Court: No Privilege For Mutual Fund Trustees

A plaintiff sued an investment adviser in federal court in Washington state, claiming the adviser charged excessive fees. As part of the case, the plaintiff issued subpoenas to a mutual fund’s independent trustees, asking for documents relating to their consideration of adviser contracts. The trustees wanted to withhold more than 200 documents, including advice pertaining to board and committee meetings, on the grounds they were confidential and protected by attorney-client privilege, but the plaintiff maintained that in this case a ‘fiduciary exception” to privilege should apply. The court agreed with the plaintiff. “If followed by courts in other jurisdictions, this case could have a chilling effect on the conversations between independent fund trustees and their counsel, especially when they seek independent counsel on matters relating to contract renewals, compliance, compensation and a host of governance issues,” write attorneys from Morrison & Foerster. “We hope that the defendants will appeal this unfortunate order because it could have the effect of harming, rather than helping, fund shareholders long term if fund directors cannot seek legal advice without fear that their communications will become part of the public record.”