Filed 1/22/20 Fiduciary Trust Internat. of Cal. v. Klein CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

FIDUCIARY TRUST INTERNATIONAL OF CALIFORNIA, as Trustee, etc.,

Plaintiff and Respondent,

v.

CONRAD LEE KLEIN et al.,

Defendants and Appellants.

2d Civil No. B290391

(Super. Ct. No. BP063500)

(Los Angeles County)

This is the latest appeal in a long series of disputes involving the Mark Hughes Family Trust (MHFT). After Conrad Lee Klein, Jack Reynolds, and Christopher Pair (collectively, the former trustees) were removed as MHFT trustees, the successor trustee, Fiduciary Trust International (FTI), demanded MHFT’s records. The former trustees resisted this demand with respect to some of MHFT’s legal files, claiming attorney-client privilege. The probate court disagreed in part, and ordered production of the documents.

Klein and Reynolds appeal from the probate court’s May 11, 2018, order directing them to disclose to FTI 1,245 documents related to their communications with Akin Gump Strauss Hauer & Feld LLP (Akin Gump), Browne Woods & George LLP (BWG), and Loeb & Loeb LLP (Loeb & Loeb). (Code Civ. Proc., § 904.1, subd. (a)(10); Prob. Code, § 1300, subd. (c).) They contend: (1) the court erred when it rejected their claim of attorney-client privilege, and (2) requiring them to disclose the documents violates their due process rights. We affirm.

FACTUAL AND PROCEDURAL HISTORY

We begin with a previous discovery dispute between the former trustees and FTI. At issue in that case were 45 documents the probate court determined were protected by attorney-client privilege. (Fiduciary Trust Internat. of California v. Klein (2017) 9 Cal.App.5th 1184, 1194 (Fiduciary Trust).) These documents related to petitions for surcharge or removal, and thus, according to the probate court, the former trustees’ personal liability. (Ibid.) As such, they did not have to be disclosed to FTI. (Ibid.)

Our colleagues in the First Appellate District disagreed. Simply because a document was “‘defensive’” in nature or related to a “‘petition for removal or surcharge’” did not mean that it was protected by personal attorney-client privilege. (Fiduciary Trust, supra, 9 Cal.App.5th at pp. 1201-1202.) Focusing on the “‘purpose served by the individual communication’” was misplaced. (Id. at p. 1198, italics omitted.) Rather, the proper focus was on the character—the “‘“dominant purpose”’”—of the attorney-client relationship: that is, whether it was personal or fiduciary. (Id. at p. 1198, italics omitted.) To show it was personal, the former trustees had to demonstrate that they: (1) “retained the counsel with whom they communicated in a personal capacity,” and (2) “took affirmative steps to distinguish the purported personal advice from advice obtained in a fiduciary capacity.” (Id. at pp. 1197-1198, citing Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1139 (Moeller).) If they made that showing, the former trustees could withhold the documents reflecting the privileged communications. (Fiduciary Trust, at p. 1198.)

On remand, the former trustees did not attempt to make the required showing; they instead gave FTI the 45 documents at issue. FTI then asked the probate court to order the former trustees to turn over more than 3,000 additional documents—not the subject of the Fiduciary Trust appeal—over which the former trustees continued to claim attorney-client privilege. The court set a hearing for November 2017 to consider FTI’s request.

At the hearing, the former trustees claimed they were not required to disclose the documents to FTI because the documents reflected communications with law firms retained to “defend them against surcharge claims seeking personal damages against them in their individual capacities.” They also claimed they had “separate retention agreements” with these firms. The probate court continued the hearing so the former trustees could produce evidence in support of their claims.

Later that month, Klein submitted a declaration stating that that he and his fellow former trustees “separately retained five law firms as litigation counsel for the dominant purpose of defending [them] from charges of misconduct and surcharge claims seeking to recover damages from [them] in [their] personal capacities.” (Original emphases.) Over the next five months, the former trustees withdrew their claims of attorney-client privilege over hundreds of documents. By April 2018, they claimed the privilege extended to their communications with just four law firms: Akin Gump, BWG, Loeb & Loeb, and Greines, Martin, Stein, & Richland LLP (GMSR).

Andrew Garb, an attorney with Loeb & Loeb, submitted a declaration, dated April 4, 2018, stating that the former trustees retained his firm in 2001 for “the primary purpose” of “defend[ing] them from claims for removal and personal liability in the then-pending removal and surcharge proceedings.” Those proceedings were brought against the former trustees as trustees, not as individuals. His firm nevertheless kept the records related to those proceedings separate from the records related to the other MHFT work his firm performed.

Edward Woods, an attorney employed by BWG and later by Akin Gump, submitted a similar declaration. That declaration, dated April 4, 2018, stated that Woods represented Klein and Reynolds from 2005 to 2017. Klein and Reynolds first retained his firm to “represent them as litigation counsel in defending the then-pending removal and surcharge claims against them.” Those claims were brought against Klein and Reynolds as trustees, not as individuals. Nevertheless, Woods understood that his “primary purpose” was to “defend them from ‘personal’ liability.” His firms also worked on other MHFT matters, but kept those matters segregated from the removal and surcharge claims.

The former trustees also submitted their retention agreements with Akin Gump, BWG, Loeb & Loeb, and GMSR. The Akin Gump agreement was dated May 31, 2012. Its subject was “Terms of Engagement – The Mark Hughes Family Trust.” It did not describe the services the firm would provide, nor did it state that Akin Gump would represent the former trustees in their personal capacities. Each former trustee signed the agreement as “Co-Trustee.”

The BWG retention agreement, dated July 12, 2005, was addressed to the “Trustees, Mark Hughes Family Trust.” It said that BWG would “serve as litigation counsel in connection with several currently pending matters involving the Mark Hughes Family Trust.” It did not say that BWG would represent the former trustees in their personal capacities. Each of them signed the agreement as “Trustee.”

The Loeb & Loeb agreement was dated August 31, 2001. Its subject line was “Mark Hughes Family Trust.” It said that Loeb & Loeb would represent the former trustees “as trustees of the Mark Hughes Family Trust and as Executors of the Will of Mark Hughes.” It also said that the firm would handle “the pending removal proceedings, sale of asset, and other matters relating to the Trust and Estate.” The agreement did not say that it would represent the former trustees in their personal capacities. Each former trustee signed the agreement as “Trustee & Executor.”

The GMSR retention agreement, dated December 3, 2004, was addressed to each of the former trustees by name. It said that GMSR would represent them “individually” in the “Mark Hughes Family Trust and Estate of Mark Hughes Surcharge Appeal.” Specifically, GMSR would “provide appellate services to [the former trustees] in respect to [their] contemplated appeal from the recent order personally surcharging [them] with liability for certain claims [they] caused to be paid by the Estate.” The signature lines on the agreement did not identify the former trustees by title.

Based on the terms of the GMSR agreement, FTI stipulated that the former trustees were not required to divulge their communications with that firm. But it argued they should be required to disclose the 1,245 documents related to their communications with Akin Gump, BWG, and Loeb & Loeb.

The probate court agreed. First, the retention agreements with Akin Gump, BWG, and Loeb & Loeb did not say that the firms were hired to represent the former trustees individually or to protect them from personal liability. And each of the agreements was signed by the former trustees in their capacities as trustees.

Second, if the former trustees retained the firms to represent them in both their individual and fiduciary capacities, the firms would have had to disclose the potential conflicts of interest arising from dual representation. They also would have had to obtain written consent from the former trustees. None of the firms did so.

Third, if the former trustees had hired Akin Gump, BWG, or Loeb & Loeb to represent them as individuals, the firms would have had to have written agreements with them as individuals. Klein and Reynolds produced no such individual agreements.

Fourth, MHFT paid the firms’ legal fees. If the firms were representing the former trustees individually, the trustees would have had to either seek court approval to pay the firms with MHFT funds or otherwise provide for reimbursement to MHFT should any allegations against them prove meritorious. They did neither.

Fifth, the Klein, Garb, and Woods declarations were not persuasive. Each was “largely self-serving and carefully drafted to meet the requirements of the Court of Appeal’s decision in [the Fiduciary Trust] case.” Moreover, the declarations did not “offer reliable contemporaneous indicia of ‘affirmative steps’ then taken to ‘distinguish, scrupulously and painstakingly’ [the former trustees’] own interests from those of the beneficiaries.” (Original italics.) They were written years after the firms were retained.

Finally, each of the three firms was “involved in a variety of legal issues involving [MHFT] over and above just defending the petitions for removal and surcharge.” That suggested that defense of the former trustees individually was not the “dominant purpose” of the firms’ representation.

The probate court thus concluded that the former trustees failed to show that their communications with Akin Gump, BWG, and Loeb & Loeb “[fell] within the scope of a representation of them individually, for purposes of advice related to potential personal liability for any misconduct, separate and apart from these firms’ representation of them as trustees.” Even if they did, the trustees took no “‘affirmative steps’ at the time to carefully distinguish this . . . representation from that on behalf of [MHFT].” Accordingly, they did not make the showing set forth in Fiduciary Trust. The documents had to be disclosed to FTI.

DISCUSSION

Klein and Reynolds contend we should reverse the probate court’s order to turn over documents related to their communications with Akin Gump, BWG, and Loeb & Loeb because the court misapplied the Fiduciary Trust standard. Alternatively, they contend that even if the court correctly applied the Fiduciary Trust standard, requiring them to turn over the documents would violate their due process rights. We disagree with both contentions.

In general, when a party withholds documents based on a claim of attorney-client privilege, they bear the burden of establishing that the communication was “‘made in the course of an attorney-client relationship.’” (Fiduciary Trust, supra, 9 Cal.App.5th at p. 1195; see Evid. Code, § 953, subd. (a).) But “where, as here, a trustee is asserting the privilege, the ‘client’ is the office of trustee rather than the particular trustee.” (Fiduciary Trust, at p. 1195.) Our Supreme Court has thus drawn “a distinction between ‘confidential communications occurring when the predecessor trustee, in its fiduciary capacity, sought the attorney’s advice for guidance in administering the trust,’ on the one hand, and confidential communications occurring when the predecessor ‘[sought] legal advice in its personal capacity out of a genuine concern for possible future charges of breach of fiduciary duty,’ on the other.” (Id. at p. 1196, alterations and italics omitted, citing Moeller, supra, 16 Cal.4th at p. 1134.) “With respect to the first category of communications, ‘the power to assert the privilege as to those confidential communications’ moves to the successor trustee.” (Fiduciary Trust, at p. 1196, alterations omitted.) But “[w]ith respect to the latter, ‘the predecessor trustee may be able to avoid disclosing the advice to a successor trustee.’” (Id. at pp. 1196-1197.)

To withhold a communication, the predecessor trustee must show that the “character” or “‘“dominant purpose of [their] relationship”’” with the attorney was personal. (Fiduciary Trust, supra, 9 Cal.App.5th at p. 1198, italics omitted.) This requires them to demonstrate that they: (1) “retained the counsel with whom they communicated in a personal capacity,” and (2) “took affirmative steps to distinguish the purported personal advice from advice obtained in a fiduciary capacity.” (Id. at pp. 1197-1198.) We review the probate court’s decision that Klein and Reynolds did not make the requisite showing for abuse of discretion. (Id. at p. 1194.) The court abused its discretion if it applied an incorrect legal standard. (Ibid.)

The probate court applied the correct legal standard here. The retention agreements with Akin Gump, BWG, and Loeb & Loeb showed that Klein and Reynolds did not retain the firms to represent them in their personal capacities. Klein and Reynolds signed each agreement as “trustees” or “co-trustees.” Each agreement said that the firm would represent them in MHFT matters. But none said that the firm would represent them individually, as would have been required if the firm represented them in that capacity. (See Bus. & Prof. Code, § 6148, subd. (a)(2).)

The payment structures employed similarly tend to show that Akin Gump, BWG, and Loeb & Loeb did not represent Klein and Reynolds in their personal capacities. MHFT paid the firms’ legal fees, suggesting that any attorney-client privilege was held by Klein and Reynolds as trustees. (Fiduciary Trust, supra, 9 Cal.App.5th at p. 1199, fn. 7 [identity of payor is “material to” question of who holds privilege].) Moreover, if MHFT were paying Klein’s and Reynolds’s individual legal fees, some sort of authorization would have been required: Unsuccessful defenses to removal or surcharge petitions are not chargeable to a trust “absent an additional showing that ‘the trustee subjectively believed that the expense was necessary or appropriate to carry out the purpose of the trust and that belief was objectively reasonable.’ [Citation.]” (People ex rel. Harris v. Shine (2017) 16 Cal.App.5th 524, 535.) There was no such authorization here.

Klein and Reynolds also presented no evidence that Akin Gump, BWG, or Loeb & Loeb disclosed the potential conflicts of interest that could have arisen had the firms represented them in both their fiduciary and personal capacities. (See Borissoff v. Taylor & Faust (2004) 33 Cal.4th 523, 533-534 [describing potential conflicts].) If the firms had undertaken such representation, they would have been required to disclose the potential conflicts. (In re Marriage of Egedi (2001) 88 Cal.App.4th 17, 23.) They would also have had to obtain their clients’ written consent. (Rules Prof. Conduct, rule 1.7.) They did neither.

Klein and Reynolds counter that the firms did not need to disclose potential conflicts or obtain their consent because those requirements apply only when law firms represent two separate clients. But Klein and Reynolds, as trustees, and Klein and Reynolds, as individuals, were separate clients. (See Bogert, The Law of Trusts and Trustees (3d ed. 2007) § 17, p. 240 [“A, as trustee, and A, as an individual outside the trusteeship, constitute two separate legal persons.”]; see also Fiduciary Trust, supra, 9 Cal.App.5th at p. 1196 [distinguishing between trustee acting in fiduciary capacity from trustee acting in personal capacity].) The probate court thus did not abuse its discretion when it determined that Klein and Reynolds did not retain Akin Gump, BWG, and Loeb & Loeb to represent them in their personal capacities.

Nor did the court abuse its discretion when it determined that neither Klein nor Reynolds presented evidence that they took affirmative steps to distinguish the purported personal advice they received from Akin Gump, BWG, and Loeb & Loeb from the advice they obtained from the firms in their fiduciary capacities. Each firm was involved in a variety of MHFT matters. If Klein and Reynolds personally relied on the firms’ counsel, they were required to “‘distinguish, scrupulously and painstakingly, [their] own interests from those of’” MHFT. (Fiduciary Trust, supra, 9 Cal.App.5th at p. 1199, italics omitted.) And they were required to do so “at the time the communication was elicited or obtained from counsel, not, as here, many months or years later when [the] communication [was] actually withheld on privilege grounds.” (Ibid.) Klein and Reynolds presented no evidence contemporaneous with when they purportedly received personal advice showing that they took steps to distinguish that advice from that obtained on MHFT’s behalf. The probate court was thus correct to minimize the significance of the Garb and Woods declarations since they were crafted years after Akin Gump, BWG, and Loeb & Loeb were retained. It correctly ordered Klein and Reynolds to turn over the 1,245 documents related to their communications with Akin Gump, BWG, and Loeb & Loeb.

In an attempt to avoid this result and bypass the Fiduciary Trust standards, Klein and Reynolds claim that requiring them to give FTI these documents would violate their due process rights. But the touchstone of due process is fairness. (Salas v. Cortez (1979) 24 Cal.3d 22, 27.) And that a predecessor trustee’s “confidential communications with an attorney about trust administration may someday be disclosed to a successor trustee” is “not unfair in light of the nature of a trust and the trustee’s duties.” (Moeller, supra, 16 Cal.4th at p. 1133.)

Moreover, as set forth above, the Fiduciary Trust standards are essentially restatements of those set forth in Moeller. Moeller was decided in 1997, several years before Klein and Reynolds began communicating with Akin Gump, BWG, and Loeb & Loeb. That gave them notice of what they were required to do to maintain their personal claims of attorney-client privilege. They cannot now claim that their failure to comply with Moeller’s requirements resulted in unfairness.

DISPOSITION

The probate court’s May 11, 2018, order directing Klein and Reynolds to disclose to FTI the 1,245 documents related to their communications with Akin Gump, BWG, and Loeb & Loeb is affirmed. FTI shall recover its costs on appeal.

NOT TO BE PUBLISHED.

TANGEMAN, J.

We concur:

YEGAN, Acting P. J.

PERREN, J.

David J. Cowan, Judge

Superior Court County of Los Angeles

______________________________

Loeb & Loeb, Oleg Stolyar, Jennifer Jason and Don Miller, for Defendant and Appellant.

Richard D. Cleary, for Plaintiff and Respondent.