MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2000-44
Conflict of Interest – Conflict of Interest Arising out of Representation of Trustee and Beneficiary of Testamentary Trust
Your letter of inquiry requests an opinion as to whether an attorney may continue to represent the trustee under the following hypothetical which you set forth.
Lawyer "A" represented a Trustee of a Testamentary Trust who was also a lifetime beneficiary of that Trust. The Trustee was the mother and grandmother of the contingent beneficiaries of the Trust. Two of the contingent beneficiaries were the daughters of the Trustee who will be referred to as daughter "X" and "Y". In litigation, which concluded in 1997, lawyer "A" represented the Trustee as well as daughter "X" in litigation against daughter "Y".
The above litigation involved a nasty personal dispute between the Trustee and daughter "X" against daughter "Y". You indicate that some of lawyer "A"s correspondence and pleadings during this litigation conveyed to daughter "Y" the vindictive unpleasant nature of the dispute. You also indicate that information regarding the Trust was withheld by lawyer "A" and/or that attorney's clients from "Y"." As a result, lawyer "A" was perceived by daughter "Y" to be representing interests very much at odds with her own interests.
In the course of the above litigation the Trustee, then in failing health, resigned her position as Trustee. She continued to be the lifetime beneficiary of the Trust. Daughter "X", then became the Successor Trustee/Contingent Beneficiary. Lawyer "A", who had represented daughter "X" in her individual capacity, continued to represent daughter "X" both as Successor Trustee and in an individual capacity.
After the conclusion of the above litigation, the mother/lifetime beneficiary died. The contingent remainder beneficiaries of the Trust then became vested beneficiaries. Under the terms of the Trust, upon the mother's death the trust was terminated and the property in the trust was subject to distribution to the beneficiaries.
Notwithstanding the terms of the Trust, daughter "X", acting in her capacity as Successor Trustee took control of the assets and income of the Trust to complete renovations of the Trust property. Acting upon the advice of lawyer "A" she expended Trust income, borrowed money and performed renovations to Trust property without consulting or getting permission from the other vested beneficiaries, including daughter "Y". You indicate that the "trustee was relying, in part, on an exculpatory clause in the trust which would appear to insulate her from a number of the categories of claims which might be brought against her."
Lawyer "A", who was representing daughter "X" both as Successor Trustee and in an individual capacity, was asked by daughter "Y" to discontinue representation of Trustee "X" due to a conflict of interest. "Y" noted that but for the formality of the distribution she was a one-third owner of the trust property and id not want the lawyer who had previously been against her to represent her interests. She contended that this was particularly so in light of the multiple adverse actions taken by lawyer "A" against "Y" in the prior litigation. She also contended that following the mother's death, the Trustee's lawyer owed a duty of care to the de jure owners of the trust property from which he was being paid.
Upon receiving "Y"'s demand, lawyer "A" stated that he was presently representing trustee "X" in only her capacity as a Successor Trustee. You go on to note that lawyer "A" has continued to represent "X" in some limited matters in "X"'s individual capacity, including other estate matters unrelated to the Trust, but concerning the estate of the deceased mother relative to "X" and "Y".
Lawyer "A", in an effort to avoid problems relating to the claims of impermissible conflict, requested that estate and trust related matters be addressed to him in separate correspondence as he intended to bill separately for "X" in her capacity as trustee, and "X" in her individual capacity. When "Y" pressed the issue, lawyer "A" stated that he was no longer representing "X" in her individual capacity.
"Y" continues to take the position that lawyer "A" is barred from representing "X" as Trustee due to conflict of interest as well as her belief that lawyer "A" and the Trustee do not appear to be acting in the best interests of the Trust.
You indicate that lawyer "A" does not wish to withdraw as a new lawyer would have to "reinvent the wheel" at considerable expense to the Trust. You also indicate that beneficiary "Y" is adamant that lawyer "A" is ethically prohibited from continuing the representation.
Rule 1.7 of the Maryland Rules of Professional Conduct states:
Rule 1.7. Conflict of Interest: General rule.
- A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless
- the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
- each client consents after consultation.
- A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
- the lawyer reasonably believes the representation
- will not be adversely affected; and the client consents after consultation.
- The consultation required by paragraphs (a) and (b) shall include explanation of the implications of the common representation and any limitations resulting from the lawyer's responsibilities to another, or from the lawyer's own interests, as well as the advantage and risks involved.
It is clear that lawyer "A" represents "X" as Successor Trustee and also in her individual capacity in matters affecting "Y". As such, lawyer "A" may not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person. He may also not represent a client if the representation of that client will be materially adverse to another client.
The facts as stated above clearly show that there are potential conflicts between "A"'s one client, "X" as Successor Trustee, and "A"'s other client, "X" as an individual. In addition, any advice that lawyer "A" gives to "X" as Successor Trustee may materially limit him in his representation of "X" as an individual and vice-versa. Of course the rule also contemplates that if each party consents, then the lawyer may represent both clients. Consent will only be an issue if the lawyer reasonably believes that there will be no adverse effects resulting from the representation. Under your factual scenario, that does not seem to be the case.
The comments to Rule 1.7 state:
Loyalty to a client is also impaired when a lawyer cannot consider, recommend or carry out an appropriate course of action for the client because of the lawyer's other responsibilities or interests. The conflict in effect forecloses alternatives that would otherwise be available to the client…The critical questions are the likelihood that a conflict will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client.
Another point to address involves the interest between "X" and "Y" which appear to be directly adverse. Whether attorney "A", acting as attorney for Successor Trustee, has an attorney-client relationship with "Y" or any other beneficiary of the Trust is a matter of law on which this committee cannot opine. See however, the cases of Noble v. Bruce 349 MD. 730 (1998) and Ferguson v. Cramer 349 MD. 760 (1998) which offer guidance on this issue.
The committee refers you to MSBA Ethics Opinion 93-33. In that opinion an attorney represented co-personal representatives of an estate. During the course of the administration of the estate one PR asked for an accounting based on actions of the other PR. The committee stated that "where an estate has Co-PR's, the estate can only act through the joint decision of the Co-PR's. As such the committee opined that both PR's were the attorney's clients and the attorney could not represent one against the other. Also see MSBA Ethics Opinion 92-33 in which a lawyer represented a client as both an individual and as personal representative of an estate.
The comments to Rule 1.7 recognize the complexity and confusion that can arise in determining the identity of the client in estate matters. The comment states that"
Conflict questions may also arise in estate planning and administration…
In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. The lawyers should make clear the relationship to the parties involved.
If in fact "Y" considered to be a client of lawyer "A" based on his representation of the Trustee, he may not continue the representation of "X" without "Y"'s consent.
Based on the facts set forth above, it is the committee's opinion that lawyer "A" has a conflict representing "X" in her dual capacities and should withdraw from the representation of "X" in her capacity as Trustee.