Supreme Court of Pennsylvania Recognized Fiduciary Exception to Attorney-Client Privilege & Work Product Doctrine

[Edit: As Dan notes in the comments, there was only a majority opinion regarding Parts I and II(a) of the opinion, so the portion of the opinion dealing with the fiduciary exception -- II(c) -- is not a majority opinion and is not precedential.].

Pursuant to 42 Pa.C.S. § 5928, Pennsylvania's attorney-client privilege,

In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon the trial by the client.

Meanwhile, Pennsylvania Rule of Civil Procedure 4003.3, Pennsylvania's work product doctrine, states that

Subject to the provisions of Rules 4003.4 and 4003.5, a party may obtain discovery of any matter discoverable under Rule 4003.1 even though prepared in anticipation of litigation or trial by or for another party or by or for that other party’s representative, including his or her attorney, consultant, surety, indemnitor, insurer or agent. The discovery shall not include disclosure of the mental impressions of a party’s attorney or his or her conclusions, opinions, memoranda, notes or summaries, legal research or legal theories. With respect to the representative of a party other than the party’s attorney, discovery shall not include disclosure of his or her mental impressions, conclusions or opinions respecting the value or merit of a claim or defense or respecting strategy or tactics.

So, "[d]o the attorney-client privilege and work product doctrine[] protect communications between a trustee and counsel from discovery by beneficiaries when the communications arose in the context of adversarial proceedings between the trustee[] and beneficiaries?" That was the question of first impression addressed by the Supreme Court of Pennsylvania in its recent opinion in In Re: Estate of McAleer, 2021 WL 1289675 (Pa. 2021).

After noting that many states have found that there is not such a fiduciary exception over the past couple of decades, the Supreme Court of Pennsylvania held that

While we appreciate the concerns that animated many jurisdictions’ retreat from the fiduciary exception over the past quarter century, we would stand fast. Transparency remains the cornerstone of the fiduciary duty. Because trustees in essence serve as proxies for trust beneficiaries, their fiduciary duties compel them always to act in accordance with the latter's best interests in mind. To the extent that the attorney-client privilege obscures that fundamental obligation by frustrating beneficiaries’ entitlement to information about trust management, the privilege must yield. As with all considerations of restrictions on attorney-client confidentiality, predictability is critical. Indeed, a categorical approach for fiduciaries akin to that expounded in Riggs would bring greater clarity to the parameters of Pennsylvania's common-law privilege within the law of trusts....A categorical approach, moreover, would produce additional “benefits, including easier application in our lower courts” and “predictability[ ] and notice” to trustees and beneficiaries alike....

To that end, we would hold that, where legal counsel is procured by a trustee utilizing funds originating from a trust corpus, the beneficiaries of that trust are entitled to examine the contents of communications between the trustee and counsel, including billing statements and the like. That examination necessarily includes reviewing the contents of invoices in order to determine precisely what was procured with trust funds where the reasonableness of costs is at issue. The attorney-client privilege and work product doctrine cannot shield those disclosures in this Commonwealth. To hold otherwise would enable fiduciaries to weaponize trust assets reserved for beneficiaries against those very beneficiaries in litigation over the propriety of trust management. Since those same beneficiaries simultaneously would be obliged to foot their own legal bills, they would, in essence, be paying for both parties’ lawyers. That result is untenable, particularly in a case such as this, where Trustee also is a co-beneficiary of the trust established by his late father for the benefit of Trustee and his step-siblings (emphasis added).

-CM