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Fiduciary Exception to Attorney-Client Privilege is Alive and Well in Pennsylvania (For Now)

On May 23, 2022, the Superior Court of Pennsylvania held that the fiduciary exception to the attorney-client privilege and attorney work product doctrine is consistent with Pennsylvania law. This ruling was highly anticipated as the case In re: Trust Established under Agreement of Sarah Mellon Scaife, Deceased Dated May 9, 1963 has garnered significant interest among lawyers and the legal media given the lack of Pennsylvania case law in this area.

The underlying issue in this case is whether the Trustees had breached their fiduciary duty to one of the beneficiaries (Jennie K. Scaife) by not creating a separate trust for her benefit. Ms. Scaife’s Estate filed a series of motions to compel, among other things, documents concerning the legal services provided to the Trust.  The Orphans’ Court ultimately ordered the production of various documents that were being withheld from production based on attorney-client privilege or the work product doctrine.

The Orphans’ Court’s order was appealed. The Appellants focused their arguments on the overall lack of a legal or statutory basis for a fiduciary exception in Pennsylvania and that most American jurisdictions do not recognize a fiduciary exception. The Superior Court summarized the legal arguments of the parties and the relevant case law before noting its prior ruling in the case of In re Estate of McAleer, which held that a trustee has a duty to share complete information concerning the administration of a trust with beneficiaries, was affirmed by operation of law when a plurality of the Supreme Court agreed that the fiduciary exception exists in Pennsylvania.  In addition, the Superior Court would not condition application of the fiduciary exception on whether the trust paid counsel fees because the trustee’s duty to disclose documents concerning trust management include the opinions of legal counsel hired to assist in  administration of the trust.

The Superior Court did recognize a limitation on the fiduciary exception where a trustee is being sued by a beneficiary who is seeking attorney-client communications about the defense of the lawsuit. The Superior Court concluded that a trustee is still privileged from disclosing to beneficiaries communications with counsel retained for the trustee’s personal protection in the course, or in anticipation, of litigation. Such communications are not obtained in the trustee’s fiduciary capacity concerning decisions or actions to be taken in the course of administering or managing the trust.

Another possible limitation, not discussed by the Superior Court, may apply where a trustee who is also the settlor of a trust seeks counsel concerning an amendment of the trust. In such a scenario, communications relating to any such amendments could also be privileged.

Overall, however, the Superior Court has recognized the fiduciary exception, so where attorney-client communications concern the administration or management of the trust, they will not be privileged.

Appellants filed their Petition for Allowance of Appeal to the Pennsylvania Supreme Court on June 22, 2022 and so practitioners who represent fiduciaries should stay tuned for future developments.

For more information, please contact Mark Hamilton or Richard Tucker.

October 04, 2022

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