Bain v. Mcintosh, — Fed.Appx. —-, 2015 WL 859481 (11th Cir. March 02, 2015) 

frankfurter_hearing
“But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respects has he failed to discharge these obligations? And what are the consequences of his deviations from duty?” – Justice Felix Frankfurter, SEC v. Chenery Corp., 318 U.S. 80, 85-86 (1943)

The nature and extent of the fiduciary duties — if any — owed by the lawyer for a trustee or personal representative to the beneficiaries of the trust or estate has always been a hot topic. The “traditional” view in most jurisdictions is that the attorney’s fiduciary duties extend only to his client — not the beneficiaries. This view was adopted in ABA Formal Opinion 94-380 and it’s reflected in Goldberg v. Frye, a California appellate opinion that thoughtfully explains why the limitation makes sense:

“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. Typically in estate administration conflicting interests vie for recognition. The very purpose of the fiduciary is to serve the interests of the estate, not to promote the objectives of one group of legatees over the interests of conflicting claimants. [Citation.] The fiduciary’s attorney, as his legal adviser, is faced with the same task of disposition of conflicts. It is of course the purpose and obligation of both the fiduciary and his attorney to serve the estate. In such capacity they are obligated to communicate with, and to arbitrate conflicting claims among, those interested in the estate. While the fiduciary in the performance of this service may be exposed to the potential of malpractice (and hence is subject to surcharge when his administration is completed), the attorney by definition represents only one party: the fiduciary. It would be very dangerous to conclude that the attorney, through performance of his service to the administrator and by way of communication to estate beneficiaries, subjects himself to claims of negligence from the beneficiaries. The beneficiaries are entitled to evenhanded and fair administration by the fiduciary. They are not owed a duty directly by the fiduciary’s attorney. [Citations.]”

Again, this seems to be the generally accepted view. But, as always, there are exceptions. For example, in 1992 the Nevada Supreme Court observed in Charleson v. Hardesty that:

“[W]hen an attorney represents a trustee in his or her capacity as trustee, that attorney assumes a duty of care and fiduciary duties towards the beneficiaries as a matter of law.”

So what’s the rule in Florida? That’s the question at the heart of this case.

Does a trustee’s lawyer owe fiduciary duties to the trust’s beneficiaries? NO

The trustee in this case hired a lawyer to prepare trust accountings. Those accountings were eventually challenged, and in the midst of the firefight between the trustee and the beneficiaries, the trustee’s lawyer became a target, eventually finding himself on the receiving end of a federal lawsuit filed by the beneficiaries. They claimed that as the trustee’s lawyer, he owed them a fiduciary duty to prepare proper trust accountings, and if he failed in that duty, they could sue him for damages. The lawyer moved for summary judgment, arguing that as a matter of law the lawsuit fails because he only owed fiduciary duties to his client (the trustee), not the beneficiaries. So is that the law in Florida? Yes! so said the trial court and the 11th Circuit:

The district court did not err in in granting summary judgment because Kane owed no fiduciary duty to the Walthers under Florida law. The Florida Legislature has indicated an unwillingness to expand a lawyer’s fiduciary duties to a person other than the trustee. Pursuant to Florida Statutes § 90.5021(2) (2011), “only the person or entity acting as a [trustee] is considered a client of the lawyer.” Furthermore, the Rules Regulating the Florida Bar, which are promulgated by Florida Supreme Court, narrowly limit a lawyer’s duties to third parties when serving as the personal representative of an estate. R. Regulating Fla. Bar 4–1.7 cmt. (2014) (“In Florida, the personal representative is the client rather than the estate or the beneficiaries.”); see also ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 94–380 (1994) (“The majority of jurisdictions consider that a lawyer who represents a fiduciary does not also represent the beneficiaries, and we understand the Model Rules to reflect this majority view.” (citation omitted)).

So can Florida lawyers representing fiduciaries rest easy in the knowledge that they can’t be sued by beneficiaries who happen to be feuding with their client? Probably not. The general trend in Florida is that third party beneficiaries of a lawyer’s legal services can sue the lawyer for malpractice — and it doesn’t matter that the beneficiaries were never your client, you had zero privity of contract with them, and you owe them zero fiduciary duties. Recent Florida examples include cases in which estate beneficiaries had standing to sue a guardian’s lawyers for malpractice (click here), a successor personal representative had standing to sue his predecessor’s attorney for malpractice (click here), and disgruntled heirs had standing to sue a testator’s estate planning attorneys for malpractice (click here). But it’s not all bad news, while this line of attack is scary, it does have its limits (see here).

So was the third-party-beneficiary line of attack the lawyer’s undoing in this case? No. But not because it didn’t apply, the plaintiffs just didn’t get around to asserting it until it was too late:

Because the Walthers failed to plainly and prominently argue in their initial brief that they were intended third-party beneficiaries of the legal services contract between Kane and the Trustee, they have abandoned this argument. United States v. Jernigan, 341 F.3d 1273, 1283 n. 8 (11th Cir.2003).

Lesson learned?

Obviously, it’s a good idea to know who your client is. If you’re representing a trustee or personal representative, this question gets complicated by the web of fiduciary duties underlying trusts and estates generally. If litigation breaks out, you can expect this issue to come up primarily in the context of privilege disputes. For example, that’s the specific question addressed in ABA Formal Opinion 94-380, which concluded as follows:

A lawyer who represents the fiduciary in a trust or estate matter is subject to the same limitations imposed by the Model Rules of Professional Conduct as are all other lawyers. The fact that the fiduciary has obligations to the beneficiaries of the trust or estate does not in itself either expand or limit the lawyer’s obligations to the fiduciary client under the Model Rules, nor impose on the lawyer obligations toward the beneficiaries that the lawyer would not have toward other third parties. Specifically, the lawyer’s obligation to preserve the client’s confidences under Rule 1.6 is not altered by the circumstance that the client is a fiduciary.

The same rule applies in Florida, as codified in F.S. 90.5021, which was adopted in 2011 (see here).

The second, but thankfully less common, line of attack to raise its ugly head in this context is some kind of direct claim by the beneficiaries against the trustee’s lawyer. Figuring out how to dissect that kind of claim from a breach-of-fiduciary-duty point of view gets muddled by the “standing” issues underlying the third-party-beneficiary line of malpractice cases we have here in Florida. This case is a welcomed shot of clarity. Regardless of who may have standing to sue you, we know this: Florida lawyers have fiduciary duties to only one party — their client.

For those of you looking to do a deeper dive into this bramble bush, a good starting point is a recent law review article entitled Blurred Lines: Analyzing an Attorney’s Duties to a Fiduciary-Client’s Beneficiaries. Here’s an excerpt:

The costs of imposing a duty on a fiduciary’s attorney owed to beneficiaries may have some benefits that are not integrated into the traditional approach, but those benefits do not outweigh the costs. The traditional approach provides significant advantages while simultaneously protecting beneficiaries’ interests and providing adequate remedies for any breach of duties owed to them. The lack of uniformity across states concerning this issue creates the possibility for substantial liability that attorneys are often unaware exists. The traditional approach offers the benefit of clarity of an attorney’s obligations. That clarity serves not only the attorney but also the fiduciary-client and the beneficiaries of the trust or estate, allowing a wider availability of legal services in this setting at lower costs. To ensure clarity in state trusts and estates law and adequate protection to all parties involved, state legislators should begin drafting legislation implementing the traditional approach before more attorneys enter the race of fiduciary representation with unsettled law blurring the lines.