When is the absolute privilege for communications between an attorney and their client not absolute? After the decision in Fiduciary Trust International of California v. Klein[1] (“FTIC”), a former Trustee and their attorney may not be able to fully invoke the attorney-client privilege in order to withhold otherwise-protected communications from the successor Trustee of that same Trust.
The Office of the Trustee is the Holder of the Privilege
The attorney-client privilege provides an extremely valuable protection for communications between an attorney and their client. In a typical attorney-client relationship, a client can safely discuss strategies to initiate or defend against pending litigation with their attorney without the concern that those strategies will later be revealed to an opposing party. But when a Trustee hires an attorney to represent them in their capacity as trustee on matters pertaining to the administration of a Trust, the attorney’s “client” (for purposes of determining the holder of the attorney-client privilege) is not that individual Trustee, but instead is the office of the Trustee itself.[2] That distinction can create unexpected problems for predecessor Trustees who are no longer occupying the office of the Trustee.
For example, when a Trustee is defending against an action for their own removal as trustee and/or for a surcharge upon them individually, there is a risk that all communications with his attorney will be revealed if the removal action is successful or if the Trustee resigns. If demanded by the successor Trustee, the former trustee’s attorney could be compelled to turn over his complete case file, including all such communications with the former Trustee, no matter how damaging the content of those communications may be to the former Trustee. So if a Trustee is suspended by the court during the pending litigation, these private communications may be turned over to the Trustee’s adversary who can then use these documents against the suspended Trustee at trial.
Obtaining a Predecessor Trustee’s Privileged Communications
FTIC discusses when such attorney-client communications by a predecessor Trustee may be disclosed to the successor Trustee, and when such communications remain privileged from disclosure: “The key . . . is whether the otherwise confidential advice was obtained as part of a trustee’s administration of the trust or whether a trustee concerned about personal liability obtained counsel’s advice for his or her own protection.”[3] Thus, when a trustee’s attorney-client communications concerned matters of trust administration, such communications could be disclosed to successor trustees, whereas, when the communication was more personal in nature (e.g., concerning that trustee’s personal liability for breaches of trust or personal surcharge), such communications should remain privileged and not disclosed to successor trustees.
But, a trustee concerned about the disclosure of his confidential communications cannot merely take the position that all such communications with their counsel were personal in nature and therefore should not be disclosed, as “the court expects a trustee to undertake some process to establish that a trust communication was intended to be confidential at the time the communication was elicited or obtained from counsel, not, as here, many months or years later when a communication is actually withheld on privilege grounds.” (Emphasis added). And simply labeling a trustee’s communications with counsel as “personal” or “defensive” is insufficient (in and of itself) to establish the nature of such communications for privilege purposes, but instead “the burden falls on the prior trustee claiming the privilege ‘to distinguish, scrupulously and painstakingly, his or her own interests from those of the beneficiaries.”[4] (Emphasis added). “[I]t is not the content or nature of the communication, or the fact that the communication later becomes relevant to the issue of the trustee’s personal liability, that is dispositive under California privilege law; rather, it is the fact that, at the time the legal advice was sought, the purpose of obtaining the advice was protection against personal liability.”[5]
What to do to Protect Against Disclosure of Privileged Communications
In light of the holding in FTIC, is there a way for a Trustee who is concerned about his or her own personal liability to communicate with their attorney while still confidently preserving the attorney-client privilege? Unfortunately, the Court in FTIC did not provide a bright-line rule to guide Trustees regarding how to distinguish his or her own interests from those of the beneficiaries in order to determine that a communication was made for the purpose of obtaining protection against personal liability instead of a communication relating to the administration of the Trust itself. But the court does offer some guidelines, as follows:
First, the attorney should make it explicitly clear to the Trustee that the attorney-client privilege exists between the attorney and the office of the Trustee at the outset of the attorney-client relationship, and that if the Trustee is removed, suspended or resigns, they should expect that all communications they have had with the attorney will be turned over to a successor Trustee.
Second, the attorney should advise the Trustee that if a situation arises where he or she is concerned about (or seeks legal advice related to) their personal liability, then all communications concerning the issues of personal liability of the Trustee should focus solely on these issues alone and not be comingled with communications concerning matters of trust administration.
From that point on, all communications between the attorney and the Trustee on the issues of the Trustee’s personal liability should be distinguished from communications or advice sought for the benefit of the Trust or the Trust beneficiaries, and clearly marked as “personal/defensive” communications. If possible, the attorney may consider establishing a second billing file for the Trustee personally, apart from the time and costs billed to the Trust for administration matters, to create more evidence that the communications which the Trustee wants to protect were truly separate and distinct from communications concerning the administration of the Trust.[6]
If the threat of personal liability appears likely, a cautious attorney might even suggest that the Trustee retain separate counsel personally for the sole purpose of addressing the personal liability concerns, thereby clearly delineating these personal issues from trust administration issues, and further reducing the risk that any defensive communications will be discovered or compelled by a successor Trustee.
FTIC, however, leaves many questions open regarding the application of the attorney-client privilege in this context. For instance, what effect will FTIC have on disputes between contemporaneously acting Co-Trustees, where each has retained counsel separately on behalf of the office of the Trustee? And if all communications between a former Trustee and their attorney in connection with the administration of a Trust must be provided to a successor Trustee, then it follows that a Co-Trustee, also occupying the office of the Trust, could arguably have the right to obtain all communications between the other Co-Trustee and their respective attorney – clearly an undesirable result for either party in an unfriendly Co-Trustee relationship.
Conclusion
Thus, the holding in FTIC makes clear that trustees should no longer assume that all of their attorney-client communications will remain confidential, and therefore, both trustee and attorney should work together to take all affirmative steps necessary to safeguard these communications and to minimize the trustee’s potential exposure.
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[1] Fiduciary Trust International of California v. Klein (2017) 9 Cal.App.5th 1184.
[2] See Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1129-1130.
[3] FTIC, 9 Cal.App.5th at 1193-94.
[4] Id. at 1201.
[5] Id. at 1202.
[6] While it may be beneficial for the Trustee to pay for this personal advice out of their own pocket, the Court in FTIC and Moeller held that the “payment of fees does not determine ownership of the attorney-client privilege. The privilege belongs to the holder” which, for most Trust matters, will be the office of the Trustee.
