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Court Rejects Attorney-Client Privilege Claim in PIMCO 36(b) Case, Compelling Trustees to Produce Documents

The plaintiff in an excessive fee suit filed against PIMCO in December 2014 scored a victory on November 21, 2016 when the U.S. District Court in the Western District of Washington in  Seattle granted the plaintiff’s motion to compel certain independent trustees of the PIMCO Total Return Fund to produce documents they had redacted or withheld under the attorney-client privilege.  The plaintiff argued that a “fiduciary exception” to the attorney-client privilege should apply in the matter and cited prior cases holding that: the attorney-client privilege cannot be a basis for withholding information from the beneficiary of a trust when a trustee seeks or is provided legal advice to guide the administration of the trust and the attorney-client privilege properly belonged to the beneficiaries rather than the trustees.  The plaintiff further argued that the communications at issue were provided to the independent trustees in their role as fiduciaries and related to plan administration and noted that the trustees were not seeking personal legal advice or advice in anticipation of litigation. The District Court agreed with the plaintiff and wrote: “despite the Independent Trustees’ emphasis on the independence of their role, it is from the Plan Administrator that they are independent, not the trust beneficiaries, i.e. shareholders. None of the Trustee’s or PIMCO’s arguments about the importance of the attorney-client privilege or the applicable statutory and regulatory structure satisfactorily explain why the independent trustees, acting as fiduciaries to the beneficiaries of the trust, should be able to resist disclosure to those beneficiaries of attorney communications paid for by the trust for the benefit of the trust.” The District Court wrote that PIMCO and the independent trustees were unable to cite any case barring the application of the fiduciary exception. The defendants argued that that no court had ever recognized a ‘fiduciary exception’ in the context of the mutual fund industry, communications between non-party independent trustees and their independent counsel, or any prior Section 36(b) lawsuit. The defendants also argued that the availability of the fiduciary exception would chill communications between independent trustees and their counsel and “would actually destabilize the mutual fund industry to the detriment of all shareholders.”