Trust litigation is frequently riddled with allegations of breach of trust. These petitions usually list myriad actions purportedly in violation of a host of sections of the Probate Code, often focusing on sections 16000, et seq.
However, while less frequently alleged, attorneys should be aware that their services in representing trustees who commit such breaches can, under certain circumstances, expose the attorney to liability for participation in breach of trust. This article will examine the case law giving rise to this common law cause of action.
Origin of Participation in Breach of Trust in California
California first seriously considered the cause of action for participation in breach of trust in Pierce v. Lyman, 1 Cal. App. 4th 1093 (1991). In Pierce, the plaintiffs, the successor trustee and a guardian ad litem for remainder beneficiaries, filed an action against a number of parties including two former attorneys for prior trustees.
The complaint alleged that the attorneys knew of numerous breaches of trust by the former trustee, including an investment scheme devised by the former trustee (who was, at the time, an income beneficiary of the trust) designed to maximize income at the expense of principal of the trust. The complaint went on to allege that the attorneys purposefully drafted and filed accountings with the court designed to conceal these breaches of trust, and otherwise aided and abetted the concealment of the nature of the trustee’s breaches from the court.
The complaint alleged that the attorneys personally gained from their actions by receiving fees and investment opportunities.
The plaintiffs claimed that these actions constituted breaches of fiduciary duties. The trial court sustained a demurrer to all causes of action against the attorneys. On appeal, the Court of Appeal determined that a claim for breach of fiduciary duty could not survive, as there was no privity between the attorneys and the plaintiffs.
However, citing to common law causes of action developed in other states, as well as the few reported cases in California addressing third-party liability for colluding or conspiring to breach a fiduciary duty, the Court of Appeal held that a cause of action for participation in breach of trust could be maintained against the attorneys.
In particular, the Court of Appeal relied upon a California Supreme Court case: Doctors’ Co. v. Sup. Ct. (Valencia), 49 Cal. 3d 39 (1989). In Doctors, the Supreme Court, in holding that attorneys, agents and employees of a fiduciary could not be sued in relation to a breach of a particular portion of the Insurance Code, specifically carved out certain circumstances in which an attorney could be liable:
“It remains true, of course, that under other sets of circumstances, attorneys may be liable for participation in tortious acts with their clients, and such liability may rest on conspiracy … For example, an attorney who conspires to cause a client to violate a statutory duty peculiar to the client may be acting not only in the performance of a professional duty to serve the client but also in furtherance of the attorney’s own financial gain.”
The Court of Appeal in Pierce interpreted Doctors, as well as other cases, as imposing liability for the actions alleged against the attorneys. Specifically, it identified the purposeful drafting and filing of accountings in order to conceal breach of trust, precluding the disclosure of the breaches of trust to the court or the beneficiaries, and the advisement to make risky investments in violation of the terms of the trust as grounds for a cause of action for participation in breach of trust.
The Court of Appeal also distinguished “the simple rendering of legal advice” and “mere knowledge of the breach of fiduciary duty” from the allegations in the complaint.
While the Court of Appeal in Pierce did not set forth a test by which to determine participation in breach of trust, it held that the active concealment, misrepresentation to the court, and self-dealing for personal financial gain by an attorney amount to participation in breach of trust.
Developments in Participation in Breach of Trust
Since the decision in Pierce, courts have continued to evolve the common law cause of action for participation in breach of trust. In City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445 (1998) and Wolf v. Mitchell, Silberberg & Knupp, 76 Cal. App. 4th 1030 (1999), the Court of Appeal continued to expand the scope of acts that give rise to a cause of action for participation in breach of trust.
In City of Atascadero, the Court of Appeal found a complaint sufficiently alleged “aiding and abetting breach of fiduciary duty” by alleging “active concealment, fraudulent misrepresentations, self-dealing for financial gain, and direct participation in breach of fiduciary duty.”
This ruling was summed up by the Court of Appeal in a brief reference to Pierce: “[B]eneficiaries of a trust may sue third parties who, in order to advance their own financial advantage, have actively participated with a trustee in breach of the trustee’s duty to the trust.”
In Wolf, the Court of Appeal again set forth the allegations giving rise to a cause of action for participation in breach of trust:
The allegations of the complaint in this case meet the requirements of Atascadero and Pierce v. Lyman for a claim by a beneficiary directly against a third person who participated in a trustee’s breach of trust. The complaint alleges that MSK and Arenberg performed legal services intended to prevent Robert from discovering the dissipation of trust assets and the trustee’s inappropriate investments, advised Robert to waive his rights to on-going accountings that would have revealed the trustee’s wrongful conduct, and made misrepresentations of material fact concerning the trust.
The complaint further alleges that MSK and Arenberg intended that Robert not learn of the misconduct of the trustee because they received a greater amount of fees from David and Fred and “wished to keep receiving a greater amount of fees.”
Again, the allegations giving rise to the cause of action revolve around actively assisting the trustee in breaching his or her duties, and deriving a financial benefit therefrom (however, this advantage must be “over and above ordinary professional fees earned as compensation for performance”).
Attorneys, at times, end up representing a trustee who has, in fact, breached his or her fiduciary duties. In order to protect oneself from liability, an attorney must be vigilant in determining what the terms of the trust demand, the rights of the beneficiaries, and defining and maintaining the line between advising the client against breaches of trust and assisting the client in acts in breach of trust.
In short, the easiest way to insulate oneself from such allegations is to always start with the question: Is this action by the trustee in the best interests of the beneficiaries? If not, assisting the client in the commission of the act without the blessing of the court could lead an attorney down the path to a claim for participation in breach of trust.
Andrew R. Verriere is a partner at Morrill Law Firm in Walnut Creek. Morrill Law Firm specializes in probate litigation (will and trust disputes and conservatorship disputes), financial elder abuse litigation, and appellate work. For more information, visit www.morrillattorneys.com or email Andrew at firstname.lastname@example.org.
 There are a few federal cases with a much more limited view of this cause of action. In particular, Nelson v. Union Bank of California, N.A., 290 F. Supp. 2d 1101 (C.D. Cal, 2003) and Nasrawi v. Buck Consultants, LLC, 2010 WL 2629071 (E.D. Cal. 2010) discuss the holdings of Pierce v. Lyman, 1 Cal. App. 4th 1093 (1991), as well as the cases relied upon by Pierce, coming to a much more limited conclusion regarding the scope of a cause of action for participation in breach of trust. Due to space limitations in this article, those cases are not discussed, but should be reviewed for a more complete view of the jurisprudence on this topic.
 Pierce v. Lyman, 1 Cal. App. 4th at 1097-98.
 Id. at 1099.
 Id. at 1100.
 Id. at 1100-01.
 Id. at 1102.
 Id. at 1103-06.
 Doctors’ Co., 49 Cal. 3d at 46 (emphasis original) (internal quotations and citations omitted).
 Pierce, 1 Cal. App. 4th at 1105-06.
 Id. at 1106; see also Id. at 1103, n.6 (stating that while the failure to notify a beneficiary of a breach of trust may be ethically reprehensible, it does not violate any legal duty).
 Id. at 1106.
 City of Atascadero, 68 Cal. App. 4th at 484.
 Id. at 483 (citing Pierce, 1 Cal. App. 4th at 1103-06).
 Wolf, 76 Cal. App. 4th at 1040.
 Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc., 131 Cal. App. 4th 802, 834 (2005).
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