Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Presentation: Dealing With Policies and Protocols of Banking Institutions In Texas (State Bar of Texas, Fiduciary Litigation Course)

Posted in Items of Interest, Knowledge Library

On December 1, 2017, David F. Johnson presented his paper “Dealing with Policies and Protocols of Banking Institutions in Texas” to the State Bar of Texas’s 19th Annual Fiduciary Litigation Course in San Antonio, Texas. This presentation covered unique statutes that impact bank litigation, new statutes on vulnerable persons and durable powers of attorney, arbitration clauses, and the use of bank policies as evidence in litigation. The presentation and paper are attached below.

Dealing With Policies And Protocols Of Banking Institutions In Texas_PPT

Dealing With Policies And Protocols Of Banking Institutions In Texas_Paper

If you are interested in joining our next complimentary webinar or presentation, please send your request to dfjohnson@winstead.com.

 

Webinar – Fiduciary Litigation Update 2016-2017 (Dec. 12 at 10:00 am CST)

Posted in Items of Interest, Knowledge Library, Webinars

David F. Johnson will present a forty-five minute webinar on Texas cases that impact fiduciaries. Some of the topics will include: mental anguish and punitive damages for breach of fiduciary duty, lost trust documents, venue for trust disputes, claims against trust property, release of trustees, public policy for voiding wills/trusts, tortious interference with inheritance, conspiracy/aiding and abetting breach of fiduciary duty, right to pre-suit depositions, will construction, and preliminary remedies.

Date: Tuesday, December 12, 2017
Time: 10:00 – 10:45 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson
Continuing Education Credit Information: This course is pending for MCLE credit by the State Bar of Texas Committee on MCLE in the amount of 0.75 credit hours

Who should attend:
In-house counsel and other litigation contacts, trust officers, risk management contacts, and wealth advisors

REGISTER HERE

Court Holds That Contractual Relationship Does Not Create Fiduciary Duties

Posted in Items of Interest

In Na Ins. Servs. Holding Corp. v. Hilb Group of Ind., a federal magistrate recommended that the district court grant a defendant’s motion to dismiss a breach of fiduciary duty claim. No. 4:17CV600-ALM-KPJ, 2017 U.S. Dist. LEXIS 186544 (E.D. Tex. October 23, 2017). The plaintiff alleged that it entered into a contract whereby it would sell the defendant’s insurance products. The commissions for those sales would go to the defendant, who would then send the commissions to the plaintiff, who would then distribute the commissions to the selling agents. Plaintiff alleged that at some point, the defendant failed to pay the correct amount of commissions due under the terms of the contract. Plaintiff sued and asserted the following causes of action: declaratory judgment, breach of contract, breach of fiduciary duty, and theft.

Regarding the breach of fiduciary duty claim, the magistrate stated:

The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship between the plaintiff and defendant; (2) the defendant must have breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach must result in injury to the plaintiff or benefit to the defendant. Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App.—Dallas 2004), pet. denied. Contractual relationships do not typically give rise to fiduciary duties among the parties to the contract. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997). A fiduciary or confidential relationship may arise from the circumstances of a particular case; however, to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from, the agreement made the basis of the suit. Id. In the complaint, Plaintiff asserts no allegations to indicate that a prior fiduciary relationship had previously arisen between Plaintiff and Defendant, or between NALP and Defendant. Plaintiff only alleges that Defendant assumed rights under an existing contract between non-parties NALP and MAH. These bare allegations without more factual detail are insufficient to survive a motion to dismiss.

Id.  The magistrate therefore recommended dismissing breach of fiduciary duty claim.

Court Denies Request For Mandamus Relief Regarding Court Order Requiring Spouse of Deceased Trustee To Prepare An Accounting

Posted in Cases Decided, Texas Court of Appeals

In In re Ng, after a jury found that a deceased trustee did not breach fiduciary duties, a trial court nonetheless ordered the deceased trustee’s spouse to prepare an accounting of the trust. No. 09-17-00386-CV, 2017 Tex. App. LEXIS 10129 (Tex. App.—Beaumont October 27, 2017, original proceeding). The spouse filed a notice of appeal and also filed a petition for writ of mandamus. The spouse argued that she did not have time to appeal by the deadline the trial court set for the accounting. The court of appeals denied the petition for writ of mandamus because the spouse could have potentially superseded the order requiring an accounting:

Mandamus is an extraordinary remedy that is available when a trial court clearly abuses its discretion and there is no adequate remedy by appeal. Mandamus is not available to compel what may be accomplished by supersedeas. After reviewing the petition and the response, we conclude that Ng has not shown that she has no adequate remedy by appeal. Accordingly, we deny the petition for a writ of mandamus and the motion for temporary relief.

Id.

Interested Note: Because the trial court ordered relief that was not monetary relief or an interest in real property, the trial court had the obligation to set an amount for supersedeas under Rule 24.2(a)(3), “when the judgment is for something other than money or an interest in property, the trial court must set the amount and type of security that the judgment debtor must post.” Tex. R. App. P. 24.2(a)(3). This Rule provides:

(3) Other Judgment. When the judgment is for something other than money or an interest in property, the trial court must set the amount and type of security that the judgment debtor must post. The security must adequately protect the judgment creditor against loss or damage that the appeal might cause. But the trial court may decline to permit the judgment to be superseded if the judgment creditor posts security ordered by the trial court in an amount and type that will secure the judgment debtor against any loss or damage caused by the relief granted the judgment creditor if an appellate court determines, on final disposition, that that relief was improper.

Id. This type of relief could be injunctive or declaratory relief and would also include orders removing a fiduciary, appointing a receiver, or requiring an audit or accounting. This “language is mandatory” and, thus, a judgment debtor must be given the opportunity to preserve the status quo during its appeal:

The purpose of Rule of Appellate Procedure 24 is to provide the means for a party to suspend enforcement of a judgment pending appeal in civil cases. By superseding a judgment against it, the judgment debtor may “preserve[ ] the status quo of the matters in litigation as they existed before the issuance of the order or judgment from which an appeal is taken.”

Alpert v. Riley, 274 S.W.3d 277, 297 (Tex. App.—Houston [1st Dist.] 2008, pet. denied).

However, under Rule 24, a judgment debtor’s right to supersede the enforcement of a judgment during the pendency of an appeal is not absolute. Rule 24.2(a)(3) recognizes that a trial court may refuse to allow a judgment debtor to supersede the judgment so long as the judgment is considered an “other” judgment and the judgment creditor posts security “in an amount and type that will secure the judgment debtor against any loss or damage caused by the relief granted . . . .” Tex. R. App. P. 24.2(a)(3). In such cases, the trial court may decline to permit the judgment to be superseded if the judgment creditor posts security ordered in an amount and type that will secure the judgment debtor against any loss or damage caused by the relief granted the judgment creditor if the appellate court reverses. Id. See also El Caballero Ranch, Inc. v. Grace River Ranch, LLC, No. 04-16-00298-CV, 2016 Tex. App. LEXIS 9180 (Tex. App.—San Antonio August 24, 2016, mot. denied) (court affirmed trial court’s order denying supersedeas to judgment debtor where creditor posted security).

Magistrate Recommends Refusing A Request For A Preliminary Injunction Based On A Breach Of Fiduciary Duty Claim Arising From An LLC’s Former Member Competing For Opportunities

Posted in Items of Interest

In BCOWW Holdings, LLC v. Collins, plaintiffs sued a former member and his new company asserting breach of fiduciary duty and numerous other claims based in part on the defendants allegedly usurping a corporate opportunity. No. SA-17-CA-00379-FB, 2017 U.S. Dist. LEXIS 142618 (W.D. Tex. September 5, 2017). The plaintiff sought a preliminary injunction, and the magistrate recommended that it be denied.

The magistrate noted that under Texas law plaintiffs may obtain injunctive relief for breaches of fiduciary duty, but only if the requirements for an injunction are met. “To prevail on a claim for breach of fiduciary duty, a plaintiff must establish that (1) a fiduciary relationship exists between the plaintiff and defendant; (2) the defendant breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach resulted in injury to the plaintiff or benefit to the defendant.” Id. The magistrate stated that the plaintiff’s primary argument was that the defendant breached his fiduciary duty by usurping a business opportunity. The magistrate stated: “As a founding member and officer of BCOWW, Collins owed a fiduciary duty to BCOWW to refrain from ‘usurp[ing] corporate opportunities for personal gain.’ To establish a breach of fiduciary duty for usurping a corporate opportunity, BCOWW must prove that Collins misappropriated a business opportunity that properly belongs to the company.” Id.

The defendant did not dispute that he undertook a venture and that it was a corporate opportunity that would have properly belonged to the plaintiff. Rather, he argued that the plaintiff did not have the financial resources to take advantage of the business opportunity and alternatively, he argued that the plaintiff abandoned the opportunity. The magistrate held that: “A corporation’s financial inability to take advantage of a corporate opportunity and the corporation’s abandonment of a business opportunity are two defenses to a suit alleging usurpation of a corporate opportunity.” The magistrate found that the defendant introduced evidence to at least raise a genuine issue of fact on these defenses. The magistrate, however, found that the evidence demonstrated that the defendant breached the fiduciary duty of good faith when he actively competed with the plaintiff while still a member of the company and without full disclosure to its members. Yet, the magistrate still held that the plaintiff was not entitled to an injunction because of a lack of irreparable harm:

An injunction, however, would still be inappropriate in this case. BCOWW cannot establish irreparable harm. First, as discussed above, monetary damages will fully compensate BCOWW for any harm allegedly suffered as a result of Collins’s actions. Second, Collins’s breach occurred in the past, and he is no longer a member or employee of BCOWW. Accordingly, BCOWW cannot establish a reasonable likelihood that Collins will commit further breaches of his fiduciary duty in the future, and effects from Collins’s past violations cannot serve as a basis for injunctive relief. BCOWW’s request for a punitive injunction should be denied.

Id.

Court Held That Statutory Probate Court Had Subject Matter Jurisdiction Over Trust Dispute

Posted in Cases Decided, Texas Court of Appeals

In Barcroft v. Walton, a statutory probate court entered sanctions, struck a defendant’s pleadings, and entered a default judgment against a defendant in a trust case. No. 02-16-00110-CV, 2017 Tex. App. LEXIS 8541 (Tex. App.—Fort Worth September 7, 2017, no pet. history). The defendant appealed on multiple grounds, and the court of appeals first addressed the defendant’s jurisdictional complaints.

The court of appeals addressed its prior precedent. In In re Guardianship of Gibbs (Gibbs I), 253 S.W.3d 866, 869, 877 (Tex. App.—Fort Worth 2008, pet. dism’d), the court concluded that the probate court lacked jurisdiction over tort claims raised in a trust case. In determining that the probate court lacked subject matter jurisdiction over claims for restitution and breach of fiduciary duty in Gibbs I, the court reviewed the then-applicable statutes and noted that a statutory probate court’s jurisdiction over actions involving trusts is concurrent with that of a district court. The court reviewed the list of ten items that former Texas Property Code section 115.001(a) set out for actions “concerning trusts” over which a district court had jurisdiction. The court determined that the plaintiff’s causes of action were not enumerated in former Section 115.001(a) and did not fall within its scope. In Gibbs I, the court stated that the mere fact that trust funds were implicated by a claim did not transform the claim into one “concerning” or “involving” trusts, and because no law at that time gave the trial court subject matter jurisdiction over tort claims, the trial court lacked subject matter jurisdiction over those claims.

The court in Barcroft noted that the Texas Legislature amended Texas Property Code section 115.001 in 2007 and added subsection (a-1) and some additional language to subsection (a). The new statute provides that “a district court has original and exclusive jurisdiction over all proceedings by or against a trustee and …” the other items mentioned in the statute. Tex. Prop. Code Ann. § 115.001(a-1). Further, subsection (a-1) provides: “The list of proceedings described by Subsection (a) over which a district court has exclusive and original jurisdiction is not exhaustive. A district court has exclusive and original jurisdiction over a proceeding by or against a trustee or a proceeding concerning a trust under Subsection (a) whether or not the proceeding is listed in Subsection (a).” Id. The court held that under the new statutory terms, that the trial court had jurisdiction:

This case was brought in the probate court to remove a trustee but also to obtain damages for tort claims—fraud and other misdeeds—involving the trust. Because the legislature has expressly provided that the list of proceedings in subsection 115.001(a) is not exhaustive and that a district court has jurisdiction over a proceeding by or against a trustee or a proceeding concerning a trust under subsection (a) “whether or not the proceeding is listed” therein, and because “the district court’s jurisdiction over actions involving trusts determines the extent of a statutory probate court’s jurisdiction over such actions,” Gibbs I, 253 S.W.3d at 871, we conclude that the trial court had subject matter jurisdiction to hear the case.

Id.

The court then overruled the appellant’s other procedural complaints because they were waived by the appellant failing to comply with rules of civil and appellate procedure. In one complaint, the appellant, who was pro se, complained that the trial court was biased against pro se parties and always ruled against them. The court of appeals noted: “Barcroft did not support this claim in his motion with any sort of documentation and he ignored entirely the more obvious reason pro se litigants might tend to lose, i.e., their lack of legal education or training, which tends to lead them, as here, to critical mistakes of form and substance.” Id. at n. 11.

Legislative Update Impacting Fiduciaries (Texas Bankers Association)

Posted in Items of Interest, Knowledge Library

On October 26, 2017, David F. Johnson presented “Legislative Update Impacting Fiduciaries,” to the Texas Bankers Association’s Advanced Trust & Portfolio Management Forum in San Antonio, Texas.  This presentation discussed new statutory changes to the Texas Durable Power of Attorney Act that create duties to accept power of attorney transactions and that broaden agents’ authority to act.  The presentation also discussed the new financial exploitation of vulnerable persons statutes that place duties to report suspected financial exploitation on financial institutions, brokers, and financial advisors.  The presentation paper, exhibits and slides are attached below.

If you are interested in joining our next complimentary webinar or presentation, please send your request to dfjohnson@winstead.com

Paper – Legislative Update New Vulnerable Persons and Power of Attorney Statutes

Exhibits – Legislative Update New Vulnerable Persons and Power of Attorney Statutes

Slides – Legislative Update New Vulnerable Persons and Power of Attorney Statutes

 

Court Refuses To Enforce Arbitration Clause By Financial Advisor

Posted in Cases Decided, Texas Court of Appeals

In Steer Wealth Mgmt., LLC v. Denson, Denson, in her individual capacity and as executor of her husband’s estate, sued Steer Wealth Management, LLC, for causes of action including breach of fiduciary duty, breach of contract and fraud arising out of the alleged improper transfer of assets from several of the Densons’ brokerage accounts. No. 01-17-00066-CV, 2017 Tex. App. LEXIS 8525 (Tex. App.—Houston [1st  Dist.] September 7, 2017, no pet. history). After Mr. Denson’s death in 2013, Ms. Denson learned that her husband had allegedly transferred funds out of their joint brokerage accounts into accounts in his name, Tan Tang’s name, or in the name of entities controlled by him and Tang. Individuals that started Steer Wealth had a long relationship with Mr. Denson, and there was a contract between the Densons and a prior firm, LPL Financial, that required the arbitration of disputes. Denson asserted causes of action against Steer Wealth—but not against LPL Financial or Steer Wealth’s representative Varcados, who used to work with LPL Financial. Steer Wealth moved to compel arbitration and stay all trial court proceedings based on an arbitration clause contained in the contract between the Densons and LPL Financial. The trial court denied the motion. Steer Wealth appealed the order alleging that it could enforce the arbitration clause on the basis of third-party beneficiary status or direct-benefits estoppel.

Steer Wealth argued that it was a third-party beneficiary of the Densons’ contract with LPL Financial because the express language of the arbitration agreement provided that it applied to controversies “between [Denson] and LPL and/or your Representative(s),” which, it contended, refers to Steer Wealth and its representative. Steer Wealth contended that because it could act only through its sole manager, “[b]y its own terms, the LPL arbitration provision is intended to benefit Steer Wealth which is a DBA for Varcados, the ‘Representative’ identified in the arbitration provision.” The court of appeals disagreed:

Although there is evidence in the record that Varcados uses Steer Wealth to conduct his financial advising business for LPL Financial, there is also evidence in the record that Steer Wealth is a registered domestic limited liability company and is therefore a distinct legal entity from both Varcados and LPL Financial. We thus agree with Denson that Varcados and Steer Wealth cannot be conflated such that references in the Master Account Agreement—and its arbitration provision—to Denson’s “Representative” refer to both Varcados and the separate legal entity of Steer Wealth.

Id.

Steer Wealth also argued that it could enforce the arbitration agreement because Ms. Denson, in her claims against Steer Wealth, sought a benefit by holding it liable based on duties imposed by her contracts with LPL Financial, which contain arbitration clauses. The court noted that Texas law “requires a nonparty to arbitrate a claim ‘if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision.’” Id. If a plaintiff’s right to recover and her damages depend on the agreement containing the arbitration provision, the party is relying on the agreement for her claims. If, however, the facts alleged in support of the claim stand alone and are completely independent of the contract containing the arbitration provision, and the claim can be maintained without reference to the contract, the claim is not subject to arbitration. The court held that Denson’s claims arose from her own contracts with Steer Wealth and not with LPL Financial:

In light of Denson’s allegations that she and her husband had a contractual relationship with Steer Wealth in which Steer Wealth allegedly agreed to provide financial and investment advice and other services—allegations unrebutted by evidence to the contrary—we conclude that Denson’s allegations refer to a separate contractual agreement with Steer Wealth, as opposed to a contractual agreement with LPL Financial…Thus, although Denson’s claims against Steer Wealth may “relate to” Denson’s contracts with LPL Financial, her breach of contract and other claims against Steer Wealth “arise out of” and “directly seek the benefits of” a separate and independent alleged contract between Denson and Steer Wealth for the provision of financial services to Denson by Steer Wealth.

Id. So, the court of appeals affirmed the trial court’s decision to deny the motion to compel arbitration.

Federal Courts Hold That Lenders Do Not Generally Owe Fiduciary Duties To Borrowers

Posted in Items of Interest

In Hagood v. Countrywide Home Loans, Inc., a borrower sued a lender for several claims, including breach of fiduciary duties. No. A-17-CA-00784-SS, 2017 U.S. Dist. LEXIS 165943 (W. D. Tex. October 6, 2017). The defendant filed a motion to dismiss for failure to state a claim, and the district court granted same:

Without providing details, Plaintiff contends Defendants breached their fiduciary duties to him. However, “[u]nder Texas law, a mortgage lender or servicer generally does not owe a fiduciary duty to a borrower.” Plaintiff has failed to allege extraordinary circumstances giving rise to a fiduciary duty owed to him in this case. To the extent Plaintiff relies on fiduciary duties between Defendants themselves, such claims also fail because Plaintiff himself was owed no duty.

Id.

In Adams v. United States Bank, N.A., a borrower sued a former lender for breaching fiduciary duties in assigning the loan to another lender. No. 3:17-cv-723-B-BN, 2017 U.S. Dist. LEXIS 165378 (N. D.Tex. October 1, 2017). The plaintiff contended that the first lender breached a fiduciary duty by either assigning the loan to the new lender or selecting it as the mortgage servicer because the first lender had “knowledge of the pattern and practice of [U.S. Bank’s] disregard of applicable law in the servicing of mortgage loans, and should not have attempted to assign ownership and/or servicing of the Loan to [U.S. Bank], thus jeopardizing Plaintiff’s ownership and use of the Property.” Id. The defendant filed a motion to dismiss for failure to state a claim, and the magistrate recommended that it be granted:

Texas recognizes two types of fiduciary relationships. “The first is a formal fiduciary relationship,” such as “the relationship of an attorney-client, principal-agent, or trustee-beneficiary relationship.” The second is an informal fiduciary relationship — that is, a confidential relationship “where one person trusts and relies on another, whether the relation is a moral, social, domestic or purely personal one.” The Texas Supreme Court has recognized that “confidential relationships may arise not only from the technical fiduciary relationships such as attorney-client, trustee-cestui que trust, partner and partner, etc. – which as a matter of law are relationships of trust and confidence — but may arise informally from moral, social, domestic or purely personal relationships.” “The existence of the fiduciary relationship is to be determined for the actualities of the relationship between the parties involved.” Texas courts have consistently held that the mortgagor-mortgagee relationship is not a special relationship that generally gives rise to a fiduciary duty.

. . .

Courts have therefore only entertained the notion that a mortgage lender or service might owe a mortgagee a fiduciary duty where its relationship to the mortgagee was such that the mortgagee could reasonably expect the lender or service to act in his or her best interest. “‘[A] person is justified in placing confidence in the belief that another will act in his or her best interest only where he or she is accustomed to being guided by the judgment or advice of the other party, and there exists a long association in a business relationship as well as personal friendship.’” The parties’ special relationship must also have existed prior to and apart from the agreement in the suit.

Ms. Adams alleges that Guild breached a fiduciary duty to her by either assigning the Loan to U.S. Bank or selecting it as the mortgage service even though it knew of U.S. Bank’s alleged issue with complying with the law. But she fails to provide any explanation in her complaint or in her brief as to why she was “justified in placing confidence in the belief that” Guild would act in her best interest in the first place. She has not suggested that she had some long-standing relationship with Guild — separate from its relationship to the Property. Nor is there any other indication in her pleadings that Ms. Adams had some objective reason to believe that she would be justified in placing her confidence in Guild or its employees to act in her best interest. The State Court Petition, at most, suggests that Ms. Adams may have had some subjective,  unspecified belief that she could trust Guild. But Plaintiff’s “subjective trust and feelings of trust and confidence [are] not … enough to create a fiduciary relationship.”

Ms. Adams’s claim for breach of fiduciary duty should be dismissed. But — because it is not yet clear that Ms. Adams has pleaded her best case — the dismissal should be without prejudice.

Id. Therefore, the magistrate recommended that the district court grant the motion to dismiss without prejudice.

Presentation: Temporary Injunctive Relief in Texas (Tarrant County Bar Association)

Posted in Items of Interest, Knowledge Library

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, presented his detailed paper entitled “Temporary Injunctive Relief in Texas” to the Tarrant County Bar Association’s Business Litigation Section on October 17, 2017.

This presentation included a discussion of the purpose of temporary injunctive relief; equitable elements for same; preliminary issues such as jurisdiction, venue, and necessary parties; procedural requirements for obtaining relief; expedited discovery; the hearing for a temporary injunction; the injunction order; issues involved in appealing a temporary injunction; and the risk versus reward analysis for appealing temporary injunctions. The presentation and paper are attached below.

Temporary Injunctive Relief in Texas- Paper

Temporary Injunctive Relief in Texas – Presentation Slides

If you are interested in joining our next complimentary webinar or presentation, please send your request to dfjohnson@winstead.com.

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