Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Court Holds That A One-Line Will Should Have Been Admitted To Probate

Posted in Cases Decided, Texas Court of Appeals

In In the Estate of Setser, the decedent signed a 1993 will naming his daughter as the sole beneficiary. No. 01-15-00855-CV, 2017 Tex. App. LEXIS 937 (Tex. App.—Houston [1st Dist.] February 2, 2017, no pet. history). Later, in 2014, he signed a hand-written will naming his good friend and roommate Heim as the sole beneficiary of his estate. This 2014 will stated: “I, Frankie Lee Setser will my property to Charles Edward Heim, 2748 County Road 32, Angleton, Texas 77515-7749.” That was it. The trial court rejected this will as being too conclusory and vague to be operable and admitted the 1993 will to probate. Heim appealed.

The court of appeals reversed, holding that the will was sufficiently written. After discussing the standards for interpreting wills, the court discussed hand-written wills:

A handwritten will is made with the requisite formalities so long as it is in the testator’s handwriting and signed by him. The will need not be dated; accordingly, if a date appears on the document it need not be in the testator’s hand. Nor does the will need to name an executor or other personal representative of the estate in order to be valid. Handwritten wills may be very brief and informal and nonetheless be valid. A will need not contain an express revocation clause in order to revoke a prior one. Absent a revocation clause, a new will impliedly revokes a prior one to the extent of any inconsistency. If it makes a contrary disposition of the testator’s entire estate, the new will completely revokes the prior one. Revocation is usually but not always a question of fact. Once prima facie proof of the possibility of revocation is introduced, the proponent of a prior will has the burden to prove that it was not revoked.

The court of appeals noted that the trial court reasoned that Setser’s use of the term “property” without qualification rendered the 2014 will too vague or ambiguous to enforce. The court disagreed and held that, when used without qualification, the term “property” is unambiguous. “When used in a will, an unqualified reference to “property” encompasses everything of exchangeable value that the testator owned. ‘Property’ is synonymous with ‘estate’ and includes assets of every category.” Id. Therefore, the court concluded:

As the ordinary meaning of “property” is well-settled and Setser used that term without restriction in his handwritten 2014 will, the will is susceptible to only one interpretation—it unambiguously bequeaths all of Setser’s property to Heim. Apart from the parties’ dispute about the meaning of “property,” it is undisputed that Setser’s will effected an entirely different disposition of his estate than his prior 1993 will, inasmuch as the 2014 will bequeathed his property to Heim and the 1993 will bequeathed it to Boggs. Thus, the 2014 will impliedly revoked the 1993 will as a matter of law. As Boggs does not challenge the trial court’s finding that the 2014 will was made with the requisite formalities and the record contains some evidence that it was made with the requisite formalities, we conclude that the trial court erred by not admitting Setser’s handwritten 2014 will to probate instead of his prior 1993 will.

Id. The court reversed and rendered that the 2014 will should be admitted to probate.

Court Affirmed Dismissal Of Breach Of Fiduciary Duty Claims Against Condo Board Members

Posted in Cases Decided, Texas Court of Appeals

In Brown v. Hensley, a condominium complex was damaged by a hurricane, and the board of the complex allowed the complex to be demolished. No. 14-14-00981-CV, 2017 Tex. App. LEXIS 727 (Tex. App.—Houston [14th Dist.] January 26, 2017, no pet. history). Some of the unit owners sued the board for breach of fiduciary duty and other claims arising from this decision. The trial court granted the board members’ motion for summary judgment.

The court of appeals affirmed this dismissal based on the Texas Charitable Immunity and Liability Act, which limits the liability of charitable organizations and immunizes volunteers who meet certain conditions. Id. (citing Tex. Civ. Prac. & Rem. Code §§ 84.001). Under the Act, and subject to exceptions, “a volunteer of a charitable organization is immune from civil liability for any act or omission resulting in death, damage, or injury, if the volunteer was acting in the course and scope of the volunteer’s duties or functions, including as an officer, director, or trustee within the organization.” Tex. Civ. Prac. & Rem. Code § 84.004(a). The Act defines “charitable organization” to include a homeowners association. Tex. Civ. Prac. & Rem. Code § 84.003(1)(C). Additionally, the Act defines “volunteer” to mean “a person rendering service for or on behalf of a charitable organization who does not receive compensation in excess of reimbursement for expenses incurred.” Tex. Civ. Prac. & Rem. Code § 84.003(2). The term includes a person serving as a director. Id.

The plaintiffs asserted that the board members were liable in their individual capacities under Section 84.007(b). This subsection provides the Act “does not limit or modify the duties or liabilities of a member of the board of directions or an officer to the organization or its members and shareholders.” Tex. Civ. Prac. & Rem. Code § 84.007(b). This subsection addresses liabilities of directors “to the organization or its members and shareholders.” The court held that the board members’ liability to the condo association was not at issue as the plaintiffs did not bring a derivative action on behalf of the association or as a class action on behalf of all unit owners. Therefore, the court affirmed the summary judgment.

 

Court Dismisses Claims Against Investment Firm For Lack Of Personal Jurisdiction

Posted in Cases Decided, Texas Court of Appeals

In Happy vs. Tanner, Tanner sued Retire Happy for breach of fiduciary duty, negligent misrepresentation, fraud, conversion, negligence, promissory estoppel, quantum meruit, and violation of the Texas Securities Act arising from Retire Happy, a Nevada entity, inducing Tanner, a Texas resident, to unsuccessfully invest funds with another Nevada corporation known as the Horizon Group. No. 07-16-00134-CV, 2017 Tex. App. LEXIS 777 (Tex. App.—Amarillo January 27, 2017, no pet. history). Retire Happy filed a special appearance objecting to the court’s exercise of jurisdiction as allegedly Texas had no personal jurisdiction over Retire Happy. The trial court denied the objection, and Retire Happy appealed.

The court of appeals reversed, finding that the trial court did not have specific or general jurisdiction. The court of appeals discussed the various rules regarding personal jurisdiction thusly:

Personal jurisdiction over a nonresident exists when the Texas long-arm statute authorizes it and the exercise of it comports with due process. [Cornerstone Healthcare Grp. Holding, Inc. v. Nautic Mgmt. VI, L.P., 493 S.W.3d 65, 70 (Tex. 2016)]. It is the limitations implicit in due process that guide our analysis. See id. Those limitations mandate not only that minimum contacts exist between the defendant and our State but also that the exercise of jurisdiction avoids offending traditional notions of fair play and substantial justice. See id.

As for minimum contacts, they are judged or tested against the standard of purposeful availment. See id. That is, minimum contacts arise when the defendant purposefully avails himself of the privilege of conducting activities in forum state and thereby invokes the benefits and protections of the forum’s laws. Id. Assessing whether that transpired entails consideration of (1) only the defendant’s contacts with the forum, as opposed to those of the plaintiff or some third party, (2) whether the contacts are purposeful, as opposed to random, isolated, or fortuitous, and (3) whether the defendant sought some benefit, advantage, or profit by availing himself of the jurisdiction. See id. at 70-71.

Next, the contacts of which we speak can be viewed as creating two types of personal or in personam jurisdiction. One is specific in nature and involves the relationship between the cause of action and the defendant’s contacts with Texas. That is, the focus lies upon the relationship between the defendant, the forum, and the litigation. [TV Azteca v. Ruiz, 490 S.W.3d 29, 42 (Tex. 2016)] (quoting Walden v. Fiore, 571 U.S. , 134 S. Ct. 1115, 1121, 188 L. Ed. 2d 12 (2014)); My Vacation Eur., Inc v. Sigel, No. 05-14-00435-CV, 2015 Tex. App. LEXIS 667, at *6-7 (Tex. App.—Dallas Jan. 26, 2015, no pet.) (mem. op.). And, the test used contains two components. Not only must there be evidence of purposeful availment, but also a nexus must exist between the contacts evincing purposeful availment and the plaintiff’s claim. See TV Azteca, 490 S.W.3d at 37, 52. As said in Azteca, “[f]or specific-jurisdiction purposes, purposeful availment has no jurisdictional relevance unless the defendant’s liability arises from or relates to the forum contacts.” Id. at 52. So, even if there is purposeful availment, specific jurisdiction does not exist unless the defendant’s liability arises from its contacts with the forum. See My Vacation, 2015 Tex. App. LEXIS 667, at *6-7 (stating that “[i]f we conclude a nonresident defendant has made minimum contacts with Texas by purposefully availing itself of the privilege of conducting activities here, then we address whether the defendant’s alleged liability arises out of or is related to those contacts”).

Next, to satisfy the purposeful-availment prong, the evidence must illustrate not only that the aforementioned contacts existed but also that the defendant’s contacts were purposefully directed to the forum state. TV Azteca, 490 S.W.3d at 38. Consequently, the defendant’s contacts with the forum itself are paramount, not the defendant’s contacts with the plaintiff who resides in the forum. See id. at 42.

As for determining the existence of the requisite nexus between the minimum contacts and the claim, proof “that the plaintiff would have no claim ‘but for’ the contacts, or that the contacts were a ‘proximate cause’ of the liability” is unnecessary. Id. at 52-53. Instead, we look to the substance of the claim, whether the defendant’s contacts with the forum will be the focus of the trial and consume most if not all the litigation’s attention, and whether those contacts relate to the operative facts of the claim. See id. at 53.

The other manner to gain jurisdiction is more general in nature. There, we see if the minimum contacts with the forum were sufficiently continuous and systematic so as to render the defendant at home in the forum irrespective of the interrelationship between the claim and contacts. Cornerstone Healthcare Grp., 493 S.W.3d at 71. This mode of gaining jurisdiction over a nonresident defendant entails a more demanding analysis of the minimum contacts than that applicable to specific jurisdiction and has a “‘substantially higher’ threshold.” PHC-Minden, L.P. v. Kimberly-Clark Corp., 235 S.W.3d 163, 168 (Tex. 2007) (quoting 4 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1067.5 (3d ed. 2007)). Normally, the nonresident must be engaged in long-standing business within the forum, such as through marketing or shipping products to it, performing services in it, or maintaining one or more offices there. Id. Less extensive activities will not qualify for general in personam jurisdiction. Id. Moreover, the contacts weighed are those occurring within a reasonable time before the suit was filed, and are not simply those related to or from which the claim arose. See id. at 170.

The court of appeals first reviewed whether the trial court had specific jurisdiction over the defendant. The record did not show how either Tanner or her husband came in contact with Retire Happy, but it did show that any and all interaction by her and him with Retire Happy occurred through email, the telephone, and a website. The court held:

Evidence of a website (irrespective of whether it is interactive) simply illustrates the potential for activity from the forum in question and the website owner’s knowledge of that potentiality. It does not illustrate actual use or its extent. In short, there needs to be more than the existence of a website (whether interactive or not) to support an inference that the forum was targeted by the website owner or that the latter directed its marketing efforts at the forum. And, the additional evidence or conduct is missing here.

. . . .

Nor do we have any idea of how many people access its website on any given day, how many are from Texas, or whether they utilize it for anything other than informational purposes. Nor do we know if Retire Happy structured its website or any other marketing effort in some way to target people in Texas, as opposed to residents of this nation’s other forty-nine states and the other innumerable nations and countries on this earth wherein people have internet access. It is conceivable to suggest that the company should have reasonably known that someone in Texas could access its site, but more is needed than that if the lessons of TV Azteca are to be heeded.

The court also noted that less than 4% of the defendant’s clients were in Texas and there was no evidence how much those clients made up the defendant’s business. “Phone calls, emails and fax messages between Tanner and Retire Happy; twenty-two of 600 ‘clients’ in some form or fashion residing or having resided in the forum at some time or another; and the existence of a website that may be accessed in any state one encounters the internet is not the sufficient additional conduct upon which to reasonably infer an intent to target or direct activities at Texas.” The court concluded that the defendant did not purposefully availed itself of the privilege of conducting activities in the forum.

The court took less time to reject any contention of general jurisdiction:

As for the contacts here, we have no offices, employees or resident agents of Retire Happy in Texas. No one from the entity visited Texas for business purposes. Nor do we have evidence that the investment opportunities allegedly afforded by Retire Happy encompassed realty, personalty, or businesses in Texas. Indeed, they were in Florida. So too does it appear that monies used to fund the investments were transferred from locales outside Texas. Nor we have evidence of any marketing directed at Texas. Of the entities twenty-two “clients” who “reside or resided” in Texas, we have no information about how or where they were secured. The nature and extent of their interaction with Retire Happy is also unknown, as is how the entity even communicates with them. To suggest that they or anyone else in Texas (other than the Tanners) utilized the Retire Happy website is also nothing but conjecture. Simply put, the evidence—when viewed in a light most favorable to the trial court’s decision—falls short of illustrating that Retire Happy engaged in or developed a long-standing business within the forum or otherwise maintained continuous and systematic contact with Texas so as to render it at home in the forum.

The court reversed the trial court’s denial of the special appearance and dismissed Retire Happy.

Court Holds That Will Created Void Alienation On Restraint

Posted in Cases Decided, Texas Court of Appeals

In Knopf v. Gray, a decedent died in 1993, and her will was admitted to probate the same year. No. 10-15-00273-CV, 2017 Tex. App. LEXIS 191 (Tex. App.—Waco January 11, 2017, no pet. history). Her will provided that “I give all my estate to my son Bobby Gray” and named him as her executor. It later provided: “Now Bobby I leave the rest to you, everything, certificates of deposit, land, cattle and machinery. Understand the land is not to be sold but passed on down to your children, Annette Knopf, Allison Kilway, and Stanley Gray, take care of it and try to be happy.” Bobby Gray later transferred portions of the land referenced in the will to a third party, and  Annette Knopf and Stanley Gray filed suit seeking a declaratory judgment that Bobby Gray only held a life estate in the property and could not convey a fee simple interest. The third party and Knopf and Gray filed motions for summary judgment, and the trial court granted the third party’s motion and entered a final judgment. Knopf and Gray appealed and argued that the clause “understand the land is not to be sold but passed on down to your children” creates a life estate in the land for Bobby with the remainder interest going to the children.

The court of appeals affirmed the trial court’s judgment. The court held that “[a]n estate in land that is conveyed or devised is a fee simple unless the estate is limited by express words or unless a lesser estate is conveyed or devised by construction or operation of law.” With respect to the creation of a life estate, the court held that no particular words are needed to create a life estate, but the words used must clearly express the testator’s intent to create a life estate. The court held that the language did not create a life estate:

Mrs. Allen states in her will “I leave the rest to you, everything …” Mrs. Allen does not reference the life or death of Bobby. In a paragraph following the contested provision, Mrs. Allen leaves her niece a property and also “the right to stay at the Camp House anytime she wishes to. This is a lifetime privilege to her.” Mrs. Allen specifically limited that bequest to the lifetime of her niece. She makes no such reference in the grant to Bobby to limit the bequest to his lifetime. Mrs. Allen does not clearly express an intent to give Bobby a life estate in the property, and upon his death devise the property to her grandchildren. The language “Understand the land is not to be sold but passed on down to your children” is not a devise to the children from Mrs. Allen, but rather an instruction to Bobby to pass the land down to his children.

Rather, the court held that the language was simply a void attempt to have a restraint on alienation:

A general restraint on the power of alienation, when incorporated in a deed or will otherwise conveying a fee simple right to the property, is void. The contested provision grants Bobby a fee simple in the property, but restricts Bobby from selling the property, and instructs him to pass the property on to his children. Therefore, the contested provision is void as a disabling restraint.  Appellants argue that even if the language “understand the land is not to be sold” is void as a disabling restraint, the phrase “but passed on down to your children” creates a remainder interest in the children. There is nothing in the language used to clearly express that Mrs. Allen was making a gift to the children. The language used instructs Bobby to pass the land to the children. We find that the trial court did not err in finding that the Allen Will devised real property in fee simple to Bobby Gray and that Appellants hold no remainder interest. We overrule the sole issue.

Accordingly, the court affirmed the judgment for the third party and the executor. There was a dissenting justice who would have held that there was a fact question on the decedent’s intent regarding a life estate and would not have found the will’s language to be a restraint on alienation.

Texas Supreme Court Accepts A Case Dealing With A No-Contest Clause

Posted in Texas Supreme Court

In Ard v. Hudson, a beneficiary sued testamentary trustees and executors for breach of fiduciary duty and also sought an accounting, temporary injunctive relief, and a receiver. No. 02-13-00198-CV, 2015 Tex. App. LEXIS 8727 (Tex. App.—Fort Worth August 20, 2015, pet. granted).  The trial court granted a summary judgment for the defendants on the basis of a no-contest clause. The court of appeals held that a breach of a forfeiture clause will be found only when the beneficiary’s or devisee’s actions fall clearly within the express terms of the clause. The court mentioned other precedent where challenging a fiduciary did not trigger a no-contest clause. The defendants agreed with that, but argued that the beneficiary’s requests for temporary and permanent injunctive relief and her motions to suspend her brothers as co-trustees and to appoint a receiver triggered the clause. The court held: “[The] inherent right [to challenge a fiduciary] would be worthless absent the beneficiary’s corresponding inherent right to seek protection during such an ongoing challenge of what is left of his or her share of the estate or trust assets, and any income thereon, that the testator or grantor, as the case may be, intended the beneficiary to have.” Id. The defendants also argued that a condition precedent barred the beneficiary’s claims: “Each benefit conferred herein is made on the condition precedent that the beneficiary shall accept and agree to all provisions of this Will.” Id. The court rejected this argument, holding: “We construe the condition precedent language located within the forfeiture clause to be consistent with the forfeiture clause as a whole.” The court reversed the summary judgment.

The executors/trustees then filed a petition for review with the Texas Supreme Court. That Court announced today that it has accepted the case and set oral argument for March 9, 2017. The Court’s staff attorney describes the issue in the case as: “The principal issue is whether a will beneficiary who seeks an accounting, alleges breach of fiduciary duty against co-executors and seeks a receiver violates a forfeiture clause.” The petitioners argue that the appellate court’s opinion incorrectly allows a beneficiary to artfully describe will-violating conduct as a breach of fiduciary duty claim in order to side step the impact of a no-contest clause. They argue that doing so will encourage “vexatious or prolonged interfamilial litigation.” Obviously, the beneficiaries disagree.

This appeal also involves Texas Estates Code section 254.005, which codified the common law and held that no-contest clauses will not be enforced where just cause existed for bringing the action and the action was brought in and maintained in good faith. The Texas Supreme Court has not yet written on this provision.

Interesting Note: The existence of a no-contest or in-terrorem clause in a will or trust deters litigation. Attorneys have to warn clients that they risk losing assets by bringing claims – no one ever knows exactly what a court or jury will do. The fact that the Texas Supreme Court is taking this case and discussing the enforcement of a no-contest clause in a case that does not involve mental competence and undue influence claims is important for will and trust disputes.

Court Affirms Denial Of Statutory Bill Of Review From A Trust Contest

Posted in Cases Decided, Texas Court of Appeals

In In re Estate of Kam, Kam sought to set aside an order probating her brother’s will via a statutory bill of review because he purportedly lacked the requisite testamentary capacity to execute the will or the will was the result of undue influence. No. 05-16-00126-CV, 2016 Tex. App. LEXIS 13837, *13-14 (Tex. App.—Dallas December 29, 2016, no pet. history). The trial court denied the bill of review, and Kam appealed.

Kam filed a statutory bill of review pursuant to Section 55.251 of the Texas Estates Code, which provides:

(a) An interested person may, by a bill of review filed in the court in which the probate proceedings were held, have an order or judgment rendered by the court revised and corrected on a showing of error in the order or judgment, as applicable.

(b) A bill of review to revise and correct an order or judgment may not be filed more than two years after the date of the order or judgment, as applicable.

The court of appeals held that to prevail on her statutory bill of review, Kam was required to specifically allege and prove substantial error in the will contest judgment and had the burden to furnish the court of appeals with a record supporting her allegations of error by the probate court in denying her statutory bill of review. During the bill-of-review proceeding, Kam attached evidence to her bill of review petition, but did not offer any evidence at the hearing and failed to introduce into evidence the documents attached to her statutory bill of review. Even after opposing counsel pointed out that Kam had not offered any evidence and no evidence had been admitted by the probate court, Kam did not offer evidence or ask the probate court to take judicial notice of its file in the underlying will-contest case. The record did not show that the probate court sua sponte took judicial notice of its file. The court of appeals affirmed the denial of the bill of review petition, stating: “On this record, we conclude the probate court could reasonably have concluded Carol did not carry her burden to establish substantial error in the will contest judgment.” Id.

Interesting Note: This case illustrates the importance of attorneys thinking about the legal issues and evidence that are necessary to meet their burden of production and persuasion. Before a hearing or trial, it is very important to think about a future appeal. For example, an attorney should consider the following questions. What evidence is necessary to show the court of appeals that an error occurred in the trial court? In what form do I need to get the evidence to make it admissible? If a court excludes my evidence, how will I preserve error regarding that exclusion? How will I make my legal issues known to the court (and ruled on) so that I can present them to the court of appeals? Going through these simple questions can help prevent the fate of the appellant in Kam.

Tips for Managing the In-House and Outside Counsel Relationship (TCBA Presentation)

Posted in Items of Interest, Knowledge Library
Tips for Managing In-House and Outside Counsel

Tips for Managing In-House and Outside Counsel

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, presented, “Tips for Managing the In-House and Outside Counsel Relationship” to the Tarrant County Bar Association’s Corporate Counsel Section.  David provided his thoughts and suggestions for having a better relationship between in-house and outside counsel that is founded on trust and built for the long-term. This presentation covered topics such as communication, knowing your client and in-house counsel, ideas for better management of outside counsel, selecting counsel, engagement letters, fee and billing issues, staffing, and litigation issues.

CLICK HERE FOR PRESENTATION SLIDES: Tips for Managing InHouse Outside Counsel Relationships

Court Refuses To Enforce Arbitration Clause Due To Lack Of Mental Capacity

Posted in Cases Decided, Texas Court of Appeals

In Oak Crest Manor Nursing Home, LLC v. Barba, a plaintiff sued a nursing home for negligently allowing a patient with mental disorders to leave the facility and jump from a bridge in an attempt to commit suicide. No. 03-16-00514-CV, 2016 Tex. App. LEXIS 12710 (Tex. App.—Austin December 1, 2016). The nursing home filed a motion to compel arbitration based on a facility admission agreement that the patient signed. The plaintiff’s response contended that due to the patient’s psychological and mental disorders, he lacked capacity to enter into an enforceable contract and, therefore, the agreement and its arbitration provision were unenforceable and void. The court denied the motion to compel, and the defendant sought an interlocutory appeal.

The court of appeals noted that it was the plaintiff’s burden to prove that the patient did not have the requisite mental capacity. The court held that “[t]o establish mental capacity to execute a contract, a party ‘must have had sufficient mind and memory at the time of execution to understand the nature and effect of [his] act.’” The court reviewed evidence that the patient was mentally incompetent around the time of his admission to the home. It also reviewed the defendant’s evidence that he was competent on the day he signed the agreement. The court held that “While the time of execution of a contract is indeed the relevant time for ascertaining competency to contract, evidence of competency from other periods is probative to establish competency at the time of execution if there is evidence that the later mental condition had some probability of being the same condition at the time of execution.” The court concluded:

Dr. McRoberts’s report, issued only 49 days after the Agreement’s execution, is probative of Frank’s mental condition on the date of execution in light of the other evidence in the record indicating that Frank’s psychiatric diagnoses were already present and were the same as when Dr. McRoberts examined him. We conclude that the record contains legally sufficient evidence to support the probate court’s implied determination that Frank did not possess the requisite capacity to contract when he signed the Agreement.

The court also held that the patient’s mental incompetency made the agreement void: “the supreme court has held that when the issue of mental capacity to contract is raised, ‘the very existence of a contract is at issue,’ as with other contract-formation issues, and therefore the court’s determination that a party lacked the capacity to contract would render that contract non-existent and void rather than merely voidable.” Finally, the court determined that because there was no contract to begin with, the defendant could not rely on other theories such as direct-benefits estoppel to enforce the arbitration clause. The court affirmed the order denying the motion to compel arbitration.

Interesting Note: This case raises an important issue for financial institutions. Financial institutions routinely have arbitration and other dispute resolution clauses in its contracts with customers. It is also common for a customer to be an elderly person or person with some mental disability. When disputes arise, the customer or his or her representative may challenge the invocation of arbitration or other dispute resolution clause due to mental incompetence. Financial institutions should be very careful that when they enter into these types of contracts that the other contracting party has mental competence. Alternatively, the financial institution should rely on a guardian or power of attorney holder to execute the contract for the customer.

Court Affirms Ruling That Adopted Adult Children Were Beneficiaries Of A Trust

Posted in Cases Decided, Texas Court of Appeals

In Andresakis v. Modisett, the trustors signed trust agreements in 1976 and 1981, and each agreement created three trusts, one for their daughter, one for their son, and a third trust for their only grandchild, Andresakis. No. 07-16-00003-CV, 2017 Tex. App. LEXIS 42 (Tex. App.—Amarillo January 4, 2017, no pet. history). The agreements provided, however, for additional separate trusts benefiting “any grandchild subsequently born to or adopted by [their children] and who survives for a period of at least six (6) months.” Under the instruments, any such additional trust for a later-born or later-adopted grandchild of the trustors was to be funded by partitioning assets from the trust estate benefitting Andresakis, such that thereafter the trust estates benefitting each of the trustors’ grandchildren would have equal value. The son married in 1998 and later adopted his wife’s two children (the Modisetts), who were both over eighteen at the time of the adoption.

Andresakis sued the Modisetts and the trustees for a judgment declaring that the Modisetts were not beneficiaries of any trust under either trust agreement. The parties filed counter motions for summary judgment, and the trial court granted the Modisetts’ motion. The Modisetts then moved for a summary judgment declaring their trust interests vested when they were adopted. The trial court disagreed and in its final judgment fixed a vesting date six months later. Both sides filed notice of appeal.

The court of appeals affirmed both findings. The court of appeals first set forth the appropriate standards for interpreting trusts:

The construction of an unambiguous trust instrument is a question of law for the trial court. A trust instrument is construed to determine the intent of the settlor from the language of the four corners of the instrument. All terms are harmonized to give proper effect to each part of the instrument. The instrument should be construed, if possible, so that effect is given to all provisions and no provisions are rendered meaningless. Provided the language of the instrument unambiguously expresses the settlor’s intent, there is no need to construe the instrument because “it speaks for itself.” An instrument is ambiguous if its meaning is uncertain or reasonably susceptible to more than one meaning.

Id. Andresakis argued that the trustors intended the class of subsequently adopted children to consist only of children adopted before attaining majority. Andresakis also argued that his interpretation is supported by the provisions of the agreements empowering the trustees to make discretionary distributions to or for a grandchild in an amount “necessary or advisable for the health, support, education and maintenance” of the grandchild, and language requiring the trustees to consider, among other things, the ability of any person who is “legally obligated to support such beneficiary,” when making distributions. The appellate court disagreed with this argument:

We cannot agree that any language of the trust agreements indicates an intention of the trustors to limit adopted grandchild beneficiaries to those adopted as minors. We agree instead with the trial court that the agreements unambiguously express the contrary intention, that individuals who become grandchildren of the trustors by adoption are beneficiaries, “whenever adopted.” That the sentence containing the phrase, “whenever adopted,” specifically addresses the adoption of step-children further affirms its application to the Modisetts’ adoption by Kenneth Cailloux.

Id.

The court also affirmed the vesting finding by the trial court. The trust document stated that  the term “such grandchild” referred to an individual born to or adopted by either of the trustors’ children “and who survives for a period of at least six (6) months.” The language also instructed the trustees to “set apart” or “partition” assets to constitute the trust estate of a newly-created trust makes clear that the partition occurs only for the benefit of a grandchild who survives birth or adoption by at least six months. The court disagreed with the Modisetts’ argument that because the agreements vests the trust assets in the trustees without qualification, the Modisetts’ beneficial interest also was vested on the date of their adoption, subject to divestiture if they had not survived their adoption by six months. Rather, the court held that their interests vested six months after they were adopted.

Court Affirms Summary Judgment Holding Insurance Agent Owed No Fiduciary Duties To Insured

Posted in Cases Decided, Texas Court of Appeals

In Brown v. Carrell, homeowners filed suit against their insurance agent over damages to their home from Hurricane Ike. No. 09-15-00016-CV, 2016 Tex. App. LEXIS 13782 (Tex. App.—Beaumont December 29, 2016, no pet. history). They had purchased windstorm insurance via their agent, and flood insurance via a different person at closing. After the storm damaged their house, they contacted their agent and reported the loss. They assumed he was the agent for both the windstorm and flood policies and that he would submit a claim to both insurance companies. However, the agent only notified the windstorm insurer of the windstorm claim and did not notify the other insurer of the flood claim. Eventually, the homeowners’ flood claim was denied in part because the claim was not timely submitted. The homeowners then filed suit against their agent, alleging a number of causes of action, including breach of fiduciary duty. Ultimately, the trial court granted the agent a no-evidence summary judgment on the homeowners’ claims.

On appeal, the homeowners contended that their fiduciary duty claim was based on the fact that the insurance agent was their “agent” and owed them fiduciary duties. The appellate court held that “there is no presumption of agency; thus, a party who alleges agency has the burden to prove the relationship.” It defined an agency relationship as “a consensual relationship that exists between two parties, in which one party, the agent, acts on behalf of the other party, the principal, subject to the principal’s control.” Further, the court held that “For an agency relationship to exist, there must be (1) a meeting of the minds between the parties to establish the relationship, and (2) some act constituting the appointment of the agent.” The only evidence the homeowners relied upon to show that they had an agency relationship with the insurance agent was the insurance agent’s testimony that he was their insurance agent for obtaining the windstorm policy. The court held:

Even if an agency relationship existed between Carrell and the Browns regarding the windstorm policy, there is no evidence that the scope of that agency, actual or apparent, extended to cover the flood insurance policy. The Browns failed to present any evidence to show a meeting of the minds between them and Carrell for Carrell to act as their agent with regard to the flood insurance policy or other evidence to reasonably show that he had apparent authority to act as an agent for Harleysville. The summary judgment evidence is that the Browns only assumed Carrell would take care of reporting their flood claim. Further, the Browns presented no evidence that Carrell had any authority regarding the Browns’ flood policy or that they had the right to control Carrell’s actions regarding the flood policy, elements necessary to show a principal-agent relationship.

The court concluded that the homeowners failed to meet their burden of producing summary judgment evidence regarding the first element of a breach-of-fiduciary-duty cause of action: that a fiduciary relationship existed between the plaintiff and defendant. The court affirmed the summary judgment dismissing the breach of fiduciary duty claim.

Interesting Note: The court of appeals held that there was no genuine issue of material fact regarding the existence of a fiduciary relationship between the homeowners and the insurance agent. This is generally the rule in Texas as an insurance broker or agent has no fiduciary duty to the insured. See Toka Gen. Contrs. v. Wm. Rigg Co., No. 04-12-00474-CV, 2014 Tex. App. LEXIS 3776 (Tex. App.—San Antonio April 9, 2014, pet. denied) (court held that insurance agent was not a fiduciary of the customer); Envtl. Procedures, Inc. v. Guidry, 282 S.W.3d 602, 626-28 (Tex. App.—Houston [14th Dist.] 2009, pet. denied) (concluding, after reviewing the evidence, that reasonable and fair-minded people could not conclude that a formal fiduciary relationship existed between an insurance broker and an insured); Choucroun v. Sol L. Wisenberg Insurance Agency-Life & Health Division, Inc., No. 01-03-00637-CV, 2004 Tex. App. LEXIS 11097, 2004 WL 2823147, at *4 (Tex. App.—Houston [1st Dist.] Dec. 9, 2004, no pet.) (holding that an insurance agent “owed no duty to explain the terms of the insurance policy to [the insured] or to advise him on other, alternative policy coverages” (citing Critchfield v. Smith, 151 S.W.3d 225, 230 (Tex. App.—Tyler 2004, pet. denied); Moore v. Whitney-Vaky Ins. Agency, 966 S.W.2d 690, 692 (Tex. App.—San Antonio 1998, no pet.); and Pickens v. Tex. Farm Bureau Ins. Cos., 836 S.W.2d 803, 805 (Tex. App.—Amarillo 1992, no writ)). See also Davidson v. W. Heritage Ins. Co., No. 5:13-CV-185-C, 2013 U.S. Dist. LEXIS 194844 (N.D. Tex. December 13, 2013); Lexington Ins. Co. v. N. Am. Interpipe, Inc., Civ. A. H-08-3589, 2009 U.S. Dist. LEXIS 51806, 2009 WL 1750523 at *2 (S.D. Tex. June 19, 2009). Rather, generally, an insurance agent owes his principal, the insurer, a fiduciary duty of good faith and fair dealing in all transactions on the insurer’s behalf. See American Indem. Co. v. Baumgart, 840 S.W.2d 634, 639 (Tex. App.—Corpus Christi 1992, no writ). Additionally, an insurance agent owes the insurer strict integrity, fair and honest dealing, and the duty not to conceal matters which might influence his actions to the insurer’s prejudice. See id. See also Banner Life Ins. Co. v. Pacheco, 154 S.W.3d 822, n. 8 (Tex. App.—Houston [14th Dist.] 2005, no pet.).

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