Twenty years ago, in Moeller v. Superior Court (1997) 16 Cal.4th 1124, the California Supreme Court held that when a trustee retains counsel, the attorney-client privilege arising from the engagement does not belong to the individual trustee but rather lies in the office of the trustee. Thus, the Court held, if the trustee is replaced by a successor trustee, that successor trustee should be given access to confidential, privileged communications between the former trustee and his/her attorneys – with what, obviously, could be troubling consequences.
Moeller, however, also established an exception to the disclosure rule: the attorney-client privilege can be invoked to protect confidential communications when the legal advice is sought out of a concern for the trustee’s personal liability, rather than for guidance in administering the trust. The recent decision in Fiduciary Trust International of California v. Klein (2017) 9 Cal.App.5th 1184 offers guidelines aimed at clarifying how to apply this distinction.
In the course of “a longstanding, particularly acrimonious probate matter” (id. at 1190), the beneficiary successfully petitioned to have the original trustees removed for failing to exercise reasonable prudence in their sale of property in Beverly Hills. Pending at the time of their removal were challenges to twelve trust accountings they had submitted, seeking surcharges totaling tens of millions of dollars. To develop and support these objections, the successor Trustee (Fidelity Trust) demanded the production of communications and records between the former trustees and their counsel. A protracted and complex process led to the trial court’s upholding the claim of privilege as to 45 (out of 234) documents, citing the Moeller distinction as its rationale for rejecting the broader claims of privilege.
In its review, the appellate court endorsed the Moeller Court’s distinction. But in applying it, the courtrejected “a hindsight approach, where the description of the communication, i.e. whether it can be described as ‘defensive’ in nature rather than administrative, determines the validity of the privilege claim.” (Id. at 1198.) Rather, the Court held, it is the purpose of the relationship between attorney and client at the time the relationship is established that determines whether the communications related to personal liability concerns: “[I]t is not the content or the nature of the communication, or the fact that the communication later becomes relevant to the issue of the trustee’s personal liability, that is dispositive under California privilege law; rather, it is the fact that, at the time the legal advice was sought, the purpose of obtaining the advice was protection against personal liability.” (Id. at 1202.)
Elaborating on Moeller, the Court explained that it is appropriate to require a trustee to take affirmative steps “to establish that a trust communication was intended to be confidential at the time the communication was elicited or obtained from counsel . . .” (Id. at 1199). Such steps, suggested rather than mandated in Fiduciary Trust as well as in Moeller, include, for example, the trustee’s paying legal fees from personal funds, or identifying and segregating documents intended to be privileged and confidential. Such steps, however, must be taken at the time counsel is retained, and not, as in Fiduciary Trust, “. . . many months or years later when a communication is actually withheld on privilege grounds.” (Id. at 1199.)