10.1 The Privilege and the Attorney for a Trust
The attorney/client privilege, of course, is well-recognized and founded on public policy:
Intended to encourage “full and frank communication between attorneys and their clients,” the attorney-client privilege is “the oldest of the privileges for confidential communications known to the common law.” Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981). Nonetheless, the privilege is not absolute, and this court has noted that it “is to be strictly confined within the narrowest possible limits consistent with the logic of its principle.” United States v. Aramony, 88 F.3d 1369, 1389 (4th Cir.1996) (internal citations and quotation marks omitted).
Courts have recognized one such limit in the context of fiduciary relationships. Rooted in the common law of trusts, the fiduciary exception is based on the rationale that the benefit of any legal advice obtained by a trustee regarding matters of trust administration runs to the beneficiaries. Consequently, “trustees … cannot subordinate the fiduciary obligations owed to the beneficiaries to their own private interests under the guise of attorney-client privilege.” Riggs Nat. Bank of Washington, D.C. v. Zimmer, 355 A.2d 709, 714 (Del.Ch.1976).
In dicta, the U.S. Supreme Court described the fiduciary exception to the general attorney/client rule:
English courts first developed the fiduciary exception as a principle of trust law in the 19th century. The rule was that when a trustee obtained legal advice to guide the administration of the trust, and not for the trustee’s own defense in litigation, the beneficiaries were entitled to the production of documents related to that advice. Wynne v. Humberston, 27 Beav. 421, 423–424, 54 Eng. Rep. 165, 166 (1858); Talbot v. Marshfield 2 Dr. & Sm. 549, 550–551, 62 Eng. Rep. 728, 729 (1865). The courts reasoned that the normal attorney-client privilege did not apply in this situation because the legal advice was sought for the beneficiaries’ benefit and was obtained at the beneficiaries’ expense by using trust funds to pay the attorney’s fees. Ibid.; Wynne, supra, at 423–424, 54 Eng. Rep., at 166.
The fiduciary exception quickly became an established feature of English common law, see, e.g., In re Mason, 22 Ch. D. 609 (1883), but it did not appear in this country until the following century. American courts seem first to have expressed skepticism. See In re Prudence–Bonds Corp., 76 F.Supp. 643, 647 (E.D.N.Y.1948) (declining to apply the fiduciary exception to the trustee of a bondholding corporation because of the “important right of such a corporate trustee … to seek legal advice and nevertheless act in accordance with its own judgment”). By the 1970â€²s, however, American courts began to adopt the English common-law rule. See Garner v. Wolfinbarger, 430 F.2d 1093, 1103–1104 (C.A.5 1970) (allowing shareholders, upon a showing of “good cause,” to discover legal advice given to corporate management).
The leading American case on the fiduciary exception is Riggs Nat. Bank of Washington, D.C. v. Zimmer, 355 A.2d 709 (Del.Ch.1976). In that case, the beneficiaries of a trust estate sought to compel the trustees to reimburse the estate for alleged breaches of trust. The beneficiaries moved to compel the trustees to produce a legal memorandum related to the administration of the trust that the trustees withheld on the basis of attorney-client privilege. The Delaware Chancery Court, observing that “American case law is practically nonexistent on the duty of a trustee in this context,” looked to the English cases. Id., at 712. Applying the common-law fiduciary exception, the court held that the memorandum was discoverable. It identified two reasons for applying the exception.
First, the court explained, the trustees had obtained the legal advice as “mere representative[s]” of the beneficiaries because the trustees had a fiduciary obligation to act in the beneficiaries’ interest when administering the trust. Ibid. For that reason, the beneficiaries were the “real clients” of the attorney who had advised the trustee on trust-related matters, and therefore the attorney-client privilege properly belonged to the beneficiaries rather than the trustees. Id., at 711–712. The court based its “real client” determination on several factors: (1) when the advice was sought, no adversarial proceedings between the trustees and beneficiaries had been pending, and therefore there was no reason for the trustees to seek legal advice in a personal rather than a fiduciary capacity; (2) the court saw no indication that the memorandum was intended for any purpose other than to benefit the trust; and (3) the law firm had been paid out of trust assets. That the advice was obtained at the beneficiaries’ expense was not only a “significant factor” entitling the beneficiaries to see the document but also “a strong indication of precisely who the real clients were.” Id., at 712. The court distinguished between “legal advice procured at the trustee’s own expense and for his own protection,” which would remain privileged, “and the situation where the trust itself is assessed for obtaining opinions of counsel where interests of the beneficiaries are presently at stake.” Ibid. In the latter case, the fiduciary exception applied, and the trustees could not withhold those attorney-client communications from the beneficiaries.
Second, the court concluded that the trustees’ fiduciary duty to furnish trust-related information to the beneficiaries outweighed their interest in the attorney-client privilege. “The policy of preserving the full disclosure necessary in the trustee-beneficiary relationship,” the court explained, “is here ultimately more important than the protection of the trustees’ confidence in the attorney for the trust.” Id., at 714. Because more information helped the beneficiaries to police the trustees’ management of the trust, disclosure was, in the court’s judgment, “a weightier public policy than the preservation of confidential attorney-client communications.” Ibid.
The Federal Courts of Appeals apply the fiduciary exception based on the same two criteria. See, e.g., In re Long Island Lighting Co., 129 F.3d 268, 272 (C.A.2 1997); Wachtel v. Health Net, Inc., 482 F.3d 225, 233–234 (C.A.3 2007); Solis v. Food Employers Labor Relations Assn., 644 F.3d 221, ––––, 2011 WL 1663597, 2011 U.S.App. LEXIS 9110, (CA4, May 4, 2011); Wildbur v. ARCO Chemical Co., 974 F.2d 631, 645 (C.A.5 1992); United States v. Evans, 796 F.2d 264, 265–266 (C.A.9 1986) (per curiam). Not until the decision below had a federal appellate court held the exception to apply to the United States as trustee for the Indian tribes.
Although no Maryland state case exists extending the Riggs holding to Maryland, challenges to the extent of the attorney/client privilege as to a trustee’s lawyer crops up during discovery of such cases and eventually will undoubtedly be the subject in an appellate case.