Monthly Archives: January 2013

January 28, 2013

But my attorney told me to…

by Rebecca Klock Schroer

When fiduciaries are accused of breach, we often hear them say, “but I only did what my lawyer told me to do, so I can’t be liable, right?”  Unfortunately, advice of counsel is not a complete defense to breach of fiduciary duty.  

Colorado has case law regarding this issue and has cited to sections of the Restatement (Second) of Trusts.  First, the Colorado Supreme Court has held that advice of an executor’s attorney was not an excuse for failure to properly invest.  In re Macky’s Estate, 213 P. 131 (Colo. 1923).  Second, the trustee in Vento v. Colorado Nat. Bank-Pueblo, 907 P.2d 642, 646 (Colo. App. 1995) was not protected by advice of counsel where the attorneys the trustee consulted did not have appropriate expertise and were affected by a potential conflict of interest.

In a 1998 case, the Colorado Supreme Court cited the Restatement (Second) of Trusts § 226, cmt b and § 201, cmt b in support of the idea that good faith reliance on counsel is not a complete defense against liability for breach, because the trustee could ask the court for instructions.  Franzen v. Norwest Bank Colorado, 955 P.2d 1018, 1022 (Colo. 1998).  Restatement (Second) of Trusts § 201, cmt b (1959) discusses the limitations of advice of counsel as follows:

Mistake of law as to existence of duties and powers. A trustee commits a breach of trust not only where he violates a duty in bad faith, or intentionally although in good faith, or negligently, but also where he violates a duty because of a mistake as to the extent of his duties and powers. This is true not only where his mistake is in regard to a rule of law, whether a statutory or common-law rule, but also where he interprets the trust instrument as authorizing him to do acts which the court determines he is not authorized by the instrument to do. In such a case, he is not protected from liability merely because he acts in good faith, nor is he protected merely because he relies upon the advice of counsel. Compare § 297, Comment j. If he is in doubt as to the interpretation of the instrument, he can protect himself by obtaining instructions from the court. The extent of his duties and powers is determined by the trust instrument and the rules of law which are applicable, and not by his own interpretation of the instrument or his own belief as to the rules of law.

Although advice of counsel is not a complete defense to breach, it could be a relevant factor in the defense of breach or another claim.  For example, it is a factor when determining whether there is probable cause in the context of a no contest clause.  In re the Estate of Peppler, 971 P.2d 694, 697 (Colo. App. 1998).  Also, practically speaking, it is evidence worth submitting in a breach case when trying to put the fiduciary’s actions in the best light.

The difference between the Second and Third Restatement of Trusts is worth noting.  The Restatement (Third) of Trusts § 93, cmt c (2012) takes a less strict approach to this topic and provides that a trustee’s reliance on advice of counsel can be a significant factor in determining whether the trustee’s actions were prudent.  In order to be a positive factor for the trustee, the trustee must select an attorney in good faith, provide him or her with relevant information and the attorney must be competent in the area of law.  Otherwise, the law would reward a trustee who shopped for advice.  Colorado appellate courts have not adopted section 93 of the Third Restatement, but it is some indication of the overall national trend.

Practical Tips:

  • Make sure the fiduciary understands that his or her reliance on counsel will not insulate him or her from liability.
  • Evidence of advice of counsel in a breach action (or other claim involving the fiduciary) may be relevant, but make sure to also consider issues regarding attorney-client privilege.
  • Even though advice of counsel may not be a complete defense to breach of fiduciary duty, the fiduciary should consider whether he or she has a malpractice claim against the attorney. 

 

January 23, 2013

Fiduciary Lessons from…Lance Armstrong?

by Jean Stewart

Lance Armstrong, the road cycling legend who recovered from testicular cancer to win the grueling 2-week European bicycle race known as the Tour De France seven times has recently been revealed as a failed fiduciary. 

In his two-part interview last week with Oprah Winfrey, Lance reports that among the hardest punishments so far meted out to him, is the decision of his Livestrong Foundation, the cancer research and victim’s support foundation that has raised and distributed millions to cancer causes, to ask him to step down as the Chairman and a member of the Board after the doping evidence piled up against him. 

 Every time we paid $1 for one of those iconic yellow rubber bracelets we were supporting the foundation in Lance’s fiduciary hands.  By all reports, he was a fiduciary in the cycling world alike, as the leader of the several world-class teams he headed over the years.  We invested him with fiduciary powers and his spectacular fall from grace teaches us some simple lessons about assuming positions of trust.   

Some fiduciary lessons from Lance:

  1. If you breach a fiduciary duty, admit it as soon as you can—to yourself and to those who have been harmed or disappointed by your actions;
  2. Take steps to amend your breach promptly; eventually you will be found out and it will look worse and be harder to fix the situation;
  3. Don’t engage in name calling or accusations against those who have tried to bring your breaches to light; they usually get the last word;
  4. Step aside voluntarily from your fiduciary positions if it appears you will be forced to do so by the people you have wronged or by an independent fact-finder; and
  5. Put aside some funds; you will probably need to pay some people back. 

January 14, 2013

A New Blog, the New Year and the New CBA Litigation Subcommittee!

by Kelly Dickson Cooper

As many of you know, the Colorado Bar Association has many wonderful and active subcommittees that provide important services to the legal profession and the public. Building on that great tradition, the Trust & Estate Section and the Elder Law Sections have approved the formation of a joint subcommittee to address litigation issues. The first meeting of the new Litigation Subcommittee is scheduled for January 17, 2013 at 10am at the offices of the Colorado Bar Association, 9th Floor.

The goals for the Litigation Subcommittee will be discussed and developed further at the first meeting, but was proposed with the following aspirations:

  • An opportunity to foster and increase collegiality among practitioners that come from varying areas of expertise and different areas of Colorado
  • A united voice to advocate for the resolution of issues affecting counsel and parties in probate litigation matters
  • Assist in development of best practices and consistent practices throughout Colorado to increase efficiency and certainty in probate litigation matters
  • Work with other subcommittees whose work affects probate litigation matters (Rules & Forms, Statutory Revisions, Alternative Dispute Resolution, Continuing Legal Education, etc.) and provide a viewpoint that is different
  • Continued development and education of members on issues of particular interest to probate litigation practitioners (e.g. creating a bank of district court orders from around Colorado)

We hope you will join us!

January 4, 2013

Introduction

The Fiduciary Solutions group here at Holland & Hart wanted to communicate with current and potential clients in a new way that is accessible, efficient and useful.  We hope you will enjoy and appreciate our new blog. Much of the content will find shared interests in the community of estates and trusts attorneys.  Please visit our website at www.hollandhart.com/fiduciarysolutions/ to learn more about our practice group and for contact information.