MOELLER v. SANWA BANK (1996)

 In what appears to be a case of first impression in this state, we answer the question “Can a successor trustee of a trust compel the former trustee, solely on the basis of the successorship in trustee duties, to produce and make available for inspection, documents which the former trustee claims are protected by the attorney-client privilege?” ¹  Roger Moeller, a successor trustee and the petitioner in this writ proceeding (“petitioner”), seeks relief from the decision of the respondent superior court to deny his motion to compel discovery.   Denial was based on the court's determination that the attorney-client privilege prevented discovery.   We granted writ review because the denial of such requested discovery can result in a successor trustee's not having a full opportunity to litigate, against the former trustee, allegations of breach of trustee duties.   Real party in interest in this writ petition, Sanwa Bank (“Sanwa”), is the former trustee against whom petitioner has made accusations of breach of duty.

The trial court's ruling prevents the transfer to petitioner of documents which belong to the estate of the trust and in which petitioner has an interest, both as a beneficiary of the trust and as successor trustee.   Denying petitioner access to the documents prevents him from fully preparing for the hearing on his objections to Sanwa's final accounting and its petition for settlement, trustee's fees, attorney's fees and costs.   Denial of petitioner's discovery motion was error and we reverse the trial court's order and remand the case for further proceedings.

BACKGROUND OF THE CASE

In 1967, the George and Grace Moeller Trust (“the Trust”) was created.   Initially, George Moeller was the trustee of the Trust.   Later, Lloyd's Bank became trustee, and after a period of time, Sanwa took over that position.   The Trust was composed of various pieces of real property, one of which is the source of the dispute in this case.   That particular piece of trust asset consists of a one-quarter interest in property located in Los Angeles County (“the property”).   For many years, a chrome plating business was operated on the property, first by George Moeller and his partner, Mr. Jones (who owned the other three-quarter interest in the property), and then later by the company to which they sold the business, Vander Horst Corporation of America (“Vander Horst”).   Vander Horst leased the property, with its improvements, from the Trust and Jones.

Eventually, the County of Los Angeles and the federal Environmental Protection Agency demanded that the property be cleared of the toxic substances which had been deposited as a result of the operation of the plating business.   By this time, Vander Horst had abandoned the property.   The expenses incurred by the Trust in hiring attorneys and environmental professionals to deal with the cleanup demands of the governmental agencies, and with litigation with Jones and Vander Horst, sapped the Trust's assets.

In July 1994, Sanwa filed a petition with the probate court to have its resignation as trustee accepted.   According to the petition, by that time, the only assets of the Trust were its one-quarter interest in the property and any insurance proceeds to be received through a declaratory relief action filed by an insurance carrier.   Additionally, Sanwa, as trustee, under authority of the Trust's provisions, had advanced $600,000 of its own money to the Trust for the Trust's legal fees.

Petitioner, who is a beneficiary of the Trust, became the successor trustee pursuant to a February 1995 order of the probate court.   At that same time, Sanwa filed its first and final accounting, as well as a petition for settlement, for allowance of trustee's fees, for reimbursement for costs advanced, and for attorney's fees.

Petitioner filed a response and objections to Sanwa's accounting and petition, alleging, among other things, that (1) Sanwa made imprudent decisions while it acted as trustee, and those decisions (a) caused the Trust to incur major contingent obligations which are beyond the Trust's resources, and (b) caused the Trust's nominal market value to go from $l,400,000 at the beginning of 1991 to a negative $l,450,000 by the end of 1992;  (2) Sanwa's accounting suffers from errors, omissions, and a lack of supporting evidence;  (3) Sanwa failed to properly and adequately enumerate and describe the Trust's assets in its accounting;  and (4) Sanwa allowed others to make decisions about the Trust which resulted in the imprudent expenditure of large amounts of Trust assets.

While petitioner was acting as the proposed successor trustee to Sanwa, he set about discovering information about law firms, contractors, subcontractors, accountants, environmental consulting firms, and any other persons and entities that had performed services on behalf of the Trust during the time Sanwa acted as its trustee.   In addition, certain documents and information were obtained by petitioner's attorneys through an informal discovery process (letters and phone calls) between September 1994 and May 1995.

Thereafter, by formal demand to Sanwa for inspection of the Trust's documents, production was demanded of (1) engagement letters and agreements and modifications thereof, letters, notes, memos, telephones notes, accountings, invoices, and billings from law firms providing services for the Trust, (2) Sanwa's files, notes, memos, accountings and invoices regarding the Trust, and to the Trust, (3) communications, notes and memos by and between Sanwa and any governmental agency relating to any assets owned by the Trust during the time Sanwa was its trustee, and (4) invoices, billings, files, accountings, memos, and notes of environmental consulting firms, contractors and subcontractors, accounting firms, and “any other entity” which performed services for the Trust.   The demand for production was served on Sanwa on May 19, 1995, setting a production date of June 23, 1995.   Sanwa filed a written response in which it contended, among other things, that (1) some of the items requested were protected from disclosure by attorney-client and work product privileges and (2) it had already turned over (a) copies of materials which were no longer privileged because they had been disclosed to third parties, and (b) copies of billings from law firms which had been redacted to protect information protected by the attorney-client privilege.   Petitioner noticed a motion for an order compelling discovery and his motion was denied on the basis that the documents sought were protected by the attorney-client privilege.²

On November 6, 1995, we issued an alternative writ and suspended further proceedings in the probate court and set this matter for hearing.

CONTENTIONS OF THE PARTIES

Petitioner contends the attorney-client privilege is held by the office of trustee, not personally by any one particular trustee, including the trustee who retains the attorney.   Therefore, his argument goes, since he is now the trustee, he is the person who holds the privilege and he does not care to invoke it with respect to the records which he seeks from Sanwa.   Petitioner contends the trial court's ruling effectively deprives him of the ability to contest the accounting and request for settlement and fees filed by Sanwa, and thus he is put in the position of having to accept Sanwa's accounting and request on faith.   This, he argues, deprives him of his ability to perform his duty, as successor trustee, to redress Sanwa's alleged breaches of duty.

Sanwa contends the right to claim an attorney-client privilege attaches to the position of client, not the position of trustee.   Thus, says Sanwa, since it, and not petitioner, is the client of the attorney whom it retained for assistance with its duties as trustee, then it, and not petitioner, has the right to invoke the attorney-client privilege.

 Sanwa is correct in asserting it is the client of the attorney whom it retained to assist it with its trustee duties.   Just as an attorney retained by an administrator of an estate has as his client the administrator-fiduciary of the estate and not the estate or the beneficiaries of the estate (Goldberg v. Frye (1990) 217 Cal.App.3d 1258, 1267–1268, 266 Cal.Rptr. 483),³ so also an attorney retained by a trustee of a trust has as his client the trustee-fiduciary of the trust, not the beneficiaries of the trust (Lasky, Haas, Cohler & Munter v. Superior Court (1985) 172 Cal.App.3d 264, 282–286, 218 Cal.Rptr. 205).   However, while this law establishes who Sanwa's attorney was representing in dealing with estate matters, it does not address the more specific issue argued by the parties, to wit, when an attorney represents the trustee of a trust, does he represent the trustee in the trustee's capacity/office of trustee, or does he represent the trustee in the trustee's personal capacity.

 Notwithstanding the attorney-client privilege is not really what determines whether petitioner is entitled to review all of Sanwa's Trust-related documents.   Rather, we hold that because a trustee's files regarding administration of the trust are actually part of the trust estate, and because a trustee, the trust beneficiaries, and a successor trustee all have a common interest in the property of the estate, all of them have a right to examine the files and therefore, there can be no attorney-client privilege for any trustee to invoke against a beneficiary or a successor trustee.   Thus, Sanwa cannot invoke the attorney-client privilege to justify not engaging in discovery.⁴  Further, because a trustee's records regarding administration of the trust are property of the trust estate, and because the Probate Code provides that a successor trustee must take steps to obtain the trust property from a former trustee, the successor trustee has the right to obtain, and exercise control over, the former trustee's files.

DISCUSSION

1. Petitioner's Rights as a Beneficiary

 A trustee of a trust, and a beneficiary of a trust, have a “ ‘common interest’ ․ in all books and records with relation to the trust.  [Citation.]”  (Strauss v. Superior Court (l950) 36 Cal.2d 396, 403, 224 P.2d 726, emphasis added [hereinafter “Strauss ”].)  “A trustee has the duty to the beneficiaries to give them upon their request at reasonable times complete and accurate information relative to the administration of the trust.  [Citations.]   In line with such consideration is the rule that the trustee's records as to the administration of the trust are deemed a part of the trust estate, and the right of the beneficiaries to an inspection of them stems from their common interest in the property along with the trustee.  [Citations.]”  (Id. at pp. 40l–402, 224 P.2d 726, emphasis added.)   Two of the authorities cited by Strauss are legal treatises.   IIA Scott on Trusts (4th ed. 1987) § 173, p. 462 et seq., and Bogert on Trusts (2d ed. rev.1983) § 961, p. 2 et seq., address the duty of the trustee to give information and inspection to the beneficiaries regarding administration of the trust, including legal opinions of counsel obtained by the trustee as advice on trust administration.⁵  Given the Strauss court's reliance on Bogert and Scott as authority for its statement of law regarding a beneficiary's right of inspection, it can reasonably be concluded that Strauss impliedly stated that a beneficiary has a right to inspect even matters normally protected by the attorney-client privilege, such as an attorney's legal opinion writings.

Since all of a trustee's records regarding the administration of the trust are part of the trust estate and must be fully disclosed to beneficiaries, it necessarily follows there can be no attorney-client privilege which operates with respect to said records when a beneficiary seeks to examine them.⁶  Thus, for example, in Lasky, Haas, Cohler & Munter v. Superior Court, supra, 172 Cal.App.3d 264, 218 Cal.Rptr. 205 (“Lasky”), certain beneficiaries of a trust filed petitions seeking to have the trustee removed and surcharged for mismanagement of the trust corpus.   The court's opinion states that “In the course of discovery concerning the allegations of mismanagement ․, the trust beneficiaries sought discovery of all writings and discussions generated by [the trustee's] counsel [who was the petitioner before the reviewing court] concerning [the trustee's] activities as trustee with regard to the ․ sale [and proposed sale of certain stock].”  (Id. at p. 269, 218 Cal.Rptr. 205.)   The law firm representing the trustee (i.e., the petitioner law firm) “produced and disclosed all its actual written and oral communications to [the trustee] concerning material trust business” but refused to disclose writings and oral discussions it contended were never disclosed to its client and were privileged as attorney work product under Code of Civil Procedure section 2018.  (Lasky, supra, 172 Cal.App.3d at p. 269, 218 Cal.Rptr. 205, italics added.)   Thus in Lasky, the trustee, through his attorney, produced in discovery what Sanwa herein contends is protected by the attorney-client privilege.   The only issue in Lasky was whether the petitioner law firm had a right to invoke the work product rule with respect to trust related items in its files which its client, the trustee, had never seen.   The court held the law firm did have such a right.   The court stated that the rule regarding a trustee's fiduciary duty of full disclosure to trust beneficiaries, which “extends to all contents of the trustee's file concerning trust administration matters affecting the trust interests of the beneficiaries” is subject to the Legislature's intent to create an absolute work product privilege for an attorney's legal research and theories, impressions, conclusions, and opinions.  (Lasky, supra, 172 Cal.App.3d at pp. 280, 282, 286, 218 Cal.Rptr. 205 [citing Strauss for its discussion of a trustee's duty of full disclosure to beneficiaries].)  Therefore in Lasky, the trust beneficiaries were able to discover the contents of the trustee's files but not the trustee's attorney's work product.

Based on Strauss, Lasky and Coberly, petitioner in the instant case has a right to discover all of Sanwa's records regarding the administration of the trust, records which are part of the Trust estate.   This right exists because (1) petitioner is a beneficiary of the trust and thus has a “common interest” in those records with Sanwa, and (2) petitioner is entitled to be fully informed in making and proving his case against Sanwa's accounting and petition for settlement, fees and costs.   Additionally, given the duties that a trustee has in dealing with trust assets (discussed infra ), it is clear, and we so hold, that it is not only petitioner's status as beneficiary but also his status as trustee which gives him a “common interest” with Sanwa in Sanwa's Trust files.   Further, his duties as trustee give him the right to take control over the files.

2. Petitioner's Duties as Trustee

Probate Code section 16040 states that a trustee of a trust must “administer the trust with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined from the trust instrument.” ⁷  The trustee must “take reasonable steps under the circumstances to take and keep control of and to preserve the trust property.”  (Prob.Code, § 16006.)   The trustee must also “keep the beneficiaries of the trust reasonably informed of the trust and its administration.”  (Prob.Code, § 16060)  Additionally, the current trustee has obligations relative to acts of a former trustee.  Section 16403 of the Probate Code provides that a successor trustee will be liable to the beneficiaries of the trust “for breach of trust involving acts or omissions of a predecessor trustee” if “the successor trustee knows or has information from which the successor trustee reasonably should have known of a situation constituting a breach of trust committed by the predecessor trustee and the successor trustee improperly permits it to continue.”   Liability will also be imposed on a successor trustee if he (1) “neglects to take reasonable steps to compel the predecessor trustee to deliver the trust property to the successor trustee,” or (2) “neglects to take reasonable steps to redress a breach of trust committed by the predecessor trustee in a case where the successor trustee knows or has information from which the successor trustee reasonably should have known of the predecessor trustee's breach.”  (Ibid.)

A predecessor trustee also has continuing duties to the trust.  Probate Code section 15644 provides that a previous trustee must transfer the trust property to the successor trustee and “remains responsible for the trust property until it is delivered.”

Because the predecessor trustee has a duty to transfer the trust property to the successor trustee, because the successor trustee has a duty to take and keep control of the trust property, and if necessary, to take reasonable steps to compel a previous trustee to deliver the trust property to the successor trustee, and because Strauss holds that trust property includes a trustee's records regarding the administration of the trust, it is clear that petitioner, in his capacity as trustee, has the right and duty to compel Sanwa to transfer its Trust records to him.

CONCLUSION

 Sanwa's files on its administration of the Trust must be turned over to petitioner.   Further, petitioner's rights in litigating his objections to Sanwa's accounting and petition for settlement, fees, and costs include the right to use the traditional devices of discovery set forth in the Code of Civil Procedure.  (Coberly v. Superior Court, supra, 23l Cal.App.2d at pp. 690–691, 42 Cal.Rptr. 64.)  “The safeguards [contained in the Code of Civil Procedure] against abuse of discovery and absence of good cause are available to [Sanwa], as to any other litigant.”  (Id. at p. 691, 42 Cal.Rptr. 64.)

DISPOSITION

The alternative writ is discharged.   A peremptory writ of mandate shall issue directing the trial court to vacate its order denying petitioner's motion to compel production and inspection of the requested trust records and to issue a new and different order granting said motion.   Our order issued on November 6, 1995, staying all proceedings in the trial court is hereby vacated.

FOOTNOTES

1.   Except in situations not relevant here, a “client, whether or not a party, has a privilege to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and lawyer․”  (Evid.Code, § 954.)  “Client” is defined in Evidence Code section 951 as “a person who, directly or through an authorized representative, consults a lawyer for the purpose of retaining the lawyer or securing legal service or advice from him in his professional capacity․”   The holder of the attorney-client privilege is (a) the client, if he has no guardian or conservator, (b) the guardian or conservator if the client has one, (c) the client's personal representative if the client is deceased, or (d) the “successor, assign, trustee in dissolution, or any similar representative of a firm, association, organization, partnership, business trust, corporation, or public entity that is no longer in existence.”  (Evid.Code, § 953.)   A confidential communication is defined as “information transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship.”  (Evid.Code, § 952.)“The attorney-client privilege has been a hallmark of Anglo–American jurisprudence for almost 400 years.  [Citations.]  ․ Clearly, the fundamental purpose behind the privilege is to safeguard the confidential relationship between clients and their attorneys so as to promote full and open discussion of the facts and tactics surrounding individual legal matters.  [Citation.]”  (Mitchell v. Superior Court (l984) 37 Cal.3d 591, 599, 208 Cal.Rptr. 886, 691 P.2d 642, fn. omitted.)

2.   According to the petition filed with this court, the trial court heard the discovery motion on August 28, 1995, and issued a verbal ruling that day.   The petition states there was no written order, minute or attorney, on petitioner's motion.   The petition further states written notice of the order was waived and no court reporter was present for the hearing.   Because the parties disagreed on the terms of the trial court's spoken ruling, we directed the trial court to prepare and enter, nunc pro tunc, a written order setting forth its ruling of August 28, 1995.   The written order which the trial court prepared states that in ruling on petitioner's motion to compel discovery, the court “found that Sanwa Bank, as former trustee, held and properly asserted an attorney-client privilege and that said privilege neither inured nor transferred to Sanwa's successor, [petitioner].”  Based on its determination, the court denied petitioner's motion for production and inspection of documents.

3.   Goldberg involved an action brought by legatees under a will against the administrator of the decedent's estate and the attorney for the administrator.   Plaintiffs alleged legal malpractice, breach of fiduciary duty, extrinsic fraud and negligence.   Both defendants were granted summary judgment.   The attorney's judgment was based on the analysis that the attorney owed no duty to the plaintiffs because (1) he was not their attorney (and therefore there was no privity of contract) and (2) no facts demonstrated a duty apart from an attorney-client relationship (general negligence principles).   The attorney-client privilege was not at issue in Goldberg.

4.   Although the parties addressed the work product privilege (Code Civ. Proc., § 2018) in the trial court, the court did not rule on that matter.   Given the breadth of the rights of beneficiaries and successor trustees to information contained in a trustee's files (discussed infra ), and given the absence of a ruling by the trial court on the matter of attorney work product, we decline to address that privilege here.

5.   However, both Scott and Bogert note that beneficiaries are not entitled to opinions of counsel obtained by the trustee for his own protection against charges of misconduct.  (Accord, the Restatement Second of Trusts (§ 173, com.b, p. 378).)

6.   Public policy considerations based on the trustee's fiduciary status, such as the ability of the beneficiary to assert his right to effective trust administration, also support the idea of permitting the beneficiary to examine the trustee's papers.  “If the beneficiary is to be able to hold the trustee to proper standards of care and honesty and to obtain the benefits to which the trust instrument and doctrines of equity entitle him, he must know of what the trust property consists and how it is being managed.”  (Bogert, supra, pp. 2–3.)   In Coberly v. Superior Court (1965) 231 Cal.App.2d 685, 690, 42 Cal.Rptr. 64, the court stated that in litigating the issue of whether a trustee had mismanaged trust assets, a beneficiary is entitled to “the necessary tools to enable her to unearth relevant facts,” and said tools “include a full inspection of [the Trust's] documents.”

7.   Section 16040 was amended in 1995.   The modifications to it are not material to this appeal.

CROSKEY, Acting Presiding Justice.

KITCHING and ALDRICH, JJ., concur.