In re McAleer

• Decision Date: 07 April 2021
• Docket Number: No. 6 WAP 2019,6 WAP 2019
• Citation: 248 A.3d 416
• Parties: IN RE: the ESTATE OF William K. MCALEER, Deceased Appeal of: William McAleer
• Court: Pennsylvania Supreme Court

248 A.3d 416

IN RE: the ESTATE OF William K. MCALEER, Deceased

Appeal of: William McAleer

No. 6 WAP 2019

Supreme Court of Pennsylvania.

Argued: May 27, 2020

Decided: April 7, 2021

OPINION

JUSTICE WECHT

This Court granted review to determine whether the attorney-client privilege and the work product doctrine¹ may be invoked by a trustee to prevent the disclosure to a beneficiary of communications between the trustee and counsel pertaining to attorney fees expended from a trust corpus. But to reach that issue, we first faced the question of whether the Superior Court erred in disclaiming jurisdiction on the basis that the trial court's order rejecting the privilege claim was not a collateral order, and immediately reviewable as such. For the reasons stated in Parts I and II(A) below, we hold unanimously that the Superior Court had immediate appellate jurisdiction to review the privilege question on the merits, and therefore erred in concluding otherwise. Accordingly, that court's quashal order is reversed.

As to the privilege issue itself, the Superior Court indicated that, notwithstanding its perceived lack of jurisdiction, there was no evidence by which to substantiate a claim of privilege on the merits, nor any argument presented to the trial court in support thereof. For those reasons, the court was left to conclude that the privilege was unavailable under the circumstances and that the communications at issue were subject to disclosure. This Court has not reached a consensus on whether the privilege may be invoked in the trust context.² Because disclosure would nevertheless result from the competing positions set forth by a majority of Justices, the lower court's alternative ruling is affirmed by operation of law.³

I.

William H. McAleer ("Trustee") is the sole trustee of a revocable living trust that was created on November 30, 2012, by his now-deceased father, William K. McAleer, for the benefit of Trustee and his two stepbrothers, Stephen and Michael Lange ("Beneficiaries"). Following the elder McAleer's death on May 4, 2013, Trustee filed a first and partial accounting of the trust in March 2014, to which Beneficiaries filed twenty-one objections, challenging certain aspects of the administration of the trust and seeking disclosure of information pertaining to a number of bank accounts. As a consequence of Beneficiaries’ challenges, Trustee retained the services of two law firms, Julian Gray Associates ("Gray") and K&L Gates, to respond.⁴ The probate court ultimately dismissed the objections with prejudice following an evidentiary hearing in March 2016.⁵

Although none of the objections pertained specifically to legal expenses, Trustee's filings indicated that roughly $124,000 had been expended from the trust for attorney fees and costs through December 2015, prompting Beneficiaries to file a petition for special relief to determine the reasonableness of those expenses.⁶ In response, the probate court froze further disbursements of trustee and legal fees from the trust corpus absent prior judicial authorization, and subsequently denied Trustee's motion for reconsideration.⁷

In August 2016, Trustee filed a second and final accounting. On November 14, 2016, Beneficiaries filed ten objections, contending, inter alia , that Trustee had paid unreasonable and excessive trustee and attorney fees from the trust.⁸ Trustee's response included the general assertion that he was "under no obligation to provide [O]bjectors with copies of legal invoices as they are protected by attorney/client privilege," along with a detailed explanation of the circumstances necessitating the litigation expenses.⁹ Deviating slightly from his prior representations, Trustee averred that "[t]he amount of legal fees incurred by the Trust to respond to [Beneficiaries’] baseless objections totals $123,170.67. Of this total, the fees of Julian Gray Associates were $49,413.46. The fees of K&L Gates were $73,757.21."¹⁰

On March 2, 2017, Beneficiaries served a request for production of documents, including billing statements for all trustee and attorney fees included in the second and final accounting. That same day, Trustee served Beneficiaries with his own request for production of documents relating to their legal expenses. Notwithstanding this dueling discovery demand, Trustee filed no formal objections to Beneficiaries’ request. Pertinently, Trustee initially provided substantially redacted copies of the attorney invoices from Gray only.¹¹ Two hundred twenty-three of the Gray entries were blacked out, with notations for attorney-client privilege and work product doctrine appended as reasons for the redactions. Thereafter, Trustee produced billing statements from K&L Gates, with 98% of the billings similarly redacted. Unsatisfied with Trustee's discovery efforts, on May 8, 2017, Beneficiaries moved for an order compelling discovery.¹²

At a hearing ten days later before the Honorable Kathleen A. Durkin in the Court of Common Pleas of Allegheny County, Trustee's counsel reiterated Trustee's invocation of the privilege and doctrine. Although Trustee's counsel admitted that she could not "speak for K&L Gates bills because they belong to K&L Gates" and that she had "no knowledge of" those bills, she noted that the redacted time sheets for both firms bore corresponding notations for "protected information litigation" and "confidential [communications] with counsel relating to the litigation matters, not relating to the trust administration or trust management."¹³

Trustee's counsel also quoted this Court's holding in Levy v. Senate of Pennsylvania , 619 Pa. 586, 65 A.3d 361 (2013), that "descriptions of legal services that address the client's motive for seeking counsel, legal advice, strategy or other confidential communications are undeniably protected under the attorney client privilege."¹⁴ Referencing the inspection procedure utilized in Levy , Trustee's counsel offered that the court could review the documents in camera if it "felt that more information was needed."¹⁵ Beneficiaries’ counsel agreed that the court "need[ed] to look at it,"¹⁶ but it does not appear that Judge Durkin accepted the parties’ offer. Following the hearing, the court ordered Trustee to forward unredacted invoices to Beneficiaries within thirty days.¹⁷ Trustee did so only for the trustee invoices, but filed an interlocutory appeal as to the attorney invoices, asserting attorney-client and work product protections.

In its Pa.R.A.P. 1925(a) opinion, the court explained that a party seeking to assert a privilege first must set forth facts to establish that the privilege is properly invoked. Opinion, 7/11/2017, at 1 (citing Custom Designs & Manuf. Co. v. Sherwin-Williams Co. , 39 A.3d 372, 376 (Pa. Super. 2012) ). While Trustee had made a "general argument" as to the Gray billings, the court noted that Trustee's counsel specifically stated that she could not speak for the K&L Gates bills. The court thus concluded that Trustee had presented no facts to establish the propriety of the invocation of the privilege. Additionally, the court reasoned that when a trustee obtains legal advice relating to a trust, that advice must be shared with the beneficiaries. Id. at 2 (citing Follansbee v. Gerlach , 56 Pa. D. & C. 4th 483 (C.C.P. Allegheny 2002) ). Ultimately, because Beneficiaries effectively had paid for the legal services rendered to Trustee, Judge Durkin determined that they should be entitled to see the bills that are the subject of this dispute to determine whether those bills were reasonable. Trustee appealed.

In a unanimous opinion, the Superior Court quashed Trustee's appeal. In re Estate of McAleer , 194 A.3d 587 (Pa. Super. 2018). The panel began by addressing whether the trial court's order was appealable under our Rules of Appellate Procedure. Id. at 591-93. After concluding that the order was not final under Rule 341, that an interlocutory appeal was not available as of right under Rule 312, and that Trustee had not sought permission to appeal under Rule 312, the court homed in on the collateral order doctrine. See Pa.R.A.P. 313.¹⁸ For an order to be appealable under Rule 313(b), the panel noted, it must satisfy three conditions: "(1) the order is separable from the main cause of action; (2) the right involved is too important to be denied review; and (3) the claim would be irreparably lost if review is postponed." McAleer , 194 A.3d at 593 (quoting J.S. v. Whetzel , 860 A.2d 1112, 1116 (Pa. Super. 2004) ). Initially, the court observed that the order appealed here related to the merits of Beneficiaries’ underlying claims and, therefore, was inseparable from the main cause of action. Consequently, the court determined that the first prerequisite had not been met. Because all three factors must be satisfied, the panel concluded that the instant appeal was not taken from a collateral order. Id. at 594.

"However," the court continued, "discovery orders involving privileged material are nevertheless appealable as collateral to the principal action pursuant" to Rule 313. Id. (quoting Estate of Moskowitz , 115 A.3d 372, 389 (Pa. Super. 2015) ). The panel then proceeded to discuss a burden-shifting paradigm when claims of privilege are at issue, with the party asserting the privilege bearing the initial burden of setting forth facts establishing that the privilege properly has been invoked. Id. (quoting Nationwide Mut. Ins. Co. v. Fleming , 924 A.2d 1259, 1267 (Pa. Super. 2007) ("If the party asserting the privilege does not produce sufficient facts to show that the privilege was properly invoked, then the burden never shifts to the other party, and the communication is not protected under attorney-client privilege.")); see id. at 595 ("Likewise, the same burden applies to a party seeking to invoke the protections of the work-product doctrine.").

The court also considered a trustee's duty to furnish information pursuant to Section 82 of the Third Restatement of Trusts, which...