Hammerman v. Northern Trust (CA1 6/3/14)

The issue involves a trustee’s attorney-client privilege.

Hammerman was the life beneficiary of a trust of which Northern Trust was the trustee. A subsidiary trust, also handled by Northern, owned a warehouse that was having problems with its tenant, which eventually defaulted. Northern wanted to sell the warehouse in order to resolve and avoid the resulting legal actions. Hammerman had questioned and criticized the way Northern had been handling the matter and also disagreed with the idea of selling, so she removed Northern as trustee. Then she and the successor trustee asked for Northern’s files; it supplied them except for some emails from a lawyer who had advised it – at the trust’s expense – about how to deal with Hammerman’s criticisms. She and the successor trustee filed a petition to get the emails. The trial court ordered production, reasoning that the trustee and beneficiary were entitled to the information since the trust had paid for it. Northern appealed.

This opinion’s introductory paragraph summarizes the court’s conclusions. “We adopt the fiduciary exception to the attorney-client privilege and hold that disclosure to the beneficiary and successor trustee of otherwise privileged communications is required insofar as the trustee seeks legal advice in its fiduciary capacity on matters of trust administration. We further hold that the attorney-client privilege extends to legal advice sought in the trustee’s personal capacity on matters not of trust administration.”

In other words, Northern was right. The court analyzes the rights of the beneficiary and of the successor trustee separately but comes to the same conclusion. They are entitled to privileged communications obtained in a fiduciary capacity but not to those obtained in a personal capacity. “A trustee’s attorney client privilege vis-à-vis a beneficiary extends to all legal advice sought in the trustee’s personal capacity for purposes of self-protection.” Using trust money to pay for the advice doesn’t destroy the privilege, though if that’s a violation of the trust then the beneficiary, etc. can move for an accounting, reimbursement, etc.

The court reverses and tells the trial court to inspect the emails in camera to see if they‘re privileged.

(link to opinion)