On July 29, 2022, Justice Reed of the New York County Commercial Division issued a decision in Brawer v. Lepor, 2022 NY Slip Op. 50694(U), holding that the fiduciary exception to attorney-client protection does not apply when the fiduciary seeks legal advice to protect its own interests in litigation, explaining
With respect to the fiduciary exception to the attorney-client privilege, this court declines to apply the exception in this instance. English courts first developed the fiduciary exception as a principle of trust law in the 19th century. The rule was that when a trustee obtained legal advice to guide the administration of the trust, and not for the trustee’s own defense in litigation, the beneficiaries were entitled to the production of documents related to that advice. The courts reasoned that the normal attorney-client privilege did not apply in such situation because the legal advice was sought for the beneficiaries’ benefit and was obtained at the beneficiaries’ expense by using trust funds to pay the attorney’s fees. Whether the fiduciary exception applies depends on whom the communications ultimately served.
The fiduciary exception does not apply to a fiduciary who seeks legal advice to protect its interests in litigation as opposed to legal advice obtained in furtherance of the performance of duties to the beneficiary. Neither does fiduciary exception apply to circumstances where the fiduciary is in an adversarial relationship with the beneficiaries and the communications sought concern communications that speak directly to the issues at the heart of litigation.
In Beck v Manufacturers Hanover Trust Co., the Appellate Division assessed whether the fiduciary exception to the attorney-client privilege warranted disclosure of information held by a trustee as against the trust beneficiaries. The court in declining to recognize the exception wrote:
To the extent that plaintiffs seek access to communications and documents concededly falling within the protective ambit of the attorney-client privilege, their disclosure request is without merit. While plaintiffs as trust beneficiaries seek access to the materials under the exception to the privilege articulated in Hoopes v Carota [i.e. the fiduciary exception], that exception is not applicable here. As the record shows, plaintiffs have been in an adversary relation with the Trustee since the late 1970’s and the disclosure plaintiffs apparently seek concerns communications not generally relevant to the administration of the trust, but specifically relevant to the handling of the very issues the plaintiffs had been threatening to litigate. It is precisely where, as here, the trustee consults counsel in order to defend itself against the conflicting claims of beneficiaries that the exception delineated in Hoopes is inapplicable
Here, Brawer’s initial demand for accounting was made through counsel to medreviews under threat of legal action. Medreviews’ acts in retaining counsel and investigating member expenses were undertaken in response to Brawer’s threat. Defendants’ correspondence with DLA Piper were undertaken in defense of medreviews’ operations and in defense of claims asserted against medreviews’ officers individually.
Both Brawer and Lepor were using medreviews finances to pay for personal expenses. Brawer cannot competently argue that his demands were made only as a beneficiary in furtherance of medreviews’ fiscal interests. Brawer was not a beneficiary of the investigation as it was not undertaken in furtherance of any fiduciary duties owed to him. Rather, the hiring of DLA, the retention of a forensic accountant and the investigation of medreview expenses were all undertaken in defense of claims made by Brawer. The fiduciary exception to the attorney-client privilege does not compel disclosure of the DLA correspondence with medreviews in this circumstance.
(Internal citations omitted).