Law Firm is Barred From Representing New Client in a Dispute Over Will Drafted for a Former Client

August 14, 2013 | Bulletin No. 1035411.1

In Fiduciary Trust International v. Superior Court (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., July 31, 2013), a California court of appeal considered whether a law firm that had been employed to draft wills and related documents twenty years earlier could now represent clients seeking to challenge provisions of the wills.  The court ruled that because attorneys are prohibited from taking actions adverse to the interests of former clients on substantially related matters, the firm was disqualified from the case.

Facts

In 1992, Raymond Sandler (“Sandler”), an attorney with the firm Sandler & Rosen, drafted a will for Willet Brown (“Willet”), a wealthy television executive.  Sandler also drafted a separate will for his wife, Betty Brown (“Betty”).  Willet had three adult children from a prior marriage (Patricia, Michael and Peter), and he and Betty had one daughter together, Kim. Willet’s will bequeathed much of his wealth to Betty, and divided the remainder between two trusts.  The Exemption Equivalent Trust was to be divided into shares among Willet’s four children.  The Marital Trust named Betty as the sole beneficiary.  The will further directed that upon Betty’s death, the trustees of the Marital Trust were to pay all claims, taxes and expenses of the trust and the Marital Trust’s remaining assets would then be transferred to the Exemption Equivalent Trust for the benefit of all four of Willet’s children.  The separate will that Sandler drafted for Betty bequeathed her property to her only natural daughter, Kim.

Willet died in 1993 and the two trusts were established.  After Willet’s death, Betty established the “Betty R. Brown Trust,” which rescinded her will and changed the terms of the Marital Trust to allow the bulk of the assets to be distributed solely to Kim, and not Willet’s other three children.  Betty died in 2011.

As a result of Betty’s death, millions of dollars in estate and inheritance taxes came due.  The trustees of the Marital Trust, Willet’s three adult children from his prior marriage, refused to pay the taxes due on the Betty R. Brown Trust.  Patricia, Michael and Peter asserted that because only Kim now benefited from Betty’s amended trust, they were effectively being asked to pay taxes on wealth they would never receive.  They contended that in his will, Willet intended for the Marital Trust only to pay taxes on the property that was to be transferred to the Equivalent Exemption Trust.

Fiduciary Trust International of California (“Fiduciary”) was appointed administrator of Betty’s estate.  In August 2012, Fiduciary filed a petition for an order to seek payment from the trustees of the Marital Trust pursuant to the terms of Willet’s will.  The trustees of the Marital Trust, in turn, filed a cross-petition seeking an order that they had no obligation to pay taxes, claims or expenses attributable to the Betty R. Brown Trust.  The trustees of the Marital Trust were represented by the firm of Sandler & Rosen, the same firm that had drafted the original wills of Willet and Betty (although attorney Sandler had since died).  Fiduciary moved to disqualify Sandler & Rosen from representing the Marital Trust because it was seeking action adverse to the interests of a former client- Betty.  The trial court denied the disqualification motion and Fiduciary appealed.

Decision

Citing case law precedent, the court explained the process of determining whether a disqualifying conflict of interest exists.  Where, as here, the potential conflict is one that arises from the successive representation of clients with potentially adverse interests, the governing test requires that there be “a substantial relationship” between the subjects of the two representations.  If the relationship was direct, meaning where the lawyer was personally involved in providing legal advice and services to the former client, as Sandler provided Betty, the question becomes whether there is a substantial relationship between the subject of the prior representation and the subject of the current representation.  If the answer is yes, the court explained, access to confidential information by the attorney in the first representation – which would then be relevant to the second representation – is assumed, and disqualification of representation of the second client becomes mandatory.

Here, the parties do not dispute that a substantial relationship exists between the prior and current representations.  Further, the court said, the subjects of Sandler & Rosen’s former representation of Betty and its current representation of the Marital Trust are not only substantially related, but involve the same subject matter: the intended meaning of the provision delineating the payment of estate taxes.

The court stated that an attorney is forbidden to do either of two things after severing a relationship with a former client. “He may not do anything which will injuriously affect his former client in any matter in which he formerly represented him nor may he at any time use against his former client knowledge or information acquired by virtue of the previous relationship.”

The court noted that Sandler and Rosen asserted that documents it prepared for Willet and Betty be interpreted in a manner that would substantially reduce the value of Betty’s estate, clearly harming her interests.  Therefore, the court concluded that Sandler & Rosen was disqualified from representing the Marital Trust in a manner adverse to Betty, after previously representing her on the very same subject matter.  The court directed the trial court to vacate its order denying the motion to disqualify Sandler & Rosen from representing the trustees in the matter and to enter a new order granting the motion.

Questions

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Linda M. Monje | 661.864.3800