Lead Opinion
In this рroceeding for an accounting, the successor trustee of a private express trust seeks to discover from the predecessor trustee documents reflecting confidential communications between the predecessor and an attorney on matters of trust administration. The question before us is whether the predecessor trustee may assert the attorney-client privilege as to such documents and thereby withhold them from the successor. We conclude the answer is no. Upon taking office, a successor trustee assumes all of the powers of trustee, including the power to assert the attorney-client privilege as to confidential communications on the subject of trust administration. Therefore, we affirm the judgment of the Court of Appeal.
Factual and Procedural Background
George J. Moeller and his wife, Grace Todd Moeller, as trustors, established a trust. Initially George was trustee; latеr, real party in interest Sanwa Bank (hereafter Sanwa) succeeded to this position. Among the beneficiaries of the trust is the Moellers’s son, petitioner Roger D. Moeller (hereafter Moeller). The trust property consisted of certain interests in real estate in Southern California, including an undivided one-quarter interest in certain real property in the City of Los Angeles. Sanwa’s management of this interest is the subject matter underlying the instant dispute.
For many years, a chrome plating business was operated on the property in Los Angeles. The Environmental Protection Agency eventually ordered the removal of certain toxins that had been deposited on the property as a result of the business. The costs of this cleanup and associated litigation depleted the trust of assets.
Subsequently Sanwa resigned as trustee, and Moeller succeeded to that position. Uрon its resignation, Sanwa submitted a final accounting, petitioned for settlement, and sought to recover from the trust the expenses it had incurred in the cleanup of the Los Angeles property, a trustee’s fee, and attorney fees.
Moeller objected to Sanwa’s accounting and petition on several grounds. He complained that the accounting contained errors and omissions and lacked supporting evidence for alleged commitments, the assets and liabilities of the trust were not enumerated properly or described adequately, major contingent obligations that were alleged exceeded the trust resources and were not disclosed adequately to the beneficiaries or the successor trustee, and certain expenditures and advances had resulted from imprudent decisions by Sanwa.
Sanwa responded it had already produced many of the documents and records Moeller demanded. Sanwa also claimed those it had not produced were protected from disclosure by the attorney-client privilegе. Sanwa asserted the privilege as to all the demanded documents and records except those containing communications between Sanwa and any governmental agency pertaining to trust assets.
Moeller moved for an order to compel full compliance with his demand for production and inspection. He contended Sanwa could not invoke the attorney-client privilege because that privilege belongs to the office of trustee, not to any particular person who at one time or another serves as the trustee. In opposition, Sanwa argued that when a trustee retains counsel, the client for purposes of the attorney-client privilege is the trustee personally and not the trust or the office of trustee. The trial court agreed with Sanwa and ruled that “Sanwa Bank, as former trustee, held and properly asserted an attorney-client privilege and that said privilege neither inured nor transferred to Sanwa’s successor, [Moeller].”
Moeller petitioned the Court of Appeal to issue a writ of mandate to compel the trial court to order the production and inspection of the documents and records he had demanded. That court held, “Because the predecessor trustee has a duty to transfer the trust property to the successor trustee, because the successor trustee has a duty to take and keep control of the trust property, and if necessary, to take reasonable steps to compel a previous trustee to deliver the trust property to the successor trustee, and because Strauss [v. Superior Court (1950)
We granted Sanwa’s petition for review.
This case presents the following question: Does the attorney-client privilege permit a predecessor trustee to withhold from a successor trustee documents related to trust administration? Both settled law and practical considerations lead us to conclude the answer is no.
Before addressing the dispute between the predecessor trustee and the successor, however, we address a threshold issue: Can a trustee be a holder of the attorney-client privilege? In other words, does a trustee generally have the power to assert the attorney-client privilege to prevent disclosure of confidential communications between the trustee and an attorney consulted on behalf of the trust? As common sense suggests, the answer is yes.
Evidentiary privilegеs are creatures of statute. (Evid. Code, § 911; Roberts v. City of Palmdale (1993)
A trustee’s powers include those specified in the trust instrument, those conferred by statute, and those needed to satisfy the reasоnable person and prudent investor standards of care in managing the trust. (Prob. Code, §§ 16200, 16040, subd. (a), 16047, subd. (a).)
The Probate Code implicitly authorizes a trustee to become an attorney’s client and to claim the attorney-client privilege. A trustee may hire an
The attorney-client privilege follows from the establishment of the professional relationship between client and attorney. Once this relationship is established, the attorney-client privilege attaches to communications made in confidence during the coursе of the relationship. (Holm v. Superior Court (1954)
This brings us to the dispositive inquiry: Who is currently the holder of the attorney-client privilege with regard to the legal advice Sanwa procured on behalf of the Moeller trust while Sanwa was trustee? Sanwa contends that its privilege to refuse to disclose confidential communications with its attorneys while it was acting as trustee is personal to itself and that Sanwa retains the privilege as long as Sanwa exists. Under this view, if accepted, it would follow that Sanwa might properly invoke the privilege against Moeller, the successor trustee. Moeller, on the other hand, argues the attorney-client privilege “vest[s] in the office [of the trustee] and not in any particular individual or entity who at one time was the trustee . . . .”
The powers of a trustee are not personal to any particular trustee but, rather, are inherent in the office of trustee. It has been the law in California for over a century that a new trustee “succeed[s] to all the rights, duties, and responsibilities of his predecessors.” (Fatjo v. Swasey (1896)
The same conclusion flows from an examination of the trust instrument. As already mentioned, a trust instrument may limit a trustee’s statutory powers. The instrument at issue here, however, makes clear that Moeller has assumed all of Sanwa’s former powers as trustee. The trust instrument provides that, upon resignation, the resigning trustee “shall thereupon be discharged as trustee of this trust and shall have no further powers, discretions, rights, obligations, or duties with reference to the trust estate and all such powers, discretions, rights, obligаtions and duties shall inure to and be binding upon such successor trustee.” (Italics added.) As discussed earlier, the privilege of a trustee to refuse to disclose confidential communications it has had with its attorney regarding trust administration is essential to effective administration of the trust and so certainly qualifies as a power
These legal principles are not the only support for our conclusion that the current trustee is generally the holder of the attorney-client privilege with respect to confidential communications between a predecessor trustee and an attorney concerning trust administrаtion. The practical effect of such a rule on the day-to-day administration of trusts also encourages its adoption. A brief survey of the duties and powers of a trustee makes clear the necessity and desirability of such a rule.
A trustee’s basic duties relate to management of the trust property. A trustee must preserve trust property and make it productive. (§§ 16006, 16007.) A trustee must also “enforce claims that are part of the trust property” (§16010) and “defend actions that may result in a loss to the trust.” (§ 16011.) In discharging these duties, a trustee must use “reasonable care, skill, and caution” (§ 16040, subd. (a)) and “invest and manage trust assets as a prudent investor would . . . .” (§ 16047, subd. (a).) In brief, the trustee’s fundamental duty is to use due care to protect the trust property.
The Probate Code confers powers on a trustee that enable effective discharge of this duty. A trustee has the power to “collect, hold, and retain trust property” (§ 16220); to buy and sell property for the trust (§ 16226); to manage trust property (§ 16227); to make investments on behalf of the trust (§ 16047, subd. (a)); to encumber trust property (§ 16228); to “borrow money for any trust purpose” (§ 16241); and to “prosecute or defend actions, claims, or proceedings for the protection of trust property and of the trustee in the performance of the trustee’s duties.” (§ 16249, subd. (a).) The trustee also has those powers necessary to act as a reasonable administrator of the trust and as a prudent investor. (§ 16200, subd. (c).) In short, the trustee has all the powers needed for effective transaction of business on behalf of the trust.
Sanwa and its supporting amicus curiae California Bankers Association express concern that the adoption of such a rule will hamper effective trust administration by frustrating the policy underlying the attorney-client privilege. Relying on our recent opinions in People v. Gionis (1995)
We recognize that, under the rule we adopt, a trustee must take into account the possibility that its confidential communications with an attorney about trust administration may someday be disclosed to a successor trustee. This is, however, not unfair in light of the nature of a trust and the trustee’s duties. A trust is a fiduciary relationship with respect to property in which the person holding legal title to the property—the trustee—has an equitable obligation to manage the property for the benefit of another—the
Most importantly, the successor trustee inherits the power to assert the privilege only as to those confidential communications that occurred when the predecessor, in its fiduciary capacity, sought the attorney’s advice for guidance in administering the trust. If a predecessor trustee seeks legal advice in its personal capacity out of a genuine concern for possible future charges of breach of fiduciary duty, the predecessor may be able to avoid disclosing the advice to a successor trustee by hiring a separate lawyer and paying for the advice out of its personal funds. (See Talbot v. Marshfield (1865 Ch.) 62 Eng.Rep. 728, 729;
We recognize that the distinction between these two types of confidential trustee-attorney communications—administrative, on the one hand, and defensive, on the other—may not always be clear. Yet to require a trustee to distinguish, scrupulously and painstakingly, his or her own interests from those of the beneficiaries is entirely consistent with the purpose of a trust. Moreover, a trustee can mitigate or avoid the problem by retaining and paying out of his or her own funds separate counsel for legal advice that is personal in nature. Finally, the question of who holds the privilege as to particular communications is ultimately decided by a neutral entity—the court. While a court “may not require disclosure of information claimed to be privileged ... in order to rule on the claim of privilege . . .” (Evid. Code, § 915, subd. (a)), the statute is “not absolute” (Cornish v. Superior Court (1989)
In any event, the instant case does not appear to be one in which Sanwa’s fiduciary and personal capacities do overlap. The papers Moeller demands from Sanwa (e.g., agreements, billings, invoices) all seem to involve only matters pertaining to Sanwa’s use of professional services in carrying out its administrative duties in managing the Moeller trust—specifically, handling the cleanup of the Los Angeles property and its related litigation. Nothing in the record suggests Sanwa obtainеd any of those services in defense of actual or anticipated charges against it of misconduct by the beneficiaries of the Moeller trust. Indeed, Sanwa has never made such a claim at any time during this litigation. Moreover, in its final accounting, which is the subject matter underlying the instant dispute, Sanwa has requested reimbursement of certain attorney’s fees. “A trustee cannot compel the trust to pay his attorney’s fees unless the services so employed were incurred in the management and preservation of the trust estate.” (Estate of Vokal (1953)
Suppose plaintiff slips and falls and sustains injuries on land which is part of the corpus of “MegaTrust.” Plaintiff then sues A, the trustee of Mega-Trust, and A hires an attorney to defend the action. While the action is pending, B succeeds A as trustee, and A transfers the case file to B. Under Sanwa’s rule, at the time of the transfer A was the holder of the attorney-client privilege with respect to any confidential communications contained in the case file. Because the holder of an evidentiary privilege waives it by voluntarily disclosing the privileged communication to a third party (Evid. Code, § 912, subd. (a); Coldwell v. Board of Public Works (1921)
As cоnsideration of this hypothetical situation illustrates, adoption of Sanwa’s proposed rule would have seriously adverse consequences to effective trust administration by the successor trustee. Moreover, although its adoption would relieve trustees of having to distinguish between their fiduciary and personal capacities when they seek legal advice about trust administration, adoption of Sanwa’s proposed rule ultimately would harm beneficiaries, as pointed out in the hypothetical situation. As discussed earlier, however, a private express trust exists for the beneficiaries’ benefit, not for the trustee’s. We therefore conclude we should reject Sanwa’s proposed rule as the law of this state.
Similar practical considerations have led other courts to conclude the power to assert the attorney-client privilege passes from a predecessor
In Weintraub, supra,
The high court then went on to apply these general principles to the context of a corporation in bankruptcy. The high court concluded the trustee in bankruptcy controlled the corporation’s attorney-client privilege while the corporation was in bankruptcy, because the trustee was the actor whose duties and powers most closely paralleled those of the corporation’s management, which controlled the privilege outside bankruptcy. (Weinbtraub, supra, 471 U.S. at pp. 351-354 [105 S.Ct. at pp. 1992-1994].) In reaching this conclusion, the high court found important the bankruptcy trustee’s statutory duty to investigate the conduct of the prior management in order to discover and then pursue claims against managing officers. (Id. at p. 353 [
Like concerns are present in the case of a trustee of a private express trust. A successor trustee is liable to the beneficiaries for a predecessor trustee’s breach of trust if the successor unreasonably allows the breach to continue or does not take reasоnable steps to redress it. (§ 16403, subd. (b)(1), (3).) The
In line with Weintraub, supra,
The similarities between Tekni-Plex, supra,
In summary, we conclude the power to assert the attorney-client privilege with respect to confidential communications a predecessor trustee has had with its attorney on matters concerning trust administration passes from the predecessor trustee to its successor upon the successor’s assumption of the office of trustee. Sanwa therefore has no privilege to аssert in opposition to Moeller’s demand for production and inspection of documents. Accordingly, the Court of Appeal properly issued the writ of mandate to compel the trial court to order disclosure.
Disposition
The judgment of the Court of Appeal is affirmed.
George, C. J., Mosk, J., and Kennard, J., concurred.
Notes
All subsequent statutory references are to the Probate Code unless otherwise noted.
Sanwa interprets Moeller’s argument to be that “the ‘office of trustee’ is the client when a trustee consults legal counsel about trust administration.” If this were Moeller’s argument, it would fail simply as a matter of linguistics, for only a “person” can be a “client” (Evid.
We do not, however, interpret Moeller’s argument as Sanwa does. Rather, we understand Moeller to argue that the power to control the privilege belongs to the current occupant of the office of trustee, not to the office itself, so that the “client” for purposes of the attorney-client privilege is the current trustee. It is this interpretation of Moeller’s argument that we address.
It was suggested at oral argument that the trust, rather than the trustee, might be viewed as the holder of the attorney-client privilege. Such a rule might lead to the same result as the rule adopted here. The former rule could not, however, be reconciled with the Evidence Code and the relevant principles of trust law. The “client,” for purposes of the attorney-client privilege, must be a person, either natural or artificial (Evid. Code, § 951), and a trust is not a person but rather “a fiduciary relationship with respect to property.” (Rest.2d Trusts, § 2, p. 6, italics added; Hobbs v. Buck (1981)
The previous two statements seem quite reasonable in light of amiсus curiae California Bankers Association’s report that “[a]ccording to statistics from the State Banking Department’s 86th Annual Report (1995), California banks and trust companies actively manage over $430 billion in fiduciary assets.”
In Talbot v. Marshfield, supra, 62 Eng.Rep. 728, the residual legatees of a testamentary trust sought to compel the trustees to produce two opinions of counsel. Although Talbot was a dispute over privileged information between beneficiaries and trustees, a subject we do not here address, the opinion nicely articulates the distinction between a trustee consulting an attorney as trustee to further the beneficiaries’ interests, and a trustee consulting an attorney in his personal capacity to defend against a claim by the beneficiaries:
“The first. . . opinion [of counsel], the production of which is sought, [was] respectively stated and taken by the [trustees] to guide them in the exercise of a powеr delegated to them by the trusts of the will, and which, if exercised, would affect the interests of the other cestuis que trust. The opinion was taken before proceedings were commenced or threatened, and in relation to the trust. Under these circumstances it appears . . . that all the cestuis que trust have a right to see that. . . opinion. It was contended that it was not taken for.the benefit of all the cestuis que trust, but all the cestuis que trust have an interest in the due administration of the trust, and in that sense it was for the benefit of all, as it was for the guidance of the trustees in their execution of their trust. Besides, if a trustee properly takes the opinion of counsel to guide him in the execution of the trust, he has a right to be paid the expense of so doing out of the trust estate; and that alone would give any cestuis que trust a right to see the . . . opinion.
“The other . . . opinion, however, stands on a totally different footing. This was not to guide the trustees in the execution of their trust; but, after proceеdings had been commenced against them, they took advice to know in what position they stood, and how they should defend themselves in the suit. It appears. . . that the cestuis que trust have no right to see this
The Moeller trust instrument contains the following exculpatory clause: “The successor trustee shall not be responsible for the acts of the former trustee, and shall not be required to examine the transactions of the former trustee which have taken place prior to the acceptance of his or her duties as successor trustee.” (Italics added.) Although Moeller was thus not obligated to investigate Sanwa’s management of the trust, the clause certainly does not prevent him from doing so in an effective manner.
Dissenting Opinion
I respectfully dissent.
The majority opinion departs from this court’s consistent deference to the Legislature’s prerogative in defining and controlling evidentiary privileges. The Evidence Code specifically states that “[t]he provisions of Division 8 (commencing with Section 900) relating to privileges shall govern any claim of privilege . . . .” (Evid. Code, § 12, subd. (c).) “Thus, the Legislature has codified, revised, or supplanted any privileges previously available at common law: the courts are no longer free to modify existing privileges or to create new privileges. [Citation.]” (Pitchess v. Superior Court (1974)
Nothing in these statutes suggests a trustee’s privilege to withhold confidential attorney-client communications is an appendage of legal title to trust assets, an accessory to be stripped from the client who consulted the lawyer and passed along to the next person on the job. Instead, the plain import of the Legislature’s conception is that the privilege is personal and remains with the person who consulted the attorney. The only circumstances the Evidence Code recognizes for transfer of the privilege are dealt with in the definition of “holder of the privilege” in Evidence Code section 953. Those circumstances are: (1) when the client legаlly cannot assert the privilege because a guardian or conservator has been appointed; (2) when the client is dead; and (3) in the case of certain juridical persons, when the client “is no longer in existence.” (Evid. Code, § 953.) None of those circumstances applies to transfers of title to trust property to successor trustees. The Evidence Code has no provision that displaces the privilege, or designates another as its holder, simply because a new person took over the client’s fiduciary duties.
The majority mistakes the matter as one that can be resolved by resort to the Probate Code and the trust instrument. The legislative design forecloses that approach, however, because the Evidence Code provisions “relating to privileges shall govern any claim of privilege . . . .” (Evid. Code, § 12, subd. (c).) Although a successor trustee may assume its prеdecessor’s powers and duties with respect to the trust estate, that does not mean the successor also acquires the privilege the Evidence Code conferred on its predecessor. The predecessor holds the privilege because it was a person who sought legal advice or services from an attorney, not because it was a trustee with a question about trust administration.
The majority’s view gains no validity by its reliance on the practical benefits that a successor trustee may obtain by invading its predecessor’s
Any reliance on necessity and desirability as a justification for this new rule may well be shortsighted. We do not know whether successor trustees, before now, had any difficulty in functioning adequately without commandeering their predecessors’ privileged communications. We similarly do not know whether predecessor trustees, by asserting the attorney-client privilege, have evaded full accountability for mismanagement or breaches of trust. Whether such problems actually exist and, if they do, the appropriate solutions, are the types of questions best dealt with through the legislative process. In any event, the Legislature controls these mаtters. The code it enacted does not allow a successor trustee to usurp the attorney-client privilege granted to a predecessor trustee who sought legal counsel. If this is a gap in the law of privilege, it is not one that we are free to fill. Any change must come from the Legislature.
The majority too easily discounts the problems its rule will create for trustees. A privilege to withhold confidential communications has little utility when the parties to a communication cannot reliably anticipate whether it will in fact be privileged. The majority posits a distinction between those communications in which a trustee, “in its fiduciary capacity, sought the attorney’s advice for guidance in administering the trust” and those in which a trustee “seeks legal advice in its personal capacity out of a genuine concern for possible future charges of breach of fiduciary duty . . . .” (Maj. opn., ante, at p. 1134, original italics.) The majority makes the former available to successor trustees, while the latter would still have some chance of remaining confidential.
That distinction is illusory and will not allow predictable implementation as a practical matter. It is the trustee’s fiduciary capacity that imposes on the trustee potential personal liability for any breach of trust. Aside from the context of this case, where counsel conducted litigation on behalf of the trustee, one obvious reason for a trustee to consult counsel on trust administration is to avoid breaches of trust and the concomitant personal liability.
The majority offers only one clear basis for discerning truly privileged communications from those only conditionally privileged: Who paid the attorney’s bill, the trust or the trustee? As a result, professional trustees can be expected to employ “shadow counsel” for consultation on any trust matters with potentially sensitive implications. In the majority’s terms, this too will be “merely one of the burdens professional trustees take on—for, presumably, an appropriate fee.” (Maj. opn., ante, at p. 1134.) Unfortunately, increased trustee fees are the most likely consequence of the majority’s innovations in the Legislature’s domain.
Baxter, J., and Brown, J., concurred.