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Editor: Colin Miller
Univ. of South Carolina School of Law

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Sunday, March 15, 2009

What, A Fraud?: Southern District Of Texas Refuses To Pierce Attorney-Client Privilege Based Upon Strange Fraud Allegation

The recent opinion of the United States District Court for the Southern District of Texas in Doty v. Sun Life Assur. Co. of Canada, 2009 WL 614907 (S.D. Tex. 2009), addressed a strange request to pierce the attorney-client privilege (based upon the crime-fraud exception) that the court properly rejected.

In Doty, after

Kathleen Doty, an ex-employee of Clear Creek Independent School District (CCISD), was denied long-term disability payments under the Plan maintained by CCISD, she filed suit against Defendant, Sun Life Assurance Company of Canada (Sun Life) by invoking federal jurisdiction under the Employee Retirement Income Security Act (ERISA). Unfortunately, for Doty, CCISD's long-term disability plan is a governmental plan exempted from ERISA coverage. Sun Life did not challenge the Court's jurisdiction, but moved for summary judgment on other grounds. After summary judgment was granted in favor of Sun Life, Doty's counsel realized his mistake and filed a Motion to Dismiss for lack of subject matter jurisdiction. The District Court granted Doty's Motion.

Doty thereafter, inter alia, filed a subsequent action and against Sun Life and a motion

seeking an in camera review of "all letters, memoranda or other documents discussing whether the claim of Kathleen Doty was covered by ERISA" or whether Clear Creek Independent School District was a governmental entity under 2[9] U.S.C. § 1003(b)." According to Doty, she “believes that the letters of Sun Life and their (sic) attorneys will show that they knew that ERISA did not apply to Plaintiff's claims but they were representing to the Court and to Plaintiff that ERISA did apply. This is fraud,” she concludes. Consequently, Doty wants the Court, under the guise of the Crime/Fraud Exception of Rule 503(d)(1) of the Texas Rules of Evidence, to examine and, hopefully, disclose the documents otherwise covered by the attorney-client or work-product privileges.

Nonetheless, while finding Doty's motion to be "tempting," the ultimately rejected it because

[e]ven if the Court were to assume fraud,...the disclosure of the suspected supportive documents are of no use to Doty in pursuit of her claim for long-term disability benefits. Sun Life's attorneys cannot be sued by Doty for fraud. Under Texas law, attorneys cannot be held liable to the opposing party for wrongful litigation conduct...; if any attorney's conduct violates his professional responsibility, the remedy is public, not private....Nor can Sun Life be sued for fraud, because, generally, claims of fraud cannot arise from legal opinions....While there are three recognized exceptions to the latter Rule, none apply here. First, Sun Life had no superior knowledge of the applicable law during the initial lawsuit; both Parties were represented by experienced counsel....Second, there was no fiduciary duty between Sun Life and Doty, individually....Third, the "misrepresentation" of the jurisdictional law did not concern a present factual state of affairs; Doty knew she had been an employee of CCISD and her counsel was free to research the apparent jurisdictional concession of Sun Life.

All that's fine and dandy, but I think that I have a simpler reason why the court should have rejected Doty's motion. And that reason is that I see no possible reason why Sun Life would have wanted to commit a fraud upon the court by moving for summary judgment when it was at least somewhat apparent that there was no subject matter jurisdiction over Doty's claim. It is well established under Federal Rule of Civil Procedure 12(h)(3) that the defense of lack of subject matter jurisdiction can never be waived, even after a court has entered a verdict, order, opinion, etc. Indeed, this is why Doty's counsel was able to successfully file a motion to dismiss for lack of subject matter jurisdiction even after the court granted Sun Life's summary judgment. Based upon these facts, I don't see how Sun Life's behavior could be construed as fraudulent, unless the company was acting at the level of Brad Pitt in Burn After Reading.

-CM

http://lawprofessors.typepad.com/evidenceprof/2009/03/crime-fraud-dot.html

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