Haw. Prob. R. 42
Haw. Prob. R. 42
COMMENTARY:
There is a great deal of uncertainty in the law as to the respective duties that an attorney owes to the fiduciary, the beneficiaries, and the court. This rule attempts to put some certainty in the respective relationships based on court rulings, ethical rules, and opinions and decisions of disciplinary counsel.
Where a fiduciary retains the services of an attorney to assist in the administration of the fiduciary estate or to represent the fiduciary in its capacity as fiduciary, an attorney-client relationship exists between the fiduciary and the attorney, and no such relationship exists between the attorney and the beneficiaries or ward of the estate. See Goldberg v. Frye, 266 Cal. Rptr. 483, 489 (Cal. App. 1990). ("Particularly in the case of services rendered for the fiduciary of a decedent's estate, we would apprehend great danger in finding stray duties in favor of beneficiaries."); see also Estate of Gory, 570 So. 2d 1381, 1383 (Fla. App. 4 Dist. 1990); Estate of Larson, 694 P.2d 1051, 1054 (Wash. 1985). Contra, see New York City Opinion 496 (1978). However, as both the Gory and Larson courts discuss, a fiduciary is not a normal client, but one who owes a fiduciary obligation to others. This fiduciary obligation, therefore, extends to the employees and agents of the fiduciary, including the attorney. Therefore, even though the attorney has no attorney-client relationship with the beneficiaries or ward, the attorney owes a fiduciary duty to notify the beneficiaries and the court of the improper action or inaction of the fiduciary. See Mallen and Smith, Legal Malpractice, §§26.4 ff; New York City Opinion 269 (1933); ABA/BNA Lawyers' Manual on Professional Conduct 01:135 (1987). At least one court has stated that the attorney's duty of loyalty extends to the estate, and not to the individual holding the office of fiduciary: therefore, no conflict of interest existed where the attorney took action against the fiduciary for the benefit of the estate. In re Griffin, 589 N.Y.S.2d 933, 934 (A.D. 2 Dept. 1992).
This rule establishes clearly that the attorney-client relationship exists between the attorney and the fiduciary insofar as the fiduciary is acting in a fiduciary relationship, and it is therefore an amplification of the definition of the lawyer-client privilege under Rule 503 of the Hawai'i Rules of Evidence. An attorney who represents an individual who happens to be a fiduciary in an unrelated matter is not affected by this rule. The fiduciary must be conscious of the difference between personal actions and fiduciary actions. For example, an attorney could not represent a fiduciary with respect to the administration of a trust and also represent that same individual with respect to the private business dealings of that individual, if the individual attempts to enter into a business arrangement with him or her as fiduciary because such dual representation would present a conflict of interest.
Because the fiduciary acts in a qualified manner (as a representative and for the benefit of others), the fiduciary relationship extends to the employees and agents of the fiduciary. Section (a) of the rule clarifies that the fiduciary relationship is paramount to the attorney-client relationship. Section (b) clarifies that there is no attorney-client relationship with the beneficiaries or ward of the estate, but because of the pervasive fiduciary relationship, the attorney has a duty to the beneficiaries to notify them of the malfeasance of the fiduciary. The committee limited the notification requirement to illegal activities known by the attorney to be illegal that threaten the security of the assets or the interests of the beneficiaries. If the attorney does not in fact know the acts to be illegal, he cannot be faulted for failing to inform the beneficiaries. This disclosure of what might otherwise be considered confidential information is permitted by Rule 1.6 of the Hawai'i Rules of Professional Conduct. Section (c) defines the attorney's relationship to the court, and recognizes the need to efficiently and effectively administer estates. Therefore, the attorney has an obligation to monitor the administration of the estate and to ensure that required actions take place on a timely basis. The attorney has an affirmative obligation to inform the court of the nonfeasance of the fiduciary. Section (d) allows the court to sanction the attorney for failing in his or her duties.
To summarize, the committee, after research and extensive discussion, concluded that the attorney and the fiduciary enjoy a qualified attorney-client relationship. It is qualified to the extent that the attorney also has a duty to the beneficiaries to inform them of any serious and clear malfeasance of the fiduciary, which the attorney knows to be illegal, so that they may take actions to protect themselves and their interests in the estate, and a duty to the court to monitor the progress of the estate and inform the court of the nonfeasance of the fiduciary, so that the court can call the fiduciary to account and enhance the efficiency and effectiveness of the judicial system.
Because of these qualifications to the normal attorney-client relationship, the attorney, when placed in the uncomfortable position of having to report the fiduciary client pursuant to sections (b) or (c), may feel obligated to withdraw from representation of the fiduciary. This is provided for in Rule 44.
The committee discussed the issue of whether there exist differences between the roles of the personal representative, the guardian, and the trustee, and therefore whether different standards should exist for each role. The conclusion of the committee was that the role of each type of fiduciary was so similar that the standards applied to each should be consistent.