Opinion
No. HHD X04 CV-08-403824 S
November 8, 2010
MEMORANDUM OF DECISION ON MOTION TO COMPEL DISCOVERY (#234)
This matter is before the court concerning the plaintiff's motion to compel discovery, which is accompanied by a memorandum of law and exhibits. The plaintiff seeks an order compelling the defendants to produce documents which were identified on privilege logs. The defendants filed a memorandum of law in opposition, also accompanied by exhibits (#244). In addition, non-party Hubbell, Inc. (Hubbell) filed a memorandum of law concerning the attorney-client privilege (#245). The court has considered the arguments presented concerning the motion.
I Background
"Plaintiff William Hale Hubbell is a beneficiary of two family trusts (Hubbell family trusts). He seeks to remove the present trustees of both trusts — the defendants C.J. Ratcliffe, Richard W. Davies and Andrew McNally IV (collectively, trustees) — and to recover damages from them for breach of their fiduciary duties. He seeks also a modification of the trusts so as to preclude persons such as the defendants, who have been employed with a corporation, [Hubbell], as officers or otherwise, from serving as trustees." Hubbell v. Ratcliffe, Superior Court, judicial district of Hartford, Complex Litigation Docket at Hartford, Docket No. X 09 CV 08 4038824 (July 28, 2009, Shortall, J.T.R.) ( 48 Conn. L. Rptr. 315).
The plaintiff is one of approximately twenty-eight beneficiaries. See defendant Davies' affidavit, ¶ 23.
"The facts alleged in the complaint . . . are as follows. The two Hubbell family trusts were created in 1957 by Harvey Hubbell, III (Hubbell trust) and his mother, Louie E. Roche (Roche trust). The beneficiaries of the Hubbell trust were the settler and his wife, children and grandchildren; of the Roche trust, the settlor, her son and her grandchildren and great grandchildren. The obvious purpose of both trusts was to provide for the financial well-being of the beneficiaries via distribution of the income and principal of the trusts.
"Each trust provided for three trustees, and, pursuant to the trust indentures, each of these trustees must be a 'director or officer, or both' of Hubbell or any successor corporation, as long as the trust corpus contains any securities of Hubbell or such successor corporation . . . The three present trustees of the Hubbell family trusts satisfy that criterion: Mr. Ratcliffe has been a director of Hubbell since 1980, as has Mr. McNally; Mr. Davies has been vice-president, general counsel and secretary of Hubbell since 1999.
"In 1998 the trustees supported and voted for a 'poison pill' provision adopted by the Hubbell board of directors (board) in the form of a 'shareholders rights agreement,' which provision is intended to deter a takeover of Hubbell by potential acquirors of Hubbell common stock. When this provision was adopted, in Dec. 1998, most of the assets of the Hubbell family trusts consisted of Hubbell class A common stock. In fact, the trusts owned about 43% of outstanding class A common stock of Hubbell, giving them a controlling interest in the corporation.
"Thereafter, upon advice of an independent investment advisor, the trustees began in 2001 selling off some of the Hubbell class A common stock in order to diversify the trusts' holdings. The goal was to sell 25% of the trusts' Hubbell stock, and by October 2007 the trustees had sold off approximately one million of the trusts' shares. In September 2007 Mr. Hubbell and another beneficiary demanded that the trustees halt any further sales of class A common stock, but the trustees did not accede to that demand . . ."
"Beginning in November 2007, Mason Capital Management, LLC (Mason) offered to purchase all of the Hubbell class A common stock from the trusts (approximately 3,150,000 shares) at a cash price of $65 per share, representing a substantial premium over the trading price of Hubbell shares at that time. Mason demanded that, as part of the purchase, the trustees urge the Hubbell board of directors to redeem the 'poison pill' provision or take other action to prevent its being triggered by Mason's purchase of the trusts' stock holdings. The trustees responded that they would forward Mason's request to the board but demurred on taking a position supporting Mason's demand. Mason's offer to purchase all the trusts' Hubbell stock was repeated several times during December and January 2008. Ultimately, the trustees reported to Mason that the board had declined to modify the 'poison pill' provision so as to allow the purchase to be made.
"Throughout this period Mr. Hubbell wrote to the trustees, arguing that the Mason proposal would be in the best interest of the beneficiaries because it would liquidate the trusts' holdings of Hubbell shares at a price 30% over their market value. His letters also accused the trustees of subordinating the interests of the trusts' beneficiaries to their own interests and of being controlled by conflicts of interest in their failure to recommend the Mason proposal to the Hubbell board. Finally, Mr. Hubbell urged [approval of] the Mason proposal to the board but also to appoint a temporary trustee to evaluate the Mason proposal and to nominate for membership on the Hubbell board persons committed to redeeming the shareholder's rights agreement in the face of a reasonable offer to purchase the trusts' common stock holdings at a substantial premium over its market price. The trustees took none of the actions urged upon them by Mr. Hubbell, and this lawsuit followed." (Footnotes omitted.) Hubbell v. Ratcliffe, supra. Superior Court, Docket No. X 09 CV 08 4038824.
II Discussion A Fiduciary Exception
In the plaintiff's motion to compel, he asserts that the defendants have withheld the documents under the "guise of the attorney-client privilege, the work product doctrine, or both." See plaintiff's motion, p. 1. The plaintiff argues that most of the withheld documents are not properly subject to the attorney-client privilege because they fall within the "fiduciary exception" thereto. He also argues that since documents were disclosed to third parties or sent using Hubbell's corporate email system, confidentiality was not maintained, and that the work product doctrine does not apply since the privilege logs show that almost all of the documents were not prepared by counsel exclusively or principally to assist in anticipated or ongoing litigation, but were prepared for other purposes.
In response, the defendants contend that there is no basis for creation of a new, fiduciary exception to the attorney-client privilege as it is applied in Connecticut, that beneficiaries of the trusts are not the "real clients" of the trustees' counsel, and, that, even if the court were to recognize a fiduciary exception, plaintiff would not be entitled to the trustees' communications with counsel. In addition, they contend that no waiver occurred, as communications involving a close circle of Hubbell employees were confidential, email communications using Hubbell email addresses were confidential, and communications with outside counsel were confidential. In addition, the defendants assert that the plaintiff's definition of work product is too narrow.
"In Connecticut, the attorney-client privilege protects both the confidential giving of professional advice by an attorney acting in the capacity of a legal advisor to those who can act on it, as well as the giving of information to the lawyer to enable counsel to give sound and informed advice." (Internal quotation marks omitted.) Harp v. King, 266 Conn. 747, 769 n. 27, 835 A.2d 953 (2003). "The burden of proving the facts essential to the privilege is on the party asserting it. State v. Hanna, 150 Conn. 457, 466, 191 A.2d 124 (1963)." State v. Davis, 98 Conn.App. 608, 632, 911 A.2d 753 (2006).
"The basic principles of the attorney-client privilege are undisputed. Communications between client and attorney are privileged when made in confidence for the purpose of seeking legal advice . . . Connecticut has a long-standing, strong public policy of protecting attorney-client communications . . . This privilege was designed, in large part, to encourage full disclosure by a client to his or her attorney so as to facilitate effective legal representation . . . Rule 1.6(a) of the Rules of Professional Conduct effectuates that goal by providing in relevant part that '[a] lawyer shall not reveal information relating to representation of a client unless the client consents after consultation . . .' The attorney-client privilege seeks to protect a relationship that is a mainstay of our system of justice . . . Indeed, this court has stated: It is obvious that professional assistance would be of little or no avail to the client, unless his legal adviser were put in possession of all the facts relating to the subject matter of inquiry or litigation which in the indulgence of the fullest confidence, the client could communicate. And it is equally obvious that there would be an end to all confidence between the client and attorney, if the latter was at liberty or compellable to disclose the facts of which he had thus obtained possession; and hence it has become a settled rule of evidence, that the confidential attorney, solicitor or counselor can never be called as a witness to disclose papers committed or communications made to him in that capacity, unless the client himself consents to such disclosure." (Citations omitted; internal quotation marks omitted.) Gould, Larson, Bennet, Wells McDonnell, P.C. v. Panico, 273 Conn. 315, 321-22, 869 A.2d 653 (2005).
"It is important not to weaken the privilege with various exceptions because, as the United States Supreme Court has explained, even the threat of disclosure would have a detrimental effect on attorneys' ability to advocate for their clients while preserving their ethical duty of confidentiality. Hickman v. Taylor, 329 U.S. 495, 511, 67 S.Ct. 385, 91 L.Ed. 451 (1947) (where threat of disclosure, '[i]nefficiency, unfairness, and sharp practices would inevitably develop in the giving of legal advice and in the preparation of cases for trial . . . [causing] the interests of the clients and the cause of justice [to] be poorly served')." Metropolitan Life Casualty Co. v. Aetna Casualty Surety Co., 249 Conn. 36, 48-49, 730 A.2d 51 (1999).
In order to preserve this mainstay of our system of justice, the confidential attorney-client relationship, "[e]xceptions to the attorney-client privilege should be made only when the reason for disclosure outweighs the potential chilling of essential communications." (Internal quotation marks omitted.) Hutchinson v. Farm Family Casualty Insurance Co., 273 Conn. 33, 38, 867 A.2d 1 (2005).
Although the plaintiff contends that Hutchinson recognized but declined to apply the fiduciary exception, the court is unpersuaded. There, the Supreme Court found that there was no fiduciary relationship between an insured and an insurer when the relationship between them is adversarial at the inception of a claim, upholding the assertion of attorney-client privilege. Id., 46-48. The court stated that "the principle that the attorney-client privilege does not bar disclosure by a fiduciary to its principal of privileged materials relating to their common interests has no application here." Id., 48. The court did not consider the application of a fiduciary exception to the attorney-client privilege where an attorney advises a trustee of a private trust.
Without making the required showing that the reason for application of the fiduciary exception here would outweigh the potential chilling of essential communications, the plaintiff cites cases which applied the fiduciary exception. In particular, the plaintiff heavily relies on Parker v. Stone, United States District Court, Civil Action No. 3:07-cv-00271 (VLB) (D.Conn. April 21, 2009), citing it five times. Parker acknowledged that there was no Connecticut precedent endorsing the fiduciary exception in the context of a private trust, and then looked to law in other states, including New York. See id. This court is unpersuaded by the analysis therein.
Parker cited as support a New York trial court decision from 1988, Matter of Estate of Baker, 139 Misc.2d 573, 528 N.Y.S.2d 470 (Sur. 1988). However, C.P.L.R. § 4503, which was amended in 2002, provides that the fiduciary exception is inapplicable in New York. "CPLR 4503(a)(2) . . . clarified issues for which there was no prior statutory directive. The statute provides that '[for purposes of the attorney-client privilege,' and in the absence of a contrary agreement between the personal representative and counsel, '[n]o beneficiary of the estate is, or shall be treated as, the client of the attorney,' and that the 'fiduciary relationship between the personal representative and a beneficiary of the estate does not by itself constitute . . . any waiver of the privilege for confidential communications' between the attorney and the personal representative. (CPLR 4503[a][2][i], [ii])." In Re Edward Poster, 25 Misc.3d 780, 783, 884 N.Y.S.2d 838 (Sur. 2009). In addition, in contrast to the situation here, Parker involved a trust with a single beneficiary and the trust's attorney testified that he never considered the former conservator to be his client as an individual, as opposed to the trust. See id. The facts at issue there are far afield from the circumstances here.
Similarly unavailing is the plaintiff's reference to Hartford Steam Boiler Inspection And Insurance Co. v. Industrial Risk Insurers, Superior Court, judicial district of Hartford-New Britain at Hartford, Docket No. CV 94 705105 (December 7, 1994, Corradino, J.) ( 13 Conn. L. Rptr. 114), where the plaintiff (HSB) was a member of the defendant joint underwriters association (IRI). The court found that "a fiduciary relationship of some sort" existed. Id. However, concerning the dispute, there was no mutuality of interest. See id. "[T]he fact that HSB is a part of a loose association of companies and a member of IRI has nothing to say about IRI's ability to claim the privilege after a dispute has arisen with HSB requiring resolution through arbitration." Id. The court there did not endorse a fiduciary exception to the privilege under Connecticut law concerning private trusts and their fiduciaries and counsel.
The plaintiff also cites Helt v. Metropolitan District Commission, 113 F.R.D. 7 (D.Conn. 1986), a pension fund matter, which applied federal law. Helt did not analyze the attorney-client privilege applying Connecticut law.
This court finds persuasive the analysis of the Supreme Judicial Court of Massachusetts, in Spinner v. Nutt, 417 Mass. 549, 553, 631 N.E.2d 542 (Mass. 1994), which stated, "[i]n the course of administering a trust, a trustee may be required to make difficult decisions with regard to his or her duties to the beneficiaries. A trustee's attorney guides the trustee in this decision-making process. That the interests of the trustee and the interests of the beneficiaries may at times conflict cannot seriously be disputed . . . Should we decide that a trustee's attorney owes a duty not only to the trustee but also to the trust beneficiaries, conflicting loyalties could impermissibly interfere with the attorney's task of advising the trustee. This we refuse to do . . . [I]t is the potential for conflict that prevents the imposition of a duty on the [attorney] to the trust beneficiaries." (Citation omitted; footnotes omitted.)
The Spinner court also noted that "[m]oreover, the disciplinary rules which govern attorney conduct in Massachusetts require in the circumstances of this case that an attorney preserve the secrets and confidences gained in the course of representing a client . . . To impose a duty on a trustee's attorney to beneficiaries could create situations antithetical to this disciplinary rule." (Citation omitted.) Id., 554. As discussed above, the Connecticut Supreme Court has cited Rule of Professional Conduct 1.6(a), which requires an attorney to keep in confidence information relating to representation of a client, in stressing the import of upholding the attorney-client privilege. See Gould, Larson, Bennet, Wells McDonnell, P.C. v. Panico, supra, 273 Conn. 322.
"The attorney-client privilege serves the same important purpose in the trustee-attorney relationship as it does in other attorney-client relationships. A trustee must be able to consult freely with his or her attorney to obtain the best possible legal guidance. Without the privilege, trustees might be inclined to forsake legal advice, thus adversely affecting the trust, as disappointed beneficiaries could later pore over the attorney-client communications in second-guessing the trustee's actions. Alternatively, trustees might feel compelled to blindly follow counsel's advice, ignoring their own judgment and experience." Huie v. DeShazo, 922 S.W.2d 920, 924 (Tex. 1996). This analysis by the Supreme Court of Texas is consistent with that of the Supreme Court of Connecticut, which cautions against "the chilling effect of third party intrusion into an attorney's primary duty of loyalty to the best interests of his or her client." Mozzochi v. Beck, 204 Conn. 490, 501, 529 A.2d 171 (1987).
The analysis in Spinner and Huie is also consistent with decisions of this court and those of other Superior Court judges, which have found that an attorney for a fiduciary of an estate does not represent its beneficiaries. See Platt v. Giumarro, Superior Court, judicial district of Litchfield at Litchfield, Docket No. LLI CV 06 5000582 (May 19, 2008, Pickard, J.) (attorney for executrix had no duty to third party beneficiary; applying Massachusetts law); Murray v. Murray, Superior Court, judicial district of Hartford at Hartford, Docket No. CV 02 0820216 (June 16, 2003, Shapiro, J.) ( 35 Conn. L. Rptr. 103) (attorney for administratrix did not represent estate's beneficiary); Jackson v. Furey, Superior Court, judicial district of Waterbury at Waterbury, Docket No. 98 014796 (December 21, 2000, Rogers, J.) (attorney representing fiduciary of estate had no duty to potential distributees or beneficiaries of that estate; citing authority from other states).
Likewise, the payment of counsel out of trust funds does not convert trust beneficiaries into clients of the trustees' counsel. "An attorney's allegiance is to his client, not to the person who happens to be paying him for his services." (Internal quotation marks omitted.) Spring v. Constantino, 168 Conn. 563, 575, 362 A.2d 871 (1975). The beneficiaries of the Hubbell trusts, including the plaintiff, are not clients of the trustees' counsel.
There has been no showing that the reason for disclosure outweighs the potential chilling of essential attorney-client communications. An exception to the attorney-client privilege is not warranted. See Hutchinson v. Farm Family Casualty Insurance Co., supra, 273 Conn. 38. Accordingly, the claimed fiduciary exception to the attorney-client privilege is not applicable here.
B Waiver
The plaintiff also contends that the defendants waived the attorney-client privilege by disclosing documents to third parties. "[T]he voluntary disclosure of confidential or privileged material to a third party, such as an adversary, generally constitutes a waiver of privileges with respect to that material." Rosado v. Bridgeport Roman Catholic Diocesan Corp., 292 Conn. 1, 58, 970 A.2d 656, cert. denied sub nom. Bridgeport Roman Catholic Diocesan Corp. v. New York Times Co., 130 S.Ct. 500, 175 L.Ed.2d 348 (2009). "[S]tatements made in the presence of a third party are usually not privileged because there is then no reasonable expectation of confidentiality . . . The presence of certain third parties, however, who are agents or employees of an attorney or client, and who are necessary to the consultation, will not destroy the confidential nature of the communications." (Citation omitted.) State v. Gordon, CT Page 21684 197 Conn. 413, 424, 504 A.2d 1020 (1985).
In particular, the plaintiff argues that the privilege logs describe numerous documents as to which defendant Davies was either author or recipient, when he was an officer of Hubbell and Hubbell's general counsel, before he became a trustee in 2002. The plaintiff has not shown that waiver occurred as to Davies before he became a trustee. According to Davies' affidavit, he performed various functions for the trusts, including communicating with beneficiaries, and maintained the confidentiality of trust matters. The fact that he also was in-house counsel for Hubbell at the time when he acted as an attorney and agent for the trustees does not mean that his duty to maintain confidentiality ran only to Hubbell.
Similarly, the fact that documents were disclosed to Hubbell employees who worked as secretaries for the trustees also does not show waiver. The trusts require that the trustees must be officers or directors of Hubbell. Where, as here the trustees were permitted to have the assistance of secretaries in the performance of their trustee duties, and the secretaries maintained confidentiality, the privilege was not waived. See State v. Gordon, supra, 197 Conn. 424.
Also, the use, with permission (see Davies' affidavit, ¶¶ 11-14), of Hubbell's computer files and email system for communications, to which only the trustees and their secretaries had access, did not constitute waiver. The defendants reasonably expected that these communications were confidential, and they are protected by the attorney-client privilege. See U.S. v. Hatfield, United States District Court, 06-CR-0550 (JS) (E.D.N.Y. November 13, 2009).
The court is also not persuaded that waiver occurred through the use of outside counsel. According to Ratcliffe's affidavit, paragraphs 11-12, Simpson, Thatcher Bartlett LLP served as counsel to the trustees.
As to Latham Watkins, the plaintiff argues that involvement of outside counsel to Hubbell eliminates the fundamental requirement of confidentiality. In response, the defendants contend that the communications remain protected by the common interest doctrine. "[A] party relying on the common interest doctrine to shield privileged communications from disclosure has the burden of establishing all of its elements." Raymond Road Associates, LLC v. Taubman Centers, Inc., Superior Court, judicial district of Waterbury, Complex Litigation Docket at Waterbury, Docket No. X02 UWY CV 07 5007877 (October 30, 2009, Eveleigh, J.).
"The common legal interest rule was intended to protect the free flow of information from client to attorney . . . whenever multiple clients share a common interest about a legal matter . . . This rule requires that the communication in question was given in confidence and that the client reasonably understood it to be so given . . . The parties claiming protection under the rule must share a common interest about a legal matter, but it is . . . unnecessary that there be actual litigation in progress . . . Third parties receiving copies of the communication and claiming a community of interest may be distinct legal entities from the client receiving the legal advice and may be a non-party to any anticipated or pending litigation." (Citations omitted; internal quotation marks omitted.) Id.
Here, in responding to the plaintiff's requests concerning Mason and in dealing with the Mason offer, certain common interests existed. Counsel for Hubbell advised Hubbell's officers and directors concerning their duties to Hubbell and its shareholders and assisted the trustees and their counsel in responding about Mason. In view of the necessary overlap in roles as trustees and as officers and directors, it is apparent that outside counsel provided advice in confidence about the issues, and that it was reasonably understood to be so given. Similarly, in participating, Morgan Stanley, a financial advisor, was acting as agent for Latham Watkins. No waiver occurred.
Also, it is apparent that the defendants/trustees necessarily were provided Hubbell documents which were expected to be treated as confidential. No waiver occurred as to these materials.
Since the court has determined that the attorney-client privilege protects from disclosure the documents which the plaintiff is seeking, and no separate work product argument is made concerning documents which are not claimed to be subject to the attorney-client privilege, the court need not address the work product arguments. Similarly, in view of the above discussion concerning the attorney-client privilege, no in camera review of the documents is warranted.
CONCLUSION
For the foregoing reasons, the plaintiff's motion to compel discovery is denied. It is so ordered.