ESTATE ATTORNEY DISQUALIFIED FROM REPRESENTING EXECUTOR IN LAWSUIT

December 12, 2003

By Steven P. Garmisa
Hoey & Farina Attorney
1-888-425-1212

Limiting the reach of two prior rulings, the Illinois Appellate Court concluded a lawyer was properly disqualified from representing an executor in a lawsuit filed by the beneficiaries of a decedent's estate because -- in briefly representing the estate -- the lawyer actually represented the beneficiaries. Gagliardo v. Caffrey, 2003 Ill. App. Lexis 1348 (1st Dist., Nov. 7).

Michael Gagliardo died in a race car accident in Canada in 2001. His sister, Paulette Caffrey, became executor of Michael's estate. Paulette also was trustee of a trust that was the sole beneficiary of the estate. And the beneficiaries of the trust are Michael's widow, Margaret, and their children.

Paulette and Michael worked for various family businesses, and each controlled 47.5 percent of the shares of Columbus Foods Co., or CFC.

The race car that Michael was driving when he died was owned by or leased to CFC. After the accident, Paulette and Margaret allegedly agreed that CFC, not Michael's estate, would pay for an investigation, with an eye on a potential wrongful-death suit.
Chicago lawyer Christopher W. Matern wrote two letters to the attorneys who were conducting this investigation. In this correspondence, Matern wrote: "I represent Paulette Gagliardo personally, and I am also special counsel to the Estate of Michael F. Gagliardo."

A year after Michael died, Margaret filed a chancery complaint alleging that Paulette was attempting to purchase a "substantial portion of the Gagliardo family businesses" from Michael's estate at an "artificially low price." The complaint accused Paulette of breach of fiduciary duty and conflict of interest. Margaret also asked for appointment of an interim trustee and an order prohibiting Paulette from selling the trust's interest in CFC.

When Matern's firm filed an appearance for Paulette individually, Margaret filed a motion to disqualify pursuant to Rule 1.9 of the Illinois Rules of Professional Conduct. According to Margaret, Matern's work for the estate meant that he previously represented Margaret (as beneficiary of the estate) on a matter that was substantially related to the lawsuit that Margaret filed against Paulette.

Cook County Circuit Judge John K. Madden granted Margaret's order, but the Appellate Court granted leave for interlocutory appeal.

Affirming, Justice James Fitzgerald Smith explained (with various omissions not indicated in the quoted text):

"Disqualification of counsel based on former representation is governed by Rule 1.9 of the Illinois Rules of Professional Conduct. Specifically, the rule prohibits an attorney who has formerly represented a client in a matter from later representing 'another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client, unless the former client consents after disclosure.'
"The party seeking disqualification first must prove the existence of the former attorney-client relationship. That party must then establish that the former and present representations are substantially related.

"To make a determination concerning the alleged substantial relationship between the former and present representations, the trial court conducts a three-part inquiry: (1) the court first makes a factual reconstruction of the scope of the former representation; (2) the court next determines whether it is reasonable to infer that the confidential information allegedly given would have been given to a lawyer representing a client in those matters; and (3) the court considers whether the information is relevant to the issues raised in the litigation pending against the former client. In each of the three levels of inquiry, deference must be given to the trial court's determinations."

Based on Matern's correspondence and affidavit, Smith agreed that he "in fact represented the estate," and that "for at least several months in 2002, an attorney-client relationship existed between Matern and the estate."

A key question was whether Matern's representation of Michael's estate created an attorney-client relationship between Matern and the beneficiaries of the estate: Margaret and her children, collectively referred to as "Margaret."

"Paulette contends that Margaret failed to establish the existence of an attorney-client relationship, arguing that Margaret's status as an estate beneficiary did not make her (Margaret) a client of Matern's. Paulette relies primarily upon two cases, In re Estate of Vail, 309 Ill.App.3d 435 (1999), and In re Estate of Kirk, 292 Ill.App.3d 914 (1997), for the proposition that an attorney for the executor of an estate does not have an attorney-client relationship with a beneficiary of the estate.

"She further argues that an attorney for the executor is precluded from an attorney-client relationship with the beneficiaries because there is inherent adversity between the executor and the beneficiaries. Paulette also admits that Margaret would have the right to bring a legal malpractice action against Matern based on her status, as estate beneficiary, as an intended third-party beneficiary of Matern's legal counsel. She argues that, nonetheless, such a right does not create an attorney-client relationship between Margaret and Matern.

"Paulette correctly notes that this court has held, in certain circumstances, that the attorney for the executor of an estate does not have an attorney- client relationship with the estate beneficiaries. In re Vail, 309 Ill.App.3d at 441; In re Kirk, 292 Ill.App.3d at 919. Those circumstances, however, involved challenges to the estate by the beneficiaries.

"In Kirk, the estate heirs sought to remove the attorney for the bank- estate executor (which was also guardian of the estate of the decedent's minor children) based on an alleged violation of fiduciary duty to the beneficiaries by representing the bank in actions concerning the guardianship. There, the court affirmed the denial of disqualification and noted that the attorney's client was the bank-executor, and the executor and its attorney had the sole obligation of upholding the decedent's wishes as expressed in the will. The court 'declined to hold that a conflict of interest arises between an individual heir and the executor's attorney merely because the heir's wishes are contrary to the terms of the decedent's will.'

"The court articulated the principle that the beneficiaries of an estate are intended to benefit from the estate and are owed a fiduciary duty by the executor to act with due care to protect their interests. They are not, however, owed allegiance by the estate attorney, who does not have an attorney- client relationship with the beneficiaries and whose 'first and only allegiance' is to the estate in such adversarial situations.

"In Vail, a residuary legatee was joined by other heirs in a contest of the will and trusts; the bank-estate executor, which was also trustee of the trusts, was represented by the same law firm as executor and trustee in the will and trust contests. There, the court held that the estate has a duty to defend a will contest and may employ an attorney for that purpose. The court acknowledged that the estate's attorney must act with due care and protect the beneficiaries' interests, but held that, in such adversarial situation, the attorney for the executor does not have an attorney-client relationship with the beneficiaries.

"Here, however," Smith continued, "the adversarial situation does not involve a defense of Michael's estate from a beneficiary's challenge. Margaret, the sole beneficiary, does not contest the terms of either Michael's will or revocable trust. Thus, the situation in the case at bar is unlike that in Kirk or Vail, because there is no challenge here to the will or trusts, or actions taken to comply with Michael's testamentary wishes.

"In those cases, the interests of the executor, or the estate, diverged from those of at least some beneficiaries. Here, however, Margaret is the sole party intended to benefit from the estate. Therefore, Margaret's, interests are, for all practical purposes, coextensive with those of the estate: her interests are aligned with the estate, not against it.

"The adversarial situation here arose instead from a divergence of the estate's interests, which cannot be delineated from those of the sole beneficiary, and the interests of one of the Gagliardo family businesses, namely, CFC. In fact, at least as far as the investigation costs [involving Michael's accident] are concerned, the interests of the estate and CFC are in direct opposition: if the estate rather than CFC was caused to bear those costs, CFC would benefit at the estate's detriment. Because Paulette has a substantial interest in CFC, she too would benefit by shifting the investigation costs to the estate. Therefore, the conflict alleged is between the estate and the executor, whose individual interests would benefit from an action detrimental to the estate.

"Again, it is established that Matern acted as attorney for the estate. Even if he acted in such capacity for a limited time, Matern owed a fiduciary duty to the estate and its sole beneficiary. We need not distinguish Margaret's status as estate beneficiary from that of an intended third-party beneficiary. As Paulette notes in her reply brief: questions concerning alleged breaches of fiduciary duty by her or Matern are irrelevant to this appeal and will be decided by the trial court. Here, the point is that Margaret did not challenge the estate, so there is no adversity between her interests and the estate's interests.

"Because representation of the estate essentially means representation of its sole beneficiary, Margaret, under the narrow circumstances of this case, we conclude that, for the time Matern represented the, estate, he represented Margaret.

"We acknowledge that under the distinguishable circumstances discussed earlier, estate beneficiaries were held not to have an attorney-client relationship with the attorney for the executor of the estate. There, the attorneys defended the estate from beneficiaries, whereas here, Matern represented the estate in matters concerning payment and evaluation of investigation costs. Thus, in such representation, Matern in effect represented Margaret.

"Again, the conflict alleged here in the chancery action is not between a beneficiary and the estate but, rather, between the executor Paulette, whose business interests in CFC are divergent from the estate's interest, and the estate and its sole beneficiary, Margaret. Because Matern owed a fiduciary duty to the estate, he could not, without conflict, represent Paulette, with her substantial interest in CFC.

"Under these particular circumstances, then, we cannot say the trial court abused its discretion by implicitly finding the existence of an attorney-client relationship between Matern and the sole estate beneficiary, Margaret."

Concluding that Matern previously represented Margaret, and finding sufficient evidence to support the ruling that the prior representation of Margaret was substantially related to Matern's subsequent representation of Paulette, the motion to disqualify was affirmed.