CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
FIDUCIARY TRUST INTERNATIONAL OF CALIFORNIA,
THE SUPERIOR COURT OF LOS ANGELES COUNTY,
MICHAEL J. BROWN et al., as Trustees, etc.
Real Parties in Interest.
(Los Angeles County
(Super. Ct. No. SP001682)
ORIGINAL PROCEEDING. Petition for writ of mandate, Joseph S. Biderman, Judge. Writ granted.
Holland & Knight, Bruce S. Ross, Vivian L. Thoreen and Roger B. Coven for Petitioner.
No appearance for Respondent.
Sandler and Rosen, Charles L. Birke and Adam W. Guerrero for Real Parties in Interest.
In 1992, Raymond Sandler, then an attorney at Sandler & Rosen, drafted wills for Willet Brown and his wife Betty Brown. Willet’s will established a marital trust that was expected to generate several million dollars in annual income. The will named Betty as the marital trust’s income beneficiary for life; upon her death, the principal of the trust was to be transferred into an Exemption Equivalent Trust that would benefit each of Willet’s four children. Betty’s will, in turn, left a large majority of her estate to the Exemption Equivalent Trust. After Willet died, Betty revoked the will that Sandler had prepared and drafted a new instrument transferring the large majority of her assets to a trust that was to benefit her daughter.
Following Betty’s death in 2011, a dispute arose between her personal representative–petitioner Fiduciary Trust International of California–and the marital trust trustees regarding whether the terms of Willet’s will required the trust to pay approximately $27 million in estate and inheritance taxes that were due on Betty’s assets. Fiduciary Trust filed a motion to disqualify Sandler & Rosen, arguing that the firm was barred from representing the trustees based on Sandler’s prior representation of Betty. The trial court denied the motion and Fiduciary now petitions this court for a writ of mandate compelling the court to vacate its ruling and enter a new order disqualifying Sandler & Rosen. We issued an order to show cause and we now grant the petition for writ of mandate.
FACTUAL AND PROCEDURAL BACKGROUND
The Browns’ Estate Planning Documents
Raymond Sandler, an attorney at Sandler & Rosen LLP, served as Willet H. Brown’s personal, family and business attorney. In 1992, Sandler drafted a will for Willet, whose estate was then estimated to be worth $200 million, and a separate will for Willet’s wife of 45 years, Betty Brown. At the time Sandler drafted the wills, Willet had four adult children: Kim Blake, who was his only child with Betty, and three children from a prior marriage: Michael J. Brown, Patricia Louise Brown and Peter Ransom Brown.
Willet’s will bequeathed his personal effects and real property to Betty. The remainder of his estate was to be divided between two trusts: the “Exemption Equivalent Trust” and the “Marital Trust.” The Exemption Equivalent Trust was to be initially funded with “a pecuniary amount equal to the maximum sum” of various gift and estate tax exemptions then in effect, which totaled approximately $600,000. The trust was to be divided into equal shares among Willet’s four children. Each child was to receive the income from their respective share of the trust for life; upon their death, the principal of each child’s share was to go to his or her designated appointee.
The will placed all of Willet’s remaining assets into the Marital Trust and named Betty as the income beneficiary of the trust for her life. The will directed that, upon Betty’s death, the trustees of the Marital Trust were to pay all “legally enforceable claims against her or her estate, expenses of administration and any estate or inheritance taxes payable by reason of her death, including interest and penalties, from either income or principal of the Marital Trust . . . unless other adequate provisions shall have been made therefore.” After such payments were made, the trustees were to distribute the remaining principal of the Martial Trust into the Exemption Equivalent Trust.
The separate will that Sandler drafted for Betty bequeathed various personal and real property to her daughter Kim. The residue of Betty’s estate was to go to the “‘Trustees of the Exemption Equivalent Trust created under the Will of . . . [Willet Brown].”
In addition to the two wills, Sandler prepared a memo for Willet summarizing the terms of the estate planning documents. The memo stated that Sandler expected Betty to receive approximately $3 million in annual income from the Marital Trust, which would enable her to “accumulate a sizeable amount during her lifetime.” The memo further explained that, under the terms of Betty’s will, this accrued income “would go into the Exemption Equivalent Trust which . . . is for the benefit of all four of your children.” The memo also indicated that while there would be “no tax to pay under your present Will,” substantial federal estate and state inheritance taxes would become due upon Betty’s death, which would be paid from the Marital Trust. After the payment of those taxes and any other debts, the remaining principal would be transferred to the Exemption Equivalent Trust and “divided into equal shares for each of your children . . .”
Betty signed her will in July of 1992 and Willet signed his will two months later. Willet died in October of 1993. Shortly thereafter, the Marital Trust and Equivalent Exemption Trust were established pursuant to an ex parte order appointing testamentary trustees.
After Willet died, Betty established the “Betty R. Brown Trust,” which she amended on several occasions. The operative version of the trust acted to rescind Betty’s 1992 will and directed that, upon her death, a significant majority of the trust assets (which consisted of Betty’s personal effects, residences and income she had accumulated from the Marital Trust) were to be distributed to Kim outright. The Betty Brown Trust also included language indicating that the trustee should obtain all estate and inheritances taxes due on her estate from the trustees of the Marital Trust: “The terms of the Marital Trust established under the Will of [Betty’s] late husband, [Willet Brown], . . . provide that upon [Betty’s] death, the trustees of the Marital Trust shall pay . . . any estate or inheritance taxes payable by reason of [Betty’s] death, . . . unless other adequate provisions shall have been made therefore. [Betty] has made no provision for the payment of any such claims expenses or taxes . . . To the extent that Trustee hereunder shall be required to pay any such claims or expenses, or any such taxes payable by reason of [Betty’s] death, [Betty] directs the trustee to recover from the Marital Trust all such claims and expenses and all such taxes . . .”
Betty died on December 26, 2011. Fiduciary Trust International of California (Fiduciary) was appointed “administrator with will annexed” of Betty’s estate and letters of administration were issued on November 6, 2012.
Dispute Regarding Payment of Taxes Owed on Assets Held in the Betty Brown Trust
As a result of Betty’s death, approximately $100 million in estate and inheritance taxes became due on the property in the Marital Trust and the Betty Brown Trust. Although the trustees of the Marital Trust agreed to pay the portion of the taxes attributable to property held within the Marital Trust (approximately $74 million), they refused to pay the portion of taxes attributable to assets within the Betty Brown Trust.
In August of 2012, Fiduciary filed a petition for an order confirming its right “to seek payment from the Trustees of the Marital Trust . . . [for] any and all claims, expenses or taxes arising from Betty’s death, including the total federal estate tax liability attributable to the death of Betty Brown . . . of which the estimated remaining amount is approximately $27,000,000.” Fiduciary argued that it was entitled to this payment because Willet’s will specifically directed the trustees of the Marital Trust to pay “any estate or inheritance taxes payable by reason of [Betty’s] death . . . unless other adequate provision have been made therefore.” Fiduciary also argued that the Betty Brown Trust included specific language clarifying that Betty had made no other provisions for the payment of estate and inheritances taxes.
The trustees of the Marital Trust, who were represented by Sandler & Rosen, filed a cross petition seeking an order that it was only obligated to pay “estate and inheritances taxes, claims, and expenses attributable to property held by the Marital Trust” and had no further obligation to pay “taxes, claims, or expenses attributable to assets owned by the Betty Brown Trust.” The trustees alleged that, during the 18 years between Willet and Betty’s deaths, Betty had “accumulated more than $80 million in assets from the . . . income she received from the Marital Trust.” The petition asserted that, under the terms of Betty’s 1992 will, those assets would have been transferred to the Equivalent Exemption Trust upon her death, thereby benefitting each of Willet’s four children. Following Willet’s death, however, Betty had elected to revoke that will and established the Betty Brown Trust, which benefitted only Kim.
The Marital Trust trustees argued that, in light of the changes Betty made to her estate plan, it would be unfair to require the Marital Trust to pay the $27 million in estate taxes owed on the assets in the Betty Brown Trust: “[I]f the Betty Brown Trust prevails on its claim against the Marital Trust, then each of Willet’s other three children, Patricia, Michael and Peter will pay approximately $6,750,000 in death taxes on property they will never receive. Each of their Exemption Equivalent Trusts will be reduced by that amount if the Marital Trust pays the $27,000,000 death taxes for the Betty R Brown Trust. . . Such a result was never intended, contemplated or understood by Willet when he signed his Will and when he died. At the time of his death, he had knowledge of Betty’s will which bequeathed all her property, except personal property and the residences, to the Exemption Equivalent Trusts established by his Will for the benefit of his four children equally.”
The trustees articulated three reasons why the Marital Trust should not be required to pay the taxes attributable to the Betty Brown Trust. First, they asserted payment of such taxes was “not permitted by Probate Code section 20110 and 20111,” which require estate taxes to be equitably prorated in proportion to the value of the property received by each person interested in the estate unless there exists a clear and unambiguous direction to the contrary.1 The trustees contended that the language in Willet’s will requiring the Marital Trust to pay any taxes that became due upon Betty’s death was not sufficiently clear in light of events that occurred after Willet’s death.
Second, the trustees argued that Betty’s decision to redirect the residuary of her estate from the Exemption Equivalent Trust to Kim constituted “other adequate provisions” for the payment of inheritance and estate taxes: “Betty Brown’s revised estate plan represents a tremendous change of circumstances from that existing when Willet Brown signed his Will. Approximately $80,000,000 in Betty Browns’ Residuary Estate are ‘adequate provisions’ for payment of the claims, expense, and death taxes attributable to the assets in the Betty R. Brown Trust in which the Marital Trust now has no interest.”
Finally, the trustees argued that the court had equitable and statutory authority “to alter or modify the distributive provisions of [Willet’s will] to accomplish [Willet’s] actual intent at the time the instrument was executed.” The trustees contended that the wills Sandler had drafted for Willet and Betty made clear that Willet only intended the Marital Trust to pay taxes on property that was to be transferred to the Equivalent Exemption Trust. Thus, according to the trustees, the court had authority to modify Willet’s will to clarify that the trustees were only required to pay taxes applicable to assets within the Marital Trust.
Fiduciary’s Motion to Disqualify Sandler & Rosen
Summary of Fiduciary’s motion to disqualify
In December of 2012, Fiduciary filed a motion to disqualify Sandler & Rosen from representing the Marital Trust based on the firm’s prior representation of Betty in 1992. Fiduciary contended that the subject of Sandler & Rosen’s current representation was substantially related to the services it had provided to Betty in 1992, which consisted of drafting her will and advising her about her and Willet’s estate plan. Fiduciary asserted that because Sandler & Rosen was attempting to undertake a representation adverse to a former client in a substantially related matter, it was automatically disqualified.
Fiduciary’s attorney, Vivian Thoreen of Holland & Knight, filed a declaration in support of the motion explaining that she discovered Raymond Sandler had previously represented Betty after reviewing a declaration that Charles Birke, an attorney at Sandler & Rosen, had filed in a related proceeding in October of 2012. Birke’s declaration included the following statement: “Mr. Sandler was the personal attorney of Willet H Brown. Over the years before Mr. Brown’s death in 1993, Mr. Sandler advised Mr. Brown on estate planning matters, including drafting wills from time to time for Mr. Brown. He also drafted a will for Mr. Brown’s wife, Betty Brown and communicated with her concerning her will. [¶] . . . [T]he files maintained by Mr. Sandler . . . contained written communications with Willet H. Brown and Betty Brown, regarding their estate plans, drafts, and final wills signed by Willet H. Brown and Betty Brown.” Sandler & Rosen had also produced to Holland & Knight an executed copy of Betty’s 1992 will and a letter Sandler had written to Betty stating: “a draft of the Will that I have prepared in accord with our recent meeting [is enclosed].”
The trustees opposed the motion to disqualify, arguing that the rule precluding an attorney from undertaking a representation adverse to a former client was predicated on the duty of confidentiality. The trustees further asserted that because Sandler & Rosen had jointly represented Willet and Betty Brown in the 1992 estate planning matters, it owed no duty of confidentiality on any matter of dispute between them relating to that prior representation. In support of its position, the trustees cited Evidence Code section 952, which provides an exception to the attorney-client privilege for communications made in the course of a joint representation in proceedings between the joint clients.
The trustees also asserted that although California courts generally utilize the “substantial relationship test” to assess disqualification motions predicated on successive adverse representations, the test did not apply in the context of joint representations. According to the trustees, under such circumstances, the party moving to disqualify must establish that it would be “unfairly disadvantaged by use of any confidential information,” thereby undermining “the integrity of the judicial process. . .”
Finally, the trustees argued that Betty had waived her right to disqualify Sandler & Rosen by failing to object to the firm’s representation of the trustees in several prior proceedings between the parties. A declaration from Charles Birke stated that Betty Brown, acting through independent counsel, had litigated multiple prior disputes against the Marital Trust and had never sought Sadler & Rosen’s disqualification in any of those matters. According to the trustees, “Betty’s failure to move to disqualify [Sandler & Rosen] for more than 16 years, despite several adversarial proceedings, proves that Betty consented to [Sandler & Rosen’s] continued representation of the Trustees of the Marital Trust.” The trustees also argued that, in the current action, Fiduciary’s attorney, Holland & Knight, had learned of Sandler’s prior representation of Betty more than two months before moving for disqualification.
Hearing on the motion to disqualify
At the hearing on the motion to disqualify, the trial court stated that, under the substantial relationship test, it was required to determine “whether the evidence . . . in the [moving] papers support[s] a rational conclusion that information material to the . . . former representation . . . would be material to the current representation.” The court explained that the primary issue in the current dispute was whether Betty had made any “other adequate provisions” for the payment of her estate and inheritance taxes within the meaning of Willet’s will. The court further explained that, in its view, there was little likelihood that any confidential communication between Betty and Sandler would be relevant to that issue: “[T]he trouble that I’m having here is that either Betty Brown did or did not make other adequate provisions. I mean, that’s going to be the issue at trial. Is that necessarily going to be determined, or can it be determined without the resort to confidential communications being revealed between Betsy Brown and Mr. Sandler and Mr. Sandler’s office back in 1992.”
The court also expressed concern that while Fiduciary had provided documents showing Betsy and Sandler had shared communications regarding the 1992 estate planning matters, it had not identified any evidence suggesting that they had discussed the “other adequate provisions” clause: “[W]ithout [evidence] showing [Betty and Sandler discussed the “other adequate provisions” clause], I don’t know that I can conclude that there’s even any possibility of confidential communications. . . . I don’t know that we’re at the point, factually, that I can conclude there’s any possibility of confidential information necessarily being involved that should mandate the disqualification of Sandler & Rosen.”
In response, Fiduciary argued that it was irrelevant whether Betty and Sandler had actually exchanged confidential communications related to the current proceeding; the proper inquiry was only whether a substantial relationship existed between Sandler & Rosen’s former representation of Betty and its current, adverse representation of the Marital Trust. Fiduciary further asserted that Sandler could have easily avoided a disqualifying conflict by obtaining Betty’s consent to their subsequent representation of Willet in the event a dispute arose between her and Willet regarding their estate plan. Fiduciary’s attorney explained that “[a]fter that representation is over–which in this case occurred in 1992–Sandler & Rosen, not having gotten informed written consent so far as we know, cannot represent the husband versus the wife or vice versa in any matter having to do with the estate plan.”
The court, however, reiterated its view that any communications that occurred in 1992 were unlikely to be used in the current dispute: “Is there really anything that transpired during the representation back in 1992 that Sandler & Rosen could ever possibly come in . . . because we have a document that speaks for itself. . . . And what we’re going to be looking at is not what happened in ’92, because there’s nothing else there but the instruments. We’re going to be looking over the many years past did Betty Brown do anything to address the payment of estate taxes. I don’t see how anything that transpired with Sandler & Rosen could in any way be entertained by the court or introduced in court . . .” The court also noted that Sandler, Betty and Willet had all died during the 20 years that had passed since the prior representation, thereby reducing the likelihood that Sandler & Rosen was in possession of any confidential communications related to the current dispute: “[T]hat’s the interesting . . . . part about this case, that there is no one alive, there is nothing in writing, there is no possibility, and yet you’re seeking to disqualify . . ..”
The trustees, on the other hand, did not address whether Fiduciary had shown that a substantial relationship existed between the current and antecedent representations. Instead, it argued–as it had in its briefs–that disqualification was unnecessary because “there was never any confidentiality in this case. This was . . . a joint estate plan, joint client. The evidence code . . . is absolutely clear that there is no confidentiality between joint clients in a dispute between the joint clients.” The trustees further asserted that, under Zador Corporation v. Kwan (1995) 31 Cal.App.4th 1285 (Zador), “the ‘substantial relationship’ test doesn’t even apply in the joint case. Now Zador went on to say in that case there was . . . informed consent. But your honor, in this case . . . there was no rule in effect about informed consent on conflicts when Sandler did this work. The rule that [Fiduciary is] citing became effective September the 14th, 1992.”
At the conclusion of the hearing, the court took the matter under submission. On February 5, 2013, it denied the motion. Fiduciary subsequently filed the instant writ petition seeking relief from the court’s ruling. We issued an order to show cause why the trial court should not be compelled to vacate its ruling and issue a new order granting the motion to disqualify.2