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The Fiduciary Exception Jicarilla Apache Nation Case

The recent case of the United States Supreme Court v. Jicarilla Apache Nation, concentrated attention on a minor but important component of the right of the attorney-client privilege in the sense of fiduciary litigation. In such jurisdictions where known, the so-called fiduciary exemption forbids the trustee from claiming the right of the attorney-client privilege to the recipients seeking disclosure of the correspondence of the trustee-attorney. Essentially, the implementation of the fiduciary exemption to the right of the attorney-client includes the disclosure of all correspondence to the beneficiary where the trustee obtained legal advice in the exercise of the fiduciary’s duties and obligations on the presumption that the fiduciary’s obligation to manage the trust exclusively for the benefit of the beneficiary takes precedence over the attorney-client privilege.

While in the U.S. The decision of the Supreme Court in Jicarilla eventually did not pass the admissibility of the fiduciary exception to the right of the attorney-client, the case helped to concentrate attention on the contradictory judgments of the courts in a number of jurisdictions as to whether the trustee might rely on the privilege of the attorney-client to prohibit disclosure. In addition, two recent Connecticut rulings have checked the applicability of the exception to trustees in Connecticut. The consequence of these cases is that the trustee must proceed with caution in deciding if his correspondence with the lawyer would be covered by the right of the attorney-client in disputes with the beneficiary.

 

United States v. Apache Nation of Jicarilla

The Court did not, in the end, pass on the presence or parameters of the exception. Instead, the Court found that, even though there was a fiduciary exception, it did not extend to the facts at issue in that case. Specifically, the Court held that the fiduciary exemption did not apply to the federal government as a “trustee” of funds held in trust for the good of the Apache Nation because the government did not function as a “private trustee.” Jicarilla, 131 S. Ct. 2323. The Court differentiated trust funds at issue in Jicarilla from private trusts, as the Apache trusts are regulated by laws rather than by common law, and the Congress has full jurisdiction over the arrangement and management of such trusts. Id. Thus, while Jicarilla analyzed the background of the fiduciary exception to the right of the attorney-client instructively, the decision did not assess the continued viability of the exception in the private trust sense.

 

History to the Trust Exception

The fiduciary exception to the right of the attorney-client emerged in English trust cases in which the courts concluded that correspondence between the trustee and his attorney must be reported to the beneficiary of the trust. The line of cases, and more recent cases in line with their logic, generally maintains that, since communications between a lawyer and a trustee eventually favor the beneficiary, those communications must be reported to the beneficiary. In the commonly cited case of Riggs Nat’l Bank, Washington, D.C. V. Zimmer, 355 A.2d 709, 712-13 (Del. Ch. 1976), trust beneficiaries brought an action against the trustee for an extra fee and requested the disclosure of a tax memorandum prepared by the lawyers to the trustee concerning the expected tax conflict. The concerns involved in future tax litigation were the basis for the beneficiary’s surcharge argument. The Delaware Court ordered the development of the memorandum, citing the aforesaid line of English cases, and concluded that the right of the attorney-client did not bar disclosure because the purpose of the contact between the attorney and the trustee was to assist the beneficiaries.

Although other courts have adopted Riggs’ claim that there is a fiduciary exception to the right of the attorney-client privilage, several states have opposed the application of the fiduciary exception. In such cases, the courts have concluded that a trustee who maintains legal representation in respect of fiduciary matters is the only “real client” counsel for the purposes of the right of the attorney-client.

In contrast to such rulings, some federal courts have extended the fiduciary exception to the right of the attorney-client based on the determination of two criteria: (1) if the trustee has received legal advice as a ‘mere agent’ of the beneficiary, rendering the beneficiary a ‘actual client’; and (2) whether the fiduciary responsibility to provide the beneficiary with information relevant to the trust is rooted in the fiduciary duty of the beneficiary. United States v. Jicarilla Apache.

In his opinion, Judge Robert Shapiro of the Hartford Supreme Court Complex Litigation Docket observed that “the privilege of the attorney-client serves the same important purpose in the relationship of the trustee-attorney as in the relationship of the other attorney-client.” In addition, the court observed that “the trustees, without immunity, could be inclined to forsake legal advice and thus adversely affect the trust, as disgruntled recipients may later circumvent the attorney-client correspondence in second-guessing the conduct of the trustee. Alternatively, trustees may feel obligated to blindly obey the advice of counsel, ignoring their own judgment and experience.” In the light of the Hubbell facts, the Court found that the beneficiary had not given ample proof that the justification for the disclosure surpassed the possible chilling impact on the critical communications of the lawyer-client.

In addition, the Court found that paying an attorney out of trust funds would not turn the trust recipients to the trustee’s clients. Specifically, the Court observed that “a lawyer’s allegiance is to his client, not to the person who is paying him for his services.”

 

Conclusions

In the absence of a governing appeal authority in Connecticut on the applicability of the fiduciary exception to the privilege of the attorney-client, the fiduciary labors under some confusion as to the degree and circumstances in which the trustee may assert the privilege of the attorney-client against the beneficiary demanding the disclosure of the attorney-client correspondence between the trustee and the trustee. Therefore, in circumstances of foreseeable litigation with the beneficiary, in order to ensure that the right of the attorney-client is preserved, prudence will require the trustee to retain counsel individually, to make clear in the letter of commitment that the attorney represents only the trustee in a personal non-administrative capacity, and to decide whether to pay for the services.