Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Court Held That A Power Of Attorney Agent Had Authority To Sue On Behalf Of The Principal And Affirmed A Finding That A Mineral Deed Was Procured By Fraud And Undue Influence

Posted in Cases Decided, Texas Court of Appeals

In Cortes v. Wendl, an elderly woman signed a deed conveying her mineral rights to two individuals. No. 06-17-00121-CV, 2018 Tex. App. LEXIS 4457 (Tex. App.—Texarkana June 20, 2018, no pet.). When the woman’s nurse and friend learned of the transaction, she obtained a power of attorney and filed a lawsuit on the woman’s behalf, claiming that the mineral deed was executed as a result of duress, coercion, and undue influence, and that no consideration was paid for the conveyance. The defendants alleged that the plaintiff had no capacity to sue. The court of appeals affirmed the trial court’s implied finding that the plaintiff had capacity:

“A power of attorney is a written instrument by which one person, the principal, appoints another person, the attorney-in-fact, as agent and confers on the attorney-in-fact the authority to perform certain specified acts on behalf of the principal.” An agent has express authority to take all actions designated by the principal. An agent has implied authority “to do whatever is necessary and proper to carry out the agent’s express powers.” Wendl introduced the durable power of attorney executed by Hardy as an exhibit, without objection. The power of attorney explicitly granted Wendl: “[a]uthority to initiate a claim and litigation, if necessary; negotiate; make decisions; and pursue the legal claim [Hardy] may have against Johnny Coutts, Charles [Randy] Hardy, and/or Isabel Cortes, or anyone else involved, and to pursue those claims or litigation as she sees fit for [Hardy] and/or [Hardy’s] estate. [Wendl] is further given specific authority to negotiate and make all decisions on [Hardy’s] behalf including accepting or rejecting offers of settlement, contracting for and payment of attorney’s fees, and costs.” The record supports the trial court’s implied finding that Wendl, in her capacity as agent and attorney-in-fact for Hardy, had the capacity to bring the lawsuit on Hardy’s behalf.

Id.

The court then analyzed whether there was sufficient evidence to establish that the deed was procured by undue influence. “In deciding whether there was undue influence in executing a deed, the court considers three factors: (1) the existence and exertion of an influence; (2) whether the influence operated to subvert or overpower the grantors’ minds when they executed the deed; and (3) whether the grantors would not have executed the deed but for the influence.” The court stated:

[A]lthough undue influence implies the existence of sufficient mental capacity to execute a deed if not hindered by another’s overriding influence, “weakness of mind and body, whether produced by infirmities of age or by disease or otherwise, may be considered as a material circumstance in determining whether or not a person was in the condition to be susceptible to undue influence.” Further, a beneficiary’s voluntary participation in the preparation or signing of a deed can be one of the considerations used to determine if there was undue influence, as can an unnatural disposition of property by the grantor, Long.

Cortes and Fernandes visited Hardy monthly to deliver the note payment on the property previously owned by Hardy. During these visits, they continually complained to Hardy that the property was no good without the minerals and that they wanted to purchase the minerals. These continual complaints and entreaties caused the elderly Hardy to feel pressured, frightened, and nervous. They were making her a “nervous wreck.” They often met with Hardy one-on-one in her room at the assisted living facility and made these complaints to her privately. This frightened Hardy, and she began to lock the door to her room during the day, as she thought Cortes and Fernandes might hurt her. Hardy testified to these things and further testified that, when she failed to relent, Cortes and Fernandes told her that the IRS was going to come after her if she did not sell the minerals. Hardy was told that she needed to sign over her mineral rights to Cortes so that she would not be in trouble. Hardy testified that she felt that she had to do something because the IRS was coming after her. Threats about the IRS caused Hardy to become so nervous that she was shaking, and she thought she was going to have seizures, as she did after her husband passed away. The evidence further suggests that Hardy was essentially tricked into going alone with Cortes to the title company in Longview to sign the mineral deed. Hardy testified that she was not paid anything for her mineral rights, and she was not aware that the deed provided that Cortes was entitled to all past royalties not yet cashed out—to include the royalty payment from Sabine Oil & Gas Corporation. Hardy’s testimony alone is evidence of the existence and exertion of Cortes’ and Fernandes’ influence.

….

Jimmy Don Reedy, who executed the 2010 agreement with Hardy and Randy to excavate topsoil from the property, testified that he removed less than ten fourteen-yard loads of topsoil from the property. According to Reedy, the removal of that quantity of topsoil is not enough to cause any kind of damage to the land. The topsoil was not removed over a five-year period. Instead, Reedy testified that it was removed fairly near the time of the agreement. In 2010, Fernandes asked Reedy to leave the property, and he did so. According to Reedy, if Cortes told Hardy that the land was no good because the topsoil had been removed, that would be false.

Id. The court of appeals affirmed the trial court’s rescinding the mineral deed after finding that the evidence was legally and factually sufficient to support the trial court’s implied findings.

Court Discusses Diversity of Citizenship Jurisdiction Where A Trustee Removed The Case

Posted in Items of Interest, Uncategorized

In Thunder Patch II, LLC v. JPMorgan Chase Bank, N.A., plaintiffs filed suit against a trustee in state court seeking a declaration regarding the enforceability of a mineral lease, and the trustee removed the case to federal court based on diversity of citizenship. No. 5-18-CV-00629-OLG-RBF, 2018 U.S. Dist. LEXIS 207696 (W.D. Tex. December 10, 2018). The plaintiff filed a motion to remand and argued that there was not complete diversity because the defendant trustee should also have the citizenship of the states where the trust’s beneficiaries reside.

The court held that when a trustee is sued in its capacity as a trustee, it is the citizenship of the trustee—not the trust’s beneficiaries—that matters for diversity of citizenship purposes. “This rule governs so long as the trustee has ‘real and substantial control’ over the trust’s assets.” Id. The court held that the trustee had control over the assets and cited to trust provisions that granted that power:

Here, Plaintiffs sued JPMorgan as the trustee for the Red Crest Trust; the Red Crest Trust is not a named defendant. Indeed, according to Thunder Patch and HOC, Texas law required them to file suit in this exact manner. Accordingly, the rule from Navarro controls here, as the Fifth Circuit has explained. It is apparent from the record and pleadings that JPMorgan has sufficiently real and substantial control over the trust’s assets, and it therefore is the entity that matters for purposes of diversity jurisdiction.

….

Because JPMorgan is the party with real and substantial control over the trust’s assets, it is JPMorgan’s citizenship that matters here. The Amended Notice of Removal sufficiently alleges complete diversity in good faith based on information and belief.

Id. The court denied the motion to remand and also denied the plaintiffs’ motion for leave to amend their complaint to add a non-diverse defendant.

Interesting Note: Due to a national bank’s ability to remove a case to federal court for diversity of citizenship jurisdiction, many plaintiffs are adding bank employees as defendants to defeat complete diversity and diversity jurisdiction. The bank then has the uphill battle to prove that the employee was fraudulently joined. This jurisdictional fight means that more bank employees will be joined in litigation where they formerly were not.

For example, in Medve v. JPMorgan Chase Bank, N.A., a plaintiff sued a bank and three of its employees for breaches of fiduciary duties arising from fiduciary accounts. No. H-15-2277, 2016 U.S. Dist. LEXIS 11961 (S.D. Tex. February 2, 2016).  The bank removed the case to federal court based on diversity jurisdiction: the plaintiff was a Texas resident and the bank was a resident of Ohio. The plaintiff filed a motion for remand, asserting that there was not complete diversity as he had sued three of the bank’s employees, who also lived in Texas, as defendants. The bank asserted that the employees were fraudulently joined, and therefore, did not count for diversity purposes.  The district court reviewed whether the plaintiff pled a reasonable basis for recovery as against the bank’s employees. The bank argued that “there is no basis in the law for finding that an employee of a trustee is directly liable for breach of trust.”  However, the court agreed with the plaintiff that there are three separate legal bases under Texas law for imposing liability on an employee who carries out the fiduciary functions of an entity: “(1) first, the employee owes a fiduciary duty directly as a subagent carrying out the employer’s fiduciary functions, (2) second, the employee is liable if he ‘participates’ in the employer’s breach of fiduciary duty, which the employee necessarily does if he is the one carrying out the breaches, and (3) third, the employee is personally liable for any tort he commits in the course of his employment, and breach of fiduciary duty is of course a tort.” Id. The court granted the motion to remand, finding it did not have diversity jurisdiction.

Recorded Webinar – Fiduciary Litigation Update: 2017-2018

Posted in Items of Interest, Knowledge Library, Webinars

Recorded Webinar

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, discusses interesting fiduciary issues that Texas courts have discussed during the survey period of mid-2017 through mid-2018. Some of the issues covered are the tort of intentional interference with inheritance rights, the enforcement of arbitration and forum-selection clauses in trusts and wills, the enforcement of exculpatory clauses in trusts, trustees paying attorney’s fees in litigation, removal of trustees, trustee’s power to dispose of trust property, settlor’s attempt to revoke an irrevocable trust, and life estates.

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

CLICK HERE FOR WEBINAR

Presentation: Tips for Managing the In-House and Outside Counsel Relationship

Posted in Knowledge Library, Webinars

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, presented “Tips for Managing the In-House and Outside Counsel Relationship” to the Southwest Association of Bank Counsel’s webinar series on December 13, 2018.  David discussed how to select counsel; items to include in engagement letters; communication suggestions at the outset of a matter, during a matter, and at the conclusion of a matter; and many other issues.  A copy of his presentation is attached below.

READ HERE: Tips For Managing The In-House And Outside Counsel Relationship_DJohnson

Court Addresses A Beneficiary’s Right To Bring Claims Belonging To A Trust

Posted in Cases Decided, Texas Court of Appeals

In American Bank, N.A. v. Moorehead Oil & Gas, Inc., plaintiffs (trustees and beneficiaries) filed suit to determine the value of ownership interests in corporate stock under section 10.361 of the Texas Business Organizations Code. No-13-17-00641-CV, 2018 Tex. App. LEXIS 9703 (Tex. App—Corpus Christi November 29, 2018, no pet. history). The trial court granted summary judgment for the defendant on two grounds: the statute of limitations and standing. The plaintiffs appealed. The court of appeals first reversed as to the statute of limitations ground, and then addressed the standing issue. In its summary judgment motion, the defendant argued that the plaintiffs lacked standing in their capacity as beneficiaries because of the general rule that only trustees have the power to bring suit on behalf of a trust. The defendant argued that, although there are exceptions to this general rule, they did not apply because the plaintiffs did not plead that the trustee wrongfully refused to bring suit. Id. (citing Interfirst Bank-Hous., N.A. v. Quintana Petrol. Corp., 699 S.W.2d 864, 874 (Tex. App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.) (“It is only when the trustee cannot or will not enforce the cause of action that he has against the third person that the beneficiary is allowed to enforce it.”); In re XTO Energy Inc., 471 S.W.3d 126, 131 (Tex. App.—Dallas 2015, orig. proceeding) (noting that a “trustee’s refusal to bring suit must be wrongful for [the beneficiary] to be allowed to step into the trustee’s shoes and maintain a suit on the Trust’s behalf”)). The court of appeals held:

Here, the live petition named the following as plaintiffs: (1) the Bank as trustee or co-trustee of all three trusts; (2) John J. Buckley Jr. and Kelly Rose Kinard in their capacity as co-trustees of their respective trusts; and (3) the Buckleys in their capacity as beneficiaries of their respective trusts. Moorehead is correct that the Buckleys lacked standing in their capacity as beneficiaries because they did not assert in their petition that the trustee wrongfully refused to bring suit. See In re XTO Energy Inc., 471 S.W.3d at 131. Additionally, Moorehead is correct that the Buckleys lacked standing as “beneficial owners” of the stock under section 10.361(g) because the shares were not held “in a voting trust” or “by a nominee.” See Tex. Bus. Orgs. Code Ann. § 10.361(g).

However, Moorehead does not dispute that the Bank had capacity as trustee or co-trustee, or that John J. Buckley Jr. and Kelly Rose Kinard had capacity as co-trustees of their respective trusts, to sue under business organizations code section 10.361. We conclude that they did have such capacity, and the trial court erred in granting summary judgment against them. See Tex. Prop. Code Ann. § 113.019; Ray Malooly Tr., 186 S.W.3d at 570. On the other hand, Lisa Marie Buckley, who is not a co-trustee of her trust and therefore brought suit only in her capacity as beneficiary, does not have standing for the reasons stated above, and the trial court did not err in granting summary judgment against her.

Id. Therefore, the court reversed as to the co-trustees but affirmed the summary judgment as against the beneficiary.

Court Holds That A Judgment Was Not Effective Against Three Estates Where The Plaintiffs Did Not Sue The Estates’ Representatives And The Decedents’ Attorney Did Not Represent The Estates’ Representatives

Posted in Cases Decided, Texas Court of Appeals

In Delgado v. Garza, the plaintiffs sued for breach of a warranty of title, trespass to try title, and other related claims all stemming from a land transaction between an ancestor of the Salinases and an ancestor of the Garzas. No. 13-15-00344-CV, 2018 Tex. App. LEXIS 9619 (Tex. App.—Corpus Christi November 27, 2018, no pet. history). After a bench trial, the court signed a judgment in favor of the Garzas on all causes of action. On appeal, the Salinases challenged the validity of the judgment entered against three individuals who were sued but died prior to trial. The court of appeals explained:

It is well-settled that the estate of a decedent is not a legal entity and may not sue or be sued as such. A suit seeking to establish the decedent’s liability on a claim and subject property of the estate to its payment should ordinarily be instituted against the personal representative or, under appropriate circumstances, against the heirs or beneficiaries. However, when the suit is not instituted against the personal representative, heirs, or beneficiaries of the deceased defendant, a judgment involving “the estate” may validly bind the personal representative of the estate if he appears and participates in the case in his official capacity as personal representative of the estate.

Id. In this case, the suit was not instituted against the personal representative, heirs, or beneficiaries of any of the three deceased defendants. So, the court of appeals had to determine whether any personal representative of any of the three estates actively appeared and participated in the case. The court concluded that the estate representatives did not adequately participate in the case to have the judgment bind them:

We find no authority for the proposition that legal representation, without more, or continuation of the trial, by default, satisfies the personal representative requirement.… On November 6, 2013, Schell filed a suggestion of death for Saenz, Hernandez, and Perez. The suggestion of death requested that a personal representative appear and defend the suit for their estates. It did not serve as Schell’s appearance as personal representative for these estates. Moreover, as discussed below, we find no record support for the conclusion that Schell appeared and actively participated in the capacity of the estates’ personal representative…. The confusing record before us simply does not support the conclusion that Schell participated sufficiently in this case as the purported representative of the estates of Saenz, Hernandez, or Perez to make the judgment binding against him in that capacity.

Id. Accordingly, the court held that the judgment was not effective as against the estates because the record simply showed that the decedents’ attorney participated in the suit and not the attorney for the estates’ representatives.

Court Affirmed The Probate Of A Will Where The Testator, A Quadriplegic, Blinked His Desires To Draft And Execute The Will

Posted in Cases Decided, Texas Court of Appeals

In Estate of Luce, the court of appeals affirmed a trial court’s admitting a will to probate where the decedent did not personally sign it and only communicating his desires by blinking. No. 02-17-00097-CV, 2018 Tex. App. LEXIS 9341 (Tex. App.—Fort Worth November 15, 2018, no pet. history). The testator was in a serious accident that left him a quadriplegic. A week after he was admitted to the hospital, he was intubated, which rendered him unable to speak. Paralyzed from the chest down and unable to speak, the testator was able to communicate by blinking his eyes to indicate “yes” and “no.” Using this blinking system, his attorney was able to draft a will based on the testator’s blinked responses to a series of leading questions, and through this system, he directed a notary to sign the will for him. After he died, his estranged wife filed an application to probate an earlier will. The testator’s sister filed an application to probate the most recent 2015 will. After a jury trial, the trial court admitted the 2015 will to probate and appointed the sister as independent executor but awarded the wife nearly $200,000 in attorney’s fees and expenses. Both parties appealed.

The court of appeals first discussed the various burdens. Because the 2015 will had not been admitted to probate, the sister, as the proponent, bore the burden to prove that it was properly executed and that the testator had testamentary capacity at the time of execution. She made out a prima facie case on these issues by introducing the 2015 will, which was self-proving into evidence. The burden of producing evidence then shifted to the wife, as the will’s opponent, to overcome the prima facie case, but the burden of persuasion remained with the sister. The wife argued that the sister failed to carry her burden because there was no evidence that the 2015 will was duly executed or that the testator had testamentary capacity.

Regarding execution, Texas Estates Code Section 251.051(2) requires that a will be signed by the testator or by another person on the testator’s behalf in the testator’s presence and under the testator’s direction. Here the attorney testified that when he arrived at the hospital, a nurse told him that the testator was able to communicate by blinking, so they established a “signal system” by blinking. The attorney testified that he was able to communicate with the testator based on the testator’s blinked responses to a series of leading questions. Through these questions and blinked responses, they established an attorney-client relationship and the attorney determined that the testator wanted to make a new will that revoked any earlier ones. Further, Texas Government Code Section 406.0165 provides: “A notary may sign the name of an individual who is physically unable to sign or make a mark on a document presented for notarization if directed to do so by that individual, in the presence of a witness who has no legal or equitable interest in any real or personal property that is the subject of, or is affected by, the document being signed.” Id. (citing Tex. Gov’t Code Ann. § 406.0165(a)). Based on this .provision, the attorney determined that a notary could sign the will for the testator. When the attorney returned to the hospital with the drafted will, he met with the testator privately to explain the execution process and that the law allowed a notary to sign the will for him. Through the blinking system, the testator confirmed to the attorney that he understood the execution process, that the notary was signing the will for him, and that he was requesting the notary to sign for him. Other witnesses to the execution also testified to the soundness of the system and the testator’s intent. The court of appeals found that this was sufficient evidence to support the finding that the will had been properly executed.

The wife also challenged the evidence that supported the finding that the testator had mental capacity. Testamentary capacity requires that the testator, at the time the will is executed, have sufficient mental ability to understand he is making a will, the effect of making the will, and the general nature and extent of his property. He must also know his next of kin and the natural objects of his bounty, the claims upon them, and have sufficient memory to collect in his mind the elements of the business transacted and hold them long enough to perceive their obvious relation to each other and form a reasonable judgment about them.

The evidence showed that testator did not have a brain injury from the accident. The medical records indicated that he was lucid. The attorney met with the testator alone and determined that they could communicate using the blinking system. The testator communicated that he wanted to make a new will disposing of his assets and property, who he wanted to inherit under the new will, and that he intended to revoke any prior wills. The attorney further testified that the testator understood the nature and extent of his assets and knew who his family members were. The testator, who was in a divorce proceeding with his wife, made clear that he did not want his wife to take under the new will. According to the attorney, the testator was of sound mind, and the attorney had no concerns about the testator’s capacity.

Two days after the will’s execution, a doctor examined the testator who was still unable to speak because he was intubated, but they communicated by the testator nodding his head “yes” and “no” or by him casting his gaze at index cards labeled “yes” and “no.” As a result of the examination, the doctor determined that the testator was fully competent and able to make his own decisions, including financial and medical decisions. Based on all of the evidence, the court of appeals determined that the jury’s finding of mental competence should be affirmed.

The wife also challenged the finding that sister did not unduly influence the testator. The court held that exertion of undue influence cannot be inferred by opportunity alone and there must be some evidence that the influence was not only present but was in fact exerted in connection with the making of the will. The court held:

Although weakness of mind and body caused by infirmities of disease, age, or otherwise may be considered as material in establishing the testator’s physical incapacity to resist or the susceptibility of his mind to an influence exerted, such weakness does not establish that his mind was in fact overpowered or subverted at the time the will was executed. But not every influence exerted by one person on another’s will is undue. Influence is not undue unless it destroys the testator’s free agency and the testament produced expresses the will of the person exerting the influence. Even if one requests, entreats, or importunes another to execute an instrument that makes a favorable disposition, the entreaties and importunities will not render the instrument invalid based on undue influence unless they were so excessive that they subverted the will of the maker. Undue influence may be exerted-among other ways-through force, duress, intimidation, excessive importunity, or deception used to try to subvert or overcome the testator’s will and induce the testator to execute the instrument contrary to his will.

Id.

The wife alleged that the will was the result of sister’s undue influence because at the time the will was executed, the testator was in physical and mental distress; the sister isolated him from the wife and the testator’s sons; he was entirely dependent on the sister; the sister was directly involved in the planning, preparation, and execution of the will; and the will’s property disposition was inconsistent with the 1998 will and was unnatural because it disinherited his wife and sons. The court of appeals disagreed:

Michael was indisputably in a state of severe physical distress at the time the 2015 will was executed. Unable to move or speak, he was confined to a hospital room and was totally reliant on others. But there is no evidence that Michael was experiencing the type of “mental distress” that made him susceptible to undue influence. Michael had not suffered a head or brain injury, and as we detailed above, he was alert and lucid when he executed the will.

It is also undisputed that Michael was isolated from his wife and adopted sons. Tina admitted that she never informed GayeLynne, Kevin, or Jeremy about the accident. GayeLynne did not find out that Michael was in the hospital until a friend told her on November 18, over a month after the accident. Before then, GayeLynne had unsuccessfully tried to contact Michael by calling friends, family members, hospitals, and the police. According to GayeLynne, during this time, Tina left her a telephone message “saying that Michael was perfectly fine.”

After GayeLynne learned about Michael’s accident, Tina told her that she was not allowed at the hospital and threatened to have her arrested if she came there. When Kevin and Jeremy went to visit Michael in the hospital sometime after November 18, Tina and Melissa told them that GayeLynne was not allowed to come to the hospital. GayeLynne never went to the hospital and had no contact with Michael before he died on November 26.

But Michael’s isolation from GayeLynne and his sons and his leaving them out of the 2015 will is not altogether surprising. At the time of the accident, he and GayeLynne (his adopted sons’ biological mother) were separated, and they were in the middle of a contested divorce. Despite GayeLynne’s testimony that at the time of the accident she and Michael were considering reconciling, there was evidence that the divorce was contentious. And when Michael was admitted to the hospital, he made clear to hospital staff that he did not want GayeLynne making medical decisions for him, explicitly telling staff that he wanted his daughters or his sister to do so.

Contrary to GayeLynne’s assertions on appeal, Tina was not “directly involved in the planning, preparation[,] and execution of the 2015 will.” Tina contacted Ferrier and provided information about Michael’s family to Ferrier, but she was not involved in the will’s preparation and execution. As explained above, Ferrier met with Michael privately to discuss the will, and Michael made clear to Ferrier that he did not want GayeLynne, Kevin, and Jeremy to inherit. Indeed, his will states that he is “specifically not making any provisions for [GayeLynne] in this Will because [they] are in the process of divorcing.” Tina was not present when Ferrier drafted the will, when he walked through it with Michael, or when the will was executed. Viewing the evidence under the applicable standards of review, we hold that there is some evidence to support the jury’s no-undue-influence finding and that the jury’s failure to find undue influence is not against the great weight and preponderance of the evidence.

Id.

Finally, the court of appeals sustained the sister’s appeal of the trial court’s award of attorney’s fees to the wife. The trial court had entered judgment notwithstanding the verdict after the jury found that the wife was not in good faith in attempting to probate an earlier will. The court of appeals held that there was sufficient evidence to support the jury’s finding and that the trial court erred in disregarding that finding:

But as we have explained in detail, at the time of the 2015 will’s execution, GayeLynne and Michael were in the process of divorcing. Michael’s medical records-all of which GayeLynne stated that she had read before trial-reflected that, when Michael was admitted to the hospital a week before the will’s execution, he told hospital staff that because of the divorce, he did not want GayeLynne to make decisions for him and wanted his daughters to do so. His medical records also reflected that he had not suffered any brain or head injury because of the accident and that when the will was executed, Michael was alert and oriented as to person, place, and time and had not had any pain medication for several hours. The jury also heard videotaped deposition testimony from four witnesses regarding the drafting and execution of the 2015 will and Michael’s testamentary capacity. This evidence (of which GayeLynne was aware before trial) is some evidence to support the jury’s finding that GayeLynne did not act in good faith in trying to have the 1998 will admitted to probate, and we certainly cannot say that GayeLynne conclusively proved the opposite. Accordingly, the trial court erred by disregarding the jury’s good-faith-and-with-just-cause finding against GayeLynne and by implicitly finding that she acted in good faith and with just cause to be entitled to an award of attorney’s fees and expenses for probating the 1998 will. We thus sustain this part of Dowdy’s second issue, which is dispositive of his appeal.

Id. The court of appeals affirmed the trial court’s judgment admitting the 2015 will to probate and reversed the trial court’s award of attorney’s fees to the wife.

A Court Rejects A Trust Protector’s Claims and Holds That A Trustee Properly Merged Trusts

Posted in Cases Decided, Texas Court of Appeals

In In re Macy Lynne Quintanilla Trust, a settlor created three trusts for his children in 2014. No. 04-17-00753-CV2018 Tex. App. LEXIS 8223 (Tex. App.—San Antonio October 10, 2018, no pet. history). The trust agreements named Perry as trustee and West as trust protector. The trust agreements gave the trust protector the power to remove the trustee and appoint a successor trustee. After the settlor and the trust protector had a falling out, the trust protector requested an accounting of the 2014 trusts and told the settlor that he was considering removing the trustee. The settlor then created three new trusts in 2016. The 2016 trusts were virtually identical to the 2014 trusts, except that they named a new trust protector. The trustee then executed three agreements to merge each of the 2014 trusts into the 2016 trusts. The trustee then filed suit and sought declarations that the trust protector was not an “interested person” under the Texas Trust Code and had no right to demand an accounting or to receive financial information regarding either the 2016 trusts or the merged 2014 trusts. The trust protector answered and asserted counterclaims seeking declarations that: (1) the 2014 trusts cannot be merged into the 2016 trusts; or, alternatively, (2) he was an “interested person” with the right to an accounting and financial information regarding the 2014 Trusts up to the date of merger with the 2016 Trusts; and (3) he fulfilled his duties regarding the 2014 Trusts. The trial court granted two summary judgments for the trustee, and the trust protector appealed.

The trust protector argued that the trustee did not prove that the 2016 trusts were properly created. The court of appeals disagreed. The 2016 trust agreements stated: “Settlor hereby conveys, transfers and assigns to the Trustee, in trust, the separate property of Settlor described on Schedule A. attached hereto and made a part hereof, receipt of which is hereby acknowledged by the Trustee.” Id. Schedule A stated simply: “$5,000.00.” The trust protector argued this evidence did not prove that funds were actually transferred into the 2016 trusts. The court of appeals held that “a trust agreement itself may be sufficient summary judgment evidence that the trust was in fact funded. Absent any evidence in the record to the contrary, we conclude Perry met his summary judgment burden of demonstrating no genuine issue of material fact exists that the 2016 Trusts were funded.” Id.

The trust protector also argued that the trustee did not conclusively establish that the 2014 trusts were properly merged. A provision entitled “Merger” in each of the 2014 trust agreements expressly provided for merger of the 2014 Trusts into newly formed, substantially identical trusts for the benefit of the same beneficiaries. Therefore, the 2014 trust agreements anticipated and permitted the merger of the 2014 trusts into the 2016 trusts. Each merger agreement stated that “Perry, as Trustee of the [2014] Trust and the 2016 Trust, has determined that the combination of the 2016 Trust and the [2014] Trust will not impair the rights of any beneficiary or adversely affect achievement of the purposes of any of the trusts,” and each beneficiary signed his or her respective merger agreement acknowledging and agreeing to its terms. Id.

The court of appeals held that the trustee proved that the mergers were proper:

There is scant authority interpreting when a merger of trusts “impair[s] the rights of any beneficiary or adversely affect[s] achievement of the purposes of one of the respective trusts.” West argues the merger adversely affected achievement of the purpose of the 2014 Trusts because it removed him as Trust Protector. However, the 2014 trust agreements do not provide a method for removing or replacing the Trust Protector that was circumvented by merging the trusts. Rather, the 2014 trust agreements are silent regarding the removal and replacement of the Trust Protector. The 2014 trust agreements are not silent regarding the method for merging the trusts and expressly authorize and empower the Trustee to do so “in [his] discretion.”2Link to the text of the note Therefore, we disagree that a fact question exists regarding whether the merger impaired the rights of any beneficiary or adversely affected the achievement of the purposes of any of the trusts. Absent any evidence in the record to the contrary, we conclude Perry met his summary judgment burden of demonstrating no genuine issue of material fact exists that the 2014 Trusts were properly merged with the 2016 Trusts.

Id.

The trust protector also argued that the mergers were not proper because he was not given notice. The court of appeals disagreed:

Neither the 2014 trust agreements nor the Trust Code itself requires notice be given to a trust protector. Rather, a trustee is only required to give notice to “each beneficiary who might then be entitled to receive distributions from the separate trusts being combined or to each beneficiary who might be entitled to receive distributions from the separate trusts once the trusts are funded.” Tex. Prop. Code Ann. § 112.057(c)(1). Here, each of the three beneficiaries expressly waived notice of the mergers. Therefore, we conclude Perry met his summary judgment burden of demonstrating no genuine issue of material fact exists that West was not entitled to notice of the mergers.

Id.

Finally, the trust protector argued that the trial court erred in holding that he was not an interested person entitled to raise his counterclaims. The court of appeals, once again, disagreed:

An “interested person” is “a trustee, beneficiary, or any other person having an interest in or a claim against the trust or any person who is affected by the administration of the trust.” Tex. Prop. Code Ann. § 111.004(7) (West 2014). “The phrase ‘administration of a trust’ refers to when a trustee manages a trust in accordance with its terms and conditions and section 113.051 of the Texas Property Code.” Gonzalez v. DeLeon, No. 04-14-00751-CV, 2015 Tex. App. LEXIS 8940, 2015 WL 5037396, at *4 (Tex. App.—San Antonio Aug. 26, 2015, pet. dism’d) (mem. op.) (citing Faulkner v. Bost, 137 S.W.3d 254, 259 (Tex. App.—Tyler 2004, no pet.)). “Whether a person, excluding a trustee or named beneficiary, is an interested person may vary from time to time and must be determined according to the particular purposes of and matter involved in any proceeding.” § 111.004(7).

We have recognized that “[t]here is very little case law interpreting the meaning of the phrase ‘interested person.’” Gonzalez, 2015 Tex. App. LEXIS 8940, 2015 WL 5037396, at *4. However, generally, a person who does not manage a trust (a trustee) or stand to inherit any trust assets (a beneficiary) is not an “interested person” by virtue of being a “person who is affected by the administration of the trust.” See Lee v. Rogers Agency, 517 S.W.3d 137, 159-60 (Tex. App.—Texarkana 2016, pet. denied) (holding settlor who did not manage any aspects of the trust and did not stand to inherit any trust assets was not “affected by the administration of the trust”); Gonzalez, 2015 Tex. App. LEXIS 8940, 2015 WL 5037396, at *5 (holding co-attorneys-in-fact and co-executors for settlors who did not manage trust and did not stand to inherit trust assets were not “interested persons”); Hunter v. NCNB Tex. Nat’l Bank, No. 14-94-01199-CV, 1996 Tex. App. LEXIS 1754, 1996 WL 223584, at *3 (Tex. App.—Houston [14th Dist.] May 2, 1996, writ denied) (mem. op.) (holding daughter of settlor/beneficiary who had only expectancy to inherit trust property was not interested person); Davis v. Davis, 734 S.W.2d 707, 709 (Tex. App.—Houston [1st Dist.] 1987, writ ref’d n.r.e.) (holding father of trust beneficiaries who was not managing conservator and only expected to inherit was not interested person).

Here, although he is neither a trustee nor a beneficiary, West argues he is affected by the administration of the 2014 Trusts because he is the Trust Protector. As West acknowledges, there is little authority discussing the role of trust protectors, which the Trust Code only recognized in 2015. See Tex. Prop. Code Ann. § 114.0031 (West Supp. 2017). The Trust Code provides that a trust protector has only the power and authority granted to him by the trust terms, which may include: (1) the power to remove and appoint trustees, advisors, trust committee members, and other protectors; (2) the power to modify or amend the trust terms to achieve favorable tax status or to facilitate the efficient administration of the trust; and (3) the power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the trust terms. Id. § 114.0031(d).

The unambiguous language of the trust agreements governs our analysis in this case. See Ray Ellison Grandchildren Trust, 261 S.W.3d at 121. The 2014 trust agreements only grant the Trust Protector the power to appoint, remove, and replace the Trustee in accordance with the terms of the agreements. Nothing in the 2014 trust agreements grants the Trust Protector any power to manage any aspects of the trust, to request or obtain an accounting or other financial information, or to inherit any trust assets. The 2014 trust agreements also expressly provide that the Trust Protector is not entitled to any compensation. Therefore, by the express terms of the 2014 trust agreements, the Trust Protector is not “affected by the administration of the trust.” For these reasons, we conclude West is not an “interested person” under section 111.004(7).

Id. The court of appeals affirmed the summary judgments for the trustee.

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