Coming to a Legal Malpractice Action Near You?
The Fiduciary Duty Exception to the Attorney-Client
Privilege
Donald Patrick Eckler
Pretzel & Stouffer, Chartered
One South Wacker Drive, Suite 2500
Chicago, Illinois 60606
312-578-7653
deckler@pretzel-stouffer.com
Three recent appellate court cases of fiduciary
duty exception to attorney-client privilege
• One recent Georgia case, Hunter, Maclean, Exley, & Dunn v.
St. Simons Waterfront, LLC, 730 S.E. 2d 608 (Ga. Ct. App.
2012) and two recent Illinois cases, Garvy v. Seyfarth &
Shaw, 966 N.E. 2d 523 (1st Dist. 2012) and MDA City
Apartments, LLC v. DLA Piper LLP, 967 N.E.2d 424 (1st Dist.
2012) looked at the application of the fiduciary duty
exception to the attorney-client privilege in the legal
malpractice context.
• While both declined to recognize the exception in Illinois,
and held further that even if they did recognize it that it
would not apply to require disclosure of the documents
sought by the plaintiffs, this is a potentially emerging issue
to be attuned to and aware of.
Three recent appellate court cases of fiduciary
duty exception to attorney-client privilege
• Considering how narrowly Illinois courts construe
all privileges, and in particular the attorney-client
privilege, it is somewhat surprising that the court
did not recognize this exception.
• The Georgia Court looked at the issue much
differently, but also reversed an order requiring
disclosure
of
documents
related
to
communications between a defendant law firm
and attorneys it consulted with in dealing with
threatened and actual malpractice claims.
What is the fiduciary duty exception to
the attorney-client privilege?
• The exception to the privilege was created in 19th century English
courts and held that when a trustee obtained legal advice to guide
the administration of the trust, and not for the trustee’s own
benefit, the beneficiaries were entitled to the documents related to
that advice.
• These cases have sought to expand this exception to include
communications by attorneys with their attorneys.
• The leading cases on the fiduciary exception to the attorney-client
privilege are United States v. Jicarilla Apache Nation, ____ U.S.
_____,131 S.Ct. 2313 (2011) and Riggs National Bank of
Washington D.C. v. Zimmer, 355 A.2d 709 (1976).
What is the fiduciary duty exception to the
attorney-client privilege?
• In Jicarilla Apache Nation, the Court stated that the first
issue to be determined is if the advice was obtained for the
benefit of the trustees or for the beneficiaries. In order to
determine who the “real client” was the court looked to
the following factors:
1. when the advice was sought, no adversarial proceedings
between the trustees and beneficiaries had been pending,
and therefore there was no reason for the trustees to seek
legal advice in a personal rather than a fiduciary capacity;
2. the court saw no indication that the memorandum was
intended for any purpose other than to benefit the trust;
What is the fiduciary duty exception to the attorneyclient privilege?
3. the law firm had been paid out of trust assets. That the
advice was obtained at the beneficiaries' expense was not
only a “significant factor” entitling the beneficiaries to see
the document but also “a strong indication of precisely
who the real clients were.”
4. The court distinguished between “legal advice procured at
the trustee's own expense and for his own protection,”
which would remain privileged, “and the situation where
the trust itself is assessed for obtaining opinions of
counsel where interests of the beneficiaries are presently
at stake.” In the latter case, the fiduciary exception
applied, and the trustees could not withhold those
attorney-client communications from the beneficiaries.
What is the fiduciary duty exception to the attorneyclient privilege?
• Next, the Jicarilla Court determined that the trustees’
fiduciary duty to furnish trust-related information to the
beneficiaries outweighed their interest in the attorneyclient privilege.
• It is this second policy concern that is key in the analysis as
to whether the information will be protected in the legal
malpractice context. As we will see, these issues arise
when counsel consulted with internal and outside counsel
to determine the appropriate course of action within the
Rules of Professional Conduct. It is in this context, pre-suit
or after suit has been filed, that proper ethics counseling is
necessary.
What is the fiduciary duty exception to the
attorney-client privilege?
• The exception generally applies in the trust context. It
has been applied in two additional contexts actions
against ERISA fiduciaries and derivative shareholder
suits. In the first situation, federal courts have held that
beneficiaries of an employee-benefits plan have a right
to discover the communications between plan
fiduciaries and attorneys regarding the administration
of the plan. Bland v. Fiatallis North America, Inc., 401
F.3d 779, 787-88 (7th Cir. 2005);United States v. Mett,
178 F.3d 1058, 1062 (9th Cir. 1999); In re Long Island
Lighting Co., 129 F.3d 268, 272 (2d Cir. 1997).
Hunter, Maclean, Exley, & Dunn v. St. Simons
Waterfront, LLC
• In Hunter, Maclean, the Court of Appeals of Georgia
reversed an order requiring the production of documents
containing communications between counsel for the
defendant law firm related to a claim that was threatened
by a client.
• The law firm handled the documents related to the sale of
high end condominiums. When the purchasers began to
rescind the agreements, a dispute arose between the law
firm and the client-developer as to how that should be
handled. There was a claim that the law firm had not
properly drafted the documents which limited the
remedies available to the client-developer.
Hunter, Maclean, Exley, & Dunn v. St. Simons
Waterfront, LLC
• The law firm sought replacement counsel to complete the
transactions for the client, but continued to do work so as
to not harm the client’s interests in completing closings and
responding to the requests for rescission.
• The law firm initiated an internal investigation, but also
engaged the services of an outside consultant to assist in
assessing any claims that may be made against the law
firm.
• The trial court ordered that the documents related to the
internal communication and the outside consultant must
be produced.
Hunter, Maclean, Exley, & Dunn v. St. Simons
Waterfront, LLC
• In reversing the trial court, the Court looked at what it called “automatic
imputation” of the communications between in-house and the lawyers
involved in the continued representation.
• The Court stated:
we reject the Draconian rule adopted in other jurisdictions that
automatically imputes conflicts of interest to in-house counsel, because
there is no explicit textual justification for such an approach in this State’s
rules of professional conduct, and adopting such a bright-line rule would,
in our view, encroach upon the authority of our Supreme Court over such
matters.
Hunter, Maclean, Exley, & Dunn v. St. Simons
Waterfront, LLC
• The Court went on to state:
• Moreover, even if we were authorized to establish such a rule, we
would nevertheless decline to do so because automatic imputation,
inter alia, increases the cost of privileged advice by requiring firms
to either retain outside counsel or hastily withdraw from the
representation. Additionally, this approach “discourage[s] firms
from seeking early advice when problems with clients arise . . . .,”
thereby precluding a robust and frank assessment of potential
conflicts and undermining conformity with ethical obligations. And
the firm’s “duty of loyalty to the client does not prevent the firm
from attempting to defend against client claims” because the effort
to defend “is no more ‘disloyal’ when it involves inside rather than
outside counsel.”
Hunter, Maclean, Exley, & Dunn v. St. Simons
Waterfront, LLC
• The Court emphasized that the extent of any
imputation should depend on the structure of the inhouse position.
• Citing to a law review article, Elizabeth Chambliss, The
Professionalization of Law Firm In-House Counsel, 84
N.C.L.Rev. 1515 (2006), the Court stated: “the same
lawyers who represents the outside client cannot
simultaneously represent the firm in a dispute between
the firm and that client without the informed consent
of both clients.”
Hunter, Maclean, Exley, & Dunn v. St. Simons
Waterfront, LLC
• The Court set forth a different rule for firm counsel that is added on
an ad hoc basis.
• The Court held that these lawyers are subject to imputation “unless
the firm can show that an attorney-client relationship was
established before the in-firm communication occurred.” The Court
further stated that the burden is on the firm to show that the role
of “firm counsel” is clearly defined.
• The Court counseled that delegation to ad hoc counsel must be
done in such a way that representation of the firm must not be
done by attorneys who are subject to imputation, that is attorneys
who represent the client. The limited exception is the gathering of
information from attorneys involved in the representation.
Hunter, Maclean, Exley, & Dunn v. St. Simons
Waterfront, LLC
• The Hunter, Maclean opinion is limited to the situation
in which there is an adversary relationship between the
firm and its clients and the firm takes steps to protect
itself from perceived or certain malpractice threats.
• The opinion does not deal with a situation in which an
attorney seeks in-house ethics advice regarding
potential malpractice and the attorney’s resulting
obligations to the client. The Court was careful to
point out that it was not discouraging the candid
disclosure of information that should and occur in
furtherance of the duty of loyalty.
Garvy v. Seyfarth & Shaw
• In Garvy, the Illinois Appellate Court, First District held that a law
firm who was sued for legal malpractice was entitled to withhold
from production communications with both its inside general
counsel and outside defense counsel made during the time when
the law firm still represented the plaintiff related to claims of legal
malpractice brought by the plaintiff.
• The defendant law firm represented the plaintiff in corporate
transactions and subsequent litigation arising out of those
transactions. At a certain point the law firm advised the plaintiff
that a number of conflicts had arisen and advised that plaintiff to
retain independent counsel to represent him in any action against
the law firm, which the plaintiff did. However, at the insistence of
the independent counsel retained by the plaintiff, the law firm
continued to represent the plaintiff in litigation related to the
corporate transactions.
Garvy v. Seyfarth & Shaw
• After determining that it could no longer represent the
plaintiff in the underlying litigation the law firm
withdrew representation of the plaintiff.
• In the legal malpractice litigation against the law firm
the plaintiff sought all communications from the date
of the letter setting forth the conflicts identified by the
law firm and the date of withdrawal. The trial court
ordered production of all communications and
documents, including work product during that period
and held the law firm in civil contempt for failing to
produce the documents.
Garvy v. Seyfarth & Shaw
• In vacating the contempt citation and reversing the
judgment of the trial court, the Court held that the
communications sought to be withheld were
protected from disclosure.
• First, the Court held that the fiduciary-duty exception
to the attorney-client privilege is not recognized
under Illinois law.
Garvy v. Seyfarth & Shaw
• The theory behind the fiduciary-duty exception, which was first
discussed by the Illinois Appellate Court in the context of the
representation of a trust in Mueller Industries, Inc. v. Berkman, 399
Ill.App.3d 456 (2nd Dist. 2010), is that because the advice from the
attorney was obtained using the authority and funds of the trust
the beneficiary was the ultimate recipient of the benefit of the
advice, that the beneficiary was entitled to discover the
communications between the attorney and the fiduciary.
• However, the court held that the fiduciary-duty exception does not
apply in a situation where the legal advice was rendered concerning
the personal liability of the fiduciary or in anticipation of adversarial
legal proceedings against the fiduciary.
Garvy v. Seyfarth & Shaw
• The Court rejected application of the exception from two
foreign jurisdictions holding that even if they did represent
the law of Illinois, the exception was not triggered. Thelen
Reid & Priest LLP v. Marland Co., No. C 06-2071 VRW, 2007
WL 578989 (N.D. Cal. Feb. 21, 2007) and Koen Book
Distributors, Inc. v. Powell, Trachtman, Logan, Carrle,
Bowman & Lombardo, P.C., 212 F.R.D. 283, 284 (E.D.Penn.
2002).
• Second, the Court held that the communications were
specifically protected under Rules 1.4 and 1.7 which allow
an attorney to seek advice to comply with the
requirements of the Rules of Professional Conduct.
Garvy v. Seyfarth & Shaw
• Third, the Court found that the law firm had sufficiently
disclosed the conflicts and rejected the trial court’s
holding that allowing a law firm to disclose the conflict
was like allowing the law firm to “grade its own paper.”
The Court ruled that such a holding would render the
disclosure requirement meaningless.
• Finally, the Court held that the communications with
inside general counsel of the law firm were protected
because he did not labor under a conflict of having two
clients with conflicting interests.
MDA Apartments v. DLA Piper, LLP
• In MDA Apartment, the Illinois Appellate Court, First District
reversed the order of the trial court for the defendant law firm to
turn over documents related to its communications with inside and
outside counsel related to motion to disqualify it in the underlying
litigation and underlying arbitration as well as communications
related to the law firm’s defense of the instant legal malpractice
action.
• The underlying actions arose from a contact dispute between the
MDA Apartments and Walsh Construction related to a conversion of
building to luxury apartments. Walsh Construction filed a motion to
disqualify because the law firm had represented the individuals that
control Walsh in other matters and would know their litigation
strategy. When the motion to disqualify was filed the law firm
agreed to vigorously fight those motions without compensation
from MDA.
MDA Apartments v. DLA Piper, LLP
• The motion to disqualify was granted and in turn MDA filed a
complaint for legal malpractice against the law firm.
• During discovery in the legal malpractice case e-mail
correspondence were withheld by the law firm based on claims of
attorney-client privilege.
• The trial found that those correspondence were not so protected
and ordered them turned over. The law firm was cited for civil
contempt in refusing to produce the e-mails. The MDA court
looked at the analysis in the Garvy and like Garvy, refused to adopt
the fiduciary duty exception and found that even if it did the
exception would not apply for the same reasons.