March 12, 2013, Utah Supreme Court Cases

March 12, 2013

Utah Supreme Court Cases

In Re Discipline of Rasmussen, 2013 UT 14,  No. 20110696 (March 12, 2013)

The Court affirms Judge L.A. Dever’s order disbarring Attorney Rasmussen for violating suspension order and practicing law during his suspension.

Justice Lee,

[N]othing in our lawyer discipline rules dis-places the court‘s ability to consider post-judgment motions under Utah Rules of Civil Procedure 59 and 60(b).

At ¶ 11.

Nothing . . . prohibits district courts from entertaining, under rule 60(b), a filing not captioned as such. Our cases merely emphasize the need to keep the “burden of argument and research . . . on the party seeking relief.” Judson v. Wheeler RV Las Vegas, L.L.C., 2012 UT 6, ¶ 20 n.9, 270 P.3d 456.

At ¶ 14.

Nothing precludes a court from hearing one post-judgment motion, deciding that it needs more information, and allowing further development of an issue.

At ¶ 15.

Res judicata and its companion, collateral estoppel, do not operate within a single case. See IHC Health Servs., Inc. v. D & K Mgmt., Inc., 2008 UT 73, ¶ 26 n.20, 196 P.3d 588. They are “used to describe the binding effect of a decision in a prior case on a second case.” See id. (emphases added). The reinstatement order accordingly had no preclusive effect under these doctrines. It was not final, and thus had no res judicata effect on the court‘s decision to reopen the matter.

At ¶ 17.

The discretionary or mandatory effect of the law of the case doctrine “[d]epend[s] on the procedural posture of a case at the time the law of the case doctrine is invoked.” Id. ¶ 27. “As long as the case has not been appealed and remanded, reconsideration of an issue before a final judgment is within the sound discretion of the district court.” Id.3 Thus, because the reinstatement order had not been considered on appeal, the district court was well within its discretion when it allowed OPC to pursue its opposition to the reinstatement and to argue that Rasmussen violated the Sanction Order by practicing law while suspended.

At ¶ 19.

“[t]o serve as an effective deterrent for further misconduct, the penalty for violating an order of suspension must be more severe than the original suspension.” Utah State Bar v. Doncouse (In re Discipline of Doncouse), 2004 UT 77, ¶ 19, 99 P.3d 837. Thus, Rasmussen‘s punishment for violating his one-year suspension must do more than impose that suspension.

At ¶ 22.

Snow et al v. Honorable Lindberg, 2013 UT 15, No. 20091006 (March 12, 2013)

JUSTICE PARRISH authored the opinion of the Court, in which JUSTICE DURHAM and JUDGE THORNE joined.

CHIEF JUSTICE DURRANT filed a concurring in part and dissenting in part opinion, in which ASSOCIATE CHIEF JUSTICE NEHRING joined.

Justice Parrish,

Issue:

This case requires us to determine whether an attorney-client relationship that existed between the United Effort Plan Trust (UEP Trust or Trust) and its attorneys at the law firm Snow, Christensen & Martineau (SCM) continued after the Trust was reformed cy pres.  Specifically, we must determine whether the district court’s reformation of the UEP Trust altered the Trust to such an extent that it can no longer be considered the same client for purposes of the attorney-client privilege and rule 1.9 of the Utah Rules of Professional Conduct.

At ¶ 1.

Holding:

We hold that the UEP and the Reformed Trust were not the same client. Therefore, there was no attorney-client relationship between SCM and the Reformed Trust. As a result, the district court erred when it disqualified SCM from representing Movants and ordered SCM to disgorge privileged attorney-client information to the Special Fiduciary of the Reformed Trust.

At ¶ 2.

Background:

Snow Christensen & Martineau represented the trustees and the UEP Trust prior to reformation of the trust by cy pres order.

Using secular principles, the district court reformed the UEP Trust. The purpose and provisions of the Reformed Trust are vastly different from those of the UEP Trust. The UEP Trust existed solely for the purpose of “preserv[ing] and advanc[ing] the religious doctrines and goals of the [FLDS Church].” In contrast, the Reformed Trust is “separate and distinct from . . . the FLDS Church, as well as other religious efforts, objectives, doctrines or organizations.” Additionally, the Reformed Trust was to be administered “based on neutral principles of law,” independent of Priesthood input. But Priesthood input was critical to the administration of the UEP Trust. Indeed “[t]he doctrine and laws of the Priesthood . . . [were] the guiding tenants by which the Trustees of the [UEP] Trust” were to act. The beneficiaries of the Reformed Trust were also different from those of the UEP Trust. While participation in the UEP Trust was limited to FLDS Church members, beneficiaries of the Reformed Trust included nonmembers “who [could] demonstrate that they had previously made contributions to either the [UEP] Trust or the FLDS Church.”

Upon reformation of the Trust, the District Court appointed a special fiduciary to deal with the affairs of the trust “on a limited basis.”

At ¶ 10.

In response to concerns over administration of the Trust, an association of members of the FLDS Church (Association) filed a petition for an extraordinary writ, which challenged the validity of the Reformed Trust on several grounds. In Fundamentalist Church of Jesus Christ of Latter-Day Saints v. Lindberg, we concluded that because the Association’s petition was filed three years after the district court’s reformation of the UEP Trust, all but one of the Association’s clams were barred by the doctrine of laches. 2010 UT 51, ¶ 1, 238 P.3d 1054. We further concluded that the remaining claim that was not barred by laches was not ripe for adjudication. Id. We therefore held that the district court’s reformation of the UEP Trust was final and could not be challenged. Id. ¶ 35.

At ¶ 13.

On May 19, 2008, the Special Fiduciary served subpoenas on SCM seeking documents related to SCM’s former representation of the UEP Trust. SCM objected, claiming that the requested documents contained privileged attorney-client information. SCM argued that the Special Fiduciary was not entitled to these documents because the Reformed Trust was not the same entity as the UEP Trust and because the Special Fiduciary and the Reformed Trust were, in fact, adversaries of the former UEP Trustees and the settlor of the UEP Trust. On June 26, 2008, the Special Fiduciary filed a motion to compel compliance with the subpoenas, and the district court granted the Special Fiduciary’s motion.

At ¶ 14.

On August 14, 2008, Movants learned of the Special Fiduciary’s intent to sell the Berry Knoll Farm [a piece of trust property considered sacred by FLDS members] and hired SCM to represent them in their efforts to prevent the sale. On August 25, 2008, the Special Fiduciary moved to disqualify SCM under rule 1.9 of the Utah Rules of Professional Conduct. The Special Fiduciary argued that because SCM had formerly represented the UEP Trust and because the Reformed Trust and the UEP Trust were the same entity, SCM was prohibited from representing Movants in any matter in which they were materially adverse to the Reformed Trust. SCM opposed the Special Fiduciary’s motion. First, it argued that trusts are not capable of forming attorney-client relationships and therefore it never established a relationship with the Reformed Trust. Second, it argued that, even if it were possible to form an attorney-client relationship with a trust, the Reformed Trust is not the same entity as the UEP Trust. It therefore argued that it neither represented the Reformed Trust nor established an attorney-client relationship with that entity.

At ¶ 15.

The district court rejected SCM’s arguments and disqualified SCM from representing Movants. Because SCM and Movants were not parties to the proceedings, they had no right to appeal. They therefore petitioned this court for a writ of extraordinary relief under rule 65B of the Utah Rules of Civil Procedure.

At ¶ 16

The Court determines that a Petition for Extraordinary Relief is the proper procedural method for challenging the District Court’s ruling to produce documents and barring representation of parties adverse to the Reformed Trust.

At ¶¶ 20-26.

The Court determines that SCM did enter an attorney-client relationship with the UEP Trust

For purposes of rule 504, a trust is an entity not unlike a corporation. Under the plain language of the rule, a trustee can claim the privilege on behalf of the entity that it represents just as a representative of a corporation can assert the privilege on behalf of the corporation. Interpreting rule 504 as stating that a trust could not hold the privilege is simply inconsistent with the language of provision (c), which specifies who can claim the privilege on behalf of an entity or organization. Under the plain language of rule 504, it is the trust that holds the actual privilege and the trustee who claims the privilege on behalf of the trust.

At ¶ 32.

The Court determines that the Reformed Trust is a different entity that the UEP Trust.

To determine whether the UEP Trust and the Reformed Trust are the same client for purposes of the attorney-client privilege, we begin by examining the Trust’s reformation.

At ¶ 34.

Although we previously upheld the reformation of the Trust in Fundamentalist Church of Jesus Christ of Latter-Day Saints v. Lindberg, we did so exclusively on the basis of laches. 2010 UT 51, ¶ 35, 238 P.3d 1054. We did not evaluate whether the reformation was consistent with the principle or requirements of cy pres in that the Reformed Trust was of the same character as the UEP Trust or that the Reformed Trust was consistent with the settlor’s intent.

At ¶ 36.

In reforming the UEP Trust, the district court stripped the Trust of its essential religious purpose and required that the Trust be administered according to secular principles. In place of these essential religious principles, it seized upon a provision of the Trust requiring that the Trust be administered to “members according to their wants and their needs, insofar as their wants are just.” Although the district court relied on this provision to suggest that the Trust had a secular purpose of providing for the needs of its members, the language of the Trust makes clear that “just wants and needs” is a religious determination.

At ¶ 41.

In short, the district court seized upon an isolated trust provision to find a secular component to the Trust where none existed. Because the settlor intended that the advancement of the FLDS religion was the essential purpose of the Trust, the district court’s reformation of the trust by stripping it of its religious purpose so changed its purpose and identity that it is a different entity.

At ¶ 43.

Rule 504(c) states that “the successor, trustee, or similar representative of a corporation, association, or other organization, whether or not in existence” may claim the privilege. The advisory committee’s notes provide that “[w]here there is a dispute as to which of several persons has claims to the rights of a previously existing entity, the court will be required to determine from the facts which entity’s claim is most consistent with the purposes of this rule.” UTAH R. EVID. 504 advisory committee’s note.

In this case, we conclude that allowing the Special Fiduciary to claim the privilege for communications between SCM and the UEP Trust would be inconsistent with the purpose of rule 504 because the Reformed Trust and the UEP Trust are so different that they cannot be considered the same entity. Indeed, the purposes of these two trusts are inconsistent. The UEP Trust existed solely for the purpose of “preserv[ing] and advanc[ing] the religious doctrines and goals of the [FLDS Church].” In contrast, the purpose of the Reformed Trust is secular. It is “separate and distinct from . . . the FLDS Church, as well as other religious efforts, objectives, doctrines or organizations.” Additionally, the Reformed Trust is administered “based on neutral principles of law,” independent of priesthood input. This is in stark contrast to the administration of the UEP Trust in which priesthood input was critical. In addition, the beneficiaries of the trusts are different. While participation in the UEP Trust was limited to faithful FLDS members, the Reformed Trust beneficiaries include individuals “who can demonstrate that they had previously made Contributions to either the Trust or the FLDS Church.”  Therefore, the beneficiaries of the Reformed Trust can include individuals who have left the FLDS Church, joined a rival sect, and/or have been critical of the FLDS Church.

At ¶¶ 45-46.

The Special Fiduciary correctly notes that the Reformed Trust and the UEP Trust are holding primarily the same property. However, we do not find this fact determinative. Generally, when a court reforms a trust cy pres, the reformation is considered a modification of the trust. See UTAH CODE § 75-7-413 (1)(c) (Supp. 2010). But in this case where the Reformed Trust is so different from the original Trust that it cannot be deemed a continuation for purposes of the attorney-client privilege, the assets of the original Trust are deemed to have been purchased by the Reformed Trust.

At ¶ 48.

[T]his case does not involve a mere change in the management of the UEP Trust. Rather, this case involves the district court’s reformation of a charitable trust that, absent the defense of laches, would have been set aside because the Reformed Trust does not effectuate the settlor’s intent. Unlike a corporation or similar entity, a charitable trust’s very existence is tied to the settlor’s intent. See Utah Code Ann. § 75-7-413 (noting that a “court may apply cy pres to modify or terminate the trust . . . in a manner consistent with the settlor’s charitable purposes”); cf. id. § 75-7-410(1) (“A trust terminates to the extent the . . . purposes of the trust have become unlawful, contrary to public policy, or impossible to achieve.”). If a charitable trust cannot be reformed in a manner that is consistent with the settlor’s intent, it should be terminated. In this case, the district court reformed the trust rather than terminating it. Because the district courts reformation of the UEP Trust drastically altered the purpose and identity of the Trust, we hold that the district court’s modifications transformed it into an entirely different entity.

At ¶ 49.

The Reformed Trust is not the same entity as the UEP Trust and therefore it is not entitled to the UEP Trust’s privileged attorney-client information.

At ¶ 51.

The attorney-client privilege protects communications, not facts. Munson v. Chamberlain, 2007 UT 91, ¶ 15, 173 P.3d 848. The property records that the special fiduciary requests are therefore not privileged and are available through discovery. The special fiduciary has not pointed us to any privileged communications that are required for the administration of the Reformed Trust. And while we can imagine some circumstances where privileged attorney-client communication may facilitate the administration of the Reformed Trust, we believe the importance of safeguarding the confidentiality of attorney-client communications justifies any minor inconvenience that will result.

At ¶ 52.

SCM is not disqualified from representing the movants in matters that are materially adverse to the Reformed Trust because SCM has never represented the Reformed Trust.

At ¶ 55.

Justice Durrant, concurring in part, dissenting in part,

I concur in the majority’s holding that a trust may be an attorney’s client and that a trustee is entitled to assert privilege on behalf of the trust-client, but I respectfully dissent as to the rest of the opinion. I believe the majority has not properly framed the issue before it, which has led to confusing results. Properly framed, the issue before the court in this petition for extraordinary writ is whether the district court abused its discretion when it ordered that (1) SCM hand over confidential information protected by attorney client privilege to the special fiduciary and that (2) SCM stop representing clients in litigation against the reformed trust. The majority instead focuses on a different action taken by the district court years earlier—its modification of the trust. The majority’s argument that the district court transformed the UEP Trust into an entirely different entity really amounts, in substance, to an argument that the court should have terminated the trust rather than modify it and that, as a result, the court abused its discretion years later when it entered the orders at issue here. The majority reaches this conclusion despite the fact that the trust’s modification was not appealed and despite the fact that we declined to reach whether the modification was appropriate in Fundamentalist Church of Jesus Christ of Latter-day Saints v. Lindberg.  In that case, we declined to address the propriety of the trust’s modification because the claims were brought too late and after too many parties had relied to their detriment on the modification.  Because the modification stands, I would hold that the district court did not abuse its discretion when it assumed that its unchallenged modification of the trust was valid, disqualified SCM accordingly, and ordered SCM to provide privileged information to the trust.

At ¶ 57.

The question then is whether for the purposes of rule 504, the special fiduciary is a “successor” or “similar representative” so that he may claim privilege on the trust’s behalf. I would hold that he is.  When the district court suspended the acting trustees, a vacancy in trusteeship occurred. Pursuant to its authority under section 75-7-704, the district court then appointed a special fiduciary “for the administration of the trust.”9 Importantly, these acts took place before the trust’s modification. Mr. Parker (of SCM) had just been fired by the trustees, who had decided not to defend the trust in lawsuits. This decision left the trust vulnerable to default judgments. Mr. Parker petitioned the district court to notify the Utah Attorney General before a default judgment was entered so that the Attorney General might intervene on behalf of the trust’s charitable beneficiaries. The Utah Attorney General did intervene, and after the trustees failed to respond, the district court suspended them and appointed the special fiduciary. While the majority takes issue with the district court’s modification of the trust, it is undisputed that suspending nonresponsive trustees charged with breaching their fiduciary duties and appointing an interim special fiduciary to manage trust affairs until new trustees could be appointed was within the district court’s power and was not an abuse of its discretion. Thus, even under the majority’s reasoning, the special fiduciary was properly charged with managing the trust before its modification and therefore took the place of or succeeded the properly suspended trustees.

At ¶¶ 61-62.

I conclude that the majority errs in three important ways. First, instead of accepting that the trust’s purpose was modified—erroneously or not—in an attempt to effectuate the settlor’s legitimate and legal charitable purposes, the majority, without foundation in fact, asserts that a terminated trust’s assets were purchased by a reformed trust. But this asset-purchase metaphor does not account for the legal and practical ramifications arising from the fact that, in reality, the trust was modified, not terminated. Second, although the majority rejects the special fiduciary’s assertion of the attorney-client privilege, the majority fails to explain who holds the privilege on behalf of the old trust. Third, even assuming the majority’s legal fiction that, for purposes of the attorney-client privilege, the trust, in effect, terminated and a new trust bought its assets, the special fiduciary, under rule 504, was still the last to manage the old trust and has the best claim to assert the privilege on behalf of the hypothetically nonexistent trust.

At ¶ 64.

Since the legal reality of this case is that the trust has been modified, disqualifying SCM from representing clients with interests adverse to its former client in substantially related matters was not an abuse of the district court’s discretion.

At ¶ 82.