Court Opinion

ID: 4675398
Source: CourtListenerOpinion
Date Created: 2021-04-07 19:13:12.150384+00
Date Added: 2024-06-11T08:03:25.816140
License: Public Domain

[J-18-2020] [Lead Opinion - Wecht, J.]
                    IN THE SUPREME COURT OF PENNSYLVANIA
                                WESTERN DISTRICT

    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

          CONCURRING OPINION AND OPINION SUPPORTING REVERSAL

JUSTICE DONOHUE                                                DECIDED: April 7, 2021

        We join in Parts I and II(A) of the opinion supporting affirmance, as we agree with

the determination that the collateral order doctrine supports a review of this appeal.1

        We do not join in Parts II(B) and II(C), as we would not adopt the “fiduciary

exception” to the attorney-client privilege. In his opinion supporting affirmance, Justice

Wecht recognizes the importance of the attorney-client privilege, its status as one of the

most ancient privileges recognized in law, and its indispensable role in the furtherance of

the administration of justice. Wecht Op. at 12. Nevertheless, Justice Wecht would adopt

a broad rule, sometimes referred to as the “fiduciary exception,” that abolishes the

1  Justice Mundy joins in this Concurring Opinion and Opinion Supporting Reversal.
Justice Saylor has also filed an opinion supporting reversal. As three of the six
participating Justices support reversal of the Superior Court’s principal holding, that
court’s alternative holding is affirmed solely by operation of law.
privilege (and the work-product doctrine) between a trustee and counsel retained to

advise him in all instances2 unless the trustee personally pays counsel’s fees. In our

view, the abolition of the privilege is ill-advised because it ignores the sanctity of the roles

that the attorney-client privilege and work-product doctrine play, including in the context

of a trustee’s retention of counsel to provide legal advice regarding trust administration.

Justice Wecht’s proposed adoption of the fiduciary exception, which has been rejected

by the vast majority of our sister states, fails to give due consideration to the complexities

that arise in the context of the administration of trusts and the resulting degradation of

multiple fast-held principles of trust law that are likely to result. As a result, we respectfully

disagree and cannot join these portions of his opinion supporting affirmance.

       Justice Wecht begins by undertaking an extensive review of how our sister states

have addressed the fiduciary exception for trustees, concluding that most other

jurisdictions have rejected its adoption. See Wecht Op. at 19–24. He then, however,

reaches the opposite conclusion, namely a bright-line rule precluding a trustee’s ability to

2   We question whether this case is an appropriate vehicle for this Court to determine the
scope of the attorney-client privilege and work-product doctrine existing between a trustee
and her counsel. The record in this case is devoid of any facts that actually define the
underlying dispute, although it is clear that the trust has been involved in continuing
litigation. This insufficiency in the record is relevant because a number of states have
adopted section 82 of the Restatement (Third) of Trusts, which protects confidential
communications between trustee and counsel when the trustee seeks advice “in the
course, or in anticipation, of litigation” (e.g., for surcharge or removal), but does not do so
when the communications seek advice for the purpose of trust administration.
RESTATEMENT (THIRD) OF TRUSTS § 82, cmt. f (2007). Here, there is no indication that the
work product that the beneficiaries seek was created for the purpose of advice regarding
trust administration or, alternatively, in connection with, or in anticipation of, litigation. The
Appellant failed to preserve for appeal a limited review of an exception for advice given
in “anticipation of litigation” and thus framed the question as whether there is a categorical
fiduciary exception in all circumstances (which Justice Wecht answers in the affirmative).
If this dispute involves advice sought in anticipation of litigation and the issue had been
appropriately framed, we would avoid deciding the broader issue.

                         [J-18-2020] [Lead Opinion – Wecht, J.] - 2
assert disclosure privileges upon any request by a beneficiary. He does so based upon

a single case decided in 2002 by the Allegheny County Court of Common Pleas,

Follansbee v. Gerlach, 56 Pa. D.&C. 4th 483, 2002 WL 31425995 (C.C.P. Allegheny

2002). In Follansbee, the trial court overruled a trustee’s objections on the grounds of

attorney-client privilege to a subpoena issued by a trust beneficiary seeking, inter alia,

documents containing communications between a trustee and counsel. In so doing, the

trial court relied primarily upon Section 173 of the Restatement (Second) of Trusts, which

provides as follows:

              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). The trial court then cited to Comment

b to Section 173, which provides that a trustee may assert a claim of privilege only if he

obtained an opinion from counsel “at his own expense and for his own protection.”

              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.   The court in Follansbee stated that this Court had adopted these two

provisions, i.e., both Section 173 and its Comment b, in our decision in Estate of

Rosenblum, 328 A.2d 158 (Pa. 1974).         Follansbee, 56 Pa. D.&C. 4th at 483.        In

Rosenblum, we indicated, in reference to Section 173, only that “[t]his section is

declaratory of the common law of Pennsylvania.” Id. at 165.

                       [J-18-2020] [Lead Opinion – Wecht, J.] - 3
       Justice Wecht agrees with Follansbee’s recitation of its view of Rosenblum,

indicating that “[b]y 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.” Wecht Op. at 27. Justice Wecht further indicates that “[m]ore than half-a-

century later, that remains our understanding of the common-law confines of the attorney-

client privilege in disputes between fiduciaries and beneficiaries. Id. at 27-28. According

to Justice Wecht, Section 173 and its Comment b, taken together, hold that the source of

the funds used to compensate counsel is “dispositive of questions regarding disclosure.”

Id. at 28. Justice Wecht thus contends that he is “reaffirm[ing] the core holding in

Rosenblum.” Id.

       Justice Wecht’s reliance upon Follansbee is misplaced for the proposition that it is

an expression of this Court’s understanding of the attorney-client privilege between

trustees and beneficiaries. Contrary to the Follansbee court’s representation, this Court

in Rosenblum did not adopt Comment b to Section 173 or announce any requirement

that a trustee may assert a claim of privilege only if he personally pays the bills of his

counsel. To the contrary, Rosenblum did not even address a claim of privilege by a

trustee.   Instead, this Court reversed a ruling of a common pleas court allowing a

beneficiary to inspect only those books, documents, correspondence, and other papers

discoverable under the rules of civil procedure governing discovery. Rosenblum, 328

A.2d at 165. We ruled that where a request is made in good faith, the beneficiary is

entitled to inspect “documents in the hands of the trustee pertaining to administration of

the trust” because access is governed by Section 173 of the Restatement (Second) of

Trusts rather than the rules of civil procedure governing discovery. Id. We stated:

                       [J-18-2020] [Lead Opinion – Wecht, J.] - 4
              But unlike an ordinary party to an adversary judicial
              proceeding, a trust beneficiary is not obliged to show that the
              requirements of rules 4007 and 4009 have been satisfied in
              order to obtain access to records in the possession of his
              trustee. 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. This right is recognized in
              section 173 of the Restatement (Second) of Trusts (1959).

Id. at 164.

       In Rosenblum, the beneficiaries requested all of the trust’s documents, but the

trustee refused to comply on the basis that the request was overbroad. The trial court

agreed, limiting the production to those document that the beneficiaries could

demonstrate were relevant to an objection that the beneficiaries intended to file. There

is no indication that the trustee asserted any claims of privilege and the Court did

not adopt, or even consider, the adoption of a fiduciary exception to the privilege.

In reversing the trial court’s discovery ruling, we made no reference to Comment b to

Section 173 and did not hold that the production of documents in any respect depends

upon who paid counsel’s fees (even if assuming the production contained any privileged

communications).

       As a result, contrary to the trial court’s decision in Follansbee and Justice Wecht’s

opinion supporting affirmance in this case, in Rosenblum this Court did not adopt

Comment b to Section 173 or the fiduciary exception set forth therein.           In fact, in

Pittsburgh History and Landmarks Foundation v. Ziegler, 200 A.3d 58 (Pa. 2019), this

Court specifically noted that we have never addressed the applicability of the fiduciary

exception. 200 A.3d at 61 n.2. Thus, we are deciding an issue of first impression that

runs contrary to the trend in our sister states based on a common pleas court decision

that misinterpreted the state of the law at the time it was decided. Moreover, Follansbee

                        [J-18-2020] [Lead Opinion – Wecht, J.] - 5
relied on principles stated in a 1959 formulation of the Restatement of Trusts that no

longer exists in the current Restatement. Section 82 of the RESTATEMENT (THIRD) OF

TRUSTS, published in 2006, contains no analogue to Comment b in the prior Section 173.

Moreover, the Comment to Section 813 of the Uniform Trust Code now provides in

relevant part that:

              The drafters of this Code decided to leave open for further
              consideration by the courts the extent to which a trustee may
              claim attorney-client privilege against a beneficiary seeking
              discovery of attorney-client communications between the
              trustee and the trustee's attorney.

See UNIF. TRUST CODE § 813, cmt.

       Justice Wecht’s position that a trustee may assert a claim of privilege only if

counsel’s fees are not paid out of the corpus of the trust, is not based upon any prior

Pennsylvania law. In addition to the unsupported reliance on Rosenblum, the Follansbee

court also relied upon a Delaware case, Riggs Nat. Bank of Washington, D.C. v. Zimmer,

355 A.2d 709, 711-12 (Del. Ch. 1976),3 which had adopted the fiduciary exception. In

3  Riggs is no longer the law in Delaware, as the fiduciary exception was abolished by
statute in 2007, when the Delaware legislature enacted Section 3333(b) to Title 12 of the
Delaware Code, which provides that

              [A] fiduciary may retain counsel in connection with any matter
              that is or that might reasonably be believed to be one that will
              become the subject of or related to a claim against the
              fiduciary, and the payment of counsel fees and related
              expenses from the fund with respect to which the fiduciary
              acts as such shall not cause the fiduciary to waive or to be
              deemed to have waived any right or privilege including,
              without limitation, the attorney -client privilege even if the
              communications with counsel had the effect of guiding the
              fiduciary in the performance of fiduciary duties.

12 Del. Code Ann. § 3333(b).

                       [J-18-2020] [Lead Opinion – Wecht, J.] - 6
Riggs, the Delaware court indicated that because the trustee paid the attorney’s fees “out

of the trust assets,” this 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 (“[T]he 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.”).

       We challenge two principles expressed in Riggs and embraced by Justice Wecht

as being unsupported by Pennsylvania law. The first is that the party who pays the

attorney’s fees owns the privilege.      This is contrary to the Pennsylvania Rules of

Professional Conduct. See Pa.R.P.C. 5.4(c) (“Professional Independence of a Lawyer)

(“A lawyer shall not permit a person who recommends, employs or pays the lawyer to

render legal services for another to direct or regulate the lawyer's professional judgment

in rendering such legal services.”); Pa.R.P.C. 1.7 cmt. 13 (“Conflicts of Interest: Current

Clients”) (“A lawyer may be paid from a source other than the client… .”). To reach the

conclusion of Riggs and Justice Wecht, you must accept the idea that the beneficiaries

are the “true client” of the attorney hired by the trustee because the beneficiaries are

paying for the attorney’s services.     This formulation ignores the difference between

seeking advice on the proper administration of the trust and the impact of the advice on

the beneficiaries. Stated another way, while a trustee has the duty to faithfully administer

a trust consistent with the trust documents, advice on how to carry out this duty may have

different impacts on a beneficiary or multiple beneficiaries depending on the

circumstances. Advice on the proper course of administration is rendered to assist the

                        [J-18-2020] [Lead Opinion – Wecht, J.] - 7
trustee in exercising her judgment in carrying out the terms of the trust, not to necessarily

benefit any or all beneficiaries under the trust. Justice Wecht’s position would suggest

that only advice that benefits the beneficiaries can be rendered by counsel to the trustee

even if the terms of the trust require a more nuanced determination. Contrary to the rule,

the beneficiaries would have the authority to direct trustee’s counsel’s professional

judgment in rendering services to the trustee. Pursuant to Pa.R.P.C 5.4(c), an attorney

to the trustee is prohibited from rendering advice that is directed or regulated by a party

that pays for the services, if not the client, who hired the attorney.

       We also challenge Justice Wecht’s predicate that by paying a lawyer out of the

corpus of the trust, the attorney is spending money owned by the beneficiaries. The

beneficiaries do not own the assets in the corpus of the trust. Instead, they are entitled

to “an equitable right to derive benefit from them” to the extent set forth in the trust

agreement.     Lewis v. Alexander, 685 F.3d 325, 332 (3d Cir. 2012).             Under the

Pennsylvania Trust Act, the funds in the corpus are not designated as property of the

beneficiaries or otherwise off-limits to the trustee. In fact, the Pennsylvania Trust Act

gives the trustee a right to use corpus funds both for the administration of the trust and

for reimbursement of expenses incurred in connection therewith. 20 Pa.C.S. §§ 7775,

7769. This is a set-aside for administrative expenses within the corpus. To the extent

the beneficiaries “own” funds in the corpus, 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.4

4  Of course, any expenses including attorney’s fees incurred by the trustee must be
reasonable. Whether or not the fees are reasonable is a determination for the Orphans’

                        [J-18-2020] [Lead Opinion – Wecht, J.] - 8
       The Pennsylvania Trust Act recognizes the reality that there will be administrative

expenses incurred by a trustee attendant to the proper administration of the trust. Who

would agree to accept the position of trustee if the only way to receive legal advice based

on candid communications about the administration (including perceptions of the

beneficiaries and/or co-trustees) was to pay for the attorney’s services out of personal

funds? There is no better way to deter a trustee from seeking legal advice than to require

personal payment by the trustee. In many, if not the vast majority of private trusts, the

trustee will be an average person who has or had a personal relationship with the trustor.5

Take for example a farmer who owns property that contains valuable gas rights. He

Court and the inquiry is multifaceted. In re LaRocca’s Estate, 246 A.2d 337, 339 (Pa.
1968) discusses the considerations to be taken into account, many having nothing to do
with the disclosure of privileged information. The value of the corpus in relation to the
amount of the fees is “very important.” Id. Pertinently, this comparison is apparently what
precipitated the challenge here without the beneficiaries having ever seen a bill for
services rendered. Likewise, the court should look at the complexity of the trust, whether
the billing attorney drafted the instrument, and the skill and reputation of the attorney. Id.
Again, proof of these factors has nothing to do with the disclosure of privileged information
and may be determinative of the question.

Other factors mentioned in La Rocca’s Estate, include the detail and amount of the work
performed and the character of the services provided (e.g. “communications with client”
versus research and preparation of lengthy memoranda). Id. These consideration may
require an in camera review by the court. The beneficiaries complain that this review
amounts to an unacceptably burdensome “in camera expedition” to be avoided by
providing them with unredacted attorney invoices. See Wecht Op. at 32. Courts are adept
at performing in camera reviews. See Levy v. Senate of Pa., 65 A.3d 361 (Pa. 2013).
When required, it is simply a function of a court. We do not view this judicial function as
necessarily cumbersome or a reason supporting the destruction of the privilege.
5  We take no issue with Justice Wecht’s statistics supporting the proposition that the
majority of the assets held in trust repose with a corporate fiduciary. Wecht Op. at 31
n.36. This, however, does not speak to the number of trusts in total or the number created
by individuals of more moderate means who set up trusts to control the disposition of
family wealth who choose a family member, lifelong friend or their longstanding sole
practitioner professional advisor to serve as trustee.

                        [J-18-2020] [Lead Opinion – Wecht, J.] - 9
names his daughter as the trustee of a trust containing these assets and the beneficiaries

are her siblings who have varying degrees of acrimonious relationships with each other

and the beneficiaries’ entitlements are not equal. Why would she agree to accept the

position of trustee if she could not candidly discuss her questions and concerns about the

proper trust administration with an attorney unless she wrote a check for those services

out of her personal checkbook? Nothing in our trust law suggests this outcome and

common sense requires a rejection of such a rule.

        Before today’s opposing opinion supporting affirmance, this Court has been very

stingy in allowing exceptions to the attorney-client privilege. Pa.R.P.C 1.66 details the

6   Pa.R.P.C. 1.6 provides as follows:

                         Rule 1.6. Confidentiality of Information

        (a)    A lawyer shall not reveal information relating to representation
               of a client unless the client gives informed consent, except for
               disclosures that are impliedly authorized in order to carry out
               the representation, and except as stated in paragraphs (b)
               and (c).

        (b)    A lawyer shall reveal such information if necessary to comply
               with the duties stated in Rule 3.3.

        (c)    A lawyer may reveal such information to the extent that the
               lawyer reasonably believes necessary:

               (1)    to prevent reasonably         certain   death   or
                      substantial bodily harm;

               (2)    to prevent the client from committing a criminal
                      act that the lawyer believes is likely to result in
                      substantial injury to the financial interests or
                      property of another;

               (3)    to prevent, mitigate or rectify the consequences
                      of a client's criminal or fraudulent act in the

                        [J-18-2020] [Lead Opinion – Wecht, J.] - 10
duty to keep information confidential and the limited circumstances when the duty does

not apply. The exceptions serve obvious salutary and necessary purposes, for example,

to prevent certain death or substantial bodily harm or to prevent, mitigate or rectify the

consequences of a client’s crime where the client used the services of the attorney in the

                    commission of which the lawyer's services are
                    being or had been used;

             (4)    to establish a claim or defense on behalf of the
                    lawyer in a controversy between the lawyer and
                    the client, to establish a defense to a criminal
                    charge or civil claim or disciplinary proceeding
                    against the lawyer based upon conduct in which
                    the client was involved, or to respond to
                    allegations in any proceeding concerning the
                    lawyer's representation of the client;

             (5)    to secure legal advice about the lawyer’s
                    compliance with these Rules;

             (6)    to effectuate the sale of a law practice
                    consistent with Rule 1.17;

             (7)    to detect and resolve conflicts of interest from
                    the lawyer’s change of employment or from
                    changes in the composition or ownership of a
                    firm, but only if the revealed information would
                    not compromise the attorney-client privilege or
                    otherwise prejudice the client; or,

             (8)    to comply with other law or court order.

      (d)    A lawyer shall make reasonable efforts to prevent the
             inadvertent or unauthorized disclosure of, or unauthorized
             access to, information relating to the representation of a client.

      (e)    The duty not to reveal information relating to representation of
             a client continues after the client-lawyer relationship has
             terminated.

Pa.R.P.C. 1.6.

                      [J-18-2020] [Lead Opinion – Wecht, J.] - 11
commission of the crime. In contrast to the currently recognized exceptions that are

demonstrably weighty when balanced against the sanctity of the privilege,7 Justice Wecht

would adopt a fiduciary exception to the rule that communications with a client are

protected based on a precept of trust law that a beneficiary is entitled to inspect the

“accounts and vouchers and other documents relating to the trust.”              RESTATEMENT

(SECOND) OF TRUSTS § 173 (1959). Without any attempt at interpretation, Justice Wecht

finds that attorney-client privileged communications between the trustee and her counsel

fall within the ambit of “relating to the trust.” To us, the long-standing recognition of the

sanctity of the privilege is implicit in any such disclosure requirement. Moreover, there is

certainly nothing in this “right to inspect” that requires the annihilation of the privilege

unless the trustee pays for it and it is within this Court’s authority to rule that it does not

destroy the privilege owned by the trustee regardless of the source of payment of

attorney’s fees.

       There are no weighty considerations here that warrant an exception to the

privilege.8   We agree with Justice Saylor in his Concurring Opinion and Opinion

7 We concede that the exception for the sale of a law practice lacks the obvious exigency
of the other exceptions. However, prior to its recognition as an exception, attorneys were
unable to safely close their practices and retire from the practice of law unless there was
an attorney who also shared the privilege to take over client matters.
8  The vast majority of cases when the attorney-client privilege is implicated involve a
challenge by the beneficiaries to the administration of the trust. In these situations, if a
trustee’s administration is challenged by the beneficiaries and the trustee relied on the
advice of counsel in the administration of the trust, the trustee will likely defend her actions
on the basis that she relied on advice of counsel. See, e.g., Estate of Stetson, 345 A.2d
679, 688 (Pa. 1975). “While reliance on the advice of counsel does not provide a fiduciary
with a blanket immunity in all circumstances, it persuasively rebuts a claim of breach of
duty when the decision concerns a matter so dependent on legal expertise[.]” Id. (internal
citations omitted). By invoking an advice of counsel defense, a trustee would thereby

                        [J-18-2020] [Lead Opinion – Wecht, J.] - 12
Supporting Reversal that Justice Wecht’s position that a trustee is not entitled to

confidential advice from counsel unless he pays for the expense out of his own pocket is

an untenable proposition for both the trustee and counsel.9 When executing their duties,

trustees are often faced with complex and difficult choices that can touch upon nearly

every area of the law. Questions will inevitably arise in the course of trust administration

that will exceed the scope of a trustee’s expertise and may present trustees with

potentially risky decisions. This Court should not place obstacles to prevent trustees from

seeking confidential legal counsel when faced with such circumstances by raising cost as

a barrier to responsible administration.

       Effective trust administration may require the advice of counsel where the interests

of multiple beneficiaries diverge from one another. Beneficiaries may have different rights

under the trust document and “have significantly differing needs and tax positions,” or, in

the case of remainder beneficiaries, they may have “different objectives and risk

tolerance.” RESTATEMENT (THIRD) OF TRUSTS § 79, cmt. In such circumstances, a trustee

should seek advice from legal counsel with respect to the administration of the trust when

they are faced with a decision that might benefit one beneficiary but be detrimental to

others. Pursuant to a trustee’s duty of impartiality, 20 Pa.C.S. § 7773, a trustee is not

required to treat all trust beneficiaries equally, but rather “the trustee must treat the

beneficiaries equitably in light of the purposes and terms of the trust.” Id. cmt.

waive the attorney-client privilege and the beneficiaries would be privy to the advice and
the basis for it.
9  Contrary to Justice Saylor’s view, we believe that it is this Court’s role to resolve the
issue presented here, not that of the General Assembly.

                       [J-18-2020] [Lead Opinion – Wecht, J.] - 13
       In navigating the potentially complex legal landscape of trust administration, a

trustee should seek competent legal counsel not only for guidance on what will best serve

the trust’s purpose, but also to determine the potential risks that a trustee is subject to

when making these difficult decisions in the course of trust administration. This is an

anticipated cost of administration, payable out of corpus funds with no strings attached,

like the loss of attorney-client privilege. The fiduciary exception as crafted by Justice

Wecht has the potential to not only discourage trustees from seeking legal advice in the

course of trust administration, but could very well discourage service as a trustee

altogether.

       Justice Mundy joins this concurring opinion and opinion supporting reversal.

                       [J-18-2020] [Lead Opinion – Wecht, J.] - 14