Conflicts of interest aren’t always straightforward, especially with trust and estate planning matters. The Supreme Court of Utah recently determined that there was no former client conflict under Utah’s Rule 1.9 where lawyers were found to have only represented the former trustees and not the trust itself in litigation.
Trustees (“Trustees”) hired lawyers to represent them in their duties as Trustees of the trusts at issue. After a significant period, Trustees hired the same lawyers to hire them to defend a lawsuit brought by the trusts’ beneficiaries. A jury eventually found that Trustees breached their fiduciary duties to the trust. The court entered a $1.8 million judgment against the Trustees, which was mainly payable to the trusts. The court removed the Trustees and appointed Successor Trustees (“Successor Trustees”). Using the same attorneys, the now former trustees (“Former Trustees”) requested that the court reduce the judgment.
Differing viewpoints
The Successor Trustees moved to disqualify the Former Trustees’ attorneys arguing a Rule 1.9(a) conflict existed under the Utah Rules of Professional Conduct. Rule 1.9(a) prohibits a lawyer who has represented a client in one matter from subsequently representing another person whose interests are materially adverse to the former client’s interest in the same or a substantially related matter, absent client consent. The argument was based on the view that the lawyers had represented the trusts in the litigation initiated by the beneficiaries and therefore were prohibited from assisting the Former Trustees in trying to reduce the judgment. They argued that to do so would be adverse to the interests of the trusts and the trusts were their former clients. The lawyers were disqualified by the district court.
The Former Trustees appealed, arguing the district court erred in finding a disqualifying conflict under Rule 1.9(a) because the trial court misinterpreted existing precedent in finding that an attorney’s representation of a trustee means they also automatically represent the trust itself. The Former Trustees argued that only they were represented by the lawyers—not the trust as well.
Attorney-client relationship
The Utah Supreme Court found that while an attorney can represent a trust, an attorney-client relationship does not arise with the trust solely due to the lawyer’s representation of a trustee. While a trust is capable of forming an attorney-client relationship with a lawyer, context determines whether such relationship was actually formed. The trust holds the attorney-client privilege and the trustee, as fiduciary, claims the privilege on the trust’s behalf.
Putting the facts to the test
The test is whether the lawyers (1) previously represented the trusts (2) in the same or substantially related matter (3) in which the Former Trustee’s interests are materially adverse to the trusts.
In this instance, the beneficiaries’ suit was against the trustees, not the trusts. The trusts were not named in the lawsuit. The Utah Supreme Court found that the lawyers never represented the trusts in the lawsuit.
The attorneys for the Former Trustees may have represented the trust when retained to assist in trust administration. But the court found that even so, the fact that the attorneys (or at least one of them) may have represented the trusts at some point is not the concern. The concern is whether the lawyers represented the trusts in the same or a substantially related matter, which here would be whether the attorneys represented the trusts in the same lawsuit. The applicable time period could not have started to run until the beneficiaries filed the lawsuit for breach of fiduciary duty against the Former Trustees.
While not a decisive factor, when lawyers are paid from trust funds it suggests they are involved in the administration of the trust. When lawyers are paid from a trustee’s personal funds, that suggests they are looking out for the trustee personally. But, even when lawyers are paid with trust funds, that alone does not create an attorney-client relationship with a trust. Further, the court found some ambiguity in that the lawyers engagement letter to the Former Trustees had only clarified that the lawyers did not represent the beneficiaries but said nothing about representing the trust. However, that ambiguity was not evidence of their attorney-client relationship with the trust.
The Utah Supreme Court found that because the lawyers never represented the trusts in the lawsuit, Rule 1.9(a) would not serve to block the lawyers from continuing to represent the Former Trustees.
Takeaway
While substantive law regarding trusts will vary from state to state, former client conflicts are fairly common. Different states with the nearly identical former client conflict rules, may very well issue opinions with a vastly different result. For those states without clear cut answers to the questions raised in this opinion, engagement letters become even more crucial. This case was not ultimately decided on the content of the engagement letter, but it is a wonder how far the case would have made it in court had the Former Trustee’s engagement letter explicitly mentioned who the client was not—rather than just mentioning who the client was. This case surely raises the question of when it would be advantageous for trusts and estates lawyers (and those in other fields of practice as well) to follow suit.