The Attorney Client Privilege is sacrosanct. It is the one privilege that Courts consistently uphold. So, it may surprise you to learn that there is a long-standing fiduciary exception to the attorney client privilege.
Simply put, the fiduciary exception is a recognized limitation on the attorney-client privilege and it arises when a beneficiary seeks information regarding estate or trust administration. This exception to the attorney-client privilege was recognized in England as early as the 1800s. It was imported and has been a part of domestic fiduciary jurisprudence ever since. Nevertheless, it is an issue that has not been litigated frequently.
There are essentially two reasons why it is a rarely litigated issue. First, fiduciaries understand their obligation to report to and respond to beneficiaries. Second, civil litigators have (until recently) traditionally not practiced in Orphans Court; it has been the domain of trusts and estates practitioners who choose not to engage in protracted discovery disputes. However, as we see an increase in the number of civil litigators testing the Orphans' Court waters, we will see an increase in the number of discovery focused opinions coming from our Orphans' Court. Disputes over disclosure of documents and the privilege to withhold documents will become more common place in OC litigation in years to come.
A recently reported Chester County case, along with an uptick in discovery disputes in many of my fiduciary litigation cases, has sparked my renewed interest in this topic. In Thouron Estate No. 2, No. 1507-0230, the Chester County Court walks us through the history of cases and mentions the seminal cases on the topic: Riggs National Bank of Washington, D.C. v. Zimmer, 355 A.2d 709 (Del. Ct. of Chancery, 1976) and Follansbee v. Gerlach, 56 Pa. D. & C. 4th 483 (Allegheny 2002) as well as In re Rosenblum's Estate, 459 Pa. 201, 328 A.2d 158 (1974). All of these cases involve trust matters and in each case, the Court recognized a fiduciary exception to the attorney client privilege.
The Thouron Court noted that our state appellate courts have not addressed the fiduciary exception "head on" in an estate administration matter. The Riggs, Rosenblum and Follansbee Courts analyzed the privilege in the trust context. Nevertheless, the Thouron Court noted that the duties of a trustee are so similar to that of an executor that the analysis in trust matters is relevant and instructive.
There are a few themes that stand out in the analysis of the cases referenced in this email. Those themes include the following:
A beneficiary is not like an "ordinary party" to litigation;
There are statutory references to a trust beneficiary's right to information and a trustee's obligation to respond promptly to reasonable requests for information;
The right to obtain information is not unlimited or unfettered. A beneficiary must act in good faith when requesting information and "due regard" must be given to the rights of "other interested parties" to withhold the information or limit its disclosure.
The nature of the request and the setting of the request are distinguishing factors. Consideration will be given to whether the information requested relates to estate or trust administration (which will typically be discoverable) or to opinions of counsel rendered for purposes of litigation within the trust or estate (which should not be discoverable).
There are a few factors that are conspicuously absent from the analysis in the cases cited herein. There are some discreet differences between a trustee and an executor. While these differences are unlikely to impact this analysis, it is interesting to this author that courts and our legislators continue to blurr the lines. Another absent theme (that tends to favor production of information) relates to who is paying fiduciary counsel's fees. This issue was addressed to some extent in Follanbee. It would be a fairly powerful argument by a residual beneficiary – the fruit of counsel's labor is ultimately paid by the residual beneficiary whose share will be diminished by any expenses incurred by the estate or trust.
With the increase in contested Orphans' Court litigation matters and the intrusion of civil litigators into the process, it is likely that we will be seeing more cases addressing the issue of document requests being made to fiduciaries.
What is a fiduciary and its counsel to do? It is important to segregate the administration piece from a litigation or contested piece. I will typically open separate files and segregate activity - erect the proverbial Chinese wall - in an effort to protect the opinions of counsel and of experts retained from the prying eyes of warring beneficiaries. Another less palatable, but very wise, option is for the fiduciary to pay for opinions of counsel from its own coffers until the litigation is resolved.
We will continue to follow this line of cases and note that the parties in Thouron have not sought an immediate appeal of the discovery opinion.