Don’t Forget the Basics: Appellate Division Finds Conflict of Interest in Complex, Multi-State Litigation
This consolidated appeal centered on Rule of Professional Conduct (RPC) 1.9 and whether a former client gave informed written consent to a law firm’s representation of the client’s co-fiduciary as part of an estate administration.
Lowenstein Sandler LLP (Law Firm) acted as personal counsel for the decedent, Joseph Krivulka (Decedent), and his wife, appellant Angela Krivulka (Angela), and also served as counsel for their different businesses over the course of many years. In 2009, the Decedent and Angela retained Law Firm to jointly represent them for estate planning purposes, which included the preparation of wills, multiple trusts, powers of attorney, and advance health care directives. As part of her estate plan, Angela named one of the Decedent’s business attorneys at Law Firm as a successor executor, trustee, attorney-in-fact, and health care agent to the Decedent. The Decedent named the same attorney to serve as co-executor (the Attorney Executor) with Angela under his will. The will gave the Attorney Executor the power to appoint one or more co-executors to serve with him at any time. However, Angela was not vested with the same power.
Following the Decedent’s death in February 2018, Angela and the Attorney Executor retained Law Firm in March 2018 to represent them as co-executors of the Decedent’s estate. The engagement letter specified that the firm would jointly represent Angela and the Attorney Executor, advise them on their responsibilities as co-fiduciaries, and assist them with preparing tax returns and probate documents. The letter also discussed the potential risks of joint representation, including conflicts of interest, and stated that Angela was agreeing to waive any conflict that might arise as a result of the joint representation. Notably, although the letter stated that conflicts might arise, it failed to elaborate in any way on actual or potential conflicts that existed or might develop between Angela and the Attorney Executor or Law Firm as a result of their prior representation of the Decedent in connection with his businesses or of the Decedent and Angela with respect to their estate plans.
Less than two weeks after Angela signed the engagement letter, she notified Law Firm that she intended to seek separate counsel based upon a number of perceived conflicts. The alleged conflicts included, but were not limited to: the Attorney Executor’s failure to complete succession planning relative to the Decedent’s business entities, despite having received instructions from the Decedent to do so shortly before his death; the Attorney Executor’s personal financial interest in many of the Decedent’s company transactions; and the dearth of information being provided to her, as wife and as a co-executor and beneficiary of the estate.
Approximately two months after it received Angela’s letter, Law Firm withdrew from representing three of the Decedent’s businesses in a proposed sale, citing the Attorney Executor’s appointment as co-executor of Decedent’s estate and his personal stake in one of the entities as the reason for the withdrawal. Angela discharged Law Firm from representing her as co-executor and obtained new counsel shortly thereafter.
Two years after discharging Law Firm, Angela filed two actions—one in her individual capacity in Arizona state court (the Arizona Litigation) and the other individually and in her capacity as co-executor in federal court in New Jersey. In the Arizona Litigation, Angela sought a declaratory judgment that the “vast majority (if not the entirety) of [the] total assets” of her and Decedent “were community property.” Id. at 8 – 9. In the federal court action, Angela sued Law Firm and the Attorney Executor for legal malpractice and breach of fiduciary duty based upon their alleged failure to disclose information essential to her estate planning and to revise thee Decedent’s estate plan according to his instructions.
Angela pointed to a March 2016 memorandum prepared by Law Firm as the underlying basis for her malpractice and breach of duty claims. The memorandum, which was addressed to her and Decedent, discussed the ramifications of changing their domicile from New Jersey to Arizona from an estate planning perspective, including, among other things, the fact that “Arizona is a so-called ‘community property’ state” in which property acquired during the marriage is deemed to be equally owned by both spouses. Id.at 10. Although Angela and the Decedent were both listed as intended recipients of the memorandum, Angela certified that she never saw or received it until after the Decedent passed away and there was no evidence in the record that anyone at Law Firm had sent it or discussed it with her.
Angela alleged that she and her husband had originally purchased a home in Arizona in 2008, which they moved into and began treating as their primary residence in 2009. She claimed that Law Firm’s failure to disclose the memorandum amounted to malpractice and a breach of duty because the firm had failed to advise her that estate planning as an Arizona resident would benefit her. She also alleged that Law Firm had failed to discuss the legal significance of updating items such as driver’s licenses and voter registrations with her and had misled and improperly directed her to list the Decedent’s New Jersey address on his death certificate, without telling her how it would impact the administration of the Decedent’s estate. Finally, she claimed that Law Firm did not address “any issues or conflicts that existed [as of March 2018] or that might arise from Law Firm’s joint representation of [her and the Attorney Executor], or, for that matter, any of the substance of the engagement letter” when it was presented for her to sign. Id. at 13.
Shortly after Angela commenced the Arizona Litigation, the Attorney Executor invoked his power of appointment under the Decedent’s will and appointed a former New Jersey probate judge to serve with him as a third co-executor. Less than a month later, the third co-executor filed an action for advice and direction in the Superior Court of New Jersey, Monmouth County Probate Part, seeking (a) confirmation that any majority of the co-executors could pay any administration expenses from the assets that comprised the estate and (b) interim relief allowing the estate to pay attorneys’ fees to defense counsel in the Arizona Litigation, in addition to certain other expenses.
Angela answered the complaint for advice and direction and simultaneously filed a motion to disqualify Law Firm from further representing the Attorney Executor as a co-executor of the Decedent’s estate. In support of her motion, Angela argued that Law Firm was advancing and advocating positions on behalf of the Attorney Executor which were “materially and diametrically adverse” to her interests in the estate and in the Decedent’s assets and that she “never gave an informed consent” to such adverse representation, as RPC 1.9 required. Id. at 16.
The trial judge denied Angela’s motion, citing both the conflict waiver language that Angela had agreed to in the engagement letter and the roughly two-and-half-year delay between the time Angela first raised a conflict as an issue and the time she moved to disqualify Law Firm. Angela later filed a second motion to disqualify Law Firm in response to her co-executors’ request that she be removed as an executor due to her efforts to obtain “all or substantially all of the Estate’s assets” for herself in the Arizona Litigation. Id. at 19. The trial court removed Angela on that basis but denied her motion. She appealed the trial court’s orders.
The Appellate Division reversed the trial court’s rulings denying Angela’s motions to disqualify and affirmed her removal as co-executor. As to its decision to disqualify Law Firm, the court explained that the “nature, domicile, and assets of [Angela and Decedent’s marriage], including assets and residency, necessarily impacted and encompassed both their estates” and were clearly relevant and material to the administration of the Decedent’s estate “because they affect how the estate will be administered and to whom the assets will pass. [Angela’s] ongoing Arizona Lawsuit, where she seeks to acquire a greater share of marital assets, shows the overlap between [her] own estate planning and [Decedent’s] estate planning and how this previous estate planning affects how [his] estate is administered.” Id. at 29.
The Appellate Division further observed that Angela’s pursuit of a greater amount of assets from the estate materially and directly conflicted with the Attorney Executor’s duty to uphold the estate plan that Law Firm had prepared for Decedent. Additionally, the court stated, “The evidence suggests [the Decedent] deliberately structured his Estate, and even concealed information from [Angela], so that New Jersey would remain his domicile and certain of his assets would not pass to [Angela] as community property.” Id. at 30. Consequently, the appellate panel concluded that a material adversity existed “between [Angela’s] individual interest as a beneficiary of [D]ecedent’s Estate and [the Attorney Executor’s] interest in administering the Estate,” and the conflict could only be waived under RPC 1.9(a) if Angela, a former estate planning client, had given Law Firm informed written consent. Id.
Although Law Firm’s engagement letter acknowledged it had a duty to obtain Angela’s informed, written consent to joint representation after full consultation and disclosure, the Appellate Division held that there was no credible evidence that any meaningful consultation or disclosure ever took place. In addition to failing to disclose the conflicts related to Law Firm’s joint representation of Angela and the Decedent with respect to their estate plans, including residency and domicile issues, the court found that there was similarly no evidence that “anyone from Law Firm explained to [Angela] that she and [the Attorney Executor] were not equal co-executors since [Decedent’s] will granted [the Attorney Executor] the power to appoint additional co-executors,” which enabled the Attorney Executor to dilute Angela’s voting power. Id. at 32 – 33. Given that Law Firm had failed to adequately explain the risks of joint representation or how potential conflicts might arise, the court held that Angela’s execution of the engagement letter did not constitute her informed written consent under the Rules of Professional Conduct.
The appellate panel further held that there was no undue delay that resulted in Angela waiving her right to seek Law Firm’s disqualification under the circumstances, especially where she had only recently become aware of certain evidence and any alleged delay in Angela’s filing of her complaints and her motion to disqualify was caused by Law Firm’s failure to provide her with the “full disclosure and consultation” that the Rules of Professional Conduct required. Id. at 39.
Finally, the Appellate Division upheld the trial judge’s decision removing Angela as a co-executor because of the personal claims that she filed against the estate in the Arizona Litigation.