Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Court Holds That Plaintiff Did Not Establish Continuing Tort Theory To Defeat A Statute Of Limitations Defense To A Breach Of Fiduciary Duty Claim

Posted in Cases Decided, Texas Court of Appeals

In Vaschenko v. Novosoft, Inc., a partner from an alleged oral partnership sued his partner for breach of fiduciary duty. No. 03-16-00022-CV, 2018 Tex. App. LEXIS 771 (Tex. App.—Austin January 26, 2018, no pet. history). The trial court granted the defendant’s motion for summary judgment based on limitations, and the plaintiff appealed.

The court of appeals first held that the plaintiff waived his appellate argument that his claims were not barred because the partnership and the defendant’s fiduciary duties were still ongoing. The court held that a summary judgment nonmovant has to preserve its arguments or issues in the trial court. “To expressly present issues to the trial court, ‘the written answer or response to the motion must fairly apprise the movant and the court of the issues the non-movant contends should defeat the motion.’” Id. Further, “the fair-apprisal requirement ‘clearly contemplates that the trial court is not required to guess why a non-movant presents certain evidence or consider every possible reason the evidence might defeat summary judgment.’” Id. The court concluded: “the mere fact that the alleged existence of a partnership underpinned Vaschenko’s causes of action was insufficient to apprise the trial court, in a summary-judgment proceeding regarding the applicability of limitations, of his specific appellate argument that the limitations period was tolled because the partnership was never terminated.” Id. The court then addressed the issue that was preserved in the trial court:

We now turn to the general continuing-tort allegation that Vaschenko did raise in his response to Novosoft’s motion for traditional summary judgment. The allegedly tortious conduct that seems to form the basis of his defense are (1) Novosoft’s use of the Russian legal system to deprive him of assets, (2) that Brenan and Eure “deconstruct[ed] the business that Vaschenko had set-up into” various independent companies, and (3) that those companies are selling software he and Brenan developed to Vaschenko’s clients. However, Vaschenko fails to demonstrate how any such conduct constitutes tortious conduct that would support a continuing-tort defense to limitations. See Texas Disposal Sys. Landfill, Inc. v. Waste Mgmt. Holdings, Inc., 219 S.W.3d 563, 587-88 (Tex. App.—Austin 2007, pet. denied) (“Texas Disposal has not offered any authority, nor have we found any, that broadens the continuing tort doctrine to include actions based on defamation, tortious interference, or tortious acts that are intermittent and irregular in nature. Rather, our research has revealed only contrary authority.”).

Id. The court affirmed the summary judgment for the defendant.

Court Rejects Claim That Mortgage Lender Owed Fiduciary Duties To Borrower And Addressed The Discovery Rule For The Statute of Limitations

Posted in Cases Decided, Texas Court of Appeals

In Wakefield v. Bank of Am., N.A., a borrower stopped paying on her mortgage because she felt she was assisting in a fraud. No. 14-16-00580-CV, 2018 Tex. App. LEXIS 545 (Tex. App.—Houston [14th Dist.] January 18, 2018, no pet. history). She later sued the lender for breach of fiduciary duty, and the lender filed a motion for summary judgment based on the statute of limitations, which the trial court granted. The court of appeals discussed the discovery rule in the context of a breach of fiduciary duty claims:

The limitations period for fraud and breach of fiduciary duty is four years. “As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.” A cause of action “accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet to occur.” There is, however, a “very limited exception” to the general rule for determining accrual of the cause of action. “The discovery rule exception defers accrual of a cause of action until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to the cause of action.” Under the discovery rule, accrual may be deferred if “the nature of the injury incurred is inherently undiscoverable and the evidence of injury is objectively verifiable.” “An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence.” The issue of when a cause of action accrues is a question of law. And, whether an injury is inherently undiscoverable is a legal question “decided on a categorical rather than case-specific basis; the focus is on whether a type of injury rather than a particular injury was discoverable.”

….

In the context of a fiduciary relationship, “the nature of the injury is presumed to be inherently undiscoverable, although a person owed a fiduciary duty has some responsibility to ascertain when an injury occurs.” The rationale for this presumption is that fiduciaries are presumed to possess superior knowledge, meaning the injured party is presumed to possess less information than the fiduciary. Consequently, the Supreme Court of Texas has repeatedly “held a fiduciary’s misconduct to be inherently undiscoverable.” If a fiduciary relationship exists, “a person to whom a fiduciary duty is owed is relieved of the responsibility of diligent inquiry into the fiduciary’s conduct.”

Id. The court then addressed whether the mortgage lender owed fiduciary duties to the borrower and held that it did not:

Generally, the relationship between a borrower and a lender does not create a fiduciary duty. “[T]he great weight of authority is that while the relationship between the mortgagor and mortgagee is often described as one of trust, technically it is not of a fiduciary character.” “A special relationship does not usually exist between a borrower and lender, and when Texas courts have found one, the findings have rested on extraneous facts and conduct, such as excessive lender control or influence in the borrower’s business activities.” Not every relationship involving a high degree of trust and confidence gives rise to an informal fiduciary duty, and for an informal fiduciary duty to arise in a business transaction, “the relationship must exist prior to, and apart from, the agreement made the basis of the suit.” Wakefield did not allege an informal fiduciary relationship; in her pleadings she based her breach-of-fiduciary-duty claim on her status as “lendee” and did not plead any facts to support the existence of an informal relationship.

Id. After holding that the lender did not owe fiduciary duties, the court held that there was no presumption that the claim was undiscoverable and affirmed the summary judgment based on the statute of limitations.

Fiduciary Litigation Practice Tip: Streamlining Discovery To Threshold Legal Issues

Posted in Items of Interest

Litigation can unfortunately be a costly endeavor. This is as true with fiduciary litigation as with any other type of litigation. The parties have to exchange documents, take depositions, retain experts, conduct legal research on many issues, prepare dispositive motions and respond to same, prepare for trial, prepare lengthy jury instructions, etc. However, there are often certain threshold issues that, if determined early in a case, may streamline the disposition of the case. For example, there are a number of issues in fiduciary cases that may make the rest of the case moot: personal jurisdiction, forum issues, the statute of limitations, exculpatory and/or release clauses, whether fiduciary duties are owed, etc. When a case has a threshold issue, it would make sense to bifurcate discovery and allow the threshold issue to be resolved before the remainder of the case is fully litigated.

Of course, plaintiffs often fight these attempts. Plaintiffs see the cost of litigation as a leverage tool to pressure a more friendly settlement. They also do not want to limit their discovery as they may believe that egregious facts on liability or damages may impact the way a court will view a threshold issue. There may be some truth to those beliefs. However, for most cases, it really is better for all parties, and certainly the court system, to streamline the case and have an orderly and thoughtful schedule for its resolution.

So, what is a defendant to do when it wants to advocate for a streamlined scheduling order? What discretion does a trial court have to enter such an order?

Texas Rule of Civil Procedure 166 provides that a district court has discretion to determine what issues need to be decided and in what order. Tex. R. Civ. P. 166. The Rule states:

In an appropriate action, to assist in the disposition of the case without undue expense or burden to the parties, the court may in its discretion direct the attorneys for the parties and the parties or their duly authorized agents to appear before it for a conference to consider: … (c) A discovery schedule; … (e) Contested issues of fact and the simplification of the issues;… (g) The identification of legal matters to be ruled on or decided by the court; … (p) Such other matters as may aid in the disposition of the action. The court shall make an order which recites the action taken at the pretrial conference, the amendments allowed to the pleadings, the time within which same may be filed, and the agreements made by the parties as to any of the matters considered, and which limits the issues for trial to those not disposed of by admissions, agreements of counsel, or rulings of the court; and such order when issued shall control the subsequent course of the action, unless modified at the trial to prevent manifest injustice. The court in its discretion may establish by rule a pretrial calendar on which actions may be placed for consideration as above provided and may either confine the calendar to jury actions or extend it to all actions.

Tex. R. Civ. P. 166. The purpose of Rule 166 is to assist in the disposition of the case without undue expense or burden to the parties. Walden v. Affiliated Computer Servs., Inc., 97 S.W.3d 303, 2003 Tex. App. LEXIS 314 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). Rule 166(g) expressly allows a trial court to use a pretrial conference to consider the identification of legal matters to be ruled on or decided by the court. Id.

Moreover, in Texas, a court has discretion to stay discovery on issues that may be mooted by a threshold issue. In discovery, a trial court is granted latitude in limiting or tailoring discovery. Tex. R. Civ. P. 192.4. Generally, a trial court should limit discovery methods to those which are more convenient, less burdensome, and less expensive, or when the burden or expense of the proposed discovery outweighs its likely benefit. In re Alford Chevrolet—Geo, 997 S.W.2d 173, 182-83 (Tex. 1999) (orig. proceeding). See also Tex. R. Civ. P. 192.4. Discovery requests themselves must be reasonably tailored to matters relevant to the case at issue. In re Xeller, 6 S.W.3d 618, 626 (Tex. App.—Houston [14th Dist.] 1999, orig. proceeding). Consequently, the trial court has broad discretion to limit discovery requests by time, place, and subject matter. Texaco, Inc. v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995). Specifically, the Texas Rules of Civil Procedure expressly allow a trial court to protect a party from inappropriate or untimely discovery requests:

To protect [a party filing a motion for protection] from undue burden, unnecessary expense, harassment, annoyance, or invasion of personal, constitutional, or property rights, the court may make any order in the interest of justice and may – among other things – order that: . . . (3) the discovery not be undertaken at the time or place specified.

Tex. R. Civ. P. 192.6(b). A court can stay discovery – put it on hold – if it is untimely. Id. For example, the Texas Supreme Court stated: “courts may limit discovery pending resolution of threshold issues like venue, jurisdiction, forum non conveniens, and official immunity.” In re Alford Chevrolet-Geo, 997 S.W.2d at 181. For example, one court has repeatedly stayed discovery pending the resolution of a special appearance motion. Lattin v. Barrett, No. 10-03-287-CV, 2004 Tex. App. LEXIS 177 (Tex. App.—Waco January 5, 2004, no pet.); Lacefield v. Electronic Fin. Group., 21 S.W.3d 799, 800 (Tex. App.—Waco 2000, no pet.) (stayed proceedings pending disposition of special appearance appeal).

A court has the power to stay discovery until it determines the outcome of threshold issues. See Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520-21 (Tex. 1995) (affirming summary judgment granted by trial court based on interpretation of unambiguous contract provision and rejecting the argument that summary judgment was inappropriate because it was decided before the plaintiff had the opportunity to conduct discovery); Davis v. Star-Telegram, No. 05-98-00088-CV, 2000 Tex. App. LEXIS 4526, at *16-17 (Tex. App.—Dallas July 7, 2000, pet. denied) (holding that the trial judge did not abuse his discretion in staying discovery pending a ruling on a motion for summary judgment). In fact, a court can stay the entire case pending a motion for summary judgment. See In re Messervey, No. 04-00-00700-CV, 2001 Tex. App. LEXIS 430, 2001 WL 55642, at *3 (Tex. App.—San Antonio July 24, 2001, orig. proceeding) (not designated for publication) (“[The court] has the authority to stay the case temporarily while he considers the motion for summary judgment and determines whether the discovery sought by Messervey is relevant and necessary for Messervey to contest the issues raised by Northbrook.”); Ho v. Univ. of Tex. at Arlington, 984 S.W.2d 672, 693-94 (Tex. App.—Amarillo 1998, pet. denied) (no abuse of discretion for trial court to continue trial date sua sponte pending ruling on summary judgment). For example, a court of appeals affirmed a trial court’s refusal to allow discovery where an immunity issue was pending on summary judgment. Barnes v. Sulak, No. 03-01-00159-CV, 2002 Tex. App. LEXIS 5727, at *16-17 (Tex. App.—Austin 2002, pet. denied). See also Elgohary v. Lakes on Eldridge N. Cmty. Ass’n, No. 01-14-00216-CV, 2016 Tex. App. LEXIS 8876, at *21-22 (Tex. App.—Houston [1st Dist.] Aug. 16, 2016, no pet.); Doe v. Roman Catholic Archdiocese of Galveston-Houston ex rel. Dinardo, 362 S.W.3d 803, 809, 812 (Tex. App.—Houston [14th Dist.] 2012, no pet.).

Courts in the Fifth Circuit routinely stay discovery that will be mooted by dispositive motions. See, e.g., Whalen v. Carter, 554 F.2d 1087, 1098 (5th Cir. 1992); Montgomery v. United States, 933 F.2d 348, 350 (5th Cir. 1991); Williamson v., United States Department of Agriculture, 815 F.2d 368, 382 (5th Cir. 1987); Drake v. Nat’l Broadcasting Co., Inc., No. 3-04-CV-0652-R, 2004 U.S. Dist. Lexis 25090, at *3-5 (N.D. Tex. 2004) (granting a stay of discovery under federal law pending the outcome of a motion to dismiss and noting that such a stay is particularly appropriate when the disposition of a motion “might preclude the need for discovery altogether, thus saving time and expense”); Tschirn v. Kurzweg, No. 03-0369, 2003 U.S. Dist. LEXIS 8294 (E. D. La. May 8, 2003) (magistrate’s opinion); Leclerc v. Webb, No. 3-664, 2003 U.S. Dist. LEXIS 7569 (E. D. La. May 1, 2003). See also Young v. Burks, 849 F.2d 610 n.6 (6th Cir. 1988); Spencer Trask Software & Info. Servs., LLC v. RPost Int’l Ltd., 206 F.R.D. 367, 368 (S.D.N.Y. 2002); Veniard v. NB Holdings Corp., 2000 U.S. Dist. LEXIS 20518 (M.D. Fla. August 8, 2000), vacated in part on other grounds, 2001 U.S. Dist. LEXIS 22907 (August 27, 2001); Richmond v. W.L. Gore & Assocs., 881 F.Supp. 895 n.13 (S.D. N.Y. 1995); International Graphics, Div. of Moore v. United States, 3 Cl. Ct. 715, 717-18 (1983); Blair Holdings Corp. v. Rubinstein, 159 F.Supp. 14, 15 (S.D.N.Y. 1954).

For example, in Landry v. Air Line Pilots Ass’n Int’l, the Fifth Circuit affirmed a district court’s order limiting discovery pending the resolution of a summary judgment motion.  901 F.2d 404, 435-36 (5th Cir. 1990). The court stated:

“Upon motion by a party or by the person from whom discovery is sought, and for good cause shown,” a district court is authorized to “make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” F.R.Civ.P. 26(c). In their motions for protective orders, the defendants gave several reasons why this discovery was not needed prior to the resolution of the summary judgment motions which, if granted, would preclude the need for the discovery altogether.

. . . .

Discovery is not justified when cost and inconvenience will be its sole result.  On the record before it, the trial court had to reach the decision that it did reach.  The procedural posture of the case and the showings of the parties left it little choice. Whether the trial judge surmised that pilots would not be able to defeat the summary judgment motions or whether he, like us, saw sufficient disputed facts to preclude summary judgment is irrelevant. Under the circumstances, there was no abuse of discretion in the order staying discovery until the summary judgment motions were resolved.

Id.

Therefore, in state and federal court in Texas, a court has discretion to rule on whether threshold issues should be determined in a particular order and may stay discovery on other issues that may be mooted by the determination of threshold issues. That makes sense as every case should be reviewed for its particular needs and courts should enter orders to save parties from needless expense. Once again, as the Texas Supreme Court held, “a trial court should limit discovery methods to those which are more convenient, less burdensome, and less expensive, or when the burden or expense of the proposed discovery outweighs its likely benefit.” In re Alford Chevrolet—Geo, 997 S.W.2d at 182-83. Courts should exercise their discretion to do just that.

Court Affirmed Finding That An Oral Partnership Existed And That A Partner Breached Fiduciary Duties

Posted in Cases Decided, Texas Court of Appeals

In Harun v. Rashid, two individuals started a restaurant business; one operated the business and the other financed it. No. 05-16-00584-CV, 2018 Tex. App. LEXIS 231 (Tex. App.—Dallas January 9, 2018, no pet. history). After some disagreements, the operator froze the financier out of the business. The financier sued, asserting claims of breach of fiduciary duty and breach of contract, and sought actual and exemplary damages and attorney’s fees. The case proceeded to trial before the court, and the court entered a judgment awarding the financier actual damages of $36,000, exemplary damages of $36,000, and attorney’s fees of $79,768.64.

On appeal, the operator argued that there was no evidence of a partnership. The court of appeals noted:

In determining whether a partnership was created, we consider several factors, including (1) the parties’ receipt or right to receive a share of profits of the business; (2) any expression of an intent to be partners in the business; (3) participation or right to participate in control of the business; (4) any agreement to share or sharing losses of the business or liability for claims by third parties against the business; and (5) any agreement to contribute or contributing money or property to the business. Proof of each of these factors is not necessary to establish a partnership. We review the factors under the totality of the circumstances.

Id. Under these factors, the court of appeals affirmed the trial court’s finding of a partnership:

At trial, Rashid presented evidence through his testimony that: (a) Huran approached him indicating he had found a good location to open a restaurant and needed a partner to finance the operation; (b) Huran asked him to be his partner; (c) he and Huran were equal business partners in the restaurant; (d) he and Huran agreed to share equally in the profits and losses; (e) he and Huran met with the leasing agents to negotiate the lease of the restaurant space; (f) he and Huran had equal access to the restaurant’s bank account; (g) he hired and communicated with the bookkeeper; (h) he was very involved in preparing paperwork for the restaurant; (i) he paid restaurant related bills, and purchased furniture and equipment for the restaurant; (j) he was not an employee of the restaurant or Harun, nor did he receive any pay for the work he performed on behalf of the restaurant; and (k) he invested approximately $60,000 in the business. We conclude the trial court’s finding a partnership existed between Huran and Rashid is supported by more than a scintilla of evidence, and is not against the great weight and preponderance of the evidence as to be clearly wrong and unjust. Accordingly, we overrule appellants’ first issue.

Id. The court affirmed the trial court’s judgment.

Court Reverses Trial Court’s Order Denying An Application To Probate A Will As A Muniment of Title

Posted in Cases Decided, Texas Court of Appeals

In Ramirez v. Galvan, a probate court denied the application for probate of a will as a muniment of title where the application was filed more than four years after the testator’s death. No. 03-17-00101-CV, 2018 Tex. App. LEXIS 222 (Tex. App.—Austin January 10, 2018, no pet. history). The applicant appealed. The court of appeals stated:

Pursuant to section 256.003(a) of the Texas Estates Code, a will must be submitted for probate within four years of the testator’s death. After expiration of the four-year period, a will may be probated as a muniment of title so long as the proponent is not in “default.” As used in section 256.003(a), “default” means failure to probate a will because of the absence of reasonable diligence by the party offering the instrument. The burden is on the party applying for the probate to demonstrate that he was not in default. Whether the party applying for probate is in default is usually a question of fact. Mere ignorance of the law does not excuse failure to file probate proceedings within the four-year period. Texas case law is quite liberal in permitting a will to be offered as a muniment of title after the four-year limitation period has expired.

Id. The court of appeals held that the trial court’s finding that the applicant was in default was against the great weight and preponderance of the evidence. The court held that before the decedent’s death, the applicant started paying her debts. Further, the court noted that:

Right away, he distributed her property according to her wishes, as expressed in the will and in the non-testamentary document. On the belief that the intent of the will had been accomplished, he continued to live in the house believing that he now was the sole owner.” Ulises testified that he thought the way Olivia “willed her interest” in the house was sufficient. As soon as he learned of the title problem, he consulted counsel as advised by the title company, and the application for probate was promptly filed. It appears that Ulises did not offer the will for probate, not through any lack of diligence, but because he did not realize any further act was necessary. This Court has considered and weighed all the evidence, some of which has been set out in this opinion, and has concluded that the probate court’s finding is so against the great weight and preponderance of the evidence so as to be clearly wrong and unjust.

Id.

Court Held That Trustee Had Authority To Sell Real Property And That The Beneficiaries Did Not Have A Right of First Refusal

Posted in Cases Decided, Texas Court of Appeals

In the Estate of Rodriguez, a trust beneficiary sued the trustee to enjoin the sale of real property owned by a testamentary trust. No. 04-17-00005-CV, 2018 Tex. App. LEXIS 254 (Tex. App.—San Antonio January 10, 2018, no pet. history). The trust stated: “My Trustee can sell the corpus of this Trust, but it [is] my desire my ranch stay intact as long as it is reasonable. If the corpus is sold it shall be distributed as set out in Section III, C and D.” Id. It also generally stated: “The Trustee during the continuation of each trust shall have the sole and complete right to possess, control, manage, and dispose of each trust estate and the said Trustee shall have the powers, rights, responsibilities and duties given to or imposed upon by trustees by the Texas Trust Code as such Code now exists.” Id. The trial court granted a motion for summary judgment filed by the trustee, allowing the trustee to close on a real estate contract for the real property. Id. The beneficiary appealed.

After providing the general rules for will and trust construction, the court of appeals described the rules for whether language was precatory or mandatory:

A court’s analysis regarding whether particular words are precatory or mandatory turns on “the testator’s expressed intent as evidenced by the context of the will and surrounding circumstances, ‘and words which are precatory in their ordinary meaning will nevertheless be construed as mandatory when it is evident that such was the testator’s intent.’” Generally, courts construe words akin to “want,” “wish,” “request,” and “desire” as precatory in their ordinary sense and not as imposing a legal obligation. These same words, however, become mandatory “‘when used in a will where it appears from the context or from the entire document that they are the expression of the testator’s intention in disposing of his property.’”

Id. The court noted that the language granting the power to sell the trust estate uses mandatory language and provides the trustee “shall have the sole and complete power to . . . dispose of each trust estate.” Id. The court concluded: “In view of the mandatory language used in granting Frank the power to sell the corpus of the trust, we hold the reference to Frank’s “desire” to keep the Ranch intact is precatory language which did not impose any legal obligation preventing Frank from entering into the to sell the Ranch to Christians.” Id.

The court also held that the beneficiary did not have a right of first refusal to purchase the property. Under such a provision, if the owner desires to sell the property, and has an offer he would accept, he must first offer to the holder of the right an opportunity to buy the property on the terms offered by a bona fide purchaser. The beneficiary argued that the testator’s statements to others, in combination with two clauses contained within the will, demonstrated his intent to create a right of first refusal for the beneficiaries under the trust. The clauses upon which the beneficiary relied were: “My Trustee can sell the corpus of this Trust, but it [is] my desire my ranch stay intact as long as it is reasonable…. If any of the four beneficiaries of his estate wants to sell their portion of the properties they can only sell it to the remaining beneficiaries.” Id. The court of appeals disagreed:

Neither of the clauses, however, requires the trustee to offer to anyone, much less the beneficiaries, an opportunity to purchase the property on the same terms offered to another potential buyer. Rather than imposing limitations on the trustee’s power to sell, the second clause is designed to  impose limitations on a beneficiary’s power to sell, precluding a beneficiary from selling to anyone other than another beneficiary. No similar limitation is imposed on the trustee’s power to sell. We conclude that neither of the clauses on which Blanca relies nor the Will as a whole evidence an intent to limit Frank’s power to sell by creating a right of first refusal in favor of the trust beneficiaries.

Id.

Court Denies Objection To Personal Jurisdiction Concerning Breach of Fiduciary Duty Claim Against Former Employee

Posted in Cases Decided, Texas Court of Appeals

In Turman v. POS Partners, LLC, a Texas employer asserted contract and breach-of-fiduciary-duty claims against a former Oklahoma employee. No. 14-17-00105-CV, 2018 Tex. App. LEXIS 95 (Tex. App.—Houston [14th Dist.] January 4, 2018). The defendant asserted a special appearance objecting to the Texas court’s exercise of personal jurisdiction over him. The trial court denied the special appearance, and the court of appeals affirmed. The court of appeals stated the general rules of jurisdiction as follows:

The extent of a defendant’s contacts that are sufficient to support personal jurisdiction depends upon whether general jurisdiction or specific jurisdiction is alleged. A court may exercise general jurisdiction over a nonresident defendant if the defendant’s contacts with the forum state “are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.” A court may exercise specific jurisdiction if the nonresident defendant’s “alleged liability arises from or is related to an activity conducted within the forum,” even if the defendant’s contacts with the forum state are isolated or sporadic.

Id. The court held that there were not sufficient contacts to establish general jurisdiction. The court then turned to specific jurisdiction and held:

Regarding POSP’s tort claim for breach of fiduciary duty, the Texas long-arm statute authorizes the exercise of personal jurisdiction over a defendant who “commits a tort in whole or in part in this state.” But as previously mentioned, specific jurisdiction exists only if there is a “substantial connection” between the defendant’s forum contacts and the operative facts of the litigation. When analyzing Turman’s arguments concerning POSP’s tort claim, we accordingly begin by identifying the elements of the claim and determining whether there is a substantial connection between Texas and the operative facts that must be proved to establish the claim.

Breach of fiduciary duty requires proof that (1) a fiduciary relationship existed between the plaintiff and the defendant, (2) the defendant breached its fiduciary duty, and (3) the breach resulted in injury to the plaintiff or benefit to the defendant. In identifying the facts to be adjudicated at trial, we note that POSP does not allege that the parties had an informal fiduciary relationship, and that whether the parties have a formal fiduciary relationship is generally a question of law for the court. On the other hand, the parties disagree about whether the cash register Turman sold to Robbin’s True Value Hardware was a model carried by POSP, and thus, whether Turman usurped POSP’s opportunity to make the sale. When the facts are disputed, the question of whether a party breached a fiduciary duty is a question of fact. If a breach is proven, then POSP additionally would have to prove damages. The evidence at trial therefore will be primarily concerned with (1) whether, in this and similar instances, Turman breached any fiduciary duty to POSP by making sales on behalf of his own company that he instead should have made on behalf of POSP; and if so, (2) the extent to which Turman benefitted or POSP was injured by Turman’s conduct. In this example, Turman is said to have breached his fiduciary duty in Texas by selling equipment to POSP’s Texas customer. Thus, in this instance, the evidence at trial likely will focus on events that occurred in Texas.

The record before us accordingly supports the existence of specific jurisdiction over POSP’s breach-of-fiduciary duty claim.… We accordingly affirm the denial of Turman’s special appearance as it applies to POSP’s claim for breach of fiduciary duty.

Id.

Court Holds That Trust Did Not Violate The Rule Against Perpetuities and That A Beneficiary’s Assignment Of Interests Violated A Spendthrift Provision

Posted in Cases Decided, Texas Court of Appeals

In Bradley v. Shaffer, family members placed mineral interests they inherited into the trust. No. 11-15-00247-CV, 2017 Tex. App. LEXIS 11154 (Tex. App.—Eastland November 30, 2017, no pet.). The trust instrument contained a spendthrift provision precluding the beneficiaries of the trust from assigning their interests in the trust. A beneficiary of the trust executed deeds purporting to convey his share of the mineral estate to a third party. The trustees of the trust sued and obtained a summary judgment declaring the deeds to be invalid with respect to the beneficiary’s interest in the trust.

The court of appeals first addressed the general principals at issue:

A trust is a mechanism used to transfer property. “[W]hen a valid trust is created, the beneficiaries become the owners of the equitable or beneficial title to the trust property and are considered the real owners.” The trustee is merely the depository of the bare legal title. The trustee is vested with legal title and right of possession of the trust property but holds it for the benefit of the beneficiaries, who are vested with equitable title to the trust property. A trust beneficiary who has capacity to transfer property has the power to transfer his equitable interest, unless restricted by the terms of the trust.

“[A] spendthrift trust is one in which the beneficiary is prohibited from anticipating or assigning his interest in or income from the trust estate.” “Texas courts have long upheld and enforced spendthrift provisions, justifying this restraint on alienation not out of consideration for the beneficiary, but rather for the right of the donor creating the trust to control his gift.” The Texas Trust Code also specifically protects the right of a trust settlor to include a spendthrift provision in a trust. Section 112.035(a) provides that “[a] settlor may provide in the terms of the trust that the interest of a beneficiary in the income or in the principal or in both may not be voluntarily or involuntarily transferred before payment or delivery of the interest to the beneficiary by the trustee.” Thus, assignments of beneficial interests in trusts are invalid when they are subject to a spendthrift provision in the trust.

Id. (internal citation omitted).

The language of the trust’s spendthrift provision provided that “[n]o . . . beneficiary of this Trust shall have any right or power to anticipate, pledge, assign, sell, transfer, alienate or encumber his or her interest in the Trust in any way.” Id. The court determined that the express terms of the trust precluded the beneficiary from assigning his beneficial interest in the trust, and his conveyances were invalid at the time they occurred. The court then stated that the “more pressing question is whether or not Darell’s invalid conveyances became valid later.”

The beneficiary asserted that the trust violated the rule against perpetuities. Section 112.036 of the Texas Trust Code provides that “[a trust] interest is not good unless it must vest, if at all, not later than 21 years after some life in being at the time of the creation of the interest, plus a period of gestation.” Id. (citing Tex. Prop. Code § 112.036). In applying the rule, the court looks at the conveyance instrument as of the date it is executed, and it is void if by any possible contingency the grant or devise could violate the rule. The court noted that it should construe a trust to be valid where possible.

The beneficiary argued that the trust violated the rule because, at the time the trust instrument was executed, it could have extended beyond a life in being plus twenty-one years if it were extended. The court noted that “[t]his argument focuses on the duration of the trust rather than the vesting of the beneficial interests in the trust.” Id. “The duration of the trust is not the relevant inquiry and it is immaterial that full possession and enjoyment of the property is postponed beyond the time period for the rule against perpetuities as long as the beneficial interests become vested within the applicable period.” Id.

The court disagreed with the beneficiary’s argument that the trust delayed the vesting of the beneficiaries’ interests until some point in the future. The court noted that the trust immediately vested the settlors/initial beneficiaries’ interests in the trust at the time the trust came into existence. The trust specified the respective ownership interests of the settlors/initial beneficiaries in the mineral estate at the outset. Furthermore, the trust granted the trustees with broad powers, including the power to sell the mineral estate or lease it for exploration, that could be exercised at the outset. “The fact that the trustees were authorized to sell trust property at any time indicates that the beneficiaries’ interests vested immediately.” The court noted that this is not a case where a transfer has been made to trustees to hold property out of commerce for a class of beneficiaries, the membership of which will not be known for a period of time in excess of the rule. “To the contrary, the beneficiaries of the trust ‘had the fixed right of future enjoyment upon the termination of the trust.’” Id.

The trust also contained a remainder provision whereby an initial beneficiary’s vested interest passed to his surviving issue at his death. This remainder provision does not violate the rule against perpetuities because the surviving issue becomes “substitutional takers” of their parent’s vested beneficial interest at their parent’s death. Furthermore, since their beneficial interests in the trust passed to them at the death of an initial beneficiary, their beneficial interests in the trust vested within twenty-one years of a life in being. The court concluded: “Accordingly, this trust did not violate the rule against perpetuities. Furthermore, the extension of the trust only affected the trust’s duration and not the vesting of an interest in the trust.” Id. The court affirmed the trial court’s determination that the mineral interests remained in the trust and that the purported conveyance was void.

Webinar – Remedies For a Breach of Fiduciary Duty Claim in Texas (Feb. 27 at 10:00 am CST)

Posted in Items of Interest, Knowledge Library, Webinars

 

Webinar

David F. Johnson will discuss the potential remedies that plaintiffs can obtain for breach of fiduciary duty claims with an emphasis on trust disputes, and will cover: 1) pretrial remedies of temporary injunctive relief, receiverships, and audits; 2) legal remedies of damages, attorney’s fees, pre-judgment interest; 3) equitable remedies of fee forfeiture, profit and consideration disgorgement, rescission, equitable lien, constructive trust, declaratory relief, and more. Special emphasis will be placed on recent developments for obtaining or defending against these remedies.

Date: Tuesday, February 27, 2018
Time: 10:00 – 10:45 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson
Continuing Education Credit Information: This course has been approved 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 Reverses Jury Verdict And Holds That Trustor Could Not Revoke Trust

Posted in Cases Decided, Texas Court of Appeals

In Coyle v. Jones, two sisters fought over the whether $197,000 belonged to their mother’s estate or to a trust. No. 05-16-00876-CV, 2017 Tex. App. LEXIS 11173 (Tex. App.—Dallas November 30, 2017, no pet. history). A trustor and her husband formed a revocable trust that stated: “At any time during the joint lives of the Trustors, . . . the Trustors may . . . revoke this Trust Agreement in part or in whole.” Id. It further provided that “except as otherwise provided,” on the death of either trustor, the designation of the beneficiaries of specific gifts in the Agreement would become irrevocable, and not subject to amendment or revocation. Id. The trustor’s husband died in 2001. In 2010, the trustor executed a document purporting to revoke the trust and transfer all trust assets to herself. The trustor died in April 2011. One daughter was the trustee of the trust, and the other daughter was the executor of the trustor’s estate. They sued each other over who rightfully owned the property, which was cash. A jury determined that the trustor had revoked the trust, and the trial court entered judgment that the cash belonged to the estate.

The court of appeals reversed, holding that the evidence proved as a matter of law that the trust had not been revoked and that it should own the cash. The court stated:

In the case before us, the jury was instructed that a settlor may revoke a trust “unless it is irrevocable by the express terms of the trust agreement creating it or of an instrument modifying it.” The express language of the Agreement creating the trust at issue provided that the trust agreement could be revoked “at any time during the joint lives of the Trustors.” The Agreement further provided that other than that, when either trustor died, “the designation of Beneficiaries of specific gifts in this Trust shall become irrevocable, and not subject to amendment or modification.” The only evidence of revocation before the jury, however, was Frances’s 2010 written revocation. It is undisputed that Frances executed the revocation almost nine years after Stuart’s death. Absent any evidence to support the jury finding that the Agreement was revoked  while both trustors were alive, there is legally insufficient evidence to support the jury’s revocation finding. To the contrary, the evidence at trial conclusively established that Frances could not revoke the Agreement after Stuart’s death. Because there is no evidence to support jury’s revocation finding, we resolve Coyle’s third issue in her favor. Our resolution of this issue makes it unnecessary to address Coyle’s issues complaining of charge error or the legal sufficiency of the jury’s damage award.

Id.

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