Opinion 2004-7

(October 2004)

 

The inquirer was engaged in December 2002 to represent the guardian of an incompetent, a resident of another unidentified state.   The guardian was appointed by a court in the other state.   Apparently, the incompetent owned some residential real estate in Pennsylvania being occupied without permission by a stepson.  The inquirer was not able to successfully resolve the situation during the incompetent's lifetime. While it appears that there were efforts to negotiate the stepson's vacating the property, they were unsuccessful.  The Guardian paid a $5000 retainer to the inquirer, who expended $3400 in time and/or expenses during the course of her representation.  The inquirer also reports that the guardian has made allegations that the representation was mishandled by the inquirer.

 

The incompetent died in December 2003.  The inquirer believes the incompetent died testate since the inquirer was sent a copy of a will by the stepson's  lawyer.  That document names the stepson as sole executor and leaves him the entire estate.  However, the inquirer does not know if all interested parties recognize the validity of the will, or if it was revoked.

 

Immediately following the incompetent's death, the Guardian began to demand return of the remainder of the retainer, and did so in what the inquirer describes as a bullying manner, refusing to answer questions about the estate.  The inquirer suspects that the guardian is attempting to secure the funds for her own benefit, rather than the estate's.  Based on the inquiry, it appears this suspicion is based on the following reasons: 1) the guardian failed to immediately inform the inquirer of the incompetent/decedent's death; 2) the guardian immediately demanded return of the remaining retainer;  3) the guardian and her lawyer intimidated and bullied the inquirer; 4) the guardian told the inquirer conflicting stories about the need for the funds to pay funeral expenses; and 5) the guardian has failed to include the remaining retainer funds in a report to the Guardianship Court.

 

The inquirer asks whether she may or must return the balance of the retainer to the guardian, and whether the inquirer may or should advise someone about the facts and/or the inquirer's suspicions, including one or more of the following persons: 1)  the stepson, who is believed to be a possible executor; 2)  the actual executor, if not the stepson; 3) the Court that appointed the guardian and to which the guardian must presumably account; 4) the Probate Court that is overseeing the administration of the estate; or 5) some professional body.

 

Since the inquirer is a Pennsylvania lawyer and the engagement was to perform work in Pennsylvania, the Pennsylvania Rules of Professional Conduct apply.

 

This issue involves a determination, in the context of the representation of a fiduciary client, of the identity of the inquirer's client as well as the identity of the other persons or entities to whom such a lawyer has duties.  If in fact, there are persons other than her client to whom the inquirer also owes a duty, there needs to be an evaluation of the inquirer's duty of loyalty and confidentiality to her client

 

It is useful to consult the Commentaries on the Model Rules of Professional Conduct issued by the American College of Trust and Estate Counsel (ACTEC) (Third Edition, 1999)  (These commentaries are published in booklet form by ACTEC, and are available on its website. http://www.actec.org/pubInfoArk/comm/toc.html).

 

First, there is a comment distinguishing between a general and an individual  representation.

 

General and Individual Representation Distinguished. A lawyer represents the fiduciary generally (i.e., in a representative capacity) when the lawyer is retained to advise the fiduciary regarding the administration of the fiduciary estate or matters affecting the estate. On the other hand, a lawyer represents a fiduciary individually when the lawyer is retained for the limited purpose of advancing the interests of the fiduciary and not necessarily the interests of the fiduciary estate or the persons beneficially interested in the estate. For example, a lawyer represents a fiduciary individually when the lawyer, who may or may not have previously represented the fiduciary generally with respect to the fiduciary estate, is retained to negotiate with the beneficiaries regarding the compensation of the fiduciary or to defend the fiduciary against charges or threatened charges of maladministration of the fiduciary estate. If the lawyer has previously represented the fiduciary generally and is now representing the fiduciary individually, the lawyer should advise the beneficiaries of this fact.

ACTEC Commentaries to Model Rule 1.2

 

While it is clear that the inquirer had only one client, the Guardian, it is as clear that the representation here was of the Guardian in a representational capacity.  The inquirer was engaged to represent the Guardian as she tried to protect the interests of the Guardianship Estate in the Guardian's care.   There was no representation of the Guardian in any other capacity. Therefore, the lawyer's duties to her client, the Guardian, must be considered in the context of her duties to those beneficiaries as well.

 

In such cases, ACTEC Commentary provides insight into the care due from a lawyer to the Beneficiary.

Duties to Beneficiaries. The nature and extent of the lawyer's duties to the beneficiaries of the fiduciary estate may vary according to the circumstances, including the nature and extent of the representation and the terms of any understanding or agreement among the parties (the lawyer, the fiduciary, and the beneficiaries). The lawyer for the fiduciary owes some duties to the beneficiaries of the fiduciary estate although he or she does not represent them. [emphasis added] The duties, which are largely restrictive in nature, prohibit the lawyer from taking advantage of his or her position to the disadvantage of the fiduciary estate or the beneficiaries. In addition, in some circumstances the lawyer may be obligated to take affirmative action to protect the interests of the beneficiaries. Some courts have characterized the beneficiaries of a fiduciary estate as derivative or secondary clients of the lawyer for the fiduciary. The beneficiaries of a fiduciary estate are generally not characterized as direct clients of the lawyer for the fiduciary merely because the lawyer represents the fiduciary generally with respect to the fiduciary estate. The scope of the representation of a fiduciary is an important factor in determining the extent of the duties owed to the beneficiaries of the fiduciary estate [emphasis added.]   For example, a lawyer who is retained by a fiduciary individually may owe few, if any, duties to the beneficiaries of the fiduciary estate other than ones the lawyer owes to other third parties. Thus, a lawyer who is retained by a fiduciary to advise the fiduciary regarding the fiduciary's defense to an action brought against the fiduciary by a beneficiary may have no duties to the beneficiaries beyond those due to other adverse parties or nonclients. In resolving conflicts regarding the extent of the lawyer's duties some courts have considered the source from which the lawyer is compensated. The relationship of the lawyer for a fiduciary to a beneficiary of the fiduciary estate and the content of the lawyer's communications regarding the fiduciary estate may be affected if the beneficiary is represented by another lawyer in connection with the fiduciary estate. In particular, in such a case unless the beneficiary and the beneficiary's lawyer consent to direct communications, the lawyer for the fiduciary should communicate with the lawyer for the beneficiary regarding matters concerning the fiduciary estate rather than communicating directly with the beneficiary. See MRPC 4.2 (Communications with Persons Represented by Counsel). However, even though a separately represented beneficiary and the fiduciary are in a conflict with respect to a particular matter, the fiduciary and a lawyer who represents the fiduciary generally continue to be bound by duties to the beneficiary. Additionally, the lawyer's communications with the beneficiaries should not be made in a manner that might lead the beneficiaries to believe that the lawyer represents the beneficiaries in the matter except to the extent the lawyer actually does represent one or more of them.

ACTEC Commentaries to Model Rule 1.2.

 

With this framework in mind, one may then consider application of the Pennsylvania Rules of Professional Conduct to the inquirer's questions.  Rule 1.6  bars disclosure of any information relating to a client with certain exceptions, one of which is that the prohibition does not apply except for disclosures " . . impliedly authorized to carry out the representation . . "  This implied authorization would seem to have some applicability to representations of fiduciaries. 

 

Other possibly applicable rules permitting disclosure include Rule 1.6 (b), which authorizes disclosure of confidential information in order to comply with Rule 3.3, which in turn prohibits failing to disclose a material fact to a tribunal when failing to do so would assist a client if a criminal or fraudulent act; and Rule 1.6 (c), which permits disclosure to prevent or rectify the consequences of a criminal or fraudulent act in which the lawyers services were used.

 

ACTEC has published commentary on these issues as well. With respect to the implied permission to disclose confidential information,

Implied Authorization to Disclose. The lawyer is also impliedly authorized to disclose otherwise confidential information to the courts, administrative agencies, and other individuals and organizations as the lawyer believes is reasonably required by the representation [emphasis added.] A lawyer is impliedly authorized to make arrangements, in case of the lawyer's death or disability, for another lawyer to review the files of his or her clients. As stated in ABA Formal Opinion 92-369 (1992), '[r]easonable clients would likely not object to, but rather approve of, efforts to ensure that their interests are safeguarded.' "

ACTEC Commentaries to Model Rule 1.6. 

More generally, it has stated: 

Disclosures by Lawyer for Fiduciary. The duties of the lawyer for a fiduciary are affected by the nature of the client and the objectives of the representation [emphasis added.] See ACTEC Commentary on MRPC 1.2 (Scope of Representation). Special care must be exercised by the lawyer if the lawyer represents the fiduciary generally and also represents one or more of the beneficiaries of the fiduciary estate.

 

As indicated in the ACTEC Commentary on MRPC 1.2 (Scope of Representation), the lawyer and the fiduciary may agree between themselves that the lawyer may disclose to the beneficiaries or to an appropriate court any action or inaction on the part of the fiduciary that might constitute a breach of trust. Whether or not the lawyer and fiduciary enter into such an agreement, the lawyer for the fiduciary ordinarily owes some duties (largely restrictive in nature) to the beneficiaries of the fiduciary estate. See ACTEC Commentary on MRPC 1.2 (Scope of Representation). The existence of those duties alone may qualify the lawyer's duty of confidentiality with respect to the fiduciary. Moreover, the fiduciary's retention of the lawyer to represent the fiduciary generally in the administration of the fiduciary estate may impliedly authorize the lawyer to make disclosures in order to protect the interests of the beneficiaries. In addition, the lawyer's duties to the court may require the lawyer for a court-appointed fiduciary to disclose to the court certain acts of misconduct committed by the fiduciary. See MRPC 3.3(b) (Candor toward the Tribunal), which requires disclosure to the court "even if compliance requires disclosure of information otherwise protected by Rule 1.6." [emphasis added]. In any event, the lawyer may not knowingly provide the beneficiaries or the court with false or misleading information. See MRPCs 4.1-4.3 (Truthfulness in Statements to Others; Communications with Person Represented by Counsel; Dealing with Unrepresented Person).

Example 1.6-1. Lawyer (L) was retained by Trustee (T) to advise T regarding administration of the trust. T consulted L regarding the consequences of investing trust funds in commodity futures. L advised T that neither the governing instrument nor local law allowed the trustee to invest in commodity futures. T invested trust funds in wheat futures contrary to L's advice. The trust suffered a substantial loss on the investments. Unless explicitly or implicitly required to do so by the terms of the representation, L was not required to monitor the investments made by T or otherwise to investigate the propriety of the investments. The following alternatives extend the subject of this example: 

(1) L, in preparing the annual accounting for the trust, discovered T's investment in wheat futures, and the resulting loss. T asked L to prepare the accounting in a way that disguised the investment and the loss. L may not participate in a transaction that misleads the court or the beneficiaries with respect to the administration of the trust--which is the subject of the representation. L should attempt to persuade T that the accounting must properly reflect the investment and otherwise be accurate. If T refuses to accept L's advice, L must not prepare an accounting that L knows to be false or misleading. If T does not properly disclose the investment to the beneficiaries, in some states L may be required to disclose the investment to them. In states that neither require nor permit such disclosures the lawyer should resign from representing T. See ACTEC Commentary on MRPC 1.6 (Confidentiality of Information). 

(2) L first learned of T's investment in commodity futures when L reviewed trust records in connection with preparation of the trust accounting for the year. The accounting prepared by L properly disclosed the investment, was signed by T, and was distributed to the beneficiaries. L's investment advice to T was proper. L was not obligated to determine whether or not T made investments contrary to L's advice. L may not give legal advice to the beneficiaries but may recommend that they obtain independent counsel. In jurisdictions that permit the lawyer for a fiduciary to make disclosures to the beneficiaries regarding the fiduciary's possible breaches of trust, L should consider whether to make such a disclosure.

(ACTEC Commentaries to Model Rule 1.6  (Emphasis added.))

 

The ACTEC Commentaries are not binding, of course, but the Committee finds them helpful and persuasive.   Moreover, they have been cited as authoritative as to this issue by Senior Judge Alfred J. Taxis,Jr., in Pew Trust (No. 2), 16 Fiduciary Rep. 2d 80 (Montg. Co. O.C. 1995), in which the Court held that the fact that a lawyer represents only a fiduciary and not the beneficiaries "does not absolve counsel for the fiduciary from being charged with certain duties and obligations to the beneficiaries." 16 Fiduciary Rep. 2d 84-85.  In that case, Judge Taxis held that the duties running from a lawyer to the beneficiaries of the fiduciary he represents bar him of her from being adverse to the beneficiaries.  

 

In the Committee's view the inquirer's questions raise difficult issues explored by the Rules and commentary reviewed above. 

 

The Committee cannot decide on the basis of the information if the suspicions of the inquirer about the Guardian's intent are well founded.  Apparently there were some accusations made by the Guardian against the inquirer and the Committee cautions the inquirer before acting to carefully examine whether some of her suspicions may stem from the unpleasantness of having been accused of mishandling the matter.  

 

If the inquirer reasonably believes that the facts she knows lead to a conclusion that disclosure to the Guardianship Court is required to abide by the dictates of Rule 3.3, or that disclosure to the beneficiary (which would require determining the identity of the Executor of the Estate) is required to rectify the consequences of some fraudulent actions on the part of the Guardian, then she could act under those provisions, but the Committee is doubtful that either conclusion would be justified on the basis of the facts it knows.

 

That does not mean that the inquirer should merely send the remaining retainer to the Guardian and forget about it.  Rule 1.6 does authorize a limited disclosure of information where it is impliedly authorized, and this would seem to be a case in which a non-accusatory, simple communication to the executor or personal representative of the Decedent's Estate would be called for.  The simple fact is that the inquirer is now holding funds in the amount of $1600 that belong to the Estate.  She could appropriately inquire as to the identity of the executor or personal representative and send that person, with a copy to the Guardian, a letter stating the basic circumstances of how the funds came to be in her possession, that the Guardian has asked for the funds to be returned and that she, the inquirer, will be happy to do so but wants to be sure in view of the Decedent's death that his Estate does not take a different view.   If the Executor and the Guardian agree, then the inquirer can safely send the funds to the correct recipient.  If they do not, then the inquirer could seek the advice of the court overseeing the Estate's affairs.   By doing this, the inquirer will have accomplished the purpose of ensuring delivery of the funds to the rightful owner without the need for any compromise of her duty of loyalty and confidence to her client, the Guardian, and without revealing any of the facts known or thought to be known by her about the Guardian's behavior.

 

 

   

The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.