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Fiduciary Trust International of California v. Klein

California Court of Appeals, First District, Third Division

March 21, 2017

FIDUCIARY TRUST INTERNATIONAL OF CALIFORNIA, as Trustee, etc., et al., Plaintiffs and Appellants,
CONRAD LEE KLEIN et al., Defendants and Appellants.

         Los Angeles County Superior Court No. BP063500 Hon. Lesley C. Green, Judge

          Counsel for Plaintiffs and Appellants Fiduciary Trust International of California, as Trustee, etc., et al.: Richard Denis Cleary

          Counsel for Alexander Hughes, Trust Beneficiary: Eric Victor Rowen, Scott Donald Bertzyk, Lisa Christine McCurdy, GREENBERG TRAURIG Marlyn Mason Gates

          Counsel for Defendants and Appellants Conrad Lee Klein et al.: Rex S. Heinke, Edward A. Woods, Oleg Stolyar AKIN GUMP STRAUSS HAUER & FELD LLP.

          Jenkins, J.

         This is the latest appeal in a longstanding, particularly acrimonious probate matter involving the Mark Hughes Family Trust (trust). The challenged probate court order permits defendants and appellants, Conrad Lee Klein, Jack Reynolds and Christopher Pair (collectively, appellants), who are the former trustees of this trust, to withhold from the successor trustee, plaintiffs and appellants Fiduciary Trust International of California (FTI), and Alexander Hughes, the sole non-contingent trust beneficiary, some, but not all, of a collection of documents identified on a supplemental privilege log submitted by the former trustees under court order. These documents, which are from the trust's legal files and relate to two trust accountings submitted by appellants prior to their removal, were withheld by appellants from FTI on the basis of attorney-client privilege. For reasons explained below, the probate court ruling of February 4, 2015 is affirmed in part and reversed in part. The matter is remanded to the trial court for reconsideration of the privilege status of the Privilege-Upheld documents in conformity with this opinion.


         This probate matter has been before us on appeal numerous times over the past decade. Accordingly, in the name of judicial economy, we will not describe in full detail its lengthy procedural and factual background. Rather, we begin where our last opinion left off, before turning to the particular legal issues before us.

         On April 23, 2015, we issued a final decision on appeal upholding the probate court's March 2013 decision to grant the petition of Alexander Hughes, the sole non-contingent trust beneficiary (and Mark Hughes' only child), to suspend and remove appellants as trustees. Alexander's mother and former guardian of the estate, Suzan Hughes, had initially petitioned the probate court for suspension or removal of appellants in 2004; however, her petition became moot when Alexander reached age 18.[1] (See Hughes v. Klein, A138983, March 30, 2015, as modified on denial of rehearing on April 23, 2015 (pet. rev. denied, June 10, 2015) (hereinafter, Hughes v. Klein). In upholding this decision, we affirmed the probate court's underlying finding that appellants' immediate suspension and removal were warranted due to their breach of trust in failing to exercise reasonable prudence in connection with the trust's sale of Tower Grove, a 157-acre parcel of previously undeveloped Beverly Hills real property. (Ibid.)

         Sometime before these petitions for suspension or removal were filed, Suzan, and later Alexander, filed a series of objections to the twelve trust accountings covering the period of May 1, 2000, through March 18, 2013, that had been submitted by appellants. These objections, which are still pending and relate to the privilege dispute at the heart of this appeal, include surcharge claims against appellants totaling tens of millions of dollars.

         On April 4, 2013, soon after its appointment as interim successor trustee, FTI served appellants' counsel with a demand for trust documents in their possession that included communications between appellants and legal counsel paid for with trust funds. In this letter, FTI advised appellants' legal counsel that FTI, not appellants, now held the attorney-client privilege with respect to trust matters, and demanded that counsel cease communicating with appellants regarding trust matters and refrain from disclosing to third parties any confidential or privileged communications without FTI's permission.

         Shortly thereafter, FTI filed an ex parte application to compel appellants to immediately turn over all trust records in their possession. The probate court denied this application without prejudice and ordered the parties to meet and confer. Two weeks later, FTI and Alexander filed a joint motion seeking an order requiring appellants to turn over all trust property and records to FTI (hereinafter, first turnover motion).

         Following a hearing on the first turnover motion, the probate court ordered appellants to prepare a privilege log with respect to any trust records in their possession withheld on the basis of attorney-client privilege. Several hearings were then held, leading to the probate court's issuance of the so-called protocol order, agreed to by all parties, that identified eight specific categories of information appellants were required to include for each document in its privilege log. This protocol order also required appellants to deliver all trust records to FTI for safekeeping in a secure area, and prohibited FTI from handling these records until appellants' counsel had an opportunity to review them for privilege. Any documents identified by counsel as privileged were then to be segregated from other trust records pending a court ruling on the privilege claims.[2]

         The first privilege log was submitted by appellants in November 2013, and identified over three thousand documents from the trust files as privileged. Several subsequent efforts by the parties to meet and confer regarding these privilege claims were not fruitful.

         On April 18, 2014, FTI and Alexander filed another joint motion for an order requiring appellants to turn over all trust records in their possession, arguing that the factual showing for appellants' privilege claims was defective on its face because, inter alia, there is no privilege to withhold documents that are “defensive” in nature (hereinafter, second turnover motion). Appellants disputed their legal reasoning, and offered a declaration from attorney Oleg Stolyar that attached numerous past pleadings relating to Suzan's and Alexander's objections to their accountings and efforts to remove or suspend them. They did not, however, offer any further details regarding the communications they claimed were privileged (such as who hired the attorney or paid for the legal service, or why the attorney had been retained).

         After the second turnover motion had been fully briefed, the probate court referred the matter to a discovery referee with directions to, among other things, identify all documents on the privilege log relating to the First and Second Accountings and to determine the validity of appellants' privilege claims as to those documents. The discovery referee thereafter held several hearings before issuing two reports with recommendations that the court deny in part and ...

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