2.2.1.3 Attorney-Client Privilege in the Context of a Fiduciary Client

• Jurisdiction: Arizona

Section 2.2.1.3 – Attorney-Client Privilege in the Context of a Fiduciary Client

Another attorney-client privilege issue that frequently arises in probate matters is the extent to which a fiduciary may claim attorney-client privilege against the beneficiary of the fiduciary relationship. No Arizona statute or published opinion addresses this issue. Moreover, the few states that have addressed the issue are split. In fact, as a result of this split, the drafters of the UTC intentionally did not include in the UTC a provision addressing the question. See Unif. Trust Code Ann. § 813 cmt. (2001).

The challenge in resolving the issue arises as a result of the competing, important values at play. On the one hand, the attorney-client privilege “recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer’s being fully informed by the client.” Upjohn Co. v. United States, 449 U.S. 383, 388, 101 S. Ct. 677, 682 (1981). On the other, a fiduciary generally is required to keep the beneficiary reasonably informed about the administration of the estate, trust, or conservatorship and to provide the beneficiary with the material facts necessary for the beneficiary to protect his interests. See, e.g., A.R.S. §§ 14-3703(A) (holding PR to same standard of care and duty of accounting applicable to trustee), -5417 (holding conservator to same standard of care applicable to trustee), and -10813(A) (setting forth trustee’s duty to give information to beneficiaries). Thus, some states have determined that the first policy outweighs the second whereas other states have found the opposite.

The leading case that holds a fiduciary may not assert the attorney-client privilege against the beneficiary is Riggs National Bank of Washington, D.C. v. Zimmer, 355 A.2d 709 (Del. Ch. 1976). In that case, the beneficiaries of a trust brought a surcharge action against the trustees. Id. at 710. When the beneficiaries sought to compel production of a legal memorandum prepared by the trustees’ counsel, the trustees claimed the document was protected by attorney-client privilege and work product privilege and refused to produce the document. Id. The memorandum had been prepared in response to the trustees’ request for a legal opinion in connection with a petition for instructions and anticipated tax litigation, the subject of which was subsequently raised in the surcharge action. Id.

The Delaware Court of Chancery found that the memorandum was prepared for the benefit of the beneficiaries, not for the trustees’ own defense of any litigation against them and that, therefore, “the ultimate or real clients were the beneficiaries of the trust.” Id. at 711. The court further found significant the fact that trust assets were used to pay the trustees’ lawyer for the memorandum. Id. at 712. Based on those factors, the court then concluded that the attorney-client privilege did not apply. Id. at 714.

Insofar as it might apply to an Arizona case, the Riggs’ rationale is problematic for a couple of reasons. First, as mentioned, the court’s conclusion in Riggs was based, at least in part, on its finding that the beneficiaries of the trust were the “real client” of the trustee’s lawyer. However, Arizona law is inapposite: The lawyer for the fiduciary represents the fiduciary, not the beneficiary; the beneficiary is not a client of the fiduciary’s lawyer. See Estate of Fogleman, 197 Ariz. 252, 257, 3 P.3d 1172, 1177 (App. 2000); Wetherill v. Basham, 197 Ariz. 198, 201, 3 P.3d 1118, 1120 (App. 2000); A.R.S. § 14-5652(A). Consequently, the beneficiary-as-client theory espoused in Riggs is contrary to Arizona law.

Equally problematic is Riggs’ focus on whether the trustee’s lawyer was paid from trust assets.^[7] According to the Riggs court, Delaware law allowed an attorney to be paid from the trust assets only if either: (a) the attorney’s services were necessary for the proper administration of the trust, or (b) the attorney’s services otherwise resulted in a benefit to the trust. Riggs, 344 A.2d at 712. Arizona law is quite different in this regard. A.R.S. § 14-3720 expressly...