Hammerman v. Northern Trust Company – 6/3/2014

June 23, 2014

Arizona Court of Appeals Division One Adopts the Fiduciary Exception to the Attorney-Client Privilege and Holds 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.

The Northern Trust Company served as trustee of the Dorothy B. Kipnis Survivor’s Trust Agreement and the Section 3.4 Trust created thereunder.  Jane Kipnis Hammerman, the sole beneficiary, eventually removed Northern Trust as trustee and asked Northern Trust to provide all files related to the trust.  Northern Trust transferred most of its files but withheld a number of e-mails that it claimed were subject to the attorney-client privilege.  Hammerman and the successor trustee jointly petitioned the court to compel Northern Trust to release the withheld information.  The trial court granted the petition and ordered Northern Trust to disclose all additional information requested in the petition through the date Hammerman removed it as trustee.  

The Court of Appeals reversed on appeal.  Under A.R.S. 12-2234(A), “an attorney shall not, without the consent of his client, be examined as to any communication made by the client to him, or his advice given thereon in the course of professional employment.”  Although the attorney-client privilege extends to “any communication” from the client, Arizona courts have authority to limit its scope where circumstances warrant. 

Numerous courts outside of Arizona have adopted an exception to the attorney-client privilege – known as the fiduciary exception – that requires a trustee to comply with a beneficiary’s request to produce all legal advice that the trustee has obtained on matters concerning administration of the trust.  The Court of Appeals chose to adopt the fiduciary exception in Arizona because it was persuaded that it is crucial for beneficiaries to know of the affairs and mechanics of the trust management in order to hold the trustee to the proper standards of care and honesty. 

Under the fiduciary exception adopted by the Court, a trustee has an obligation to disclose all attorney-client communications that occur in its fiduciary capacity on matters of administration of the trust.   The exception does not, however, apply when a trustee seeks legal advice in a personal capacity on matters not of trust administration, as opposed to in a fiduciary capacity on matters of trust administration. 

The Court of Appeals held that the trial court in this case erred by ordering Northern Trust to provide attorney-client communications without first determining whether the communications were made in fiduciary capacity on matters concerning trust administration or in a personal corporate capacity on matters relating to its own interests. 

Judge Swann authored the opinion; Judges Gould and Thompson concurred.