The Goldbergs Of Utah

The Utah Supreme Court reversed an order of disqualification in trust litigation

C. Leon Nelson and Marilynn Tetrick hired legal counsel to assist them in their duties as trustees of the Stanley and Sandra Goldberg Trusts. Years later, the same attorneys defended them in a lawsuit brought by several of the trusts’ beneficiaries. After a jury found that the trustees had breached their fiduciary duties to the trusts, the district court entered a roughly $1.8 million judgment against them, most of which was payable to the trusts. At the beneficiaries’ request, the court then removed the trustees and appointed successor trustees.

Meanwhile, the former trustees—still represented by the same attorneys—asked the court to reduce the amount of the judgment against them. The beneficiaries opposed that request, and the successor trustees moved to disqualify the former trustees’ attorneys, arguing that a conflict had surfaced under rule 1.9(a) of the Utah Rules of Professional Conduct. Under rule 1.9(a), a lawyer who has represented a client in one matter may not later—“in the same or a substantially related matter”—represent another person whose interests are “materially adverse” to the former client’s interests, absent written consent. UTAH R. PRO. CONDUCT 1.9(a).

In the successor trustees’ view, the attorneys had represented the trusts in the litigation brought by the beneficiaries. The successor trustees therefore argued that the attorneys were precluded from assisting the former trustees in attempting to reduce the judgment because doing so would defy the interests of the trusts—their former clients. The district court agreed and disqualified the attorneys.

On appeal, the former trustees contend that the district court erred in finding a disqualifying conflict under rule 1.9(a). They argue that the court misread our caselaw to mean that if attorneys represent a trustee, they necessarily represent the trust. According to the former trustees, their attorneys represented them alone in defending against the beneficiaries’ claims, so rule 1.9(a) does not prohibit those attorneys from continuing to advocate their interests as the case evolves.

We reverse. Although under our caselaw an attorney can represent a trust, such an attorney-client relationship does not arise merely because an attorney represents a trustee. In the beneficiaries’ suit against the former trustees, the attorneys represented the former trustees only, not the trusts, which were not named in the suit. Thus, because the attorneys never represented the trusts in the litigation, rule 1.9(a) does not prevent the attorneys from continuing to represent the former trustees.

No side switching

the trusts were not represented by counsel in the litigation for the simple reason that they were not a party. The beneficiaries sued only the former trustees. The attorneys never entered an appearance as counsel for the trusts, and the former trustees’ filings indicated their attorneys represented them alone.

Nor did the attorneys advocate for the trusts in the litigation. At bottom, the case pitted the former trustees, on the one hand, against the beneficiaries and the trusts, on the other. The beneficiaries sought redress for harm that the former trustees inflicted on the beneficiaries and the “Trust corpus.” If the jury agreed that the former trustees committed torts and breached their fiduciary duties, the former trustees would be on the hook personally, paying damages to “the . . . Beneficiaries” and returning money “to The Trust[s].”

Sure enough, that is precisely what happened. The jury sided with the beneficiaries, who were “awarded monetary judgment in their favor and against Defendants C. Leon Nelson and Marilynn Tetrick in . . . a total amount of $1,820,185.70 to be paid to the Trusts.” If anyone advocated on behalf of the trusts’ interests throughout the case, it was the beneficiaries, who sought to increase the trusts’ assets by recovering damages from the former trustees, and not the former trustees themselves, who wanted to avoid personal liability.

Conclusion

Under these circumstances, we hold that the district court erred in concluding that the attorneys represented the trusts under rule 1.9(a). Throughout the lawsuit, the attorneys consistently challenged the beneficiaries’ allegations and defended against claims that the former trustees were liable for damages payable to the trusts. Because the attorneys did not formerly represent the trusts in this case, rule 1.9(a) does not apply. Therefore, the district court erred in disqualifying the attorneys based on the perceived conflict.

(Mike Frisch)