Attorney-client Privilege; Administration of Trusts

In Re: The Estate of William K. McAleer, 194 A.3d 587 (Pa. Super. 2018), allocatur granted Feb. 4, 2019, appeal docket 6 WAP 2019

The William K. McAleer Revocable Living Trust (“Trust”) was created by William McAleer, now deceased, for the benefit of himself and his two stepbrothers, Stephen and Michael Lange (“Appellees”).  The trust administrator (“Appellant”) retained the services of two law firms to assist in the administration.  In March 2014, Appellant filed a first and partial account relating to the administration of the trust.  Appellees timely objected, seeking the disclosure of information related to two bank accounts.  The trial court dismissed the objections. 

Shortly thereafter, Appellant filed a second accounting.  Appellees again objected, claiming the expenses paid in the administration of the trust, which included trustee and attorney expenses, were “unreasonable”.  They served a request for production of documents, to include the billing statements for all trustee and attorney fees paid from the trust.  Appellant produced trustee and attorney invoices from both firms it had retained but with substantially redacted portions.  A motion to compel service was then filed by the appellees to retrieve unredacted copies of the attorney invoices.  After a hearing on the matter, the trial court ordered the production of the unredacted invoices.  Appellant only turned over the unredacted trustee invoices to Appellees and appealed the order requiring the disclosure of the attorney invoices.  

Superior Court quashed the appeal, analyzing the order requiring disclosure as a non-final interlocutory order that is not appealable under Pa. R.A.P. 341, not appealable as of right under Pa. R.A.P. 311, not appealable by permission under Pa. R.A.P. 1311, and not appealable as a collateral order under Pa. R.A.P. 313.  In deciding that the order compelling discovery over  an attorney-client, work product privilege objection is not appealable as a collateral order, the Superior Court ignored the significant body of law that holds that most such orders are presumed appealable on a category-wide basis because “[o]nce putatively privileged material is in the open, the bell has been rung, and cannot be unrung by a later appeal.”  Com. v. Harris, 32 A.3d 243, 249 (2011).  Nevertheless, the result the Superior Court reached by embarking on an examination of the three prongs of the collateral order test is consistent with the Supreme Court’s direction in Com. v. Williams, 86 A.3d 771, 780 (2014) where it recognized that it “has moved towards a category-wide exception to [the finality rule for] discovery orders that are alleged to violate a protected privilege, such as the attorney-client privilege or the work-product doctrine” but that in cases where the propriety of an appeal invoking a privilege is “contested in good faith, it is prudent to require the appealing party to establish that Rule 313(b) is satisfied.”  Here, the Superior Court decided that the order failed to meet the first prong because it is not “separable from and collateral to” the main cause of action, but rather “interrelated with the underlying merits of the pending challenges brought by Appellees, that being the proper billing of the Trust and subsequent payments from the Trust proceeds.” Slip Op. at 9.

The Superior Court could, and should, have ended its inquiry there, with the conclusion that the order compelling discovery was not appealable. Instead, it continued on to discuss the merits of the appeal, deciding in dicta that the lawyer invoices in question were not protected by attorney-client or work product privilege because trustees owe a special duty of transparency to trust beneficiaries.

In determining whether the privileges apply as Appellant claimed, Superior Court  first looked at the procedural steps taken by the parties.  The court noted that the Appellant never filed an objection to the discovery request, where the attorney-client privilege and work product doctrine protections could have been raised.  Also, upon the motion to compel discovery filing, the appellant did not respond or object.  Instead, the first attempt to invoke the protections occurred during oral arguments at a hearing in response to the motion to compel.  Even then, the protections were only invoked as the justification for redacting the documents.  For these actions, the court held that “Appellant failed to set forth specific facts to show that either the attorney-client privilege or the work product doctrine was applicable and properly invoked.” Slip Op. at 14.

Next, the court closely analyzed Pennsylvania common law and court precedent governing attorney-client privilege and work product doctrine protections when dealing with trust administration cases.  The duty to furnish information to beneficiaries of a trust has been defined under Section 82 of The Restatement (Third) of Trusts:

(2) Except as provided in § 74 [(relating to the effect of power of revocation) or as permissibly modified by the terms of the trust, a trustee also ordinarily has a duty promptly to respond to the request of any beneficiary for information concerning the trust and its administration, and to permit beneficiaries on a reasonable basis to inspect trust documents, records, and property holdings.

The court further pointed to comment f in Section 82, which states in part:   

[A] trustee is privileged to refrain from disclosing to beneficiaries or co-trustees opinions obtained from, and other communications with, counsel retained for the trustee’s personal protection in the course, or in anticipation, of litigation (e.g., for surcharge or removal).

Restatement (Third) of Trusts § 82, cmt. f.

Superior Court explained that both of these provisions were given precedential value in In re Estate of Rosenblum, in which the Supreme Court signified that:

[The restatement] places [the beneficiaries of a trust] on a different footing from other litigants who seek discovery of documents under our Rules of Civil Procedure.  A beneficiary’s right of inspection has an independent source in his property interest in the trust estate, and the right may be exercised irrespective of the pendency of an action or proceeding in court.  

328 A.2d 158, 165 (Pa. 1974).

From these provisions, the court concluded that Appellant has a duty, as a trustee, to disclose the complete information about the administration of the trust to Appellees since they are the beneficiaries.  The court also determined that there was no evidence (notwithstanding the protracted litigation between Appellant trustee and Appellee beneficiaries) that showed that the information requested was privileged under the litigation exception in comment f of the Restatement.

Therefore, the Superior Court observed in dictum that the Appellant cannot invoke the attorney-client privilege or work product doctrine because “the information contained in the attorney invoices qualifies as communications subject to the general principle entitling a beneficiary to information reasonably necessary to the prevention or redress of a breach of trust or otherwise to the enforcement of the beneficiary’s rights under the trust.” Slip Op. at 15.

The Supreme Court granted the Board’s allocatur petition, taking up the merits question without acknowledging Superior Court’s decision that the order in question is unappealable, stating the issue for review as follows:  

Do the attorney-client privilege and work product doctrines protect communications between a trustee and counsel from discovery by beneficiaries when the communications arose in the context of adversarial proceedings between the trustees and beneficiaries?

Allocatur grants present an excellent opportunity for your group or association to advance your legal and policy goals by filing an amicus brief. Participating as an amicus has proven to be an effective method of advising and influencing courts and often can involve far fewer resources than traditional lobbying.

If you are interested or would like more information, contact Kevin McKeon or Dennis Whitaker.