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Hugler v. Bat Masonry Company, Inc.

United States District Court, W.D. Virginia, Lynchburg Division

March 31, 2017

EDWARD HUGLER, United States Secretary of Labor, Plaintiff,
v.
BAT MASONRY COMPANY, INC., et al, Defendants.

          MEMORANDUM OPINION

          Robert S. Ballou United States Magistrate Judge

         In this ERISA action, the Department of Labor ("DOL") seeks to hold defendants liable for their purported breaches of fiduciary duties under a failed ESOP. Defendants Gregory Booth, M.H. Masonry, Inc., and Melvin Hinton ("Defendants") filed a motion to compel the DOL to produce documents that were withheld from discovery on the basis of privilege. Dkt. No. 117. The DOL objects on the grounds that the documents sought are protected from disclosure by the attorney client privilege, the deliberative process privilege, the law enforcement privilege, and the attorney work product doctrine. Dkt. No. 120.1 reviewed the subject documents in camera and heard oral argument. The motion to compel is GRANTED in part and DENIED in part.

         I.

         The facts of this matter have been set out in prior court opinions, and I will not recite them in detail here. The core issue underlying this motion is Defendants' statute of limitations defense, claiming that the DOL had actual knowledge of the alleged ERISA violations more than three years before it filed suit on August 28, 2015.

         The applicable limitations period in this action is three years "after the earliest date on which the plaintiff had actual knowledge of the breach or violation." 29 U.S.C. § 1113. The Fourth Circuit has not provided a precise definition of “actual knowledge” in the context of a suit brought under ERISA. See Browning v. Tiger's Eye Benefits Consulting, 313 Fed.Appx. 656, 660-61 (4th Cir. 2009). The Browning court acknowledged that other circuits have come to differing conclusions regarding what constitutes “actual knowledge, ” such as the Third and Fifth Circuits' requirement of “a showing that plaintiffs actually knew not only of the events that occurred which constitute the breach or violation but also that those events supported a claim of breach of fiduciary duty or violation under ERISA.” See Int'l Union v. Murata Erie N. Am., Inc., 980 F.2d 889, 900 (3d Cir. 1992); Maher v. Strachan Shipping Co., 68 F.3d 951, 954 (5th Cir. 1995). Conversely, the Sixth, Seventh, and Ninth Circuits have determined that actual knowledge occurs when a plaintiff has knowledge of the facts or transaction that constituted the alleged violation, and “it is not necessary that the plaintiff also have actual knowledge that the facts establish a cognizable legal claim under ERISA.” Wright v. Heyne, 349 F.3d 321, 330 (6th Cir. 2003); see also Martin v. Consultants & Adm'rs, Inc., 966 F.2d 1078, 1086 (7th Cir. 1992); Meagher v. Int'l Assoc. of Machinists and Aerospace Workers Pension Plan, 856 F.2d 1418, 1423 (9th Cir. 1988). Meanwhile, the Second Circuit has held that a plaintiff has actual knowledge “when he has knowledge of all material facts necessary to understand that an ERISA fiduciary has breached his or her duty or otherwise violated the Act.” Caputo v. Pfizer, Inc., 267 F.3d 181, 193 (2d Cir. 2001).

         In Browning, the Fourth Circuit declined to define the phrase, but did note that actual knowledge “depends largely on the ‘complexity of the underlying factual transaction, the complexity of the legal claim[, ] and the egregiousness of the alleged violation.'” Browning, 313 Fed.Appx. at 661 (quoting Martin, 966 F.2d at 1086). The Court also found that “there cannot be actual knowledge of a violation for purposes of the limitation period unless a plaintiff knows the ‘essential facts of the transaction or conduct constituting the violation.'” Id. (quoting Edes v. Verizon Commc'ns, Inc., 417 F.3d 133, 142 (1st Cir. 2005)).

         Thus, Defendants' assertion that DOL had actual knowledge of the ERISA violations more than three years before filing this suit will be a strongly contested, factually-based issue in this litigation. Defendants argue that documents withheld from production by the DOL on the basis of privilege are relevant to their statute of limitations defense and do not properly qualify as privileged, or that any applicable privilege is outweighed by Defendants' substantial need for the documents. The DOL asserts that all of the documents sought are properly protected from disclosure by either the attorney-client privilege, the deliberative process privilege, the law enforcement privilege, or the work product doctrine. I first discuss the standard for each of the privileges asserted and then apply those standards to each category of documents.

         II. Attorney-Client Privilege

         The attorney-client privilege is the oldest privilege for confidential communications known to the common law. Upjohn Co. v. United States., 449 U.S. 383, 389 (1981). Where the attorney-client privilege applies, “it affords confidential communications between lawyer and client complete protection from disclosure.” Hawkins v. Stables, 148 F.3d 379, 383 (4th Cir. 1998). It applies to individuals and corporations, and to in-house and outside counsel. See Upjohn, 449 U.S. at 394. Because the attorney-client privilege “impedes the full and free discovery of the truth, it must be narrowly construed and recognized only to the very limited extent that excluding relevant evidence has a public good transcending the normally predominant principle of utilizing all rational means for ascertaining truth.” In re Grand Jury Subpoena, 341 F.3d 331, 335 (4th Cir. 2003) (internal quotation marks and citations omitted).

         The Fourth Circuit applies the “classic test” of the attorney-client privilege:

(1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of a bar or court, or his subordinate and (b) in connection with this communication is acting in his capacity as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purposes of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed (b) and not waived by the client.

Id. at 336. “The burden is on the proponent of the attorney-client privilege to demonstrate its applicability. The proponent must establish not only that an attorney-client relationship existed, but also that the particular communications at issue are privileged and that the privilege was not waived.” Id. (citation omitted). “Any disclosure inconsistent with maintaining the confidential nature of the attorney-client relationship waives the privilege.” United States v. Jones, 696 F.2d 1069, 1072 (4th Cir. 1982).

         Deliberative Process Privilege

         The deliberative process privilege protects from disclosure certain documents that contain “advisory opinions, recommendations and deliberations” on which governmental decisions and policies are based. In re Sealed Case, 121 F.3d 729, 737 (D.C. Cir. 1997) (citation omitted); NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975) (The privilege rests on “the policy of protecting the ‘decision making processes of government agencies, ' [] and focus[es] on documents ‘reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.'”)(citations omitted). The purpose of the privilege is to protect agency deliberations from public scrutiny, encouraging “the policy of open, frank discussion between subordinate and chief concerning administrative action.” Kaiser Aluminum & Chem. Corp. v. United States, 141 Ct. Cl. 38, 48 (1958); see also Sears, Roebuck & Co., 421 U.S. at 151 (“Manifestly, the ultimate purpose of this long-recognized privilege is to prevent injury to the quality of agency decisions.”).

         To invoke the deliberative process privilege, the government must show that the documents are both (1) predecisional and (2) deliberative. See City of Virginia Beach v. Dep't of Commerce, 995 F.2d 1247, 1254 (4th Cir. 1993) (noting that “ultimate questions [are] whether the materials bear on the formulation or exercise of agency policy-oriented judgment [and] whether disclosure would tend to diminish candor within an agency”) (citation and internal quotation marks omitted). Predecisional documents are “prepared in order to assist an agency decision maker in arriving at his decision.” Id. (quoting Renegotiation Bd. v. Grumman Aircraft Eng'g Corp., 421 U.S. 168, 184 (1975); see also Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 868 (D.C. Cir. 1980) (noting that “a document from a subordinate to a superior official is more likely to be predecisional, while a document moving in the opposite direction is more likely to contain instructions to staff explaining the reasons for a decision already made”). Deliberative materials are documents that reflect “the give-and-take of the consultative process by revealing the manner in which the agency evaluates possible alternative policies or outcomes.” Id. (citation omitted). Thus, the privilege protects “recommendations, draft documents, proposals, suggestions, and other subjective documents which reflect the personal opinions of the writer rather than the policy of the agency.” Coastal States Gas Corp., 617 F.2d at 866 (“Documents which are protected by the privilege are those which would inaccurately reflect or prematurely disclose the views of the agency, suggesting as agency position that which is as yet only a personal position.”). The privilege does not protect factual or investigative material, except as necessary to avoid indirect revelation of the decision-making process. Pac. Gas & Elec. Co. v. United States, 70 Fed.Cl. 128, 133-134 (2006), modified on reconsideration, 71 Fed.Cl. 205 (2006) (quoting Scott Paper Co. v. United States, 943 F.Supp 489, 496 (E.D. Pa. 1996)). “Thus, factual findings and conclusions, as opposed to opinions and recommendations are not protected.” Id. (internal quotations omitted).

         Finally, the privilege may be overcome if the moving party demonstrates that its evidentiary need for the documents outweighs the harm that disclosure would cause the non-moving party. Sikorsky Aircraft Corp. v. United States, 106 Fed.Cl. 571, 577 (2012). To determine whether the privilege should be overcome, the court may consider five factors:

(i) the relevance of the evidence sought to be protected; (ii) the availability of other evidence; (iii) the seriousness of the litigation and the issues involved; (iv) the role of the government in the litigation; and (v) the possibility of future timidity by government employees who will be forced to recognize that their secrets are violable.

Dairyland Power Co-op. v. United States, 77 Fed.Cl. 330, 338 (2007) (quoting In re Subpoena Served Upon Comptroller of Currency, 967 F.2d 630, 634 (D.C. Cir. 1992).

         There are three procedural requirements for assertion of the privilege: 1) the agency head must assert the privilege after personal consideration; 2) the agency head must state with particularity the information subject to the privilege; and 3) the agency must aver precise and certain reasons for preserving the confidentiality of the requested documents. Dairyland Power Co-op., 77 Fed.Cl. at 336-37. Here, the DOL submitted an affidavit from the Deputy Assistant Secretary for Program Operations, Timothy D. Hauser, stating why the documents at issue are protected by the deliberative process privilege. Dkt. No. 120-1. See Kaufman v. City of New York, No. 98 Civ. 2648(MJL)(KNF), 1999 WL 239698, at *3 (S.D.N.Y. Apr. 22, 1999) (“The agency head or his or her authorized designee must invoke the privilege through an affidavit which states, inter alia, that he or she has reviewed each of the relevant documents and provides the reason(s) why preserving confidentiality-rather than the agency's interest in the particular action-outweighs the public interest in disclosure.”). Deputy Assistant Secretary Hauser listed the documents by Bates number, and affirmed that the documents contain the internal deliberations of the Employee Benefits Security Administration (“EBSA”) prior to the decision to commence legal action, including: the pre-decision intra-agency deliberations of EBSA; recommendations, opinions, and advice on legal or policy matters; and written summaries of factual evidence that reflect a deliberative process. Dkt. No. 120-1, p. 5. Deputy Assistant Secretary Hauser, acting under delegated authority, invoked the deliberative process privilege to “protect and promote candid discussions within the agency.” Id. Thus, I find that the procedural requirements for asserting the deliberative process privilege are met.

         Work ...


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