Schwartz v. Wellin et al

Filing 1001

ORDER RULING ON REPORT AND RECOMMENDATION for 345 Report and Recommendation - Special Master,, 83 Sealed Motion,, filed by Lester S Schwartz. The court ADOPTS the R&R with modifications and DENIES the motion to compel. Details within order. Signed by Honorable David C Norton on 9/24/2019. (jbry, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
LARRY S. MCDEVITT, as Trustee of the
Wellin Family 2009 Irrevocable Trust,

)
)
)
Plaintiff,
)
)
vs.
)
)
PETER J. WELLIN, CYNTHIA W. PLUM, )
and MARJORIE W. KING, Individually
)
and as Co-Trustees, Distribution Committee )
Members, Investment Committee Members, )
and Beneficiaries of the Wellin Family 2009 )
Irrevocable Trust; FRIENDSHIP
)
MANAGEMENT LLC; and CYNTHIA W. )
PLUM, as Manager of Friendship
)
Management LLC,
)
)
Defendants.
)
____________________________________)
PETER J. WELLIN, CYNTHIA W. PLUM, )
and MARJORIE W. KING, as Co-Trustees )
of the Wellin Family 2009 Irrevocable Trust,)
)
Counterclaim Plaintiffs,
)
)
vs.
)
)
LESTER S. SCHWARTZ, as Trust Protector)
of the Wellin Family 2009 Irrevocable Trust )
u/a/d/ November 2, 2009; and WENDY C.H.)
WELLIN, as Special Administrator of the )
Estate of Keith S. Wellin,
)
)
Counterclaim Defendants.
)
____________________________________)

No. 2:13-cv-03595-DCN
ORDER

This matter is before the court on the Report and Recommendation (“R&R”) of
Special Master William L. Howard recommending that plaintiff Larry S. McDevitt’s

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(“McDevitt”) motion to compel be denied, ECF No. 348. For the reasons set forth below,
the court adopts the R&R with modifications and denies the motion to compel.
I. BACKGROUND
Because the parties are well-acquainted with this case, the court will dispense
with a recitation of facts and include only a procedural history of the matters at hand.
On May 7, 2014, Lester S. Schwartz (“Schwartz”) filed a motion compel seeking
the production of certain information and documents from defendants Peter J. Wellin,
Cynthia W. Plum, and Marjorie W. King (collectively, “the Wellin Children”). ECF No.
83. The motion was ratified by McDevitt upon his substitution as party-plaintiff in this
action. The Special Master held a hearing on April 21, 2015 and heard arguments on
several motions, including McDevitt’s motion to compel. At that hearing, the Special
Master instructed the parties to submit supplemental briefing on the privilege issue that is
the subject of this order.
In the meantime, on July 2, 2015, the Special Master issued his Report &
Recommendation (“R&R”) on the matters argued at the April 21, 2015 hearing, with the
exception of the privilege issue on which the parties submitted supplemental briefing.
ECF No. 316. The Special Master subsequently issued an amended R&R on July 31,
2015, ECF No. 329, but this amended R&R still did not address the privilege issue in the
supplemental briefing. The parties filed objections to the amended R&R, and the court
issued on order on the objections on September 30, 2015. ECF No. 360.
The parties submitted their supplemental briefings in May and June of 2015, and
the Special Master held a hearing on the briefings on August 5, 2015. On August 28,
2015, the Special Master issued an R&R on the supplemental briefing. ECF No. 345.

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The R&R considered whether communications between the Wellin Children and their
current legal counsel, Nelson Mullins Riley and Scarborough (“Nelson Mullins”), should
be produced pursuant to the fiduciary exception to the attorney-client privilege in the
context of a co-trustee. The R&R aptly summarized the arguments before the Special
Master, stating:
In this motion, Plaintiff McDevitt argues that he is entitled to the privileged
communications between the Defendant Wellin Children, serving as
trustees under the Wellin Family 2009 Irrevocable Trust, and their current
legal counsel, Nelson Mullins, based upon his status as a co-trustee.
Defendants acknowledged in their answer to interrogatories that they
received advice from their current counsel in making the decision to sell the
BRK stock and distribute the proceeds, and in the handling of the
transaction following the events of November 20, 2013. Plaintiff McDevitt
asserts that these transactions involve matters of trust administration, and as
a co-trustee, he is entitled to have access to the attorney-client
communications between Nelson Mullins and his co-trustees, the Defendant
Wellin children.
ECF No. 345 at 3. The R&R began its consideration of this issue by first determining
that South Dakota privilege law applied to the privilege analysis. The R&R then
explained that South Dakota has not adopted or rejected a fiduciary exception to attorneyclient privilege, but that even if South Dakota did recognize the exception, it would not
apply here. The R&R determined that the exception only applied to attorney-client
communication related to trust administration and not to advice sought by in a trustee in a
personal capacity that is unrelated to trust administration. The R&R also determined that
the exception does not apply once a trustee has become clearly adverse to a co-trustee.
The R&R found that the Wellin Children obtained advice from Nelson Mullins
“regarding their defense in the adversarial legal proceedings commenced by Keith
Wellin, and specifically, in relation to their sale of trust assets and distribution of those
assets from the trust,” and that advice was “procured for the benefit of the Defendants,
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and not for the benefit of their adversary.” Id. at 13. The R&R then explained that the
advice that the Wellin Children received from Nelson Mullins after Keith Wellin filed
suit against them is “inextricably intertwined with the actions [the Wellin Children] took
regarding the assets of the trust,” and as such any advice regarding the trust assets is not
separable for disclosure. Id. In conclusion, the R&R concluded that a fiduciary
exception did not apply and recommended that the court deny McDevitt’s motion to
compel.
McDevitt and Schwartz filed objections to the R&R on September 17, 2015. ECF
No. 348. The Wellin Children filed their response to the objections on October 15, 2015,
ECF No. 375, and McDevitt and Schwartz filed a reply on October 30, 2015. ECF No.
389. The court has not yet issued an order on these objections and takes the opportunity
to do so now.
II. STANDARD
In reviewing a special master’s order, report, or recommendation, the court may
“adopt or affirm, modify, wholly or partly reject or reverse, or resubmit to the master
with instructions.” Fed. R. Civ. P. 53(f)(1). The court is required to review all objections
to any findings of fact or conclusions of law made or recommended by a special master
de novo. Fed. R. Civ. P. 53(f)(3), (4). However, the special master’s rulings on
procedural matters will only be set aside for abuse of discretion. Fed. R. Civ. P. 53(f)(5).
The Federal Rules of Civil Procedure provide that a party may “obtain discovery
regarding any non-privileged matter that is relevant to any party’s claim or defense,
including the existence, description, nature, custody, condition and location of any books,
documents or other tangible things and the identity and location of persons who know of

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any discoverable matters.” Fed. R. Civ. P. 26(b)(1). “The court may, for good cause,
issue an order to protect a party or person from annoyance, embarrassment, oppression,
or undue burden or expense” by forbidding or limiting the scope of discovery. Fed. R.
Civ. P. 26(c)(1). “The scope and conduct of discovery are within the sound discretion of
the district court.” Columbus-Am. Discovery Grp. v. Atl. Mut. Ins. Co., 56 F.3d 556, 568
n.16 (4th Cir. 1995) (citing Erdmann v. Preferred Research, Inc. of Ga., 852 F.2d 788,
792 (4th Cir. 1988)); see also U.S. ex rel. Becker v. Westinghouse Savannah River Co.,
305 F.3d 284, 290 (4th Cir. 2002) (stating that district courts are afforded “substantial
discretion . . . in managing discovery”).
III. DISCUSSION
McDevitt and Schwartz make several objections to the R&R. First, they argue
that the Special Master erred in relying on law applying the fiduciary exception to
attorney-client privilege because that exception solely applies when a beneficiary seeks
disclosure of the communications, and here, McDevitt is seeking access to the
communications as a co-trustee, not a beneficiary. They contend that, given the nature of
the role of a trustee, co-trustees are entitled to privileged information obtained by other
co-trustees. In addition, McDevitt and Schwartz object to the R&R’s holding that the
overlap between the Wellin Children’s personal communications and trust administration
communications with Nelson Mullins justifies the withholding of all communications.
They argue that the Wellin Children, as the proponent of the privilege, failed to carry
their burden in showing that their communications were all personal in nature and

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unrelated to trust administration. Notably, McDevitt and Schwartz do not object to the
Special Master’s application of South Dakota law.
In response, the Wellin Children argue that the Special Master correctly found
that the fiduciary exception does not apply here, particularly because at the time of the
communications, the Wellin Children were in an adversarial posture to Schwartz and
McDevitt. The Wellin Children then argue that South Carolina, not South Dakota, law
applies, and that because South Carolina has statutorily abolished the fiduciary exception,
McDevitt and Schwartz’s motion to compel must be denied. The court first addresses the
choice-of-law issue and then considers whether the Wellin Children’s communications
are protected by attorney-client privilege under the applicable state law.
A. Choice of Law
At the outset, the court notes that the Wellin Children did not raise their choiceof-law argument in an objection to the R&R, but instead raised it in their response to
McDevitt and Schwartz’s objection to the R&R. For this reason, McDevitt and Schwartz
argue that the Wellin Children have waived their argument that South Carolina, not South
Dakota, law applies. While the court certainly does not condone the procedural manner
in which the Wellin Children raised this argument, the court deems it appropriate to
address for several reasons. First, the application of the correct law to this issue will
ensure a legally sound decision. Moreover, a previous R&R in this case applied South
Carolina law, as opposed to South Dakota law, to a privilege issue related to the Wellin
Children’s communication with Nelson Mullins regarding the sale and distribution of
trust assets. ECF No. 329 at 32–33. This court adopted that portion of the R&R. See
ECF No. 360. Now faced with an inconsistent finding that South Dakota law applies to a

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related privilege dispute, the court finds it necessary to delve into this choice-of-law issue
and determine whether it should apply South Carolina or South Dakota law. 1
The R&R found that South Dakota law applied because the Wellin Family 2009
Irrevocable Trust contains a choice-of-law provision specifying that South Dakota law
applies to “the interpretation and validity of the provisions of [the trust] and all questions
related to the management, administration and investment of the trusts hereby created.”
ECF No. 346 at 4. However, this finding assumes that the trust’s choice-of-law provision
also applies to privilege issues that are related to the trust. When faced with similar facts,
courts have reached the opposite conclusion and determined that choice-of-law
provisions that govern the substance of an instrument do not encompass privilege issues
related to the instrument. See Harrisburg Authority v. CIT Capital USA, Inc., 716 F.
Supp. 2d 380, 391-392 (M.D. Pa. 2010) (finding that the choice-of-law provision “only
establishes that Pennsylvania law shall apply to legal issues related to the [contract]; it
notably does not establish the applicability of Pennsylvania law to issues collateral to the
contract”); Abbott Laboratories v. Alpha Therapeutic Corp., 200 F.R.D. 401, 404 (N.D.
Ill. 2001) (“Notwithstanding Alpha’s contention that California law applies to this

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South Carolina has abolished the fiduciary exception to attorney-client privilege,
while South Dakota has not adopted or rejected the exception. The Wellin children argue
that the court need only conduct a choice-of-law analysis if the court determines that
South Dakota would adopt the fiduciary exception and if the court found that the
exception does apply here. In other words, they argue that a choice-of-law analysis is
only necessary if there is an actual conflict between South Dakota and South Carolina
law and between the results of the application of the laws. However, because South
Dakota has not adopted or rejected the fiduciary exception, this approach would require
the court to determine if South Dakota would adopt the exception. By addressing the
choice-of-law analysis first, which ultimately determines that South Carolina law applies,
the court need not embark on the endeavor of divining how South Dakota courts would
decide this issue.
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discovery dispute, pursuant to the governing law provision in the Agreement between the
parties, Illinois law supplies the rule of decision regarding the attorney-client privilege.”);
Hercules, Inc. v. Martin Marietta Corp., 143 F.R.D. 266, 268 (D. Utah 1992) (finding that
the choice-of-law provision in a contract did not apply to privilege issues related to the
contract). The court is convinced by the reasoning articulated in these cases. While
South Dakota law governs the substantive legal issues related to the Wellin Family 2009
Irrevocable Trust, the attorney-client privilege issue currently before the court is a
discovery issue that is only collateral to the trust. Indeed, the issue is about
communications related to the trust and its assets, not about the trust itself. Therefore, the
court finds that the choice-of-law provision in the Wellin Family 2009 Irrevocable Trust
plays no role in determining which state law applies to the attorney-client privilege
question presented here.
Instead, the court must conduct a traditional choice-of-law analysis under South
Carolina law. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)
(holding that a federal court tasked with applying state law must apply the forum state’s
choice of law rules). This court has done exactly that in one of its previous orders in this
case. Wellin v. Wellin, 211 F. Supp. 3d 793, 800 (D.S.C. 2016), order clarified, WL
3620061 (D.S.C. Aug. 23, 2017). 2 The court concluded that Restatement (Second) of
Conflict of Laws § 139 (“Second Restatement”) should be applied to determine which
law governs attorney-client privilege. Section 139 provides:
Evidence that is privileged under the local law of the state which has the
most significant relationship with the communication but which is not
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The court is cognizant of the fact that this order was issued after the parties
completed their briefing on the current issue before the court, and that the parties did not
have the benefit of the court’s analysis at the time of their briefing.
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privileged under the local law of the forum will be admitted unless there is
some special reason why the forum policy favoring admission should not
be given effect.
To determine which state has the most significant relationship with a particular
communication, the court will usually look to the state “where the communication took
place.” Second Restatement § 139 cmt. e. Alternatively, the Second Restatement
suggests looking to the state where the relationship between the parties was centered. Id.
The Wellin Children argue that South Carolina is the state with the most significant
relationship to the communications at issue because the Nelson Mullins attorneys from
whom the Wellin Children sought advice were located in South Carolina. The Wellin
Children do not indicate where they were located when the communications occurred. If
they were located in South Carolina, then the communication clearly occurred in South
Carolina. If they were not located in South Carolina, as the court’s previous order on this
issue discussed, “the location test is far too equivocal to be of any use.” Wellin, 211 F.
Supp. 3d at 805.
Assuming the Wellin Children were not located in South Carolina when they
communicated with Nelson Mullins, the court instead considers where the parties’
relationship is centered. The Wellin Children’s relationship with Nelson Mullins is
clearly centered in South Carolina. Nelson Mullins represents the Wellin Children in
South Carolina litigation in which the Wellin Children are parties. Therefore, the court
finds that South Carolina privilege law applies.
B. Whether the Fiduciary Exception Applies
Having determined that South Carolina law dictates the privilege issue here, the
court must next determine whether the Wellin Children’s communications with Nelson
Mullins are protected by attorney-client privilege.
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South Carolina has expressly abolished the fiduciary exception to attorney-client
privilege through § 62-1-110 of the Code of Laws of South Carolina. This statute
provides:
Whenever an attorney-client relationship exists between a lawyer and a
fiduciary, communications between the lawyer and the fiduciary shall be
subject to the attorney-client privilege unless waived by the fiduciary, even
though fiduciary funds may be used to compensate the lawyer for legal
services rendered to the fiduciary. The existence of a fiduciary relationship
between a fiduciary and a beneficiary does not constitute or give rise to any
waiver of the privilege for communications between the lawyer and the
fiduciary.
S.C. Code Ann. § 62-1-110. McDevitt and Schwartz argue that § 62-1-110 does not
apply here. 3 They contend that the statute is only applicable when a beneficiary seeks
access to communication between a trustee and a lawyer, and here, McDevitt is seeking
access to the communication as a co-trustee. In making this distinction, McDevitt and
Schwartz rely on the fact that § 62-1-110 “expressly rejects the holding” of Riggs Nat’l
Bank v. Zimmer, 355 A.2d 709 (Del. Ch. 1976), a case in which a trustee was unable to
invoke attorney-client privilege to prevent disclosure to trust beneficiaries. The Wellin
Children argue that this distinction is inconsistent with the plain reading of the statute.
They argue that the first sentence of the statute contains no limitations related to claims
made by beneficiaries but instead broadly states that communications between a lawyer
and a fiduciary are protected by attorney-client privilege. Similarly, the Wellin Children
contend that the second sentence of the statute does not limit the application of the statute
to claims by a beneficiary. Instead, it simply states that attorney-client privilege between
a lawyer and a fiduciary is not waived when a fiduciary-beneficiary relationship exists.

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McDevitt originally made this argument in his briefs that were submitted to the
Special Master, but he incorporated those arguments into his reply in support of his
objections. ECF No. 389 at 15.
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No court has interpreted § 62-1-110; therefore, the court must rely on the plain
language of the statute and the Reporter’s Comment to determine if the statute is limited
to only those instances in which beneficiaries seek disclosure of privileged
communications. See State v. Scott, 571 S.E.2d 700, 702 (S.C. 2002) (“The cardinal rule
of statutory construction is a court must ascertain and give effect to the intent of the
legislature.”); Georgia-Carolina Bail Bonds, Inc. v. Cty. of Aiken, 579 S.E.2d 334, 336
(S.C. Ct. App. 2003) (“A statute should be given a reasonable and practical construction
consistent with the purpose and policy expressed in the statute.”). Turning first to
language of the statute, the first sentence broadly creates a fiduciary-attorney privilege,
stating that “[w]henever an attorney-client relationship exists between a lawyer and a
fiduciary, communications between the lawyer and the fiduciary shall be subject to the
attorney-client privilege unless waived by the fiduciary, even though fiduciary funds may
be used to compensate the lawyer for legal services rendered to the fiduciary.” § 62-1110. This sentence does not contain any language limiting the privilege to those claims
brought by beneficiaries. The court interprets the final phrase, which clarifies that the
privilege exists “even though fiduciary funds may be used to compensate the lawyer for
legal services rendered to the fiduciary,” simply to mean that the communication is
privileged even if it is related to trust administration and paid for by the trust. This is
consistent with abolishing the fiduciary exception to attorney-client privilege, which
permits disclosure of communication related to trust administration.
The second sentence of the statute does include mention of beneficiaries, stating
that “[t]he existence of a fiduciary relationship between a fiduciary and a beneficiary
does not constitute or give rise to any waiver of the privilege for communications

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between the lawyer and the fiduciary.” § 62-1-110. However, this is not language
limiting the privilege to exist only when related to claims by beneficiaries. Instead, the
language simply stands for the principle that a fiduciary-beneficiary relationship will not
waive the privilege between the fiduciary and a lawyer. In sum, the plain language of §
62-1-110 does not support the limitation that McDevitt and Schwartz seek to impose on
it.
The Reporter’s Comment also does not indicate that the fiduciary-lawyer
privilege only applies when beneficiaries seek disclosure. The Reporter’s Comment
explains that the statute’s purpose is to “(i) expressly reject the concept of a ‘fiduciary
exception’ to any attorney-client privilege; (ii) encourage full disclosure by the fiduciary
to the lawyer to further the administration of justice; and (iii) foster confidence between a
fiduciary and his lawyer that will lead to a trusting and open attorney-client dialogue.”
These purposes are broad enough to encompass all claims seeking to compel disclosure
of fiduciary-attorney communications, not just claims by beneficiaries. Indeed, none of
these stated purposes mention any sort of qualification based on who is seeking
disclosure. Moreover, while the Reporter’s Comment explains that the statute expressly
rejects the holdings of Riggs Nat’l Bank and a South Carolina case applying Riggs Nat’l
Bank, both of which involved claims by beneficiaries, the court does not interpret the
rejection of the holdings in those cases as limiting the fiduciary-lawyer privilege only to
cases involving claims by beneficiaries. The Reporter’s Comment simply states that
those cases gave rise to the statutory creation of the privilege and abolishment of the
fiduciary exception, not that the cases dictate the contours of the privilege.

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In conclusion, § 62-1-110 clearly establishes that communications between a
lawyer and a fiduciary are attorney-client privileged. Therefore, communications
between the Wellin Children and Nelson Mullins are privileged. The court declines the
read the statute more narrowly than it is written and impose the condition that the
privilege only applies when a beneficiary seeks disclosure of the communication. As
such, the court denies McDevitt’s motion to compel.
IV. CONCLUSION
For the foregoing reasons the court ADOPTS the R&R with modifications and
DENIES the motion to compel.
AND IT IS SO ORDERED.

DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
September 24, 2019
Charleston, South Carolina

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