
Cir. 2006) (noting that top hat plans should be treated as unilateral contracts and
reviewed in accordance with ordinary contract principles because the policy
considerations triggering abuse-of-discretion review (i.e., analogy to trust law and to the
fiduciary responsibilities possessed by administrators with discretionary authority) are
not present in the case of a top hat plan). Nonetheless, ordinary contract principles
require a duty of good faith and fair dealing. Id.
“The work product privilege is ‘distinct from and broader than the attorney-client
privilege.’” In re Grand Jury Proceedings, 492 F.3d 976, 980 (8th Cir. 2007) (quoting In
re Murphy, 560 F.2d 326, 337 (8th Cir. 1977).
Work product privilege confers a
qualified privilege on documents prepared by an attorney in anticipation of litigation.
Hickman v. Taylor, 329 U.S. 495, 509-14 (1947); Simon v. G.D. Searle & Co., 816 F.2d
397, 401 (8th Cir. 1987) (en banc) (the work product doctrine protects only those
documents from discovery that were prepared in anticipation of litigation). The test is
whether, “‘in light of the nature of the document and the factual situation in the particular
case, the document can fairly be said to have been prepared or obtained because of the
“A top hat plan is so called because it provides ‘deferred compensation for a select group of
management or highly compensated employees,’ 29 U.S.C. § 1051(2), without being subject to the
Internal Revenue Code’s maximum annual benefit and compensation limits.” Craig v. Pillsbury Non–
Qualified Pension Plan, 458 F.3d 748, 749 (8th Cir. 2006).
prospect of litigation,’” but, even though litigation may “‘already [be] in prospect, there is
no work product immunity for documents prepared in the regular course of business
rather than for purposes of litigation.’” Id. (quoting 8 C. Wright & A. Miller, Federal
Practice and Procedure § 2024, at 198-99 (1970)). Because the work product privilege
protects not just the attorney-client relationship but the interests of attorneys to their
own work product, both the attorney and the client hold the privilege. In re Green Grand
Jury Proceedings, 492 F.3d at 980.
The court first finds that sanctions should not be awarded at this time. The
magistrate judge found there was insufficient evidence for the court to find that Optimus
violated the court’s discovery order.
Filing No. 162, Order at 8.
conduct does not appear so egregious as to warrant sanctions and the plaintiffs have
not shown that the proceedings have been unreasonably delayed.
The court next finds the documents are not protected by the attorney-client
privilege. The defendant has not sustained its burden of showing that it is entitled to the
protection of the privilege.
The communications at issue were not made by or to
attorneys for the purpose of seeking legal advice.
To the extent that the
communications contain any attorney’s legal impressions or opinions, the privilege with
respect to those statements was waived. The communications were divulged by the
client, Don Kluthe, as President/CEO of Optimus, to a third party, namely, Von Reisen
at SilverStone Group. The defendant has not shown that SilverStone Group has the
sort of relationship with Optimus that would be the equivalent of an employer-employee
relationship so as to entitle SilverStone to the protection of the attorney-client privilege.
Further, even if the communications could be considered protected by attorneyclient privilege, either the crime-fraud or fiduciary exception to the privilege would apply.
This court has already found that the defendant made material misrepresentations or
omissions of fact in connection with the settlement of the defendant’s pension
That finding would be sufficient to invoke the fraud exception.
although the administrator of a nonqualified plan may not be a fiduciary, the role played
by Optimus vis-à-vis the beneficiaries in this case is sufficiently analogous to a fiduciary
relationship that application of ordinary contract principles, including the duty of good
faith and fair dealing, would compel the finding that the ERISA Plan attorneys may not
shield the material from their ultimate clients, the plan beneficiaries.
The court also finds the finding of the magistrate judge that the documents are
protected from discovery by the work product doctrine is clearly erroneous. Again, the
court finds the defendant has not sustained its burden to show the documents are
protected under the doctrine. There has been no showing that the communications
were made in anticipation of litigation. It is not sufficient to show that litigation may
result from a transaction. That much is true with respect to many business negotiations
or decisions. Further, because SilverStone functioned as the Plan’s actuary and tax
consultant, the comments included in the notes are precisely the type of documents
prepared or records maintained in the ordinary course of business. The defendant has
not shown that SilverStone was retained as a consultant to aid the litigation; in fact, the
evidence shows the opposite is true. SilverStone is an essential fact witness in the
litigation, not an expert retained by Optimus. Accordingly,
IT IS ORDERED:
1. The plaintiffs’ objection (Filing No. 165) to the order of the magistrate judge
(Filing No. 162) is sustained in part.
2. The magistrate judge’s finding that the documents at issue are protected from
disclosure by the work product privilege is set aside.
3. Optimus and Silverstone are directed to provide plaintiffs with a copy of the
January 16, 2009; August 25, 2009; and September 2009 notes within 7 days of the
date of this order.
Date: June 14, 2012
BY THE COURT:
s/ Joseph F. Bataillon
United States District Judge
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