Supreme Court of Pennsylvania to Address Attorney-Client Privilege Between a Trustee and Counsel

In re Estate of McAleer, 2018 PA Super. 227, 194 A.3d 587 (2018), petition for allowance of appeal granted, 2019 WL 423074 (Pa., Feb. 4, 2019).

The settlor’s son and trustee, William H. McAleer, was involved in extensive litigation with two stepsons of the settlor, who were beneficiaries of the trust. Upon an accounting by the trustee, the beneficiaries raised objections, including that certain expenses paid by the trustee for legal fees were unreasonable.

The trust provided that the trustee could “charge additional fees for services… such as fees for legal services….”  Later in the document, the settlor “encourage[d] my Trustee to obtain appropriate legal advice if my Trustee has any questions concerning its duties and responsibilities as Trustee.”

An accounting set forth approximately $220,000 in claimed legal fees. In discovery on that issue, the beneficiaries requested “BILLING STATEMENTS;  Produce copies of billing statements for all … attorney fees as such are included in the Second and Final Account.”  In response, the beneficiaries received redacted bills with 223 entries blacked out.  The trustee had never filed any objection to the beneficiaries’ discovery request for those invoices.  And when the beneficiaries filed a motion to compel their production, the trustee failed to respond until oral argument on that motion.  The lower court ordered production of unredacted invoices.  The trustee had filed a similar request (for legal bills directed to the beneficiaries), but it was denied.

The Pennsylvania Superior Court held that the trustee “failed to set forth specific facts to show that either the attorney-client privilege or the work product doctrine was applicable and properly invoked.” Id. at 596.  As a result, the Superior Court held that appellate review was precluded.  Because it found that the order under review was not a final order, an order certified as final, an interlocutory order appealable as of right, an interlocutory order appealable by permission, or an appealable collateral order, the appeal was quashed.

However, at the end of its opinion, the Court began a discussion of a trustee’s duty to furnish information to beneficiaries, referring to Section 82 of The Restatement (Third) of Trusts, and specifically comment f concerning communications with counsel, and the opinion of the Allegheny County Court in Follansbee v. Gerlach, 56 Pa. D. & C.4th 483, 22 Fid. Rep.2d 319 (2002).  The Superior Court indicated that it was “constrained to agree” with the trial court, which had followed Follansbee. Id. at 596.   That case had followed other cases (among mixed authority) that held that communications concerning claims or potential claims against the trustee might be protected, but that communications about trust administration would not be.

On February 4, 2019, the Supreme Court of Pennsylvania granted allowance of appeal, stating the issue 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?”

Appellant’s brief is due April 17, with appellees’ brief due 30 days thereafter; oral argument has not yet been set.