In a recent Pennsylvania Supreme Court case, In re: Estate of William K. McAleer, the state high court addressed the issue of whether Pennsylvania law recognizes the fiduciary exception to attorney-client privilege. Unfortunately, while the case yielded a decision for the parties, the court did not reach a majority consensus on the central issue, leaving fiduciaries and beneficiaries — and the trusts and estates practitioners who represent them — still unclear about how trial courts will handle fiduciaries' objections to requests for information from beneficiaries on the basis of attorney-client privilege.
Communications between an attorney and a client about legal advice generally are privileged from disclosure to third parties, with certain exceptions. The fiduciary exception generally limits the ability of fiduciaries to assert attorney-client privilege in response to a beneficiary's request for information. State and federal courts across the country have been divided on whether to adopt the fiduciary exception and, if adopted, how the exception should be applied.
The court issued its decision in McAleer on April 7 without a clear consensus on this central issue; the justices split 3-3, with Chief Justice Max Baer abstaining.
Trustee Asserts Privilege
At issue in McAleer was whether a trustee can invoke the attorney-client privilege and the work product doctrine to bar the disclosure to a beneficiary of communications between the trustee and counsel pertaining to attorneys' fees paid from the trust.
William K. McAleer set up a revocable trust for the benefit of his son, William H. McAleer, and his two stepsons, Stephen Lange and Michael Lange, with his son, William, named as trustee. After McAleer's death, the trustee filed a first and partial accounting of his administration of the trust in the Allegheny County Court of Common Pleas, Orphans' Court Division.
The stepbrothers, as beneficiaries of the trust, filed objections to certain aspects of the trust administration. The trustee responded by retaining two law firms, and two years of litigation ensued until the Orphans' Court dismissed the stepbrothers' objections.
The trustee then filed a second and final accounting, which indicated that he had incurred approximately $124,000 in attorneys' fees during the course of the litigation. The stepbrothers again objected, challenging the trustee's payment of trustee's commission and attorneys' fees from the trust funds. When the stepbrothers sought disclosure of the law firm invoices in discovery, the trustee produced heavily redacted copies, maintaining that the information was protected by attorney-client privilege. On the stepbrothers' motion to compel the unredacted invoices, the Orphans' Court concluded that the trustee did not present any facts to support his privilege claim and ordered him to produce the unredacted billing records. The trustee appealed the decision.
Superior Court Quashes Appeal
On the trustee's appeal, the Superior Court held that a trial court order regarding discovery is not an immediately appealable order and remanded the case to the Orphans' Court. While the Superior Court didn't need to address the issue at all, since it had held that the case was not properly before it, the Superior Court nevertheless weighed in on the privilege matter, adding that it agreed with the lower court in that the trustee had failed to establish that the attorney invoices were privileged.
Specifically, the Superior Court found that the trustee had failed to meet his initial burden of presenting facts to support the application of the attorney-client privilege in the invoices. As a result, neither the Orphans' Court nor the Superior Court addressed the second step in the privilege question: whether an exception to the claim of privilege actually applied.
However, the Superior Court in its 2018 decision did indicate that under Pennsylvania common law, "right of access to trust records is an essential part of a beneficiary's right to complete information concerning the administration of the trust." The Superior Court also commented that Pennsylvania law recognizes a limited fiduciary exception, and that a trustee may claim privilege from disclosing to beneficiaries communications with attorneys "retained for the trustee's personal protection in the course, or in anticipation, of litigation (e.g., for surcharge or removal)."
Because the trustee provided no factual basis for his claim that the redacted information on the legal invoices related to communications with an attorney retained for the trustee's personal protection or in either the course of or in anticipation of litigation, the Superior Court was "left to conclude" that the information in the invoices qualified as information to which the beneficiaries were entitled.
On appeal to the Pennsylvania Supreme Court, the justices unanimously concluded that the Superior Court erred in quashing the trustee's appeal.
The justices diverged from there, splitting 3-3, with Chief Justice Max Baer abstaining.
Justices David N. Wecht, Debra Todd, and Kevin M. Dougherty advocated for a "categorical" application of the fiduciary exception. Beneficiaries like the stepbrothers should be entitled to examine the contents of all communications between the trustee and counsel where counsel is paid with funds from the trust, wrote Wecht, who authored the opinion. The only circumstance in which a fiduciary could assert privilege in response to a beneficiary request is where the fiduciary pays counsel with personal funds.
Justices Christine Donohue, Sallie Updyke Mundy, and Thomas G. Saylor rejected the fiduciary exception to the attorney-client privilege. Justice Donohue, who wrote the opinion, and Justice Mundy concluded that the Orphans' Court's reliance on Follansbee v. Gerlach, a 2002 decision authored by Judge R. Stanton Wettick from Allegheny County, was misplaced. According to Follansbee, "where the trustee-client obtains legal advice from an attorney relating to the trust, that legal advice must be shared with the beneficiaries." Justice Saylor also wrote separately to suggest that the fiduciary exception is an issue better left to the General Assembly to address.
The net result of the Pennsylvania Supreme Court's decision in McAleer is that there is no clear authority on the question of the fiduciary exception because when the state high court is equally divided, the judgment does not constitute a precedent. The Superior Court decision also espoused an analysis that none of the Supreme Court justices adopted.
It could be some time before the Pennsylvania Supreme Court is presented with a case in which it can address the fiduciary exception issue again. Justice Saylor's call for the General Assembly to address the scope of a fiduciary's ability to assert the attorney-client privilege could potentially be a path of greater certainty, if the legislators take up the challenge.