Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

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.

Court Affirms Summary Judgment For A Trustee Against A Beneficiary Due To The Statute of Limitations And Discusses Constructive Knowledge Of Probate Records

Posted in Cases Decided, Texas Court of Appeals

In Gilmore v. Rotan, a testamentary trust’s beneficiaries sued the trustees in 2015 for making a transfer of trust property in 2003 that was evidenced by a deed filed in 2010. No. 11-16-00253-CV, 2018 Tex. App. LEXIS 7705 (Tex. App.—Eastland September 20, 2018, no pet. history).  The beneficiaries claimed that the trustees engaged in self-dealing when they transferred the real property. The beneficiaries acknowledged that they each received $76,693.55 from the estate of the primary beneficiary after her death and knew of the probate proceedings. The trustees filed a motion for summary judgment on multiple grounds, and the trial court granted that motion. The beneficiaries appealed.

The court of appeals affirmed the judgment on the statute of limitations ground. The court noted that a claim for breach of fiduciary duty is subject to a four-year statute of limitations. The trustees, as summary judgment movants, had the burden to conclusively establish that the statute of limitations applied. The court of appeals held that they did so if “they (1) conclusively established that the cause of action accrued before the commencement of the statute of limitations period and (2) negate the discovery rule, if it applies, by proving as a matter of law that there is no genuine issue of material fact about when Appellees discovered, or in the exercise of reasonable diligence should have discovered, the nature of their injury.” Id.

The evidence claim accrued when the property was transferred, which was earlier than four years before suit. The issue in the appeal was the application, if any, of the discovery rule. The court described the discovery rule as follows:

The discovery rule is an exception that may defer accrual of a claim. The discovery rule has been applied in limited categories of cases to defer accrual of a cause of action until the plaintiff knew or, in the exercise of reasonable diligence, should have known of the facts giving rise to a cause of action. The discovery rule operates as a “very limited exception” to limitations, deferring accrual in cases in which the plaintiff’s injury was “both inherently undiscoverable and objectively verifiable.” The discovery rule has often been applied to a claim for a breach of fiduciary duty. In explaining why the discovery rule applies to a claim for breach of fiduciary duty, the Texas Supreme Court noted that “a person to whom a fiduciary duty is owed is either unable to inquire into the fiduciary’s actions or unaware of the need to do so.” Thus, “a person to whom a fiduciary duty is owed is relieved of the responsibility of diligent inquiry into the fiduciary’s conduct, so long as that relationship exists.” However, once “the fact of misconduct becomes apparent it can no longer be ignored, regardless of the nature of the relationship.” Thus, claims for breach of fiduciary duty generally accrue when the claimant knows or in the exercise of ordinary diligence should know of the wrongful act and resulting injury.

Id.

The trustees argued that the beneficiaries had both constructive notice and actual notice of the conveyance when the deed was filed in 2010. The trustees based their assertion of actual notice on an excerpt of the deposition of one of the beneficiaries wherein he testified that he had checked the land records in 2010, he knew in 2010 that the challenged deed had been recorded, and that he told the other beneficiaries about it in 2010. The court held that this was sufficient evidence to support actual knowledge of the conveyance in 2010.

The beneficiaries also asserted that the deed was not sufficient notice because they did not realize in 2010 that the conveyance affected an interest they owned. The court disagreed, stating that “Persons interested in an estate admitted to probate are charged with notice of the contents of the probate records.” The court concluded:

Thus, Appellants had constructive notice of their beneficial interest in the real property when Harry Dean Rotan’s will was admitted to probate. Constructive notice creates an irrebuttable presumption of actual notice. Accordingly, the summary judgment evidence establishes that Appellants had notice of their alleged injury in 2010. Since the applicable statute of limitations is four years for a claim for breach of fiduciary duty, Appellants’ suit filed in 2015 was not timely.

Id. The court affirmed the summary judgment on the statute-of-limitations ground.

Court Reversed A Summary Judgment For Trustee And Found That A Contingent Remainder Beneficiary Had Standing And Potentially Had A Removal Claim

Posted in Cases Decided, Texas Court of Appeals

In In the Interest of K.K.W., an ex-wife sued an ex-husband and the trustee of a trust that they created for breaches of fiduciary duty and sought to remove the trustee, among other claims, arising out of the trustee’s alleged unfair distribution of trust assets. No. 05-16-00795-CV, 2018 Tex. App. LEXIS 6539 (Tex. App.—Dallas August 20, 2018). The trial court granted a summary judgment for the ex-husband and trustee, and the ex-wife appealed.

The trustee moved for summary judgment on the breach of fiduciary duty, removal and reformation claims on the ground that the ex-wife lacked standing to assert those claims. He argued that because the only relationship the ex-wife had with the trust was as a co-settlor, she did not qualify as an “interested person” under the trust code for standing. The court of appeals disagreed:

Mother pleaded she had standing pursuant to sections 111.004(2), (6), (7); 115.001(a); and 115.011(a) and (b) of the Texas Trust Code. See Tex. Prop. Code Ann. §§ 111.004 (2), (6), (7); 115.001(a); 115.011(a) and (b) (West 2014). Section 115.011 of the trust code confers standing on any “interested person” which is defined as “a trustee, beneficiary, or any other person having an interest in or claim against the trust or any person who is affected by the administration of the trust.” See id. at §§ 111.004(7) and 115.011(a). A “beneficiary,” in turn, is defined as a person for whose benefit property is held in trust, regardless of the nature of the interest. Id. at § 111.004(2). The “interest” may be legal or equitable or both, present or future, vested or contingent, defeasible or indefeasible. Id. at § 111.004(6). 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 purpose of and matter involved in any proceeding. Id. at §111.004(7). Applying this law to the facts, we conclude that Trustee failed to establish as a matter of law that Mother lacked standing to pursue these claims.

Section 3.9 of the trust provides that if K.K.W and his children and remote descendants die before the trust terminates, the trust’s principal and income shall be distributed to Father, if living, otherwise to Mother, if living. Mother, therefore, has a contingent remainder interest and contingent reversionary interest in trust property. Trustee asserts that Mother’s interest is “a remote, contingent, inheritance” interest and therefore insufficient to confer standing under the property code. However, even a remote and contingent interest is sufficient to confer standing as an interested person pursuant to the property code. See Aubrey, 523 S.W.3d at 313 (future remainder interest sufficient for standing for removal of trustee under code even if interest contingent); see also Hill v. Hunt, No. 3:07-CV-2020-O, 2009 U.S. Dist. LEXIS 121494, 2009 WL 5178021, at *2 (N.D. Tex. Dec. 30, 2009) (contingent remainder interest is “interest” under section 111.004(6) and makes holder an “interested person” under section 111.004(7)). Because Trustee failed to conclusively establish that Mother was not an interested person for purposes of bringing suit under section 115.011(a), the trial court erred in granting summary judgment on these claims based on lack of standing.

Id.

The court also reversed the summary judgment as to the removal claim. The ex-wife sought removal of the trustee pursuant to section 113.082 (a)(3) and (4) of the trust code alleging, among other things, that the trustee failed to provide her with a full and complete accounting of the trust after repeated requests, failed to disclose the arrangement between the ex-husband and the trustee, and failed to provide her with notice as required by the trust instrument upon rejection of a reimbursement claim. The court held that because the trustee was not entitled to summary judgment on the sole ground he raised relative to this claim—ex-wife’s lack of standing—and none of the other bases for summary judgment which were otherwise affirmed resolved as a matter of law the bases for removal, the court reversed the summary judgment on that claim as well.

The ex-wife argued that the trustee committed constructive fraud based on a failure to disclose an alleged side-agreement with the ex-husband. The court of appeals held that:

[W]e agree Mother has a contingent remainder interest and contingent reversionary interest in trust property, so she is a beneficiary. Generally, a trustee owes the same fiduciary duty to a contingent beneficiary as to one with a vested interest. See Brown v. Scherck, 393 S.W.2d 172, 181 (Tex. Civ. App.—Corpus Christi 1965, no writ) (citing 90 C.J.S. Trust 247, page 235). Therefore, the record contains more than a scintilla of evidence Trustee owed a fiduciary duty to Mother as a contingent beneficiary of the trust. The trial court erred, therefore, when it granted summary judgment on the basis in Trustee’s motion for summary judgment against Mother’s constructive fraud cause of action.

Id.

Finally, the ex-wife argued that the partial reversal of the summary judgment warrants a reconsideration of the trial court’s award of attorney’s fees for the trustee. The trustee contended the award of attorney’s fees in his favor should not be disturbed because it was not based solely on the outcome of the case and the ex-wife had not challenged the reasonableness and necessity of the fee award. The court stated:

We review a decision to award attorney’s fees under the trust and Declaratory Judgments Act for an abuse of discretion. A trial court abuses its discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law. Section 114.064 of the trust code and section 37.009 of the Declaratory Judgments Act authorize the trial court to make an award of costs and reasonable and necessary attorney’s fees as are equitable and just. Whether it is equitable and just to award attorney’s fees depends on the concept of fairness, in light in light of all surrounding circumstances. The conclusion that an award is equitable and just is not dependent on a finding that a party substantially prevailed. And reversal of a trial court’s decision on a declaratory judgment does not necessarily require reversal of the attorney’s fees award.

Here, based on the record before us, we cannot conclude the trial court abused its discretion in connection with its award of attorney’s fees to Trustee. Although the trial court found Trustee prevailed on all causes of action filed against him by Mother, it also found Trustee only incurred attorney’s fees defending against Mother’s claims and seeking attorney’s fees for that defense. Moreover, the trial court found Mother caused Trustee to incur additional fees by “unnecessarily prolonging this suit,” and by having her expert provide “an exorbitant number of opinions,” and repeatedly changing her theories of the case.

Even with our reversal of the trial court’s judgment with respect to Mother’s claims for removal of trustee, Trustee has still prevailed on all but one of Mother’s claims, including the central premise of case expressed in her declaratory judgment claim, which also authorized the attorney’s fees award. Further, Trustee’s argument asserted as to Mother’s removal claim was asserted against Mother’s claims for constructive fraud and breach of fiduciary duty, both of which we have affirmed. Moreover, in light of the trial court’s other findings regarding Mother’s conduct during the case, we cannot conclude the trial court abused its discretion in connection with its attorney’s fee award to Trustee. Accordingly, we resolve Mother’s fifth issue against her and will not disturb the trial court’s attorney’s fees award.

Id.

Court Held That Equitable-Forfeiture Claims Arising From A General Partner’s Compensation Should Be Remanded For Consideration By Court

Posted in Cases Decided, Texas Court of Appeals

In Cruz v. Ghani, a limited partner sued a general partner over breach of fiduciary duty claims arising from, among other allegations, that the general partner should not have compensated himself from the business in addition to regular distributions. No. 05-17-00566-CV, 2018 Tex. App. LEXIS 6557 (Tex. App.—Dallas August 20, 2018, no pet. history). The jury found that the general partner failed to comply with his fiduciary duties with respect to the payments made to himself, but awarded $0 in damages. The trial court did not award damages on this claim, and the limited partner appealed and argued the trial court should have entered judgment ordering disgorgement of the compensation.

The court of appeals first discussed the equitable remedies of disgorgement and forfeiture:

Courts may fashion equitable remedies such as disgorgement and forfeiture to remedy a breach of a fiduciary duty. Disgorgement is an equitable forfeiture of benefits wrongfully obtained. A party may be required to forfeit benefits when a person rendering services to another in a relationship of trust breaches that trust… A claimant need not prove actual damages to succeed on a claim for forfeiture because they address different wrongs. In addition to serving as a deterrent, forfeiture can serve as restitution to a principal who did not receive the benefit of the bargain due to his agent’s breach of fiduciary duty. However, forfeiture is not justified in every instance in which a fiduciary violates a legal duty because some violations are inadvertent or do not significantly harm the principal.

Whether forfeiture should be imposed must be determined by the trial court based on the equity of the circumstances. However, certain matters may present fact issues for the jury to decide, such as whether or when the alleged misconduct occurred, the fiduciary’s mental state and culpability, the value of the fiduciary’s services, and the existence and amount of harm to the principal. Once the factual disputes have been resolved, the trial court must determine: (1) whether the fiduciary’s conduct was a “clear and serious” breach of duty to the principal; (2) whether any monetary sum should be forfeited; and (3) if so, what the amount should be.

Id. The court noted that the jury found a breach of fiduciary duty, and that the limited partner sought “disgorgement/fee forfeiture” in his pleadings and argued for same at the hearing on a motion for judgment notwithstanding the verdict, but that the record did not show whether the trial court considered an equitable forfeiture award. The court held: “Because Cruz requested the remedy and it was timely brought to the trial court’s attention, we conclude the request for equitable relief should be remanded to the trial court for consideration of the factors described by the Texas Supreme Court in ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867, 875 (Tex. 2010).” Id.

 

Independent Executor Had Authority To Sell Estate Real Property Despite Nothing In The Will Giving Him That Authority

Posted in Cases Decided, Texas Court of Appeals

In Graff v. 2920 Park Grove Venture, Ltd., an executor was sued after selling estate real estate because the executor allegedly sold the property for less than fair market value. No. 05-16-01411-CV, 2018 Tex. App. LEXIS 4266 (Tex. App—Dallas June 13, 2018, no pet. history). Among other claims and arguments, the plaintiff alleged that the executor had no authority to sell the property because the will was silent regarding the authority to sell real property. The court of appeals held that the executor had that authority:

It is undisputed that the will did not expressly state the executor had the authority to sell the estate’s real property. However, under Texas law, independent executors like Hayden have authority to do any act which an ordinary executor may do under an order of the probate court without the need for an order. Where the will contains no restrictive terms upon his authority, an independent executor may incur reasonable expenses in the management of the estate, adjust and pay debts against the estate and for that purpose may sell property of the estate, although the will does not expressly grant that power.

The existence of debts against the estate is sufficient to authorize the independent executor to sell real property. Stanley does not dispute that the estate had certain outstanding debts at the time of the sale. In fact, the summary judgment record reveals at the time Hayden decided to sell the apartment complex, the estate had limited cash and several outstanding debts, including federal estate taxes of over $3 million, a mortgage on the apartment complex, executor’s fees of about $800,000, as well as outstanding attorney’s fees incurred in the administration of the estate. Accordingly, Hayden had authority to sell real property to satisfy the outstanding debts of the estate.

As for his contention with respect to probate court authorization, Stanley argues that because the record does not conclusively establish that Hayden needed to sell the property in order to satisfy the estate’s outstanding debts, Park Grove has not shown the probate court would have authorized the sale. According to Stanley, because he put forth evidence of an alternative way to satisfy the outstanding debt without the sale, Park Grove was not entitled to summary judgment on this rescission claim for lack of authority. However, Stanley cites no cases to support his position. To the contrary, the cases upon which he relies suggest that all that is required to authorize a sale is to show the existence of such facts as would authorize the probate court to order a sale, such as outstanding estate debts.

Id. The court of appeals affirmed a summary judgment for the executor on this claim.

Recorded Webinar—Trustees’ Ability to Retain and Pay Attorneys in Texas

Posted in Knowledge Library, Webinars

Thank you to everyone who joined us on September 18 for the webinar “Trustees’ Ability to Retain and Pay Attorneys in Texas.”  The recorded webinar link is available now.  If you are interested in joining our next complimentary webinar or presentation, please send your request to dfjohnson@winstead.com .

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, discusses the following: 1) tips and suggestions for retaining and communicating with counsel and 2) a trustee’s ability and right to pay attorneys both during and after litigation.

Target Audience: In-house counsel and other litigation contacts, trust officers, risk management contacts, and wealth advisors

CLICK HERE FOR WEBINAR

 

Presentation-Temporary Injunctive Relief in Texas

Posted in Items of Interest, Knowledge Library

David F. Johnson presented his paper “Temporary Injunctive Relief in Texas” to the State Bar of Texas’s Advanced Civil Appellate Course in Austin, Texas, on September 6, 2018. David has handled many appeals from temporary injunctions.  He provided technical guidance on the complicated issues arising from these types of interlocutory appeals and also provided practical advice on whether such an appeal is advantageous or not.  The presentation paper and slides are attached below.   If you are interested in joining our next complimentary webinar or presentation, please send your request to dfjohnson@winstead.com .

Temporary Injunctive Relief in Texas _Paper

Temporary Injunctive Relief in Texas _Slides

 

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