In Re: Estate of McAleer Apl of: W. McAleer ( 2021 )

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IN THE SUPREME COURT OF PENNSYLVANIA
WESTERN DISTRICT
BAER, C.J., SAYLOR, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.
IN RE: THE ESTATE OF WILLIAM K. : No. 6 WAP 2019
MCALEER, DECEASED :
: Appeal from the Order of the
: Superior Court entered August 9,
APPEAL OF: WILLIAM MCALEER : 2018 at No. 932 WDA 2017,
: quashing the appeal from the Order
: of the Court of Common Pleas of
: Allegheny County entered May 30,
: 2017 at No. 0334 of 2014.
:
: ARGUED: May 27, 2020
Justice Wecht delivers the Opinion of the Court with regard to Parts I and II(A),
and files an opinion in support of affirmance, joined by Justices Todd and
Dougherty, with respect to Parts II(B) and (C).
OPINION
JUSTICE WECHT DECIDED: April 7, 2021
This Court granted review to determine whether the attorney-client privilege and
the work product doctrine1 may be invoked by a trustee to prevent the disclosure to a
beneficiary of communications between the trustee and counsel pertaining to attorney
fees expended from a trust corpus. But to reach that issue, we first faced the question of
whether the Superior Court erred in disclaiming jurisdiction on the basis that the trial
court’s order rejecting the privilege claim was not a collateral order, and immediately
reviewable as such. For the reasons stated in Parts I and II(A) below, we hold
1 Although this matter involves invocation of both the privilege and the doctrine,
which are distinct legal concepts, the distinction is immaterial to our consideration of the
applicability of the fiduciary exception. Thus, for purposes of this appeal, we refer to both
protections under the umbrella of the privilege.
unanimously that the Superior Court had immediate appellate jurisdiction to review the
privilege question on the merits, and therefore erred in concluding otherwise.
Accordingly, that court’s quashal order is reversed.
As to the privilege issue itself, the Superior Court indicated that, notwithstanding
its perceived lack of jurisdiction, there was no evidence by which to substantiate a claim
of privilege on the merits, nor any argument presented to the trial court in support thereof.
For those reasons, the court was left to conclude that the privilege was unavailable under
the circumstances and that the communications at issue were subject to disclosure. This
Court has not reached a consensus on whether the privilege may be invoked in the trust
context.2 Because disclosure would nevertheless result from the competing positions set
forth by a majority of Justices, the lower court’s alternative ruling is affirmed by operation
of law.3
I.
William H. McAleer (“Trustee”) is the sole trustee of a revocable living trust that
was created on November 30, 2012, by his now-deceased father, William K. McAleer, for
the benefit of Trustee and his two stepbrothers, Stephen and Michael Lange
(“Beneficiaries”). Following the elder McAleer’s death on May 4, 2013, Trustee filed a
first and partial accounting of the trust in March 2014, to which Beneficiaries filed twenty-
one objections, challenging certain aspects of the administration of the trust and seeking
disclosure of information pertaining to a number of bank accounts. As a consequence of
2 This author would hold that those protections are unavailable to a fiduciary in this
setting, for the reasons set forth below in Parts II(B) and (C). Justice Saylor and Justice
Donohue each write separately to set forth a basis for reaching the contrary result.
3 See Creamer v. Twelve Common Pleas Judges, 281 A.2d 57, 58 (Pa. 1971) (“The
principle is well established in this Commonwealth as well as many other jurisdictions
that, when an appellate court is equally divided, the judgment, order or decree of the court
below will be affirmed.”).
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Beneficiaries’ challenges, Trustee retained the services of two law firms, Julian Gray
Associates (“Gray”) and K&L Gates, to respond.4 The probate court ultimately dismissed
the objections with prejudice following an evidentiary hearing in March 2016.5
Although none of the objections pertained specifically to legal expenses, Trustee’s
filings indicated that roughly $124,000 had been expended from the trust for attorney fees
and costs through December 2015, prompting Beneficiaries to file a petition for special
relief to determine the reasonableness of those expenses.6 In response, the probate
court froze further disbursements of trustee and legal fees from the trust corpus absent
prior judicial authorization, and subsequently denied Trustee’s motion for
reconsideration.7
In August 2016, Trustee filed a second and final accounting. On November 14,
2016, Beneficiaries filed ten objections, contending, inter alia, that Trustee had paid
4 Gray previously served as estate planning counsel for Trustee’s father for several
years prior to his death. According to Trustee, K&L Gates was engaged to respond to
separate objections filed by Beneficiaries against the Estate of William K. McAleer “for
financial transactions that occurred prior to the Decedent’s death.” Response to
Objections to Second and Final Account, 12/14/2016, at ¶ 8(b). At Trustee’s request,
K&L Gates also served as primary counsel in an attempt to negotiate a
comprehensive settlement with [Beneficiaries] for claims filed against both
the Estate and the Trust. K&L Gates was selected as counsel for these
matters as K&L Gates had represented Decedent on personal, business
and estate matters in the past, and this would also save fees in bringing a
new counsel up to speed on Decedent’s Estate and business matters.
Id.5 Order, 3/29/2016.
6 Motion to Strike Restated Objections to First and Partial Account, 2/12/2016,
¶ 10(a) (“Trust expenses for attorney fees incurred from February 1, 2014 through
December 31, 2015 total $124,417.27.”).
7 See Orders, 4/22/2016 and 5/20/2016, respectively.
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unreasonable and excessive trustee and attorney fees from the trust. 8 Trustee’s
response included the general assertion that he was “under no obligation to provide
[O]bjectors with copies of legal invoices as they are protected by attorney/client privilege,”
along with a detailed explanation of the circumstances necessitating the litigation
expenses.9 Deviating slightly from his prior representations, Trustee averred that “[t]he
amount of legal fees incurred by the Trust to respond to [Beneficiaries’] baseless
objections totals $123,170.67. Of this total, the fees of Julian Gray Associates were
$49,413.46. The fees of K&L Gates were $73,757.21.”10
On March 2, 2017, Beneficiaries served a request for production of documents,
including billing statements for all trustee and attorney fees included in the second and
final accounting. That same day, Trustee served Beneficiaries with his own request for
production of documents relating to their legal expenses. Notwithstanding this dueling
discovery demand, Trustee filed no formal objections to Beneficiaries’ request.
Pertinently, Trustee initially provided substantially redacted copies of the attorney
invoices from Gray only.11 Two hundred twenty-three of the Gray entries were blacked
out, with notations for attorney-client privilege and work product doctrine appended as
reasons for the redactions. Thereafter, Trustee produced billing statements from K&L
Gates, with 98% of the billings similarly redacted. Unsatisfied with Trustee’s discovery
efforts, on May 8, 2017, Beneficiaries moved for an order compelling discovery.12
8 See Objections to Second and Final Account, 11/14/2016, ¶¶ 8(a)-(d).
9 Response to Objections to Second and Final Account, 12/14/2016, ¶¶ 6, 8(b).
10 Id. ¶ 8(c).
11 In disclosing the invoices of his trustee expenses, Trustee produced a privilege log
with descriptions of the redacted entries. Notes of Testimony (“N.T.”), 5/18/2017, at 7.
12 On May 10, 2017, Trustee moved to compel Beneficiaries to produce all legal bills
and invoices issued by and paid to three successive attorneys and law firms employed in
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At a hearing ten days later before the Honorable Kathleen A. Durkin in the Court
of Common Pleas of Allegheny County, Trustee’s counsel reiterated Trustee’s invocation
of the privilege and doctrine. Although Trustee’s counsel admitted that she could not
“speak for K&L Gates bills because they belong to K&L Gates” and that she had “no
knowledge of” those bills, she noted that the redacted time sheets for both firms bore
corresponding notations for “protected information litigation” and “confidential
[communications] with counsel relating to the litigation matters, not relating to the trust
administration or trust management.”13
Trustee’s counsel also quoted this Court’s holding in Levy v. Senate of
Pennsylvania, 65 A.3d 361 (Pa. 2013), that “descriptions of legal services that address
the client’s motive for seeking counsel, legal advice, strategy or other confidential
communications are undeniably protected under the attorney client privilege.” 14
Referencing the inspection procedure utilized in Levy, Trustee’s counsel offered that the
court could review the documents in camera if it “felt that more information was needed.”15
Beneficiaries’ counsel agreed that the court “need[ed] to look at it,”16 but it does not
appear that Judge Durkin accepted the parties’ offer. Following the hearing, the court
ordered Trustee to forward unredacted invoices to Beneficiaries within thirty days. 17
their years-long litigation efforts. Trustee’s Motion to Compel, 5/10/2017. Trustee also
moved to release $5,531.87 from the trust “as partial payment [to Gray] for legal costs
incurred to date by Trust counsel in responding to [Beneficiaries’] continued litigation.”
Motion to Release Trust Funds to Pay Portion of Legal Fees, 5/13/2017, at 3.
13 See N.T., 5/18/2017, at 5-7, 8-9.
14 Id. at 9 (quoting Levy, 65 A.3d at 373).
15 Id. at 10.
16 Id. at 12.
17 Order, 5/30/2017.
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Trustee did so only for the trustee invoices, but filed an interlocutory appeal as to the
attorney invoices, asserting attorney-client and work product protections.
In its Pa.R.A.P. 1925(a) opinion, the court explained that a party seeking to assert
a privilege first must set forth facts to establish that the privilege is properly invoked.
Opinion, 7/11/2017, at 1 (citing Custom Designs & Manuf. Co. v. Sherwin-Williams Co.,
39 A.3d 372, 376 (Pa. Super. 2012)). While Trustee had made a “general argument” as
to the Gray billings, the court noted that Trustee’s counsel specifically stated that she
could not speak for the K&L Gates bills. The court thus concluded that Trustee had
presented no facts to establish the propriety of the invocation of the privilege. Additionally,
the court reasoned that when a trustee obtains legal advice relating to a trust, that advice
must be shared with the beneficiaries. Id. at 2 (citing Follansbee v. Gerlach, 56 Pa. D. &
C. 4th 483, 2002 WL 31425995 (C.C.P. Allegheny 2002)). Ultimately, because
Beneficiaries effectively had paid for the legal services rendered to Trustee, Judge Durkin
determined that they should be entitled to see the bills that are the subject of this dispute
to determine whether those bills were reasonable. Trustee appealed.
In a unanimous opinion, the Superior Court quashed Trustee’s appeal. In re Estate
of McAleer, 194 A.3d 587 (Pa. Super. 2018). The panel began by addressing whether
the trial court’s order was appealable under our Rules of Appellate Procedure. Id. at 591-
93. After concluding that the order was not final under Rule 341, that an interlocutory
appeal was not available as of right under Rule 312, and that Trustee had not sought
permission to appeal under Rule 312, the court homed in on the collateral order doctrine.
See Pa.R.A.P. 313.18 For an order to be appealable under Rule 313(b), the panel noted,
18 Rule 313 defines a “collateral order” as “an order separable from and collateral to
the main cause of action where the right involved is too important to be denied review
and the question presented is such that if review is postponed until final judgment in the
case, the claim will be irreparably lost.” Pa.R.A.P. 313(b).
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it must satisfy three conditions: “(1) the order is separable from the main cause of action;
(2) the right involved is too important to be denied review; and (3) the claim would be
irreparably lost if review is postponed.” McAleer, 194 A.3d at 593 (quoting J.S. v. Whetzel,
860 A.2d 1112, 1116 (Pa. Super. 2004)). Initially, the court observed that the order
appealed here related to the merits of Beneficiaries’ underlying claims and, therefore, was
inseparable from the main cause of action. Consequently, the court determined that the
first prerequisite had not been met. Because all three factors must be satisfied, the panel
concluded that the instant appeal was not taken from a collateral order. Id. at 594.
“However,” the court continued, “discovery orders involving privileged material are
nevertheless appealable as collateral to the principal action pursuant” to Rule 313. Id.
(quoting Estate of Moskowitz, 115 A.3d 372, 389 (Pa. Super. 2015)). The panel then
proceeded to discuss a burden-shifting paradigm when claims of privilege are at issue,
with the party asserting the privilege bearing the initial burden of setting forth facts
establishing that the privilege properly has been invoked. Id. (quoting Nationwide Mut.
Ins. Co. v. Fleming, 924 A.2d 1259, 1267 (Pa. Super. 2007) (“If the party asserting the
privilege does not produce sufficient facts to show that the privilege was properly invoked,
then the burden never shifts to the other party, and the communication is not protected
under attorney-client privilege.”)); see id. at 595 (“Likewise, the same burden applies to a
party seeking to invoke the protections of the work-product doctrine.”).
The court also considered a trustee’s duty to furnish information pursuant to
Section 82 of the Third Restatement of Trusts, which excepts from disclosure
communications with counsel for the trustee’s personal protection in the course of, or in
anticipation of, litigation. Id.; see RESTATEMENT (THIRD) OF TRUSTS § 82, cmt. f (2007).
The panel noted that the predecessor of Section 82, Section 173 of the Second
Restatement, was examined in In re Estate of Rosenblum, 328 A.2d 158 (Pa. 1964), in
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which this Court indicated that the beneficiary of a trust is distinct from other litigants
seeking discovery, because the former’s right of inspection arises from its property in the
trust estate and can be exercised independently of any litigation. McAleer, 194 A.3d at
595-96 (quoting Rosenblum, 328 A.2d at 164-65 (“The right of access to trust records is
an essential part of a beneficiary’s right to complete information concerning the
administration of the trust.”)). Borrowing heavily from Rosenblum, the panel added that:
It places [the beneficiaries of a trust] on a different footing from other
litigants who seek discovery of documents under our Rules of Civil
Procedure. A beneficiary’s right of inspection has an independent source
in his property interest in the trust estate, and the right may be exercised
irrespective of the pendency of an action or proceeding in court.
Id. at 596 (quoting Rosenblum, 328 A.2d at 165 (noting that Section 173 “is declaratory
of the common law of Pennsylvania”)) (cleaned up).
Turning to the present case, the panel explained:
Our review of the record reflects that, prior to the trial court’s order
compelling [Trustee] to produce the discovery documents in question,
[Trustee] did not provide any facts to support his attempt to invoke the
attorney-client privilege and work-product doctrine protections. [Trustee]
never filed an objection to [Beneficiaries’] discovery request in which he
could have raised those protections. Instead, [Trustee] simply replied to the
discovery request by presenting [Beneficiaries] with substantially redacted
copies of attorney invoices. [Beneficiaries] then filed a motion to compel
discovery, to which [Trustee] failed to respond or object. Rather, [Trustee’s]
first attempt to invoke the protections was during oral argument at a hearing
in response to the motion to compel . . . . At the hearing, [Trustee’s] counsel
mentioned the attorney-client privilege and the work-product doctrine as
justification for redacting the documents provided to [Beneficiaries].
However, [Trustee] failed to set forth specific facts to show that either the
attorney-client privilege or the work product doctrine was applicable and
properly applied.
Id. at 596 (citations omitted). Because Trustee had not offered factual support for his
claims of privilege before the trial court, the Superior Court determined that appellate
review was precluded. See id. at 596-97.
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Likewise, given the lack of a factual predicate for Trustee’s claims, the court held
that he had not established the applicability of Section 82’s protections. See id. at 597
(“[Trustee] neither argued nor presented evidence to establish that the redacted
information pertained to communications from counsel retained for [Trustee’s] personal
protection in the course of litigation. Accordingly, there is no evidence that the information
qualifies as privileged under comment f . . . .”). Thus, the panel “conclude[d] that the
information in the attorney invoices qualifies as communications subject to the general
principle entitling a beneficiary to information reasonably necessary to the prevention or
redress of a breach of trust or otherwise to the enforcement of the beneficiary’s rights
under the trust.” Id.
II.
We granted allowance of appeal in order to address the following question:
Do the attorney-client privilege and work product doctrine[] protect
communications between a trustee and counsel from discovery by
beneficiaries when the communications arose in the context of adversarial
proceedings between the trustee[] and beneficiaries?
In re Estate of McAleer, 201 A.3d 724 (Pa. 2019) (per curiam). The authority to determine
the scope of a common-law privilege appropriately rests with this Court under Article V,
Section 10(c), of the Pennsylvania Constitution. PA. CONST. art. V, § 10(c); Gillard v. AIG
Ins. Co., 15 A.3d 44, 58 (Pa. 2011). As the question before us is one of law, our standard
of review is de novo and its scope is plenary. See Levy, 65 A.3d at 367.
A.
Beneficiaries maintain that Trustee’s appeal should be quashed as interlocutory
because it fails the three-prong test for immediate review as of right. They contend that
the reasonableness of the disputed fees was the primary issue below, and that it was not
separable from the principal cause of action. Beneficiaries assert that, in response to
their discovery request seeking production of documents showing itemized fees paid from
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the trust, Trustee declined to seek a protective order in which he could have averred facts
in support of his position, but instead produced incomplete, redacted statements under a
general claim of privilege. Although Trustee reiterated that general claim at argument
with respect to the Gray billings, Beneficiaries emphasize that he proffered no similar
grounds in relation to the K&L Gates fees. Thus, they claim, the trial court and Superior
Court correctly ruled that Trustee had failed to set forth sufficient facts to demonstrate
that the attorney-client privilege or work product doctrine applied.
Trustee argues that whether the redacted portions of the invoices were protected
by privilege was a wholly collateral question. He notes that Beneficiaries raised more
than thirty distinct, substantive objections to the administration of the trust, of which the
fee dispute was merely one. This Court should reject the panel’s determination that the
matter is not collateral, he contends, for two reasons: “(1) the Court’s view of the ‘issue’
on appeal is too broad; and (2) the dispute between the parties below is not centered
around the question of fees.” Trustee’s Brief at 19. Trustee argues that if immediate
review is unavailable, disclosure would render its privilege irreparably lost. “[O]nce the
confidentiality is vitiated, the materials in question can never again become confidential.”
Id. at 22.19 Since disclosure would provide Beneficiaries insight into Trustee’s legal
inquiries and litigation strategy, Trustee asserts that collateral review is essential. Id. at
23.
“[D]iscovery orders rejecting claims of privilege and requiring disclosure constitute
collateral orders that are immediately appealable under Rule 313.” Commonwealth v.
Flor, 136 A.3d 150, 155 (Pa. 2016). Because an invocation of Rule 313 implicates “this
Court’s jurisdiction to entertain an appeal of” a challenged order, we must independently
19 See id. (quoting Alexander v. Queen, 97 A. 1063, 1065 (Pa. 1916) (“Without such
a privilege the confidence between client and advocate, so essential to the administration
of justice would be at an end.”)).
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determine whether the collateral order doctrine applies. Commonwealth v. Kennedy, 876
A.2d 939, 943 (Pa. 2005). We find that it does.
Of the doctrine’s three prerequisites, the separability prong presents the closest
question here. “An order is separable from the main cause of action if it can be resolved
without an analysis of the merits of the underlying dispute.” Commonwealth v. Williams,
86 A.3d 771, 781 (Pa. 2014). Because “some interrelatedness with the main issue is
tolerable,” id., a court must assess whether an issue “is conceptually distinct” from the
primary cause of action, Pridgen v. Parker Hannifin Corp., 905 A.2d 422, 433 (Pa. 2006)
(quoting Johnson v. Jones, 515 U.S. 304, 314 (1995)). We have described our “approach
when reviewing separability” as a “practical” one. Williams, 86 A.3d at 781.
Trustee asserts that the principal issue below was the winding up of decedent’s
estate. But that process necessarily involves an evaluation of fees paid from the trust
corpus when the propriety of those disbursements is called into question. Trustee
emphasizes that only one of the thirty-one challenges lodged by Beneficiaries involved a
dispute over attorney fees. While the number and variety of claims are noteworthy in a
probate matter, those facts are not dispositive. Here, Beneficiaries’ twenty-one initial
challenges were raised before Trustee disclosed the more than $123,000 in attorney fees
he paid to Gray and K&L Gates from the trust corpus. With new facts in hand,
Beneficiaries immediately filed a petition for special relief pertaining to those expenses,
and subsequently filed ten additional challenges to Trustee’s second and final accounting,
one of which addressed those costs. Trustee avers that many of those expenses arose
in the context of adversarial legal proceedings initiated by Beneficiaries, some of which
accumulated as a direct result of their delay in returning estate property for valuation.
Given the scale of the fees vis-à-vis the remainder of the disputed trust funds, it would be
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odd to conclude that those expenses were not central to the dispute, or that they did not
become a central concern upon their revelation.
Despite the attorney fees’ importance to the ultimate resolution of the probate
matter, however, their propriety is conceptually distinct from the fundamental question of
whether a party even can invoke the protections of the attorney-client privilege to prevent
disclosure of fee information in the context of trust administration. We need not evaluate
the merits of the underlying dispute in order to resolve the purely legal question before
us. Those factual matters largely are irrelevant in the face of the weighty issues of
privilege in appeals taken pursuant to Rule 313. Indeed, we have consistently
distinguished assertions of privilege from the substance of the underlying causes of
action. See Ben v. Schwartz, 729 A.2d 547, 552 (Pa. 1999) (“[I]ssues of privilege . . . can
be addressed without analysis of [] alleged negligence.”); Commonwealth v. Harris, 32
A.3d 243, 249 (Pa. 2011) (same); Melvin v. Doe, 836 A.2d 42, 46 (Pa. 2003)
(“[C]onsideration of what threshold requirements must be imposed as a prerequisite to
discovery in an anonymous defamation case . . . is plainly separable from the defamation
action.”). We see no reason to depart from that authority today.
As to the second and third prongs, it is well-settled that the right involved—the
protection of confidentiality inherent in the privilege—is too important to be denied review
and would be irreparably lost if review is postponed until after final judgment. Ben, 729
A.2d at 552; Commonwealth v. Dennis, 859 A.2d 1270, 1278 (Pa. 2004). Accordingly,
this matter was immediately appealable pursuant to the collateral order doctrine, and the
Superior Court erred in quashing Trustee’s appeal.20
20 Given this Court’s even division on whether the attorney-client privilege should be
available to a trustee who pays attorney fees from a trust corpus, we need not dwell on
whether Trustee invoked the protections of the privilege with sufficient specificity here.
However, we reaffirm that, in contexts where the privilege is available, a party’s obligation
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B.
It is an “ancient proposition of law” that “‘the public . . . has a right to every man’s
evidence,’” save for those individuals who are “protected by a constitutional, common law,
or statutory privilege.” United States v. Nixon, 418 U.S. 683, 709 (1974) (quoting United
States v. Bryan, 339 U.S. 323, 331 (1950)). “The attorney-client privilege is the oldest of
the privileges for confidential communications known to the common law.” Upjohn Co. v.
United States, 449 U.S. 383, 389 (1981) (citing 8 J. W IGMORE, EVIDENCE § 2290
(McNaughton rev. 1961)). Grounded in “the interest and administration of justice,” the
privilege recognizes the necessity of confidential pursuits of legal assistance “free from
the consequences or the apprehension of disclosure.” Hunt v. Blackburn, 128 U.S. 464,
470 (1888). Though a mainstay of our legal system, the privilege is not absolute.21
Because it “has the effect of withholding relevant information from the factfinder,” courts
construe the privilege narrowly to “appl[y] only where necessary to achieve its purpose.”
Fisher v. United States, 425 U.S. 391, 403 (1976). Where the interests protected by the
privilege conflict with weightier obligations, the former must yield to the latter. This appeal
concerns one such conflicting duty: that of a fiduciary to furnish trust-related information
to beneficiaries.
Under the so-called “fiduciary exception,” the origins of which can be traced to mid-
nineteenth century English trust cases,22 “a trustee who obtains legal advice related to
to satisfy the dictates of Rule 313 is not waived simply because a discovery order is
appealed based upon general claims of privilege. See Williams, 86 A.3d at 780.
21 See, e.g., Clark v. United States, 289 U.S. 1, 15 (1933) (examining the crime-fraud
exception); Tracy v. Tracy, 105 A.2d 122, 125 (Pa. 1954) (discussing the joint-client
exception).
22 In tracing the history of the fiduciary exception from those English cases, the
United States Court of Appeals for the Third Circuit explained:
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the execution of fiduciary obligations is precluded from asserting the attorney-client
privilege against beneficiaries of the trust.” United States v. Jicarilla Apache Nation, 564
U.S. 162, 167 (2011). Jurisdictions that recognize the exception largely rely upon the
theory that a fiduciary’s duty to administer a trust solely for the benefit of its beneficiaries
prevails over the privilege. Because “trustees are tasked with providing beneficiaries with
information regarding the management of the trust,” Pittsburgh History & Landmarks
Found. v. Ziegler, 200 A.3d 58, 61 n.2 (Pa. 2019), communications between a fiduciary
and counsel regarding trust administration must serve to benefit the beneficiaries, and
thus are subject to disclosure.
The first American case to consider the exception, In re Prudence-Bonds Corp.,
76 F. Supp. 643 (E.D.N.Y. 1948), reached a different result than the English precedents.
There, the Guaranty Trust Company of New York—which, in 1920, had become the
trustee of the Prudence-Bonds Corporation, First Mortgage Collateral Bonds, Series A
Trust—petitioned the federal district court for a judicial settlement and discharge of its
duties with respect to the trust following its transfer to a successor trustee, City Bank
Farmers Trust Company, in 1938. When City Bank objected to Guaranty’s first
accounting, the matter was transferred to a special master. Guaranty later filed an
amended accounting covering its eighteen-year administration of the trust, which
prompted City Bank to file amended objections “point[ing] to specific alleged acts . . .
Under English common law, when a trustee obtained legal advice relating
to his administration of the trust, and not in anticipation of adversarial legal
proceedings against him, the beneficiaries of the trust had the right to the
production of that advice. The theory of the rule was that the trustee
obtained the advice using both the authority and the funds of the trust, and
that the benefit of advice regarding the administration of the trust ran to the
beneficiaries.
Wachtel v. Health Net, Inc., 482 F.3d 225, 231-32 (3d Cir. 2007) (citing In re Mason, 22
Ch. D. 609 (1883); Talbot v. Marshfield, 62 Eng. Rep. 728, 729 (1865); Wynne v.
Humberston, 54 Eng. Rep. 165 (1858)).
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dealing with the securities of the Trust” and seeking “to surcharge [Guaranty] for a very
large sum.” Id. at 644.
Beginning in 1920, Guaranty, considered “one of the large and important trust
companies of the United States,” retained the services of the predecessor firms of what
is now Davis Polk & Wardwell LLP (“Davis Polk”), to assist with its trust portfolio. Id.
Throughout the ensuing decades, the firm provided “several hundred opinions, oral and
written, . . . on a great number of different and unrelated matters.” Id. By a number of
interrogatories addressed to Guaranty, City Bank sought to obtain for inspection “all legal
opinions” issued by Davis Polk “prior to June 29, 1934, received in connection with, and
to guide [Guaranty] in, the whole administration of the Trust.” Id. at 645.23 Guaranty
moved to strike the first interrogatory, which the federal district court granted on October
11, 1945. Id. After Guaranty waived privilege as to one opinion by introducing it at a
subsequent hearing, City Bank renewed its broader production demand. Id. Invoking the
earlier English decisions, the special master granted City Bank’s request.
Straining to distinguish those cases, the federal district court reversed the special
master’s order, emphasizing “the far more important question of privilege of counsel,”
which it considered to be
plainly vitally important to the rights of the client, the attorneys, the debtor
and the bondholders in the proper administration of the law and the Trust,
and the right of both the Trustee and its attorneys to have advice given when
23 In addition to the legal opinions themselves, City Bank requested that Guaranty
produce information regarding
when such opinions were obtained, the names of the attorneys rendering
such opinions, the names of directors and officers and employees of the
Trustee who requested the same, and to furnish copies of such opinions,
correspondence, memoranda or records relating thereto, or state whether
inspection by [City Bank] of any of the above things would be made
available.
Prudence-Bonds, 76 F. Supp. at 645 (quoting Interrogatory No. 1).
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called upon without the fear of possible future annoyance and cross-
examination should the acts of the client not meet with the approval of some
bondholder, who in the future sought in some way to sustain a criticism of
an act.
Id. at 646. Weighing these competing interests, the court simply could “not agree that
anyone who, during the years, bought a bond or an interest in a bond, thereby made the
counsel for the Trustee its attorney or employee.” Id. Otherwise, the bondholders “could
then possibly embarrass or inconvenience” those attorneys based upon “some action of
their real client, the Trustee, or simply because, from time to time, the Trustee properly
paid its lawyers for some of their services from the assets of the Trust.” Id. Although the
court conceded that “a different situation entirely [would be] presented where the client
asserts a reliance on an opinion . . . offered in evidence as exculpation for its” fiduciary
acts, that scenario was not before it. Id. Given the dearth of case law on the subject—
and in view of the apparently herculean efforts needed to respond to the discovery
request—the court reaffirmed its earlier order striking the production demand. Id. at 647.
More than two decades after its initial failure to launch, the fiduciary exception
secured a foothold in the 1970s when it was recognized by several federal courts, though
not initially within the trust context.24 In the seminal decision Garner v. Wolfinbarger, 430
F.2d 1093 (5th Cir. 1970), the United States Court of Appeals for the Fifth Circuit borrowed
from the rationale of the English cases to resolve a shareholders’ derivative action
alleging breach of fiduciary duties. The court began by eschewing “[c]onceptualistic
phrases describing the corporation as an entity separate from its stockholders” as useless
“tools of analysis,” reasoning that “[t]hey serve only to obscure the fact that management
has duties which run to the benefit ultimately of the stockholders.” Id. at 1101.
24 For federal decisions recognizing the exception as applied to trustee-beneficiary
relations, see Comegys v. Glassell, 839 F. Supp. 447, 448-49 (E.D. Tex. 1993), and
Parker v. Stone, 2009 WL 1097914 (D. Conn. Apr. 21, 2009) (unreported).
[J-18-2020] - 16
In the Garner Court’s view, when corporate managers procure the advice of
counsel in performance of their duties as fiduciaries, the shareholder-plaintiffs are the
ultimate beneficiaries of the advice. See id. (“[I]t must be borne in mind that management
does not manage for itself.”). As such, shareholders may not be barred absolutely from
discovering that advice during litigation by assertions of the attorney-client privilege. The
court explained:
The attorney-client privilege still has viability for the corporate client. The
corporation is not barred from asserting it merely because those demanding
information enjoy the status of stockholders. But where the corporation is
in suit against its stockholders on charges of acting inimically to stockholder
interests, protection of those interests as well as those of the corporation
and of the public require that the availability of the privilege be subject to
the right of the stockholders to show cause why it should not be invoked in
the particular instance.
Id. at 1103-04. Other federal courts have adopted this analysis.25
In contrast to Garner’s case-by-case “good cause” approach, the first state court
decision to adopt the fiduciary exception within the trustee-beneficiary relationship, Riggs
National Bank of Washington, D.C. v. Zimmer, 355 A.2d 709 (Del. Ch. 1976), presents a
useful case study of the exception’s categorical applications. There, beneficiaries of a
trust sought “to compel the trustees to reimburse the estate for alleged breaches of the
trust in regard to certain tax matters.” Id. at 710. The beneficiaries filed a discovery
motion seeking the production of a legal memorandum prepared by an attorney at a firm
hired by the trustees. Endeavoring to withhold the requested communication, the
trustees, as here, contended that the document was protected by the attorney-client
25 See Fausek v. White, 965 F.2d 126, 129-30 (6th Cir. 1992) (adopting the Garner
approach); cf. Cox v. Adm’r U.S. Steel & Carnegie, 17 F.3d 1386, 1415-16 (11th Cir.
1994) (assuming Garner’s applicability, arguendo, but denying discovery based “on the
facts of” the class action suit against an international union).
[J-18-2020] - 17
privilege and work product doctrine, because it was “prepared in connection with potential
litigation with the State of Delaware.” Id.To resolve the dispute, the Delaware Court of Chancery focused on two issues:
(1) “the purpose for which [the memorandum] was prepared,” and (2) “the party or parties
for whose benefit it was procured, in relation to what litigation was then pending or
threatened.” Id. at 711. Addressing the second question initially, the court observed that:
At the time [the memorandum] was prepared the litigation which was then
pending was a petition for instructions, the very nature of which normally
indicates that the trustees were not implicated in any way. There was also
the possibility of potential litigation against the State of Delaware, Division
of Revenue. Both of these actions suggest that the legal assistance to the
trustees would be rendered only in their service to the beneficiaries. In both
instances, the ultimate or real clients were the beneficiaries of the trust, and
the trustee, . . . in his capacity as a fiduciary, was, or at least should have
been, acting only on behalf of the beneficiaries in administering the trust.
Id. (emphasis added). Although no proceedings had been contemplated “requiring the
trustees to seek legal advice personally,” the fact that the trustee paid the law firm “out of
the trust assets” was “a significant factor, not only in weighing ultimately whether the
beneficiaries ought to have access to the document, but also [because] it is in itself a
strong indication of precisely who the real clients were.” Id. at 711-12. Reasoning that
“the legal services were performed at the request of the trustee for the benefit of the
beneficiaries of the trust,” the court warned that, “were this not the case, it may have been
improper to charge the trust estate with [the] cost of the legal services.” Id. at 712 (citing
Bankers Trust Co. v. Duffy, 295 A.2d 725, 726 (Del. 1972) (indicating “two situations in
which an allowance from a trust corpus for attorneys’ fees may be made: when the
attorneys’ services were necessary for the proper administration of the trust . . . or where
the services otherwise resulted in a benefit to the trust”) (citations omitted)).
Moreover, the court noted the “substantive fiduciary duties” owed by trustees to
beneficiaries, which it deemed “most important[]” in permitting the latter “to inspect
[J-18-2020] - 18
documents prepared by an attorney on their behalf.” Id. The court looked to the above-
cited English common-law trust decisions as well as American treatises like the Second
Restatement of Trusts, acknowledging the parties’ agreement that “American case law
[was] practically nonexistent on the duty of a trustee in this context” as of 1976. Id.Observing that “Delaware is a State with a strong English common law tradition,” the court
considered the persuasive value of those decisions “perhaps [to] have more weight [in
Delaware] than elsewhere.” Id. The court then roundly rejected the rationale of
Prudence-Bonds, distinguishing that decision on two grounds. First, in the court’s
judgment, “the English authority . . . puts the proper emphasis on fiduciary responsibility,”
which it considered “especially appropriate in the private testamentary trust” scenario that
was not present in the New York case. Id. at 714. “Secondly, as the Prudence-Bonds
opinion itself recognized, the factual situation was distinguishable from the typical trust”
case because it “involved an indenture trustee for an issue of corporate bonds,” which
rendered resolving the dispute “more difficult, due to multiple interests involved.” Id.
Returning to the traditional principles upon which the attorney-client privilege and
the work product doctrine are grounded, the court differentiated the trust context,
reiterating that “the trustee is not the real client,” nor are the beneficiaries “simply
incidental beneficiaries who [c]hance to gain from the professional services rendered.”
Id. at 713. Rather, “[t]he very intention of the [attorney-client] communication is to aid the
beneficiaries.” Id. at 713-14. Thus, trustees “cannot subordinate the fiduciary obligations
owed to the beneficiaries to their own private interests under the guise of attorney-client
privilege.” Id. at 714. Opining that “a beneficiary’s interest in the trust affairs ought to be
encouraged rather than thwarted and the trustee’s duty in that respect should be
characterized by complete and continuing openness,” id. at 712-13, the court determined
that “[t]he policy of preserving the full disclosure necessary in the trustee-beneficiary
[J-18-2020] - 19
relationship is here ultimately more important than the protection of the trustees’
confidence in the attorney for the trust,” id. at 714. With this balance in mind, the court
declined to override “a clearly desirable rule of substantive trust law” in the face of the
asserted “privileges . . . and the policies supporting them.” Id. at 713.26
Although the fiduciary exception largely has been adopted by the federal courts,
particularly in shareholder derivative and ERISA litigation,27 its reception in state courts
26 More than four decades after Riggs was decided, the Delaware General Assembly
promulgated DEL. CODE ANN. tit. 12, § 3333, providing that a fiduciary may assert attorney-
client privilege to shield communications relating to “any claim that has or might be
asserted against the fiduciary,” regardless of the source of payment for attorney fees. Id.
§ 3333(a). While Justice Donohue is correct that this statute seems to call Riggs’
continuing vitality into question, Op. Supporting Reversal (“OSR”) at 6 n.3 (Donohue, J.),
the Supreme Court of Delaware has not had occasion to reconsider its common-law
precedent on the fiduciary exception since Section 3333’s enactment in 2007. However,
at least one chancery court in that State has concluded that “Riggs continues to be the
law in Delaware,” albeit in an unpublished master’s report. Mennen v. Wilmington Trust
Co., Del. Ch. C.A. No. 8432-ML, Legrow, M., 2013 WL 4083852, *4 (July 25, 2013)
(Report); id. at *3 (“[T]he reasoning in Riggs was not superseded or abrogated by
subsequent changes to Delaware law.”).
27 Beginning with Donovan v. Fitzsimmons, 90 F.R.D. 583 (N.D. Ill. 1981), federal
courts over the past forty years primarily have recognized the fiduciary exception as
applied to claims brought by employee benefit plan participants alleging breaches of
fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”),
29 U.S.C. §§ 1001, et seq. See, e.g., In re Long Island Lighting Co., 129 F.3d 268, 271
(2d Cir. 1997) (referring to the fiduciary exception as a “settled common-law principle[]”);
Solis v. Food Emp’rs Labor Relations Ass’n, 644 F.3d 221, 228 (4th Cir. 2011); Wildbur
v. ARCO Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992); United States v. Evans, 796 F.2d
264, 265-66 (9th Cir. 1986) (per curiam); Washington-Balt. Newspaper Guild, Local 35 v.
Washington Star Co., 543 F. Supp. 906, 909 (D.D.C. 1982). These courts typically have
set forth two different theories for applying the exception under ERISA. The first rationale
is predicated upon the duties of disclosure discussed in Garner. Essentially, because
fiduciaries have a duty to disclose material information to retirement plan beneficiaries,
matters communicated by the fiduciary to the attorney should also be disclosed to plan
participants in the first instance. The second is that, because a plan fiduciary acts for the
benefit of plan beneficiaries, the participants are considered the “real” clients of the
fiduciary’s lawyer. Thus, when an ERISA fiduciary seeks legal advice in fulfillment of
fiduciary responsibilities, the plan beneficiaries are entitled to see the attorney’s
communications with the fiduciary, who serves as their representative. But see Wachtel
482 F.3d at 236 (declining “to impose trustee-like disclosure obligations upon” ERISA
[J-18-2020] - 20
since Riggs has been mixed. Two years after Riggs, the Supreme Court of Arkansas
recognized a variant of the exception, under which the beneficiaries of a will would be
considered “joint clients” of the executor or administrator’s attorney, such that neither
could invoke the attorney-client privilege against the other to shield testimony related to
the reasonableness of an executor’s fee that was to be paid out of the estate. Estate of
Torian v. Smith, 564 S.W.2d 521, 526 (Ark. 1978). The Supreme Court of Washington,
citing disputes over the reasonableness of attorney fees in probate matters, similarly
concluded that “the fiduciary duties of [an] attorney run not only to the personal
representatives [of an estate] but also to the heirs,” yet did not explicitly adopt the
exception. In re Estate of Larson, 694 P.2d 1051, 1054 (Wash. 1985).28
The high-water mark for state court adoption of the fiduciary exception came in
1988, when the Third Department of the Appellate Division of the New York Supreme
Court recognized it as part of New York common law. In Hoopes v. Carota, 531 N.Y.S.2d
407 (N.Y. App. Div. 1988), beneficiaries of three private trusts, which together owned a
majority of the voting stock in a paper manufacturing company, attempted to remove the
trustee, who also served as the corporation’s chief executive officer and as a member of
the corporation’s board of directors, for breach of his fiduciary duties. During his
deposition, the trustee-CEO repeatedly invoked attorney-client privilege when asked
whether he consulted counsel regarding certain transactions, such as his participation in
a proposed leveraged buyout or sale of the company, among other things. After the trial
insurers because their “limited fiduciary obligations under ERISA . . . are not coextensive
with the common law obligations of a trustee”).
28 But see Roberts v. Fearey, 986 P.2d 690, 694 (Or. Ct. App. 1999) (“[W]hen an
attorney undertakes to represent a fiduciary, he or she represents only the fiduciary and
does not, at the same time, maintain an attorney-client relationship with those to whom
the fiduciary-client owes a duty.”).
[J-18-2020] - 21
court granted the beneficiaries’ motion to compel the trustee’s responses to those
questions, he appealed. Id. at 408.
Highlighting the appellant’s dual roles as trustee and CEO, the intermediate
appellate court found that he owed a fiduciary duty to the appellees and thus “was not
entitled to shield absolutely from his beneficiaries the communications between him and
his attorneys regarding pertinent affairs of the trust and of the corporation.” Id. at 409. In
doing so, the court recognized the competing approaches to the fiduciary exception
presented in Riggs and Garner. The court passed over Riggs’ categorical approach for
Garner’s “case-by-case analysis,” which in its view “appear[ed] to be more consistent with
the approach to attorney-client privilege issues adopted by the Court of Appeals,” New
York’s high court. Id. at 410. Concluding that good cause had been shown and left wholly
unrebutted, the court affirmed the order compelling disclosure. Id.29
29 Notably, in 2002, the New York legislature explicitly rejected the fiduciary exception
as applied to estate law, declaring:
(i) No beneficiary of the estate is, or shall be treated as, the client of the
attorney solely by reason of his or her status as beneficiary;
(ii) The existence of a fiduciary relationship between the personal
representative and a beneficiary of the estate does not by itself constitute
or give rise to any waiver of the privilege for confidential communications
made in the course of professional employment between the attorney or his
or her employee and the personal representative who is the client;
(iii) The fiduciary’s testimony that he or she has relied on the attorney’s
advice shall not by itself constitute such a waiver.
N.Y.C.P.L.R. § 4503(a)(2)(A). But see Estate of Barbano v. White, 2004 WL 3211546,
*2 (N.Y. Sup. Ct. Oct. 19, 2004) (unreported) (applying the fiduciary exception with a
showing of good cause and holding that the attorney-client “privilege must yield to
plaintiff’s greater interest in discovering what actions were taken on the Barbanos’ behalf
and in the guise of protecting their interests”). As in New York, the legislatures of South
Carolina and Florida overrode lower court decisions recognizing a common-law fiduciary
exception in 2008 and 2011, respectively. Compare Floyd v. Floyd, 615 S.E.2d 465 (S.C.
Ct. App. 2005), and Jacob v. Barton, 877 So.2d 935 (Fla. Dist. Ct. App. 2004), with S.C.
Code Ann. § 62-1-110, and Fla. Stat. § 90.5021(2) (2011).
[J-18-2020] - 22
By the mid-1990s, adoption of the fiduciary exception had stalled, and a rapid
succession of state court decisions, rule changes, and statutory amendments turned the
tide against recognizing that exception as applied to trusts. In 1994, the Supreme Judicial
Court of Massachusetts declined “[t]o impose a [fiduciary] duty on a trustee’s attorney to
beneficiaries,” which it feared “could create situations antithetical” to disciplinary rules
requiring the preservation by attorneys of “secrets and confidences gained in the course
of representing a client.” Spinner v. Nutt, 631 N.E.2d 542, 545 (Mass. 1994). One year
later, Hawai’i’s probate court rules were amended to provide that “[a]n attorney employed
by a fiduciary for an estate, guardianship, or trust represents the fiduciary as client,” not
the estate’s beneficiaries. Haw. R. Probate 42(a).
The following year, the Supreme Court of Texas held that communications
between a trustee and the trustee’s attorney retain the full protection of the attorney-client
privilege, despite the trustee’s fiduciary duty to the beneficiary. Huie v. DeShazo, 922
S.W.2d 920, 925 (Tex. 1996) (holding that “the trustee who retains an attorney to advise
him or her in administering the trust is the real client, not the trust’s beneficiaries”). In
2000, the Supreme Court of California similarly held that the privilege protects the trustee
rather than the beneficiary, concluding that “the trustee’s reporting duties do not trump
the attorney-client privilege.” Wells Fargo Bank v. Sup. Ct., 990 P.2d 591, 597 (Cal.
2000). The Supreme Court of Nevada rejected the exception most recently, concluding
that it did not fall within one of the “five specifically defined exceptions to the attorney
client privilege” under Nevada law. Canarelli v. Eighth Judicial Dist. Ct. in and for Cty. of
Clark, 464 P.3d 114, 121 (Nev. 2020). It must be noted, however, that these courts
predicated their decisions upon the existence of statutes codifying both the privilege and
[J-18-2020] - 23
its recognized exceptions.30 Because those statutes did not list the fiduciary-beneficiary
relationship as one such exception, the courts declined to recognize one by judicial fiat.31
Capped by Canarelli, the last decade has witnessed the high courts of Nevada and
Georgia, and lower courts in Alabama, Illinois, Connecticut, and Virginia, reject the
fiduciary exception outright, either because recognition was foreclosed by statute or
30 See Wells Fargo, 990 P.2d at 595 (“[T]hose courts [that have adopted the fiduciary
exception] consider themselves free, in a way we do not, to create exceptions to the
privilege.”); Huie, 922 S.W.2d at 924-25 (“Rule 503 [of the Texas Rules of Evidence]
contains no exception applicable to fiduciaries and their attorneys. If the special role of a
fiduciary does justify such an exception, it should be instituted as an amendment to Rule
503 through the rulemaking process.”).
31 In dicta, the Wells Fargo Court articulated why, despite its apparent lack of
authority, it would not recognize a fiduciary exception even if it could. First, the Court
explained that “material fact[s]” about trust management could always be obtained
through discovery in the event of disputes between beneficiaries and trustees. 990 P.2d
at 597 n.2 (quoting Huie, 922 S.W.2d at 923). Second, the Court dismissed the “joint
client” rationale relied upon by the Supreme Court of Arkansas. “Because no such
relationship is implied in law,” its existence “(and its propriety under the rules prohibiting
conflicts of interest) would have to be determined on the facts of each individual case.”
Id. at 598. And finally, the Court emphatically rejected the notion that “[p]ayment of fees”
from the trust corpus ipso facto “determine[s] ownership of the attorney-client privilege.”
Id.
Of significance to that last point, the Court noted that “under California law, a
trustee may use trust funds to pay for legal advice regarding trust administration and may
recover attorney fees and costs incurred in successfully defending against claims by
beneficiaries.” Id. at 599 (citations omitted).
When the law gives the trustee a right to use trust funds, or to
reimbursement, the funds do not in law belong to the beneficiaries.
Conversely if the trustee’s expenditures turn out to have been unauthorized,
the beneficiaries may ask the probate court to surcharge the trustee. But
this question of cost allocation does not affect ownership of the attorney-
client privilege.
Id. In brief, the Court reasoned that “[t]o the extent the source of payment has any
significance, it is but one indicium in determining the existence of an attorney client
relationship and, thus, who holds the privilege.” Id. at 598 (citation omitted); see id. at
598-99 (“[T]he assumption that payment of legal fees by the trust is equivalent to direct
payments by beneficiaries is of dubious validity.”).
[J-18-2020] - 24
because it was believed to undermine the policy of free and open communications
between trustees and counsel promoted by the privilege.32 One noteworthy exception to
this trend came from the Supreme Court of Arizona, which adopted a limited fiduciary
exception pursuant to its constitutional powers “to apply exceptions to the attorney-client
privilege in the absence of legislative action.” See In re Kipnis Section 3.4 Trust, 329
P.3d 1055, 1061 (Ariz. 2014) (citing, inter alia, Huie, 922 S.W.2d 920). Specifically, the
Kipnis Court held that a trustee owes “a duty to disclose ‘legal consultations and advice
obtained in the trustee’s fiduciary capacity concerning decisions or actions to be taken in
the course of administering the trust.’” Id. at 1061 (quoting RESTATEMENT (THIRD) OF
TRUSTS § 82, cmt. f (2007)). Departing from the Wells Fargo analysis, the court agreed
that a trustee may not withhold “material facts from a beneficiary simply because the
trustee has communicated those facts to an attorney.” Id. However, citing language in
Comment f, the court clarified that “whether the trustee acted in a fiduciary capacity
cannot be resolved simply by asking who paid for the advice.” Id. at 1062.
C.
With this survey in mind, we must now call the question on the instant appeal.
Trustee implores us not to recognize a fiduciary exception to the attorney-client privilege.
He asserts that an order compelling the disclosure of unredacted attorney invoices would
32 See St. Simons Waterfront LLC v. Hunter MacLean Exley & Dunn, P.C., 746
S.E.2d 98 (Ga. 2013); Caplan v. Benator, 262 So.3d 672 (Ala. Civ. App. 2018); Garvey
v. Seyfarth Shaw LLP, 966 N.E.2d 523 (Ill. App. 2012); Hubbell v. Ratcliffe, 50 Conn. L.
Rptr. 856, 2010 WL 4885631, *4-5 (Conn. Super. Ct. Nov. 8, 2010) (unreported); Batt v.
Manchester Oaks Homeowners Assoc., Inc., 80 Va. Cir. 502, 2010 WL 7371240, *3 (Va.
Cir. Ct. July 6, 2010) (unreported); see also Murphy v. Gorman, 271 F.R.D. 296, 318
(D.N.M. 2010) (stating the court’s “belie[f] that the Supreme Court of New Mexico would
not permit a judicially-created expansion of the exceptions to the attorney-client privilege
to add a fiduciary exception, which has not been recognized in the New Mexico
Constitution or in the New Mexico Rules of Evidence”).
[J-18-2020] - 25
reveal legal advice and strategy in violation of the privilege. Pointing to the privilege’s
codification at 42 Pa.C.S. § 5928,33 which contains no such explicit exception, Trustee
suggests that this Court should defer to the General Assembly to consider whether one
should be adopted and, if so, the contours of its protections. Trustee’s Brief at 23-24.
Trustee stresses that there should be a strong presumption against fashioning
exceptions, lest the very concerns that animated the common-law privilege be drowned
out by a proliferation of legal actions against fiduciaries. Id. at 27-28. Even if a narrow
exception could be crafted for adversarial proceedings, Trustee claims that
“communications will still be chilled,” undermining the privilege as a whole. Id. at 28.34
Beneficiaries, conversely, contend that Pennsylvania law entitles them to access
records regarding trust management.35 They posit that this duty naturally includes
33 Section 5928 provides:
In a civil matter counsel shall not be competent or permitted to testify to
confidential communications made to him by his client, nor shall the client
be compelled to disclose the same, unless in either case this privilege is
waived upon the trial by the client.
42 Pa.C.S. § 5928.
34 The Pennsylvania Bankers Association (“PBA”) filed a brief as amicus curiae on
behalf of Trustee raising many of the same arguments. Additionally, PBA contends that
its members—corporate fiduciaries, who often serve as co-trustees—at times may need
to seek legal advice regarding whether the conduct of another co-trustee raises concerns
about compliance with fiduciary duties, perhaps rising to a level requiring removal. If such
consultation is subject to disclosure to beneficiaries, PBA claims, a co-trustee might be
deterred from seeking such advice in the first place, redounding to a beneficiary’s ultimate
detriment. The fact of the inquiry and analysis, they say, could poison the atmosphere
among co-trustees and between trustees and beneficiaries. PBA’s Brief at 6-7.
Beneficiaries respond that amicus’ “real fear” is that banks “will have to show their work
and will have to disclose all of their fees.” Beneficiaries’ Brief at 20. That is why,
Beneficiaries claim, amicus prefers a rule “that ratifies a self-serving preference to work
without restraint, without complete transparency, and therefore without complete
accountability.” Id.
35 See Beneficiaries’ Brief at 9 (citing 20 Pa.C.S. § 7772 (trustee “shall administer the
trust solely in the interests of the beneficiaries”); id. § 7780 (trustee “shall keep adequate
[J-18-2020] - 26
disclosures pertinent to fees paid from the trust, like the billing statements at issue here.
Beneficiaries’ Brief at 20. At base, Beneficiaries submit that Trustee’s position, were it to
prevail, essentially would force them to cover attorney fees for legal work the
reasonableness of which they would have no way of assessing. Absent some mechanism
for reviewing the stated justification for the work and whether the amount paid was
appropriate, Beneficiaries fear that the trust established for their benefit could be raided
via disbursement of questionable, yet unverifiable, legal expenses.
In Beneficiaries’ view, Judge Wettick’s opinion in Follansbee, from which the
Superior Court drew in this case, offers a studied approach to balancing the competing
interests in trust administration. We agree. Like this case, Follansbee involved a trustee
who invoked the attorney-client privilege in order to withhold from a beneficiary
communications between the trustee and counsel regarding management of a trust.
Plaintiffs, the beneficiaries of a trust who brought suit against trust counsel (attorneys at
Reed Smith LLP), served a subpoena to produce documents upon the non-party trustee,
PNC Bank. In response, PNC withheld, on grounds of attorney-client privilege, certain
communications its employees had with attorneys at the law firm regarding trust
administration. Before the trial court was the beneficiaries’ motion to overrule the
trustee’s objections to the subpoena.
Relying upon Riggs and Section 173 of the Second Restatement of Trusts, Judge
Wettick ruled that the withheld documents must be produced, concluding that a “trustee
cannot withhold from any beneficiary documents regarding management of the trust
including opinions of counsel procured by the trustee to guide the trustee in the
administration of the trust, because trust law imposes a duty to make these documents
records of the administration”); id. § 7780.3 (trustee “shall promptly respond to a
reasonable request by . . . a beneficiary . . . for information related to the trust’s
administration”)).
[J-18-2020] - 27
available to the beneficiaries.” Follansbee, 56 Pa. D. & C. 4th at 491; see id. at 487-88
(quoting 2A A. SCOTT & W. FRATCHER, SCOTT ON TRUSTS § 173 (4th ed. 1987) (“A
beneficiary is entitled to inspect opinions of counsel procured by the trustee to guide him
in the administration of the trust.”)). In reaching this result, the court differentiated
between information regarding trust administration paid for out of the trust corpus, and
“legal advice procured at the trustee’s own expense and for his own protection,” which
remains protected from disclosure. Id. at 490. Most importantly for our present
discussion, Judge Wettick recognized that Pennsylvania’s attorney-client privilege, much
like Delaware’s, remains rooted in principles of the common law.
In Rosenblum, we announced that Section 173 of the Second Restatement was
“declaratory of the common law of Pennsylvania.” 328 A.2d at 165. Section 173 of that
treatise—which this Court has not disavowed—defines the scope of the trustee’s duty to
furnish information:
The trustee is under a duty to the beneficiary to give him upon his request
at reasonable times complete and accurate information as to the nature and
amount of the trust property, and to permit him or a person duly authorized
by him to inspect the subject matter of the trust and the accounts and
vouchers and other documents relating to the trust.
RESTATEMENT (SECOND) OF TRUSTS § 173 (1959). Comment b to Section 173, upon which
Judge Wettick focused in his analysis, further explains:
What need not be communicated. The trustee is privileged to refrain from
communicating to the beneficiary information acquired by the trustee at his
own expense and for his own protection. Thus, he is privileged to refrain
from communicating to the beneficiary opinions of counsel obtained by him
at his own expense and for his own protection.
Id. cmt. b (latter emphasis added). By its plain terms, the Second Restatement provides
that trustees may avoid disclosure of legal opinions so long as they personally cover their
own legal expenses. More than a half-century later, that remains our understanding of
[J-18-2020] - 28
the common-law confines of the attorney-client privilege in disputes between fiduciaries
and beneficiaries.
Interestingly, both parties also claim the benefits of Section 82 of ALI’s Third
Restatement, which revised and expanded upon Section 173’s subject matter. Both point
to Comment f, reproduced below, asserting that this provision encapsulates Pennsylvania
law and should control:
What need not be disclosed? A trustee is privileged to refrain from
disclosing to beneficiaries or co-trustees opinions obtained from, and other
communications with, counsel retained for the trustee’s personal protection
in the course, or in anticipation, of litigation (e.g., for surcharge or removal).
This situation is to be distinguished from legal consultations and advice
obtained in the trustee’s fiduciary capacity concerning decisions or actions
to be taken in the course of administering the trust. Communications of this
latter type are subject to the general principle entitling a beneficiary to
information that is reasonably necessary to the prevention or redress of a
breach of trust or otherwise to the enforcement of the beneficiary’s rights
under the trust.
When the roles and objectives of legal consultation are unclear, the
question of who has paid for the legal services, or who ultimately will be
required to pay those expenses, although potentially relevant, involves
other and complicated considerations (see § 88 [(“Power to Incur and Pay
Expenses”)]) so that this matter is not determinative in resolving issues of
privilege. . . .
RESTATEMENT (THIRD) OF TRUSTS § 82, cmt. f (2007). This iteration of the common-law
exception for fiduciaries—which this Court has not adopted—differs from the Second
Restatement insofar as the source of funds would no longer be dispositive of questions
regarding disclosure. See Kipnis, 329 P.3d at 1062. Because this latter-day formulation
would increase uncertainty with regard to disclosure disputes in probate matters rather
than diminish it, we would reject the parties’ entreaty, and we would reaffirm the core
holding of Rosenblum.
While we appreciate the concerns that animated many jurisdictions’ retreat from
the fiduciary exception over the past quarter century, we would stand fast. Transparency
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remains the cornerstone of the fiduciary duty. Because trustees in essence serve as
proxies for trust beneficiaries, their fiduciary duties compel them always to act in
accordance with the latter’s best interests in mind. To the extent that the attorney-client
privilege obscures that fundamental obligation by frustrating beneficiaries’ entitlement to
information about trust management, the privilege must yield. As with all considerations
of restrictions on attorney-client confidentiality, predictability is critical. Indeed, a
categorical approach for fiduciaries akin to that expounded in Riggs would bring greater
clarity to the parameters of Pennsylvania’s common-law privilege within the law of trusts.
See Upjohn, 449 U.S. at 393 (“An uncertain privilege . . . is little better than no privilege
at all.”); accord Jaffee v. Redmond, 518 U.S. 1, 18 (1996); Ziegler, 200 A.3d at 80. A
categorical approach, moreover, would produce additional “benefits, including easier
application in our lower courts” and “predictability[] and notice” to trustees and
beneficiaries alike. Commonwealth v. Britton, 229 A.3d 590, 618 (Pa. 2020) (Wecht, J.,
concurring).
To that end, we would hold that, where legal counsel is procured by a trustee
utilizing funds originating from a trust corpus, the beneficiaries of that trust are entitled to
examine the contents of communications between the trustee and counsel, including
billing statements and the like. That examination necessarily includes reviewing the
contents of invoices in order to determine precisely what was procured with trust funds
where the reasonableness of costs is at issue. The attorney-client privilege and work
product doctrine cannot shield those disclosures in this Commonwealth. To hold
otherwise would enable fiduciaries to weaponize trust assets reserved for beneficiaries
against those very beneficiaries in litigation over the propriety of trust management. Since
those same beneficiaries simultaneously would be obliged to foot their own legal bills,
they would, in essence, be paying for both parties’ lawyers. That result is untenable,
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particularly in a case such as this, where Trustee also is a co-beneficiary of the trust
established by his late father for the benefit of Trustee and his step-siblings.36
36 While Justice Donohue agrees that this Court is empowered to resolve the
question of the fiduciary exception’s applicability in this Commonwealth, OSR at 13 n.9,
she would answer that question in the negative. In doing so, Justice Donohue suggests
that trustees in “many, if not the vast majority of private trusts . . . will be an average
person who has or had a personal relationship with the trustor.” Id. at 9. By way of
example, she invokes a hypothetical yeoman farmer who selects from his rancorous
offspring a daughter to administer trust assets, including potentially valuable gas rights.
Id. at 9-10. While the learned Justice’s ode to a Jeffersonian paradigm, where trusts
principally were used as conveyance devices “to facilitate the transfer of freehold land
within the family,” may have been apt in the early years of a fledgling nation reliant upon
an agrarian economy, see John H. Langbein, The Contractarian Basis of the Law of
Trusts, 105 YALE L.J. 625, 632 (1995), it overlooks the reality of trust administration in the
twenty-first century, in which sophisticated intermediaries like trust companies—i.e., large
financial institutions and law firms (with their attendant fee schedules)—have proliferated
and predominate. See, e.g., John H. Langbein, The Secret Life of the Trust: The Trust
as an Instrument of Commerce, 107 YALE L.J. 165, 178 (1997) (citing publicly available
regulatory agency data “on the assets held by trust companies and other institutional
trustees” in support of assertion “that well above 90% of the wealth in trust in the United
States is held in commercial as opposed to personal trusts”; observing that “[t]he use of
individual trustees is quite common in family wealth transmission, but mostly in smaller
trusts”); Ugo Mattei & Henry Hansmann, Trust Law in the United States. A Basic Study of
Its Special Contribution, 46 AM. J. COMP. L. SUPP. 133, 133 (1998) (noting “the
enormous—though commonly neglected—role that private trusts have come to play in
the American capital markets”).
Additionally, relying upon the Uniform Trust Act, 20 Pa.C.S. §§ 7701 et seq.,
Justice Donohue further contends that trustees’ “right to use corpus funds both for the
administration of the trust and for reimbursement of expenses incurred in connection
therewith” implicitly means that, whatever funds beneficiaries may be entitled to, “they are
the funds exclusive of those that are necessary to properly administer the trust as deemed
reasonably necessary by the trustee in her professional judgment.” OSR at 8. But that
view begs the principal question of reasonableness—to say nothing of necessity.
Consider the present dispute, which centers upon the propriety of the attorney fees
themselves, rather than any given administrative decision undertaken upon the advice of
counsel. Here, Trustee managed to accrue nearly $125,000 in attorney fees in less than
two years of administering the trust. According to the first and partial accounting, that
amount is roughly one-tenth of the total outlays (approximately $1.5 million) distributed
from the trust principal prior to February 1, 2014. An additional $220,000 has been
disbursed to Gray and K&L Gates in attorney fees since that date, per the second and
final accounting. Whether those expenses were reasonable remains to be adjudicated in
future proceedings. But the fact that their very existence served to significantly deplete
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Here, Trustee disclosed that he had spent more than $123,000 from the trust for
attorney fees and costs between February 2014 and December 2015, prompting the
probate court to freeze further disbursements of trustee and legal fees from the trust
estate without prior approval. Trustee then produced heavily redacted billing statements
that shed no light upon why he sought those services and whether the outlays were
consistent with his fiduciary obligations. Although Trustee’s suggestion that the probate
court examine the uncensored documents in camera might be appropriate in other
contexts, it is unavailing here. Beneficiaries bear the initial burden of proving that trust
expenditures are unreasonable. That burden cannot simply be shifted onto the probate
courts of this Commonwealth by resort to in camera expeditions. Accordingly,
Beneficiaries require access to those unredacted billing statements to substantiate their
claims.
Nothing in our proposed disposition would curtail the ability of trustees to seek
remuneration for expenses reasonably incurred in the course of trust management. To
the extent that trustees wish to maintain the confidentiality of their communications with
counsel, we would find that Pennsylvania law already offers a simple solution: do so at
your own expense. We would uphold the trial court’s discovery order for the foregoing
reasons. Because the Court presently is divided on whether the fiduciary exception
should be recognized in this Commonwealth, however, resolution of that issue must await
another day.
the trust corpus—from which, Justice Donohue acknowledges, Beneficiaries are entitled
to derive an equitable benefit, id. (citing Lewis v. Alexander, 685 F.3d 325, 332 (3d Cir.
2012))—is demonstrable on its face. In focusing upon the potential administrative
obligations that might beset trustees with the adoption of the fiduciary exception, the OSR
fails to consider that it is beneficiaries’ burden in all instances to prove that trust
expenditures are unreasonable. How else can Trustee’s “professional judgment” in
maintaining not one, but two evidently well-compensated law firms adequately be probed
in this particular context other than by examining the contents of the heavily redacted
billing statements? Justice Donohue offers no viable alternative.
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Justices Todd and Dougherty join this opinion.
Justices Saylor, Donohue and Mundy join Parts I and II(A) of the opinion.
Justice Saylor files a concurring opinion and opinion supporting reversal.
Justice Donohue files a concurring opinion and opinion supporting reversal in
which Justice Mundy joins.
Chief Justice Baer did not participate in the consideration or decision of this matter.
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