Upcoming Webinar

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog,  will address beneficiaries requesting loans from trustees. There are multiple issues that arise regarding the trustee’s authority to do so under the trust’s language and statutory and common law, and the loan’s impact on duties of loyalty, confidentiality, impartiality, and proper management of a trust’s assets. The presentation will also cover due diligence and other practical considerations in documenting the loan as well as alternatives to decrease a trustee’s risk when facing these types of lending transactions.

Date: Tuesday, April 21, 2020
Time: 10:00 – 10:45 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson

Continuing Education Credit Information:
Accreditation of this activity by the MCLE Committee of the State Bar of Texas is pending

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

REGISTER HERE

In In the Estate of Mendoza, a decedent’s son’s children filed a petition claiming their entitlement to their father’s beneficial interest in a trust created under the decedent’s will. No. 04-19-00129-CV, 2020 Tex. App. LEXIS 1845 (Tex. App.—San Antonio March 4, 2020, no pet. history). The son had predeceased the decedent. The decedent’s daughters moved for summary judgment on the sole ground that a dead person could not be a beneficiary of a trust. The trial court granted the daughters’ summary judgment motion. The son’s children appealed.

The court of appeals reversed the summary judgment, holding that the mere fact that the decedent’s son predeceased the decedent did not establish the son’s beneficial interest in the trust created under the decedent’s will lapsed as a matter of law. The daughters argued that a dead person cannot be a beneficiary of a trust and cited to Longoria v. Lasater, 292 S.W.3d 156, 167 (Tex. App.—San Antonio 2009, pet. denied) and Section 112, comment f of the Restatement (Second) of Trusts. However, the court of appeals held that the daughters ignored the difference between an inter vivos trust, which was the type of trust analyzed in Longoria, and a testamentary trust. The court cited to Section 112, comment f, of the Restatement (Second) of Trusts:

A person who has died prior to the creation of a trust cannot be a beneficiary of the trust. Thus, if property is transferred inter vivos [i.e., not by will] in trust for a named person who is dead at the time of the transfer, no trust is created… So also, if a testator devises property in trust for a person who predeceases him, the devise of the beneficial interest lapses, and the person named as trustee ordinarily holds the property upon a resulting trust for the estate of the testator. By statute, however, in many States a devise does not lapse under certain circumstances, as for example if the devisee leaves a child; and under similar circumstances a devise of the beneficial interest under a trust does not lapse.

Id. (citing Restatement (Second) of Trusts § 112 cmt. f (1959) (internal citation omitted); see also Restatement (Third) of Trusts § 44 reporter’s notes on cmt. d (2003) (citing authorities discussing the application of the lapse doctrine and anti-lapse statutes to persons taking under trusts created by a will and noting “[a] comprehensive discussion of the lapse doctrine and anti-lapse statutes is beyond the scope of this Restatement”)). Accordingly, the court of appeals concluded: “the trial court erred in granting summary judgment in favor of the Daughters based on the mere fact that Eduardo predeceased Jose because that fact alone did not establish Eduardo’s beneficial interest lapsed as a matter of law.” Id. Further, the court refused to address an argument about Texas’s anti-lapse statutes because the arguments had not properly raised below. The court reversed the summary judgment and remanded for further proceedings.

 

In Gooden v. Mackie, a borrower sued a mortgage servicer after the servicer foreclosed on the property. No. 4:19-CV-02948, 2020 U.S. Dist. LEXIS 25142 (S.D. Tex. January 22, 2020). Among other claims, the borrower filed a breach of fiduciary duty claim. The federal magistrate recommended dismissing that claim. The magistrate held:

The mortgagor-mortgagee relationship is considered an arm’s-length business relationship that does not impose any fiduciary duties. Likewise, the mortgage servicer does not owe fiduciary duties to a borrower. Thus, no formal fiduciary relationship arises between the Removing Defendants and Plaintiff. Similarly, there is no plausible basis to believe an informal fiduciary relationship arose between Plaintiff and the Removing Defendants. “To impose an informal fiduciary duty in a business transaction, the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit.” Plaintiff does not contend any relationship existed between herself and the Removing Defendants prior to and apart from the mortgagor-mortgagee relationship. Because Plaintiff has failed to allege any relationship with the Removing Defendants other than that of mortgagor, mortgagee, and mortgage servicer, no amendment to her pleading would establish the existence of an informal fiduciary relationship.

Id. at *18-19. The magistrate recommended that the plaintiff’s breach of fiduciary duty claim be dismissed with prejudice because “she cannot establish a required element of her breach of fiduciary duty claim—a fiduciary relationship.” Id.

 

Fiduciary relationships often require a party to notarize a document. For example, a party may need to or want to use notary services for each of the following: a person may execute new trust or estate documents, a beneficiary may execute an agreement or release with a fiduciary, a successor trustee or estate representative may want to execute a document accepting their position, fiduciaries may need to execute real estate and oil and gas transactional documents, parties may execute trust termination, merger, or severance documents, and parties may execute court filings. There are countless different examples of when a party may need to notarize a document in the context of fiduciary relationships, disputes, or litigation.

At this time, however, traditional notary services may be more difficult to obtain. Certain stores that traditionally provide that service are not at this time due to the outbreak of the COVID-19 pandemic. Moreover, even if a party can find a traditional notary provider, he or she may not want to risk exposure to COVID-19 by leaving their home. There is a new option for businesses and individuals in Texas (and twenty-one other states) that allow them to use an online notarization service.

Effective July 1, 2018, Texas passed a bill authorizing online notarization via the Texas Government Code Section 406.101, et. seq. Texas was the third state to do so, though twenty-two states currently have a similar statute. This law allows parties to use online services to effectuate a notarization on electronic documents. A provider has to apply to the Texas Secretary of State and be approved to provide the online service. Once approved, an online notary public: “(1) is a notary public for purposes of Subchapter A and is subject to that subchapter to the same extent as a notary public appointed and commissioned under that subchapter; (2) may perform notarial acts as provided by Subchapter A in addition to performing online notarizations; and (3) may perform an online notarization authorized under this subchapter.” Tex. Gov’t Code §406.106. Specifically, an online notary may: “(1) take acknowledgments or proofs of written instruments; (2) protest instruments permitted by law to be protested; (3) administer oaths; (4) take depositions; and (5) certify copies of documents not recordable in the public records.” Tex. Gov’t Code §§ 406.107, 406.016.

The main issue for the online notary is verifying the identity of the person signing the document. Regarding verification, the statute provides:

(b) In performing an online notarization, an online notary public shall verify the identity of a person creating an electronic signature at the time that the signature is taken by using two-way video and audio conference technology that meets the requirements of this subchapter and rules adopted under this subchapter.  Identity may be verified by: (1) the online notary public’s personal knowledge of the person creating the electronic signature; or (2) each of the following: (A) remote presentation by the person creating the electronic signature of a government-issued identification credential, including a passport or driver’s license, that contains the signature and a photograph of the person; (B) credential analysis of the credential described by Paragraph (A); and (C) identity proofing of the person described by Paragraph (A).

(c)  The online notary public shall take reasonable steps to ensure that the two-way video and audio communication used in an online notarization is secure from unauthorized interception.

(d)  The electronic notarial certificate for an online notarization must include a notation that the notarization is an online notarization.

Tex. Gov’t Code § 406.110.

There are multiple different providers of online notary services, and a simple internet search can locate them. Typically, when a party engages the online notary, the party uploads a pdf of the document and forwards it to the company. The company then sends the documents to the signer via electronic means with an option to sign with a notary. The signer and the notary get instructions to complete the electronic notarization. The signer connects with a licensed electronic notary public over live video to sign the document. The electronic notary public confirms the signer’s identity, witnesses the signature, and assists throughout the process. When that occurs, the notarization session is recorded in the notary’s electronic notary journal, and the notary affixes his or her electronic notary stamp.

The process is relatively simple, is affordable, and is a valid way to notarize a document. Importantly, online notarizations avoid face-to-face contact during these difficult times.

When the economy has a downturn, trustees are under more pressure to make distributions. Beneficiaries lose jobs, their individual asset portfolios decrease, and they may make the decision to go back to school. Moreover, with the current COVID-19 pandemic, health care expenses may increase. Due to these factors, trustees are under more pressure to make larger distributions under a discretionary health, education, maintenance (“HEMS”) standard.

What does a HEMS distribution standard trust include? The Restatement (Third) of Trusts provides that the standard of “health” is generally thought to include the following: emergency medical treatment; psychiatric treatment; psychological treatment; routine health care examinations; dental; eye care; cosmetic surgery; Lasik surgery; health, dental, or vision Insurance; unconventional medical treatment; home health care; gym memberships; spa memberships; golf club memberships; and extended vacations to relieve tension and stress. Restatement (Third) of Trusts, §50 (2003). The standard of “education” is thought to include the following: grammar, secondary and high school tuition; graduate school; post-graduate school; medical school, law school, or other professional school; support of the beneficiary while in school; support of beneficiary while not in school (between semesters); studies for the student that makes a career out of learning; technical school training; career training; and college as part of a study abroad program. Id. The terms “support” and “maintenance” are considered synonymous, and are generally placed into three categories: what is generally deemed to be included, what might be included, and what expressly is not included. Id. The following expenses are generally included: regular mortgage payments; property taxes; suitable health insurance or care; existing programs of life and property insurance; continuation of accustomed patterns of vacation; continuation of family gifting; and continuation of charitable gifting. The following expenses might be included: reasonable additional comforts or luxuries; and special vacations of a type the beneficiary had never taken before. The following expenses are generally not included: payments unrelated to support which merely contribute to the beneficiaries’ contentment or happiness; distributions to enlarge the beneficiaries’ personal estate; and distributions to enable the beneficiary to make extraordinary gifts. When applying this standard, a trustee should consult the law of the relevant jurisdiction because these categories and what are included may vary.

When faced with a request for a distribution, the trustee should first consult the trust document.  Most of the Texas Trust Code provisions are default provisions that may be overridden in a trust instrument; so, generally, the trust document controls. Tex. Prop. Code Ann. § 111.0035(b). Where the Texas Trust Code is silent and where a given trust instrument is also silent, the next source of authority is the common law. Texas Trust Code § 113.051 provides in part that “[i]n the absence of any contrary terms in the trust instrument or contrary provisions of [the TTC], in administering the trust, the trustee shall perform all of the duties imposed on trustees by the common law.” Tex. Prop. Code § 113.051.

In Texas, the use of the words “support” and “maintenance” in a trust instrument evinces the creation of “support trusts.” State v. Rubion, 158 Tex. 43, 308 S.W.2d 4, 8-10 (1957); Duncan v. O’Shea, No. 07-11-0088-CV, 2012 Tex. App. LEXIS 6494 (Tex. App.—Amarillo Aug. 7, 2012, no pet.). The considerations a trustee must refer to in exercising its discretion regarding a support and maintenance trust, include “1) the size of the trust estate, 2) the beneficiary’s age, life expectancy, and condition in life, 3) his present and future needs, 4) the other resources available to him or his individual wealth, and 5) his present and future health, both mental and physical.” Estate of Dillard, 98 S.W.3d 386 (Tex. App.—Amarillo 2007, pet. denied). See also Keisling v. Landrum, 218 S.W.3d 737, 744 (Tex. App.—Fort Worth 2007, pet. denied).  Even though a trustee has a responsibility to distribute the trust’s income and principal for maintenance, it also has a competing responsibility to manage the trust prudently and responsibly to preserve it for her future support and maintenance. Tex. Prop. Code Ann. § 113.006 (Vernon Supp. 2006) (stating that a trust may manage the trust property on the conditions and for the lengths of time as the trustee deems proper); Keisling v. Landrum, 218 S.W.3d at 744; Brault v. Bigham, 493 S.W.2d 576, 579 (Tex. Civ. App.—Waco 1973, writ ref’d n.r.e.) (holding that safety of the trust fund is the first care of the law, and on this depends every rule which has been made for the conduct of trustees). Thus such a trust “does not state that [the trustee] must give into [a beneficiary’s] every support and maintenance whim; it simply notes that income and principal from the trust shall be distributed to appellant to support and maintain her if appellant’s income does not suffice.” Keisling v. Landrum, 218 S.W.3d at 744.

So, a distribution standard featuring the terms support and maintenance, does not afford trustees unbridled discretion. Rather, the trustee’s discretion must be “reasonably exercised to accomplish the purposes of the trust according to the settlor’s intention and his exercise thereof is subject to judicial review and control.” Kelly v. Womack, 268 S.W.2d 903, 907 (Tex. 1954); Powell v. Parks, 86 S.W.2d 725 (Tex. 1935); Davis v. Davis, 44 S.W.2d 447 (Tex. Civ. App.—Texarkana 1931, no writ).

For example, in State v. Rubion, the court had to decide what interest the beneficiary had when the trust instrument allowed the trustee to distribute assets for the beneficiary’s support and maintenance. 158 Tex. 43, 308 S.W.2d 4, 8 (1957). The court noted that those terms evinced the creation of a support trust. Id. And, though a trustee’s discretion regarding distributions from such a trust may be considerable, it was not unbridled. Id. at 8-9. The trustee must act reasonably and in a manner commensurate with the purpose of the trust. Id. at 9. This meant that his decision to distribute income or corpus for the beneficiary’s support and maintenance could not be exercised at a whim. The court ruled that the trustee abused his discretion by refusing to invade the principal of the trust to make payments for the beneficiary’s care while she was in a state mental hospital. The trustee argued that he was within his discretion to withhold payments of principal because the corpus of the trust should be preserved for her support if she were ever discharged from the hospital, and further, that if the trust corpus were used to pay all of her medical care it would completely destroy the trust. Disagreeing, the court held the trustee abused his discretion by withholding the entire principal and the trustee should have determined what amount could have been distributed while still preserving the long-term health of the trust.

In Penix, the appellate court ruled that a trustee was within its discretion to withhold principal as well as income, in order to meet the future needs of the beneficiary. Penix v. First Nat’l Bank of Paris, 260 S.W.2d 63 (Tex. Civ. App.—Texarkana,  writ ref’d). There, the trustee argued successfully that, because the beneficiary was only nine years old, the income produced from the trust was well in excess of what was needed for her current support, and any excess above the beneficiary’s current needs should be held in reserve for emergencies. The court found that the trustee was within its discretion. The court discounted any significance of the word “shall” within the grant.

Another factor that a trustee must consider is the needs of other beneficiaries. A trustee has a duty to treat all beneficiaries with impartiality. Texas Jurisprudence states:

A trustee must act for all the beneficiaries; he or she may not properly act for only some of them. The trustee owes the same fiduciary duty to all to protect their respective interests, without partiality or favor to some at the expense of others; thus, a trustee is bound, in the absence of instructions to the contrary, to administer the trust with an eye to a remainder interest, as well as to the interest of a life tenant, and he or she cannot slight one interest for the benefit of the other. Additionally, a trustee owes the same fiduciary duty to a contingent beneficiary as to one with a vested interest, insofar as necessary for the protection of the rights of the contingent beneficiary in the trust property. This duty of impartiality has been codified in the Uniform Prudent Investor Act, which states that if a trust has two or more beneficiaries, the trustee must act impartially in investing and managing the trust assets, taking into account any differing interests of the beneficiaries.

Tex. Jur. 3rd, Trusts, § 64. See also Commercial Nat. Bank of Nacogdoches v. Hayter, 473 S.W.2d 561 (Tex. Civ. App. 1968, writ ref’d n.r.e.). “Generally, a trustee owes the same fiduciary duty to a contingent beneficiary as to one with a vested interest.” Cox-Rushing Greer Co. v. Richardson, 277 S.W. 718, 721 (Tex. App.—Austin 1925); see also In re K.K.W., No. 05-16-00795-CV, 2018 Tex. App. LEXIS 6539, at *27 (Tex. App.—Dallas Aug. 20, 2018, pet. denied); Brown v. Scherck, 393 S.W.2d 172, 181 (Tex. Civ. App.—Corpus Christi 1965, no writ); Ahern v. Montoya, 393 P3d 1090, 1094 (Nev 2017) (noting “a trustee’s duty to treat all beneficiaries equally” (citing Hearst v. Ganzi, 145 Cal App 4th 1195, 52 Cal Rptr 3d 473, 481 (2006))).

In a recession, a trust’s asset portfolio will likely decrease even with sound diversification and investing strategy. So, there are often more requests for distribution at a time when the source of distributions is decreasing. What is a trustee to do?

First, the trustee should garner all relevant information to make a sound decision. The trustee should evaluate the financial market and where it is headed. The trustee should gather information for the requesting beneficiary’s individual needs and sources of income. The trustee should seek a detailed report on all sources of funding for a beneficiary and all anticipated expenses. The trustee should also obtain the beneficiary’s balance sheet showing all assets and liabilities. The trustee should also obtain the beneficiary’s tax statements for the three previous years. The trustee should also seek information on the potential needs for other beneficiaries.

Second, when exercising discretion in a support trust, a trustee should use this information to consider both the present and future needs of the requesting beneficiary and other beneficiaries, as well as other relevant facts and circumstances. Regarding the HEMS standard:

1) The size of the trust estate. Does the trust hold $50 million or $200,000?

2) The beneficiary’s age, life expectancy, and condition in life. Is the beneficiary young and healthy or elderly? Does the beneficiary have special health needs that will require funding in the future?

3) The beneficiary’s present and future needs. What are the current needs? Is the beneficiary a young student that can obtain school loans? Does the beneficiary have health needs that will require funding for years to come?

4) The other resources available to the beneficiary or his individual wealth. Does the beneficiary have individual sources of income? Is the beneficiary a beneficiary of other trusts?

5) The beneficiary’s present and future health, both mental and physical. Does the beneficiary have current health needs that require funding? Does the beneficiary have health insurance? Can the trust obtain health insurance for the beneficiary? Will the beneficiary need assistance in the future?

6) Other beneficiary’s needs and consideration. Are there other beneficiaries that are entitled to a distribution under HEMS standard? What are their needs and conditions? Are there future contingent beneficiaries?

After evaluating these and other factors, a trustee should make a decision and document the file as to its due diligence. The decision is generally not set in stone, and a trustee can reevaluate the decision at any time when factors change. A trustee can always seek assistance from an attorney to provide legal advice on the factors involved in making distributions, and the fact that the trustee seeks legal advice is evidence to support a finding that a trustee has complied with its fiduciary duties.

I.     Introduction

In fiduciary litigation, parties often file motions that raise important legal issues before trial. For example, parties may file motions on preemption, the statute of limitations, exculpatory clauses, legal duties, legal construction of documents, etc. One party or the other may want to appeal a trial court’s decision on these important legal issues before trial to save the expense and delay of a trial on the merits. In fact, trial courts often prefer to have these fundamental legal issues resolved correctly before using judicial resources on a trial.

II.     Creation Of Permissive Appeal Statute

Historically, parties could not generally appeal an interlocutory order and had to wait until the end of the case. Generally, Texas appellate courts may review only final judgments, and there can be only one final judgment in any case. Colquitt v. Brazoria County, 324 S.W.3d 539 (Tex. 2010); Cherokee Water Co. v. Ross, 698 S.W.2d 363, 365 (Tex. 1985). “A judgment is final for purposes of appeal if it disposes of all pending parties and claims in the record, except as necessary to carry out the decree.” Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2001). “There are, of course, exceptions to the final judgment rule that allow an immediate appeal before final judgment when the issue is so important that an answer should not wait until the case concludes.” Sabre Travel Int’l, Ltd. v. Deutsche Lufthansa AG, 567 S.W.3d 725, 730 (Tex. 2019). The Texas Civil Practice and Remedies Code sets out thirteen different instances where a party can appeal an interlocutory order. “Colloquially, these instances are referred to as ‘interlocutory appeals as of right,’ because parties need not secure judicial permission before filing an interlocutory appeal. Intermediate appellate courts have no discretion to decline interlocutory appeals brought under section 51.014(a).” Id. These include orders on temporary injunctions, receiverships, certain jurisdictional challenges, class-action rulings, etc.

There is now a provision that allows parties to appeal almost any order so long as it involves a controlling question of law. An interlocutory order may be appealable in a permissive appeal. Tex. Civ. Prac. & Rem. Code Ann. §51.014(d). This device would allow a party to appeal a traditionally non-appealable interlocutory ruling when it involves a controlling issue of law as to which there is a substantial ground for difference of opinion and when an immediate appeal may materially advance the ultimate termination of the litigation. Id. If all conditions exist for its use, the permissive appeal is a method to appeal an otherwise unappealable interlocutory order, such as the denial of a motion for summary judgment or the granting of a partial motion.

Section 51.014 of the Texas Civil Practice and Remedies Code authorizes a court to accept a permissive appeal from an interlocutory order if (1) “the order to be appealed involves a controlling question of law as to which there is a substantial ground for difference of opinion” and (2) “an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Tex. Civ. Prac. & Rem. Code § 51.014(d), (f). The Legislature modeled section 51.014(d) after the federal counterpart to permissive interlocutory appeals. Compare 28 U.S.C. § 1292(b), with Tex. Civ. Prac. & Rem. Code § 51.014(d), (f). The statute further provides:

An appellate court may accept an appeal permitted by Subsection (d) if the appealing party, not later than the 15th day after the date the trial court signs the order to be appealed, files in the court of appeals having appellate jurisdiction over the action an application for interlocutory appeal explaining why  an appeal is warranted under Subsection (d). If the court of appeals accepts the appeal, the appeal is governed by the procedures in the Texas Rules of Appellate Procedure for pursuing an accelerated appeal. The date the court of appeals enters the order accepting the appeal starts the time applicable to filing the notice of appeal.

Tex. Civ. Prac. & Rem. Code § 51.014(f). By using the phrase “may accept” in section 51.014(f), the Legislature conveyed a discretionary function in the court of appeals. Sabre Travel Int’l, Ltd. v. Deutsche Lufthansa AG, 567 S.W.3d at 731 (Tex. 2019). The same can be said for the trial court regarding the phrase “may . . . permit” in subsection (d). Id.

III.     Courts Of Appeals Have Discretion To Accept Appeal

The Texas Supreme Court has recently held that courts of appeals have wide discretion to grant or deny a request for permissive appeal. Sabre Travel Int’l, Ltd. v. Deutsche Lufthansa AG, 567 S.W.3d at 732-33. The Court first stated: “The United States Supreme Court has interpreted section 1292(b) as providing federal circuit courts absolute discretion to accept or deny permissive appeals.” Id. The Court then held: “We agree that Texas courts of appeals have discretion to accept or deny permissive interlocutory appeals certified under section 51.014(d), just as federal circuit courts do.” Id. The Court then cautioned that courts of appeals should grant permissive appeals where appropriate:

We do caution, however, that while courts of appeals have discretion to deny acceptance of permissive interlocutory appeals, the Legislature in its enactment of section 51.014(d) and (f) has recognized the benefit of appellate courts accepting such appeals when the threshold for an exception to the final judgment rule is met. When courts of appeals accept such permissive appeals, parties and the courts can be spared the inevitable inefficiencies of the final judgment rule in favor of early, efficient resolution of controlling, uncertain issues of law that are important to the outcome of the litigation. Indeed, the Legislature enacted section 51.014 to provide “for the efficient resolution of certain civil matters in certain Texas courts” and to “make the civil justice system more accessible, more efficient, and less costly to all Texans while reducing the overall costs of the civil justice system to all taxpayers.” If all courts of appeals were to exercise their discretion to deny permissive interlocutory appeals certified under section 51.014(d), the legislative intent favoring early, efficient resolution of determinative legal issues in such cases would be thwarted. Just because courts of appeals can decline to accept permissive interlocutory appeals does not mean they should; in fact, in many instances, courts of appeals should do exactly what the Legislature has authorized them to do—accept permissive interlocutory appeals and address the merits of the legal issues certified.

Id. (internal citations omitted).

If a court of appeals denies a request to accept a permissive appeal, the proposed appellant can seek relief from the Texas Supreme Court, which will review the request de novo under the relevant factors. Id. However, a party may not directly appeal to the Texas Supreme Court and must first seek relief from the court of appeals. Id. (“Nor does our interpretation of section 22.225(d) create a direct appeal to this Court. Nothing we have said alters the requirement that a party advancing a permissive appeal must first petition the court of appeals for review before petitioning this Court.”).

IV.     Procedure For Permissive Appeal

Pursuant to this statute, the Texas Supreme Court created rules to effectuate a permissive appeal procedure. See Tex. R. Civ. P. 168 (“On a party’s motion or on its own initiative, a trial court may permit an appeal from an interlocutory order that is not otherwise appealable, as provided by statute.”); Tex. R. App. P. 28.3(a) (“When a trial court has permitted an appeal from an interlocutory order that would not otherwise be appealable, a party seeking to appeal must petition the court of appeals for permission to appeal.”). Texas Rule of Civil Procedure 168 states:

On a party’s motion or on its own initiative, a trial court may permit an appeal from an interlocutory order that is not otherwise appealable, as provided by statute. Permission must be stated in the order to be appealed. An order previously issued may be amended to include such permission. The permission must identify the controlling question of law as to which there is a substantial ground for difference of opinion, and must state why an immediate appeal may materially advance the ultimate termination of the litigation.

Tex. R. Civ. P. 168. Under this rule, the order must identify the controlling question of law, and there should not be a discrepancy between the trial court’s order and the arguments contained in the petition seeking permission to appeal the interlocutory order. Long v. State, 2012 Tex. App. LEXIS 6201 (Tex. App.—Austin July 25 2012, no pet.). Further, the trial court should actually rule on the substantive issue; it cannot simply seek an advisory opinion. The Corp. of the President of the Church of Jesus Christ of Latter-Day Saints v. Doe, 2013 Tex. App. LEXIS 12543 (Tex. App.—Corpus Christi Oct. 10 2013, no pet.); Double Diamond Del., Inc. v. Walkinshaw, 2013 Tex. App. LEXIS 12447 (Tex. App.—Dallas Oct. 7 2013, no pet.).

The Rule states that the order previously issued may be amended. This is important. If a party has an adverse ruling, it may not immediately have time to include the necessary language for a permissive appeal. The Rule allows the party to file a motion to request the trial court to certify the legal issue(s) for appeal, and then if granted, the trial court can enter an amended order that includes the necessary language. The clock to appeal only starts to tick after the amended order is signed.

Texas Rule of Appellate Procedure 28.3 provides:

(a)  Petition Required.  –When a trial court has permitted an appeal from an interlocutory order that would not otherwise be appealable, a party seeking to appeal must petition the court of appeals for permission to appeal.

(b)  Where Filed.  –The petition must be filed with the clerk of the court of appeals having appellate jurisdiction over the action in which the order to be appealed is issued. The First and Fourteenth Courts of Appeals must determine in which of those two courts a petition will be filed.

(c)  When Filed.  –The petition must be filed within 15 days after the order to be appealed is signed. If the order is amended by the trial court, either on its own or in response to a party’s motion, to include the court’s permission to appeal, the time to petition the court of appeals runs from the date the amended order is signed.

(d)  Extension of Time to File Petition.  –The court of appeals may extend the time to file the petition if the party: (1)  files the petition within 15 days after the deadline, and (2)  files a motion complying with Rule 10.5 (b).

(e)  Contents.  –The petition must: (1)  contain the information required by Rule 25.1 (d) to be included in a notice of appeal; (2)  attach a copy of the order from which appeal is sought; (3)  contain a table of contents, index of authorities, issues presented, and a statement of facts; and (4)  argue clearly and concisely why the order to be appealed involves a controlling question of law as to which there is a substantial ground for difference of opinion and how an immediate appeal from the order may materially advance the ultimate termination of the litigation.

(f)  Response; Reply; Cross-Petition; Time for Filing.  –If any party timely files a petition, any other party may file a response or a cross-petition within 10 days. A party may file a response to a cross-petition within 10 days of the date the cross-petition is filed. A petitioner or cross-petitioner may reply to any matter in a response within 7 days of the date the response is filed. The court of appeals may extend the time to file a response, reply, and cross-petition.

(j)  Time for Determination.  –Unless the court of appeals orders otherwise, a petition, and any cross-petition, response, and reply, will be determined without oral argument, no earlier than 10 days after the petition is filed.

(k)  When Petition Granted.  –If the petition is granted, a notice of appeal is deemed to have been filed under Rule 26.1 (b) on that date, and the appeal is governed by the rules for accelerated appeals. A separate notice of appeal need not be filed. A copy of the order granting the petition must be filed with the trial court clerk.

Tex. R. App. P. 28.3.

The comments to Rule 28.3 explain that amendments to section 51.014 “eliminated the prior requirement that the parties agree to the appeal and reinstated a requirement that the court of appeals also permit the appeal.” Tex. R. App. P. 28.3 cmt. So, a party seeking a permissive appeal does not have to obtain the other party’s consent; the trial court can simply certify the relevant legal issues upon one party’s request. Further, “[t]he petition procedure in Rule 28.3 is intended to be similar to the Rule 53 procedure governing petitions for review in the [Texas] Supreme Court,” meaning the courts of appeals can similarly accept or deny a permissive interlocutory appeal as the Texas Supreme Court can a petition for review. Id.; see also Tex. R. App. P. 28.3(k) (clarifying that if a petition seeking interlocutory appeal is granted, the appeal is thereby perfected in the court of appeals).

An appeal from an interlocutory order, when allowed, will be accelerated and the filing a motion for new trial will not extend the time to perfect the appeal. Smith v. Adair, 96 S.W.3d 700 (Tex. App.—Texarkana 2003, no pet.).

V.     Controlling Legal Issue Is Required

Permissive appeals are intended in situations where the trial court has made a substantive ruling on a pivotal issue of law. One commentator has stated:

[A] controlling question of law is one that deeply affects the ongoing process of litigation. If resolution of the question will considerably shorten the time, effort, and expense of fully litigating the case, the question is controlling. Generally, if the viability of a claim rests upon the court’s determination of a question of law, the question is controlling. . . . Substantial grounds for disagreement exist when the question presented to the court is novel or difficult, when controlling circuit law is doubtful, when controlling circuit law is in disagreement with other courts of appeals, and when there simply is little authority upon which the district court can rely. . . . Generally, a district court will make [a finding that the appeal will facilitate final resolution of the case] when resolution of the legal question dramatically affects recovery in a lawsuit.

ADT Sec. Servs. v. Van Peterson Fine Jewelers, No. 05-15-00646-CV, 2015 Tex. App. LEXIS 7831 (Tex. App.—Dallas July 29, 2015, no pet.) (citing Gulf Coast Asphalt Co. v. Lloyd, 457 S.W.3d 539, 543-44 (Tex. App.—Houston [14th Dist.] 2015, no pet.) (quoting Renee Forinash McElhaney, Toward Permissive Appeal in Texas, 29 ST. MARY’S L.J. 729, 747-49 (1998))).

For example, due to the “controlling issue of law” requirement, many permissible appeals come from denials of summary judgment motions and other similar dispositive motions. See, e.g., Orca Assets, G.P. v. Dorfman, 470 S.W.3d 153, 164, 167 (Tex. App.—Fort Worth 2015, pets. denied) (permissive appeal from interlocutory summary judgment); State v. Ledrec, Inc., 366 S.W.3d 305 (Tex. App.—Fort Worth 2012, no pet.) (granting interlocutory appeal from denial of partial summary judgment motion where there was a difference of expert opinion on measure of damages); Cole v. Anadarko Petroleum Corp., 331 S.W.3d 30 (Tex. App.—Eastland 2010, pet. denied) (granting interlocutory appeal from rulings on multiple motions for partial summary judgment regarding surface use); Placette v. M.G.S.L., No. 09-09-00410-CV, 2010 Tex. App. LEXIS 2935 (Tex. App.—Beaumont Apr. 22, 2010) (granting interlocutory appeal from ruling denying motion for summary judgment regarding whether statute of limitations applied to bar plaintiff’s claim);  Kimbrell v. Molinet, 288 S.W.3d 464, 465-66 (Tex. App.—San Antonio 2008), aff’d, No. 09-0544, 2011 Tex. LEXIS 68, 2011 WL 182230 (Tex. Jan. 21, 2011) (addressing agreed interlocutory appeal from trial court’s denial of a summary judgment motion asserting physician-defendant’s joinder in medical malpractice case was barred by limitations, and determining the controlling question of law as to which statute of limitations applied);  Northside Indep. Sch. Dist. v. Dubose, No. 04-06-00517-CV, 2007 Tex. App. LEXIS 3937, 2007 WL 1481661, at *1 (Tex. App.—San Antonio May 23, 2007, no pet.) (mem. op.) (on cross-motions for summary judgment the trial court held that school district had waived its right to contest compensability of employee’s workers’ compensation claim, and thereafter certified the issue of waiver as the controlling question on agreed interlocutory appeal); Stolte v. County of Guadalupe, No. 04-04-00083-CV, 2004 Tex. App. LEXIS 10236, 2004 WL 2597443 (Tex. App.—San Antonio 2004, no pet.) (agreed interlocutory appeal from denial of summary judgment in which trial court concluded county had inherent authority to reject plat application in the interest of public health);  Enterprise Products Partners, L.P. v. Mitchell, No. 01-09-00653-CV, 340 S.W.3d 476, 2011 Tex. App. LEXIS 953, 2011 WL 693700 (Tex. App.—Houston [1st Dist.] Feb. 10, 2011, no pet.) (trial court ruled Texas, not Mississippi, law applied to lawsuit and certified choice-of-law question as the controlling legal question for agreed interlocutory appeal); Comcast Cable of Plano, Inc. v. City of Plano, 315 S.W.3d 673 (Tex. App.—Dallas 2010, no pet.) (on agreed interlocutory appeal, court of appeals addressed the controlling question of law as to whether the city’s claim for breach of a franchise agreement was preempted by federal law after trial court denied Comcast’s summary judgment motion based on preemption).

Courts of appeals typically deny petitions for permissive appeal where they feel that the case involves a fact issue. See, e.g., King-A Corp. v. Wehling, 2013 Tex. App. LEXIS 2761 (Tex. App.—Corpus Christi Mar. 14 2013, no pet.). For example, in an undue influence case, an appellate court refused a permissive appeal after a trial court granted a partial no-evidence summary judgment motion because it did not necessarily decide a controlling issue of law. In re Estate of Fisher, 421 S.W.3d 682 (Tex. App.—Texarkana 2014, no pet.).

VI.     Conclusion

So, a party in fiduciary litigation should consider its appellate rights for an immediate review of controlling legal issues that a trial court may have erred in resolving. This procedure may save the parties and the court the expense and time of trying a case that is based on a faulty ruling on a controlling issue of law.

Selected by Texas Bar Today as a “Top 10 Blog Post”

In UPS Ground Freight, Inc. v. Trotter, parties filed claims against an estate representative based on a car accident in the county where the estate was being administered. No. 12-19-00135-CV, 2020 Tex. App. LEXIS 1127 (Tex. App.—Tyler February 10, 2020, no pet. history). A defendant, employer of the decedent, moved to transfer venue to the county where the accident happened. The trial court denied the motion to transfer, and the defendant filed an appeal.

The independent administrator alleged that venue was proper pursuant to Texas Civil Practice and Remedies Code Section 15.031 because the estate was being administered in that county. The defendant argued that Section 15.031 did not apply because the suit was not one against the administrator “as such, to establish a money demand” against the estate. They contended that the statute limits its applicability to suits involving a claim for a fixed, liquidated sum, and the plaintiffs sought an undetermined amount of personal injury damages.

The court of appeals noted that the term “money demand” was not defined by the statute. It held: “Venue statutes dictating permissible counties in which to sue an administrator of an estate must be read in conjunction with Texas Estates Code provisions regarding procedures for pursuing claims against an estate.” Id. The court noted that the Texas Estates Code defines “claims” as liabilities of a decedent that survive the decedent’s death, regardless of whether the liabilities arise in contract or tort or otherwise. Id. (citing Tex. Est. Code Ann. § 22.005(1)).

The court then discussed the claims process for estate administration. In light of this framework, the court looked to the Texas Civil Practice And Remedies Code to determine the proper county in which the plaintiffs could file suit against the estate administrator for their alleged personal injury damages. The court held:

Pursuant to Section 15.031, a suit against an estate administrator, in her capacity as administrator, to establish a money demand against the estate which she represents, may be brought in the county in which the estate is being administered. A suit for personal injury damages caused by the alleged negligence of the decedent is a suit for unliquidated damages. A suit for personal injury damages against the estate administrator is a “suit to establish a money demand” because the result is that the unliquidated demand is reduced by judgment to a liquidated amount. Therefore, Appellees were entitled to file their personal injury lawsuit against McElduff, as estate administrator, in Rusk County, where Clark’s estate is being administered to establish a money demand.

Id. (internal citations omitted).

The court noted that venue was not exclusive, and that the plaintiffs could have filed suit in the county where the accident occurred. The court also noted: “Because Appellees’ claims against the administrator and Appellants arise out of the same transaction, occurrence, or series of transactions or occurrences, venue in Rusk County is also established as to Appellants.” Id. The court affirmed the trial court’s order denying the motion to transfer venue.

In In re Estate of Debra E. Hunt v. Arabia Vargas, a trial court granted summary judgment interpreting a will to devise a large share of the testatrix’s personal property to her life partner. No. 01-19-00216-CV, 2020 Tex. App. LEXIS 1036 (Tex. App.—Houston [1st Dist.] February 6, 2020, no pet. history). The will stated: “I give all of my remaining household and personal property to Arabia Vargas.” The partner contended that the testatrix bequeathed to her all personal property-including intangible personal property such as the bank accounts. The residuary beneficiaries argued that the bequest of personal property was limited to household items and tangible personal property and that intangible personal property, including the money in bank accounts, and real property were subject to the will’s residuary clause to them. The probate court sided with the partner and declared that the testatrix had bequeathed all personal property to the partner other than the specific items bequeathed to another individual. The residuary beneficiaries appealed.

The appellate court first discussed the general rules for interpreting the term “property” in a will:

In a will, an unqualified reference to “property” encompasses everything of exchangeable value that the testator owned, including real and personal property whether tangible or intangible. In its ordinary usage, the term “property” is comprehensive. “Personal property,” in contrast, excludes real property but otherwise remains broad in definition, including everything other than real property that is subject to ownership. Because “personal property” has a settled legal meaning, a court ordinarily need not look beyond these words to ascertain a testator’s intent if she uses them. The legal definition of “personal property” is so well established that it generally does not allow for an interpretation other than the one ascribed to it by the law.

Id. The appellate court disagreed with six different arguments raised by the residuary beneficiaries and held that the bequest unambiguously conveyed all of the testatrix’s personal property-tangible and intangible-to the partner. The court of appeals affirmed the trial court’s judgment.

David F. Johnson presented his paper “Trustee Quandary: Criminal Activity By a Beneficiary  With or On Trust Property,” to the Tarrant County Probate Bar Association on March 5, 2020.  The presentation dealt with a trustee managing trust assets that are being used by a beneficiary in the course of criminal activity and addressed a trustee’s duties to the trust and beneficiaries, such as the duty of loyalty (and its limits), confidentiality, and to properly manage and safeguard assets.  It also covered a trustee’s civic duty to report crime and to preserve evidence and the potential criminal risk involved in failing to do so.  See below for the paper and presentation.

Read the Full Article Here
View the PowerPoint Presentation Here

 

In In re Jones, parties filed a mandamus proceeding to challenge the trial court’s disqualification of their attorney. No. 12-19-00354-CV, 2019 Tex. App. LEXIS 11267 (Tex. App.—Tyler December 31, 2019, original opinion). An attorney sent an email to the beneficiary of the estate, stating that the attorney for estate was a bad lawyer and only looking out for his own interest and other related bad things. The beneficiary took the position that the estate’s attorney also represented him at the time that he received the email. The beneficiary filed a motion to disqualify the email-sending attorney because an attorney should not directly communicate with a party that is represented by counsel. The trial court agreed and disqualified the attorney.

The court of appeals disagreed with the trial court and granted mandamus relief to reverse the disqualification order because there was allegedly no evidence that the attorney knew that the beneficiary was represented by counsel when he sent the email. The court stated:

In representing a client, a lawyer shall not communicate or cause or encourage another to communicate about the subject of the representation with a person, organization or entity of government the lawyer knows to be represented by another lawyer regarding that subject, unless the lawyer has the consent of the other lawyer or is authorized by law to do so. Accordingly, Rule 4.02 forbids a lawyer from communicating with another person only when the lawyer knows that person has legal counsel in the matter. Relators dispute Respondent’s finding that Reiner knew Anderson represented Steven. It is undisputed that Anderson represented the Estate and that Cogburn, the executor, and Steven, Cogburn’s brother, are beneficiaries of the Estate. However, Steven’s status as a beneficiary does not automatically give rise to an attorney-client relationship with Anderson, the Estate’s attorney. Generally, an attorney hired by an executor to advise her in administering the estate represents the executor and not the beneficiaries. But, it is conceivable that the executor’s attorney could undertake to perform legal services as attorney for one or more beneficiaries. Steven’s testimony supports a conclusion that this scenario occurred with Anderson. Nevertheless, the pertinent question is whether the Estate met its burden of establishing that Reiner knew of that representation at the time he sent the email on September 11, 2019.

Id. The court then reviewed the evidence in the record and determined that: “At best, the record merely establishes the possibility that Reiner knew Steven was represented by Anderson. Such a possibility is insufficient to merit disqualification.” Id. The court concluded:

“As previously stated, disqualification is a severe remedy that should not be granted liberally. Based on the record before us, we cannot conclude that the Estate met its burden of showing, with specificity, that at the time Reiner sent the email to Steven, he knew Steven to be represented by Anderson regarding the litigation. Accordingly, Respondent abused his discretion by disqualifying Relators’ counsel.”

Id.