Opinion ID: 3029219
Heading Depth: 3
Heading Rank: 1

Heading: History and Development of the Fiduciary

Text: Exception We will begin our consideration with an historical review of the attorney-client privilege and the development of the fiduciary exception. In sixteenth-century England, the right to testimonial compulsion was still in its infancy. Along with the emergence of this right to compel testimony there also arose an exception – the attorney-client privilege. 8 J. W IGMORE, E VIDENCE § 2290 (McNaughton rev. 1961). Jurists originally justified the privilege as necessary to protect an attorney’s “point of honor” to refrain from divulging the secrets of his 13 clients. However, by the late 1700s, a new policy underlying the privilege took hold. Jurists reasoned that “to promote the freedom of consultation of legal advisers by clients, the apprehension of compelled disclosure by the legal advisors must be removed . . ..” Id. at § 2291. This policy has survived as the modern justification for the privilege. Id. at §§ 2290-91. As we cross centuries to reach the Federal Rules of Evidence, we find that the common law development of the attorney-client privilege continues in the federal courts of the United States. Under F EDERAL R ULE OF E VIDENCE 501, evidentiary privileges “shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience.” Rule 501 requires the federal courts, in determining the nature and scope of an evidentiary privilege, to engage in the sort of case-by-case analysis that is central to common-law adjudication. See Upjohn Co. v. United States, 449 U.S. 387, 396 (1981). Consistent with this analytical dictate, federal courts have long recognized the applicability of the attorney-client privilege, “the oldest of the privileges for confidential communications known to the common law,” id. at 389, and it is well established that “[c]onfidential disclosures by a client to an attorney made in order to obtain legal assistance are privileged.” Fisher v. United States, 425 U.S. 391, 403 (1976). The policy behind the privilege is equally well established: Full and frank communication between attorneys and their clients must be encouraged because the administration of justice in a complex society depends upon the availability of sound legal advice, and in turn, the soundness of legal advice depends upon clients’ willingness to present full disclosures to their attorneys. See 14 Upjohn, 449 U.S. at 389. For centuries, the common law has also recognized “as a fundamental maxim that the public . . . has a right to every man’s evidence” and “that any exemptions which may exist are distinctly exceptional, being so many derogations from a positive general rule.” 8 W IGMORE at § 2192. Because the attorney-client privilege has this effect of withholding relevant information from fact-finders, federal courts must apply it only where necessary to achieve its purpose. Fisher, 425 U.S. at 403. As a result, the well-established limitations which have been developed under the common law all are consistent with the purpose of encouraging clients to speak fully with their lawyers without concern that what they say to the lawyer will be disclosed. See Swidler & Berlin v. United States, 524 U.S. 399, 409-10 (1998). Where this purpose ends, so too does the protection of the privilege. For example, because the purpose of the privilege is to promote the dissemination of sound legal advice, the privilege will extend only to advice which is legal in nature. Where a lawyer provides non-legal business advice, the communication is not privileged. 8 W IGMORE at § 2303; In re Lindsey, 158 F.3d at 1270. Similarly, the protections of the privilege are restricted to those communications which are made in confidence, since a client who speaks openly or in the presence of a third party needs no promise of confidentiality to induce disclosure. 8 W IGMORE at § 2311; Westinghouse Elec. Corp. v. Republic of Philippines, 951 F.2d 1414, 1424 (3d Cir. 1991). As for two clients having a common legal interest who are represented by the same attorney, the confidentiality requirement means that, 15 although communications between a client and the attorney may be privileged as to outsiders, they are not privileged inter sese. 8 W IGMORE at § 2312; Matter of Grand Jury Subpoena Duces Tecum Dated November 16, 1974 406 F. Supp. 381, 387 (S.D.N.Y. 1975). On the other hand, the administration of justice is not improved by protecting communications designed to further a crime or a fraud; such communications consequently fall outside the scope of the attorney-client privilege. United States v. Zolin, 491 U.S. 554, 562-563 (1989). To these exceptions, many courts have added another – the fiduciary exception. The fiduciary exception first emerged in nineteenthcentury England as a principle of trust law. 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. See Talbot v. Marshfield, 2 Drew & Sm. 549, 62 Eng. Rep. 728 (Ch. 1865). See also Wynne v. Humbertson, 27 Beav. 421, 54 Eng. Rep. 165 (1858). 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. Talbot, 2 Drew & Sm. at 550-51, 62 Eng. Rep. at 729. The rule recognized in Talbot and Wynne quickly became well-established at English common law. See, e.g., In re Mason, 22 Ch. D. 609 (1883). It was not, however, until the 1970s that the fiduciary exception found its way into American case law. American courts adopted the exception in two separate contexts – trusts and shareholder suits. The application to trusts was the more straight-forward of the two, as it involved a direct application of 16 the principles enunciated in Talbot and Wynne. In Riggs Nat’l Bank of Wash., D.C. v. Zimmer, 355 A.2d 709 (Del. Ch. 1976), the Delaware Court of Chancery held that the beneficiaries of a trust were entitled to discover a legal memorandum which had been prepared for their trustees in connection with matters of trust administration, and for which the trustees had paid using trust assets. Noting that “American case law is practically nonexistent on the duty of a trustee in this context,” the court looked back to Talbot, Wynne, and Mason and found a clear and applicable rule of trusts. Id. at 712-13. In applying this rule, the court found the memorandum to be discoverable for two reasons. First, the court placed a great deal of weight on the duty of a trustee to furnish information to the trust beneficiaries. Id. at 712, 714. Second, the court found the memorandum discoverable for the equally compelling reason that it determined that counsel’s “real” clients – in whom, under longstanding principle, the attorney-client privilege vested – were the beneficiaries, not the trustees (whom the court described as mere representatives). Id. at 712-13. Identification of the “real” client was informed by several factors: (1) the content of the advice was for the benefit of the trust, not the trustees; (2) the advice was paid for with assets of the trust, not the trustees; and (3) no adversarial proceeding against the trustees was pending, meaning that the trustees had no need to seek personal legal advice. Id. at 711. Indeed, the court noted that a trustee who properly executes his duties acts only on behalf of the beneficiaries. Id. In this sense, the fiduciary exception is something of a misnomer because it is the beneficiary, rather than the trustee, who is the “client” component of the “attorneyclient” privilege. 17 Although the discussion in Riggs is focused on principles of trust law, American application of the fiduciary exception has not been limited to the trust context. Even before Riggs was decided, the Fifth Circuit held in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), that in a shareholder action, legal advice given to corporate managers by corporate counsel for the benefit of the corporation was not privileged. The court recognized that corporate managers, and even sometimes the corporate entity, may have interests adverse to some or all of the shareholders, particularly because shareholders’ varying ownership interests mean that shareholders’ interests often are not uniform. Id. at 1101. The court concluded that “when all is said and done the management is not managing for itself.” Id. Central to this conclusion was the fundamental fact that corporate managers in the ordinary course can have no legitimate personal interests for which the advice of corporate counsel (paid for from corporate funds) is needed. When a legitimate personal interest does emerge – such as when a corporate manager is sued by shareholders – the manager then becomes entitled to legal advice which is not discoverable by the shareholders. Thus, of central importance in both Garner and Riggs was the fiduciary’s lack of a legitimate personal interest in the legal advice obtained. Id.; 355 A.2d at 712.