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October 17, 2014

Stine v. Dell ‘Osso 2014 WL 5293521

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The First District holds there is no bar to a successor fiduciary’s legal malpractice action against a predecessor fiduciary’s attorney.

In 2002, David B. Davis hired Monica Dell’Osso and Burnham Brown, APC (Burnham Brown) to obtain a conservatorship over the person and estate of his mother. Davis represented there were no conservatorship assets, although there were significant assets in his mother’s name.  After Davis misappropriated conservatorship assets, he was removed and Joanne Holman Stine was appointed.

Stine filed a legal malpractice action against Burnham Brown, alleging the firm represented Davis in his capacity as conservator, and failed to inform the probate court of the assets, or petition the court to require a bond. Stine’s claims were limited to the period after the conservatorship was established; prior to then Burnham Brown represented Davis only in his individual capacity.  Burnham Brown challenged Stine’s standing since she was never a client of the firm. 

Under the Probate Code a successor personal representative has the powers and duties of the former personal representative, including the power to commence and maintain actions and proceedings for the benefit of the estate. The Supreme Court has interpreted the Probate Code scheme to permit a successor fiduciary to sue a predecessor’s attorney for malpractice causing loss to the estate.  Without this power, there would be no effective remedy for legal malpractice that harms estates and trusts administered by successor fiduciaries. Even though a successor fiduciary is not in privity with counsel for the predecessor fiduciary, the Legislature filled this gap with Probate Code provisions.

The attorney-client privilege did not a bar the legal malpractice claim. Stine, as successor fiduciary, became the holder of the privilege on communications between Davis and Burnham Brown.

The Court would not impute Davis’s “unclean hands” to Stine. “Unclean hands” is an equitable rationale for refusing relief where principles of fairness dictate the plaintiff should not recover, regardless of the merits of a claim. It depends upon analogous case law, the nature of the misconduct, the relationship of the misconduct to the claimed injuries, and whether it would be unfair for the plaintiff to profit from his or her own wrongdoing.  The court concluded Stine, who was blameless, could fairly pursue a malpractice claim.

The Probate Code rejects the notion a successor fiduciary is hampered by the wrongs of the predecessor fiduciary in recouping losses sustained by the estate.  The Probate Code specifies a successor trustee is not liable to the beneficiary for a breach of trust committed by a predecessor trustee, and a co-conservator is not liable for breaches by another co-conservator.

The Probate Code also distinguishes between actions by fiduciaries within their representative capacity, and actions outside their authority and involving personal fault. These provisions were enacted to change the basic rule of the common law that the trustee is personally liable for obligations in administration of the trust to the same extent as if the trustee held the property free of trust.  Without this protection, no one would take over as a successor fiduciary from a malfeasant prior fiduciary.  The Probate Code mandated court monitoring is to promptly detect and swiftly remove a conservator who breaches his or her fiduciary duties.  The Probate Code allows the installation of successor conservators to protect vulnerable conservatees. The Probate Code contemplates skilled and willing successor fiduciaries empowered to correct wrongs perpetrated by a predecessor.

An attorney for a fiduciary represents the fiduciary only in his or her representative capacity. There is no conflict of interest if an attorney represents a client adverse to the fiduciary while the fiduciary acts in his or her personal capacity.  By extension, Stine’s assumption of Davis’s fiduciary powers does not mean she also assumes his personal limitations or liabilities. Davis’s misconduct was outside his fiduciary authority, and he alone is responsible for it.  Stine steps into his shoes only on his authority, not on his wrongdoing.  To disallow a claim would be wholly antithetical to the protective purposes of establishing a conservatorship, protection of an individual who cannot protect his or her own interests.

Comment: This case clarifies an attorney representing a conservator must consider the rights of a non-client, the intended beneficiary of the conservatorship.

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