Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Texas Court Held That A Trust Beneficiary Could Raise A Claim Against A Trustee’s Estate For An Interest In Trust Property And A Constructive Trust

Posted in Cases Decided, Texas Court of Appeals

In the Estate of Gibbs, Bell transferred money to Gibbs for the purchase of real property and a trust agreement was executed that clarified that they owned the property equally. No. 02-18-00086-CV, 2019 Tex. App. LEXIS 4452 (Tex. App.—Fort Worth May 30, 2019, no pet. history). Later, Bell learned that Gibbs had transferred Bell’s half of the property to Gibbs’ wife during a divorce proceeding. Bell sued Gibbs’s estate and his wife’s estate for a declaration that she owned the property and for a constructive trust. The trial court entered a judgment for the defendants, and Bell appealed.

The court of appeals first addressed whether Bell could raise her claim to an interest in the property via a declaratory judgment claim and not as a trespass to try title. The court concluded: “Bell’s request for a declaratory judgment to ascertain the nature of that equitable interest is a proper subject of a declaratory judgment claim rather than a trespass to try title claim.” Id. “Bell [was] entitled to bring her claim seeking clarification of her equitable status under the Trust Agreement as a declaratory judgment claim.” Id.

The court then addressed whether Bell could raise a constructive trust claim:

Bell argues that Bert owed her a fiduciary duty by holding the Real Property — an identifiable res — partially in trust for her and that he breached that duty by attempting to convey her equitable interest in the Real Property to a third party without her knowledge. She also argues that Kenneth, as the Estate’s executor, has further breached a duty to her by refusing to acknowledge her trust interest. She further argues that Bert and the Estate have been unjustly enriched by disclaiming her interest, which she claims entitles her to part of any income from the Real Property. This is the type of claim for which the trial court may consider imposing a constructive trust as an equitable remedy.

Id. The court also rejected the defendant’s statute of limitations argument and found that there was a fact issue on that defense. The court reversed the summary judgment motion and remanded for further proceedings.

Texas Court Concludes There Was A Fact Question As To Whether A Hand-Written Document Was A Will

Posted in Cases Decided, Texas Court of Appeals

In In re Estate of Silverman, a trial court granted a will contestant’s summary judgment and denied a handwritten document’s admission to probate as the last will of the decedent. No. 14-18-00256-CV, 2019 Tex. App. LEXIS 4579 (Tex. App.—Houston [14th Dist.] June 4, 2019, no pet. history). The proponent argued that the document could be testamentary in character as it appointed the decedent’s office manager as an executor. The proponent appealed. The court of appeals first discussed a court’s duty to admit a document to probate:

A court’s first duty in a proceeding to admit a writing offered for probate is to determine whether the writing is testamentary in character. If the document is not of testamentary character it is not a will and cannot be admitted to probate. We must ascertain the testator’s intent from the language used within the four corners of the instrument offered for probate. It is essential that the maker shall have intended to express his testamentary wishes in the particular document offered for probate.

The requisite testamentary intent does not depend upon the maker’s realization that he is making a will, or upon his designation of the instrument as a will, but rather upon his intention to create a revocable disposition of his property to take effect after his death. Generally, to be testamentary in character, a writing must possess certain essential characteristics. The writing must be revocable during the maker’s lifetime. The writing must be ineffectual as a transfer of any rights or interest before death. Further, courts often state that the writing must operate to transfer, convey, or dispose of the testator’s property upon death.

Id. The court also discussed admitting a handwritten document to probate. The court stated that it would not ordinarily construe a purported will before its admission to probate. “On occasion, however, courts have construed purported wills before admitting them to probate. For example, it may be necessary or appropriate to construe a writing offered for probate to decide whether it is testamentary. Additionally, courts have construed disputed language in a purported will before its admission to probate when an interested party seeks a declaratory judgment, as the Contestants have done here.” Id.

The court then held that it construed the handwritten document at issue as naming an executor but was ambiguous as to whether it transferred or devised any property. The contestants argued that the will gave the executor rights and powers of an executor but that person had been devised no ownership rights to any property. The executor argued that the phrase “Karen Grenrood . . . has all legal rights to my estate in the case of my untimely or timely death” is an effective devise of all property. The court of appeals concluded that both sides’ interpretations were reasonable: “But whether the handwritten document does or does not dispose of Silverman’s property is a matter for the factfinder to decide. If the document disposes of property then it may be admitted to probate, presuming other testamentary characteristics exist.” Id. The court also held that the document should have been admitted to probate because it named an executor. The court concluded: “In sum, we hold that the probate court erred by denying the handwritten document admission to probate on the ground that it lacks testamentary intent because it does not transfer or dispose of property. We reach this conclusion for two reasons: (1) the document is ambiguous whether it disposes of property; and (2) presuming it does not dispose of property, it names or appoints an executor, as the parties agree.” Id.

Presentation: Temporary Injunctive Relief in Texas

Posted in Items of Interest, Knowledge Library

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, presented his paper on “Temporary Injunctive Relief in Texas” to the State Bar of Texas’s Advanced Civil Trial Course in San Antonio, Texas, on July 18. His presentation covered advanced issues in seeking temporary injunctive relief or defending against a request for that relief. David will also present this topic at the course’s location in Dallas on August 22, 2019 and Houston on October 31, 2019.

Temporary Injunctive Relief in Texas_Paper

Temporary Injunctive Relief in Texas_Presentation Slides

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

In A Suit To Reform A Trust, A Texas Court Holds That There Was A Fact Issue On The Settlors’ Intent And Remanded For A Fact Finding

Posted in Cases Decided, Texas Court of Appeals

In In re Ignacio G. & Myra A. Gonzales Trust, a couple formed a trust and named their daughter as the trustee. No. 06-19-00014-CV, 2019 Tex. App. LEXIS 4648 (Tex. App.—Texarkana June 6, 2019, no pet. history). The trust identified the settlors’ children as the two children that they had together. However, the trust then used the undefined term “descendants” in discussing beneficiaries. After the settlors’ death, the trustee filed suit to declare that the wife’s child from a prior relationship was not a beneficiary of the trust. The trial court granted summary judgment for the trustee, and the defendant appealed.

The court of appeals held as follows regarding the rules for construing a trust:

“When we construe a will, we focus on the testator’s intent.” “We interpret trust instruments the same way as we interpret wills, contracts, and other legal documents.” We “ascertain a trust grantor’s intent from the language contained in the trust’s four corners and focus on the meaning of the words actually used, not what the grantor intended to write.” “In this light, courts must not redraft [trust documents] to vary or add provisions ‘under the guise of construction of the language of the [trust documents]’ to reach a presumed intent.” “We must interpret a trust to give meaning to all its provisions and to enact the intent of the grantor.” “The meaning of a trust instrument is a question of law when there is no ambiguity as to its terms.” “If the court is capable of giving a definite legal meaning or interpretation to an instrument’s words, it is unambiguous, and the court may construe the instrument as a matter of law.” “Only when the trust instrument’s language is uncertain or reasonably susceptible to more than one meaning will it be considered ambiguous so that its interpretation presents a fact issue precluding summary judgment.” In interpreting a trust document, we “(1) [c]onstrue the agreement as a whole; (2) give each word and phrase its plain, grammatical meaning unless it definitely appears that such meaning would defeat the parties’ intent; (3) construe the agreement, if possible, so as to give each provision meaning and purpose so that no provision is rendered meaningless or moot; (4) [ensure that] express terms are favored over implied terms or subsequent conduct; and (5) [note that] surrounding circumstances may be considered—not to determine a party’s subjective intent—but to determine the appropriate meaning to ascribe to the language chosen by the parties.” Also, we “must be particularly wary of isolating individual words, phrases, or clauses and reading them out of the context of the document as a whole.” “[A]n ambiguity does not arise merely because the parties advance conflicting interpretations.” “When a [document] contains an ambiguity, the granting of a motion for summary judgment is improper because the interpretation of the instrument becomes a fact issue.”

Id. (internal citations omitted).

The court noted that Section 112.054 of the Texas Property Code provides that a court may order the terms of a trust modified if “reformation is necessary to correct a scrivener’s error in the governing document, even if unambiguous, to conform the terms to the settlor’s intent” and such intent is established by clear and convincing evidence. Id. (citing Tex. Prop. Code Ann. § 112.054(b-1)(3), (e)). That provision was not effective at the time the trust was created. In any event, the court noted that this provision was grounded in common law and the Restatement (Third) of Trusts and Restatement (Third) of Property. Specifically, the Restatement (Third) of Property provides, “A donative document, though unambiguous, may be reformed to conform the text to the donor’s intention if it is established by clear and convincing evidence (1) that a mistake of fact or law, whether in expression or inducement, affected specific terms of the document; and (2) what the donor’s intention was. In determining whether these elements have been established by clear and convincing evidence, direct evidence of intention contradicting the plain meaning of the text as well as other evidence of intention may be considered.” Id. (citing Restatement (Third) of Prop.: Wills & Donative Transfers § 12.1). Reformation may occur “even after the death of the donor.” Id. (citing Restatement (Third) of Prop. § 12.1 cmt. c). The court held that the fact that a written instrument is couched in unambiguous language, or that the parties knew what words were used and were aware of their ordinary meaning, or that they were negligent in failing to discover the mistake before signing the instrument, will not preclude relief by reformation. Id. The court held:

“Reformation requires two elements: (1) an original agreement and (2) a mutual mistake made after the original agreement in reducing the original agreement to writing.” “A court is without power to make a contract that the parties did not make; an actual agreement reached prior to the drafting of the instrument involved is a requisite to an action for reformation.” “The mistake may be shown by parol evidence.” “[A]lthough a mutual mistake of the parties is required in most instances, if a settlor of a trust receives no consideration for the creation of the trust, a unilateral mistake . . . is sufficient.” “Any mistake of the scrivener which could defeat the true intention may be corrected in equity by reformation, whether the mistake is one of fact or law.”

Id.

In this case, the court held that there was a fact question. The court first stated that the petitioners had to meet a high burden of proof, and that the petitioners’ summary judgment evidence failed to carry their burden to establish their entitlement to judgment as a matter of law:

The Trust clearly contained scrivener’s errors. However, the question of Ignacio’s and Myra’s intent was not shown by clear and convincing evidence as a matter of law. Derer did not remember meeting with Ignacio and Myra, had “no direct memory of them,” and could not recall whether they informed him of Edna’s existence. Based on this testimony, which we view in the light most favorable to Edna, it is quite possible that the scrivener’s error occurred in the identification article and should have included Edna. The identification article stated Ignacio and Myra only had two children. This was a scrivener’s mistake of fact. It is undisputed that Edna is Myra’s natural child and that she was adopted by Ignacio. Further, Derer made clear that his opinions were based on his assumption that Ignacio and Myra intended to disinherit Edna from his reading of the Summary and Identification article. An assumption is not proof. Thus, in light of the evidence in this case, Ignacio’s and Myra’s intent is a question of fact for a jury.

Id.

Interesting Note: One issue that arises is what fact finder determines the appropriateness or amount of a remedy. Is a plaintiff or defendant entitled to submit a requested remedy, or any aspect of it, to a jury or may a trial court alone determine the availability of the remedy?

If requested, a jury should determine the amount of damages at law that should be awarded to a plaintiff where there is a fact issue. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 367 (Tex. 2000); Ogu v. C.I.A. Servs., No. 01-07-00933-CV, 2009 Tex. App. LEXIS 78 (Tex. App.—Houston [1st Dist.] Jan. 8, 2009, no pet.). In Texas, a jury’s verdict has a “special, significant sacredness and inviolability.” Crawford v. Standard Fire Ins. Co., 779 S.W.2d 935, 941 (Tex. App.—Beaumont 1989, no writ). The Texas Constitution requires that the right to trial by jury remain inviolate. Tex. Const., art. I, § 15; Crawford, 779 S.W.2d at 941. Denial of the constitutional right to trial by jury amounts to an abuse of discretion for which a new trial is the only remedy. McDaniel v. Yarbrough, 898 S.W.2d 251, 253 (Tex. 1995).

Of course, a party must appropriately request a jury and object to any failure to provide one. Duenas v. Duenas, No. 13-07-089-CV, 2007 Tex. App. LEXIS 5622 (Tex. App.—Corpus Christi July 12, 2007, no pet.) (Because a party did not timely object regarding his right to a jury trial, the matter was waived.). Further, where there is no fact issue, then a trial court does not err in refusing to submit an issue to a jury. See Willms v. Americas Tire Co., 190 S.W.3d 796 (Tex. App.—Dallas 2006, pet. denied) (the granting of summary judgment did not violate a constitutional right to a jury trial because no material issues of fact existed to submit to a jury.).

However, a court, in its equitable jurisdiction, should determine whether an equitable remedy should be granted. See Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 428-29 (Tex. 2008) (“As with other equitable actions, a jury may have to settle disputed issues about what happened, but “the expediency, necessity, or propriety of equitable relief’ is for the trial court … .”). The Texas Supreme Court stated: “Although a litigant has the right to a trial by jury in an equitable action, only ultimate issues of fact are submitted for jury determination. The jury does not determine the expediency, necessity, or propriety of equitable relief. The determination of whether to grant an injunction based upon ultimate issues of fact found by the jury is for the trial court, exercising chancery powers, not the jury.” State v. Texas Pet. Foods, Inc., 591 S.W.2d 800, 803 (Tex. 1979); Bostow v. Bank of Am., No. 14-04-00256-CV, 2006 Tex. App. LEXIS 377 (Tex. App.—Houston [14th Dist.] Jan. 17, 2006, no pet.); Shields v. State, 27 S.W.3d 267, 272 (Tex. App.—Austin 2000, no pet.). The jury’s findings on issues of fact are binding; however, equitable principles and the appropriate relief to be afforded by equity are only to be applied by the court itself. Shields, 27 S.W.3d at 272. Because the court alone fashions equitable relief, it is not always confined to the literal findings of the jury in designing the injunction. Id.

For example, the Texas Supreme Court held: “A jury does not determine the expediency, necessity, or propriety of equitable relief such as disgorgement or constructive trust.” Longview Energy Co. v. Huff Energy Fund LP, No. 15-0968, 2017 Tex. LEXIS 525, 2017 WL 2492004 (Tex. June 9, 2017) (citing Burrow v. Arce, 997 S.W.2d 229, 245 (Tex. 1999)). “Whether ‘a constructive trust should be imposed must be determined by a court based on the equity of the circumstances.’” Id. “The scope and application of equitable relief such as a constructive trust ‘within some limitations, is generally left to the discretion of the court imposing it.’” Id. (citing Baker Botts, L.L.P. v. Cailloux, 224 S.W.3d 723, 736 (Tex. App.—San Antonio 2007, pet. denied).

“If ‘contested fact issues must be resolved before a court can determine the expediency, necessity, or propriety of equitable relief, a party is entitled to have a jury resolve the disputed fact issues.’” Id. (citing DiGiuseppe v. Lawler, 269 S.W.3d 588, 596 (Tex. 2008). “But uncontroverted issues do not need to be submitted to a jury.” Id. (citing City of Keller v. Wilson, 168 S.W.3d 802, 815 (Tex. 2005)). See also Wilz v. Flournoy, 228 S.W.3d 674, 676-77 (Tex. 2007) (noting that in the underlying trial, the jury found that no personal funds were used to purchase the farm, which justified the award of a constructive trust on the farm.); Paschal v. Great W. Drilling, Ltd., 215 S.W.3d 437, 445 (Tex. App.—Eastland 2006, pet. denied) (“The jury found that all of the premiums on the four policies were paid with funds that Alan stole from Great Western. Accordingly, the trial court imposed a constructive trust on all of the funds remaining in existence from the life insurance proceeds.”).

So, if properly requested and preserved, a party is entitled to submit a fact issue on legal damages to a jury. However, if a party seeks an equitable remedy, the trial court normally has the sole right to resolve that request. If there is some underlying fact issue that must be resolved with regard to the equitable remedy, then that fact issue should be submitted to a jury. Parties should be very careful to evaluate all requested remedies before trial and determine what should be submitted to the court and what should be submitted to a jury. Otherwise, after trial, a court may determine that a party waived the right to a jury on a fact issue, and either refuse to award the remedy or grant the remedy and supporting findings may be found in support of a trial court’s judgment. Tex. R. Civ. P. 279; Bostow v. Bank of Am., No. 14-04-00256-CV, 2006 Tex. App. LEXIS 377 (Tex. App.—Houston [14th Dist.] Jan. 17, 2006, no pet.) (“[T]he jury’s finding as to Bostow’s harassing conduct is a sufficient finding on the ultimate issues of fact to support the trial court’s exercise of discretion in granting a permanent injunction. Thus, the Bank did not abandon its claim for injunctive relief by failing to submit fact questions to the jury that would support its entitlement to injunctive relief.”). See also Valenzuela v. Aquino, 853 S.W.2d 512, 513 (Tex. 1993) (suggesting permanent injunction could be based on jury finding liability for invasion of privacy); Memon v. Shaikh, 401 S.W.3d 407, 423 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (holding jury’s defamation finding supported permanent injunction).

Because Fraud By Nondisclosure Cannot Occur After A Transaction Is Consummated, Employees Generally Do Not Owe A Duty To Disclose Their Employers’ Breaches of Contract To Third Parties

Posted in Cases Decided, Texas Court of Appeals

In CLC Roofing v. Helzer, a roofer purchased shingles from a seller and stored them on the seller’s property. No. 02-17-00229-CV, 2019 Tex. App. LEXIS 5927 (Tex. App.—Fort Worth July 11, 2019, no pet. history). Six months after the relevant purchase was consummated, the seller, who was in financial trouble, returned the buyer’s shingles to a manufacturer to pay down a debt owed by the seller. The seller then went into bankruptcy. The purchaser then sued several employees for fraud and fraud by omission. The jury found for the purchaser, awarding actual and punitive damages. The trial court entered judgment notwithstanding the verdict for an employee/salesman, but entered judgment against an employee/officer. The parties appealed.

The court of appeals first addressed the duty to disclose information in a commercial setting and held that any such duty arises before the transaction is consummated:

In general, there is no duty to disclose without evidence of a fiduciary or confidential (also referred to as “informal”) relationship. Section 551 of the Restatement (Second) of Torts—which the Supreme Court of Texas has neither expressly adopted nor rejected—recognizes a general duty of a party to a business transaction to disclose certain information in specific circumstances. Under Section 551, if a party to a business transaction has a duty to another party to disclose information, then the failure to disclose the information may be actionable for fraud to the same extent that an affirmative misrepresentation could be. Whether a party has a duty to disclose despite the absence of a confidential relationship is addressed in subsection (2) of Section 551. The duties it sets out all apply before the transaction is consummated.

Section 551 of the Restatement does not confer on parties to a transaction a duty to disclose information learned after the transaction is consummated. [N]umerous courts of appeals, including this court, have concluded that a duty to disclose may arise in the following circumstances: (1) when one voluntarily discloses information, the whole truth must be disclosed; (2) when one makes a representation, new information must be disclosed when that new information makes the earlier representation misleading or untrue; and (3) when one makes a partial disclosure and conveys a false impression. However, it is worth noting that the application of these duties to a business transaction in the absence of a confidential or fiduciary relationship traces back to Restatement Section 551.

Id. The court then affirmed the judgment for the employee/salesperson because there was no evidence that he had knowledge that his employer would breach the purchase agreement before it was entered into, i.e., no evidence that he knew that his employer would not segregate the shingles for the purchaser or would return them to a third party. The court explained:

What CLC essentially contends that Thompson failed to disclose after consummation of the June 2012 bulk buy was JEH’s breach of the Release or of its oral agreement with CLC. That, without more, is not a valid basis for a fraud by nondisclosure claim. To hold otherwise would compel any person with knowledge of their employer’s breach of contract to proactively disclose that breach to the other contracting party or be liable for fraud. This is not the law in Texas.

Id.

Regarding the employee/officer, he had signed a landlord’s release document that required the seller to segregate the shingles in the yard and maintain them for the purchaser. The court held that there was no evidence that the seller did not comply with those requirements before the transaction was consummated:

JEH’s failure to segregate CLC’s bulk buy shingles from JEH’s other inventory could support a fraud claim only if there was other circumstantial evidence of fraud. However, there is no evidence that JEH failed to segregate the shingles for bulk buys prior to the June 2012 bulk buy, and the only (albeit limited) evidence on this question is that until at least several months after the June 2012 bulk buy, JEH did segregate CLC’s shingles.

Id. With respect to the fraud by omission claim, it also failed:

[T]here is no evidence that E.G. failed to disclose JEH’s noncompliance with the Release because there is no evidence that JEH was prohibited from pulling the bulk buy shingles from its own inventory, and there is no evidence that prior to the June 2012 bulk buy, JEH failed to segregate the bulk buy shingles. Thus, at the time E.G. signed the Release, JEH’s promise to segregate the shingles was not a partial disclosure that conveyed a false impression or failed to disclose the whole truth. And when JEH made the December 2012 shingles return and stopped segregating CLC’s bulk buy shingles, the bulk buy transaction had already been consummated. Any disclosure after that time would have required E.G. to disclose JEH’s breach of its agreements, which he had no duty to do. Thus, E.G.’s failure to disclose the return cannot support a fraud by omission claim. And the record is devoid of any evidence establishing the existence of a confidential relationship between CLC and E.G. that would otherwise give E.G. a duty to disclose the information.

Id. The court affirmed the judgment for the employee/salesperson and reversed and rendered judgment for the employee/officer.

Interesting Note: As a matter of full disclosure, the author successfully represented the employee/officer on appeal in this case. This opinion is important precedent in Texas on the duty to disclose. The Texas Supreme Court recently held, for the first time, that a party can owe a duty to disclose information outside of a confidential or fiduciary relationship. Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572 S.W.3d 213, 219 (Tex. 2019). In doing so, the Court did not discuss the limitations on that principal as they were not raised in that opinion; indeed, the Court’s holding was dicta. Specifically, the Court did not address whether such a duty could survive after a transaction was consummated.

The CLC opinion is important precedent in Texas because it clearly limits a duty to disclose information to before a transaction is consummated. Claims that are based on alleged nondisclosures made after the consummation of a transaction fall outside of Section 551’s scope and are not actionable. Purina Co. v. McKendrick, 850 S.W.2d 629, 633-34 (Tex. App.—San Antonio 1993, writ denied); Susanoil, Inc. v. Cont’l Oil Co., 519 S.W.2d 230, 236 (Tex. Civ. App.—San Antonio 1975, writ ref’d n.r.e.). This makes sense for many reasons. If it were otherwise, a company’s employees would have a duty to disclose their employer’s breach of contract to third parties every time the employer breaches a contract. Texas law does not support such a broad duty of disclosure. See Oliver v. Rogers, 976 S.W.2d 792 (Tex. App.—Houston [1st Dist.] 1998, pet. denied) (holding that a contracting party has no duty to disclose changed circumstances that occur after a contract is formed). That would place an employee in a very difficult position with conflicting duties. An employee owes a fiduciary duty to its employer to not disclose confidential information. Should an employee have to disclose information to protect his or her self-interest where the disclosure would also violate a duty owed to his or her employer? That is an unfair position to place an employee. Moreover, a contrary argument would violate the concepts of the inducement and reliance elements of fraud by nondisclosure. If the plaintiff already entered into the transaction, the non-disclosing party could not have intended to induce anything regarding the subsequent nondisclosure. Also the plaintiff would not rely on anything more than what was represented prior to the transaction. The CLC opinion is very well reasoned and will assist parties in Texas in dealing with fraud by nondisclosure claims in commercial settings.

Estate Representative May Not Need To Post A Bond To Supersede A Judgment in Texas

Posted in Cases Decided, Texas Court of Appeals

In Wheatley v. Farley, a trial court entered an order awarding relief to both parties, and both parties appealed. No. 08-18-00106-CV, 2019 Tex. App. LEXIS 4626 (Tex. App.—El Paso June 5, 2019, no pet. history). One party was a dependent administrator, and the trial court ruled that he did not have to post a supersedeas bond to stay execution of the judgment. The court of appeals affirmed this ruling:

Section 351.002 provides that an appeal bond is not required if an appeal is taken by an executor or administrator, unless the appeal personally concerns the executor or administrator. Tex. Estates Code Ann. § 351.002(a), (b). Wheatley argues that an “appeal bond” is not the same as a “supersedeas bond,” and therefore, Section 351.002 does not operate to excuse Farley from the requirement that he post a supersedeas bond to suspend the judgment pending appeal. We agree with Wheatley that an appeal bond and a supersedeas bond are two different types of bonds and they serve different functions. Nevertheless, as seen in the Supreme Court’s decision in Ammex Warehouse Co. v. Archer, 381 S.W.2d 478, 480-82 (Tex. 1964), the exemption of executors and administrators from the requirement that they give security for costs on appeal is significant in determining whether they are required to post a supersedeas bond.

….

We recognize that Section 351.002 refers to “appeal bond” rather than the more general term “bond” that appeared in the predecessor statute, but it was well understood that Article 2276 concerned the requirement that the appellant give security for costs on appeal by filing an appeal bond. We hold that when an executor or administrator of an estate appeals, he or she is not required to post a supersedeas bond unless the appeal personally concerns the executor or administrator. The Probate Court’s order does not expressly state whether the appeal personally concerns Farley, but the record reflects that Farley is a court-appointed administrator who has no personal interest in the estate. Consequently, Farley is not required to post a supersedeas bond to suspend the judgment and his filing of a notice of appeal operated to suspend the judgment.

Id. (citing In re Shore, 106 S.W.3d 817, 821 (Tex. App.—Texarkana 2003, orig. proceeding) and Vineyard v. Irvin, 855 S.W.2d 208, 212 (Tex. App.—Corpus Christi-Edinburg 1993, orig. proceeding)).

Interesting Note: Unless a judgment is superseded, a judgment creditor can collect on the judgment pending an appeal. If the judgment debtor wants to stop the creditor from collecting on the judgment pending an appeal, the judgment debtor generally should post a supersedeas bond. Supersedeas bonds can be expensive and can be difficult to obtain. The holding above is a good holding for any estate representative faced with the task of appealing a judgment. It means that an estate can appeal an adverse judgment without the expense and hassle of obtaining a bond.

This holding is not good news for a judgment creditor, who may face the dissipation of assets by an estate. Without the filing of a supersedeas bond, the judgment creditor has no protection that at the end of the case, when all appeals are completed, that it will have assets to collect. Therefore, judgment creditors in this situation should consider seeking an injunction in the trial court to stop any dissipation of assets while the appeal is pending. The Texas Rules of Appellate Procedure expressly allow trial courts to grant that type of temporary relief pending an appeal to prevent the unfairness that may arise from allowing a judgment debtor to operate as normal without the filing of a supersedeas bond.

Federal District Court Holds That A Former Director Of Nonprofit Did Not Have Standing To Sue For The Board’s Breach Of Fiduciary Duty And That Employers Do Not Owe Fiduciary Duties To Employees

Posted in Items of Interest

In Garcia v. Communities in Schools of Brazoria County, a director sued a nonprofit’s board for breach of fiduciary duty arising from his removal. 2019 U.S. Dist. LEXIS 97017 (S. D. Tex. June 10, 2019). The board alleged that he did not have standing to bring such a claim, and the district court agreed:

Garcia lacks standing to bring a derivative claim for the Joint Venture Board’s alleged breach of fiduciary duty or ultra vires acts. Under Texas law, a shareholder of a for-profit corporation may bring a derivative suit under the Business Organizations Code. Tran v. Hoang, 481 S.W.3d 313, 316 (Tex. App.—Houston [1st Dist.] 2015, pet. denied) (citing Tex. Bus. Orgs. Code §§ 21.551-21.563). However, “[n]o parallel provision confers this status upon the members of a nonprofit who are not otherwise authorized to sue by the organization itself.” Id. Garcia’s former executive director position does not give him standing to assert these claims.

Id. (citing Swain v. Wiley College, 74 S.W.3d 143 (Tex. App.—Texarkana 2002, no pet.)). The court also held that the director failed to state a claim for breach of a fiduciary duty owed to him as an employee because Texas law does not recognize a fiduciary duty or a duty of good faith and fair dealing owed by an employer to an employee. Id. (citing Beverick v. Koch Power, Inc., 186 S.W.3d 145, 153 (Tex. App.—Houston [1st Dist.] 1997, pet. denied) and City of Midland v. O’Bryant, 18 S.W.3d 209, 216 (Tex. 2000)).

Recorded Webinar – Trustee Quandary: Criminal Acts By Beneficiaries With Or On Trust Property

Posted in Knowledge Library, Webinars

 

Recorded Webinar

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, discusses rising drug abuse issues and the possibility that a beneficiary of a trust may commit criminal activities on or with trust property.  This webinar provides suggestions for trustees in this situation and address several important concerns, including the duty of loyalty the trustee owes the beneficiary and its limits, the duty to properly manage trust assets, the duty to report criminal activity, and the duty to preserve evidence.

CLICK HERE FOR WEBINAR

Criminal Acts With Trust Property_Paper

Criminal Acts With Trust Property_Presentation

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

Texas Supreme Court Holds That Contractual Clauses That Waive The Statute Of Limitations May Be Enforceable

Posted in Cases Decided, Texas Supreme Court

In Godoy v. Wells Fargo Bank, N.A., a bank sued a guarantor to recover on a deficiency following a foreclosure sale. No. 18-0071, 2019 Tex. LEXIS 443 (Tex. May 10, 2019). The defendant guarantor alleged that any such claim was barred by the two-year statute of limitations. The lender argued that the guarantor waived the statute-of-limitations defense had been waived by provisions in the loan documents. The guarantor argued that a statute-of-limitations defense can only be waived if the language in the waiver is specific and for a defined period of time, and claimed that the waiver was indefinite and void as against public policy because it allowed the lender to bring suit at any time in the future. The lender argued that, by signing a broad waiver of all defenses, a party can waive all statute-of-limitations defenses indefinitely.

Regarding waivers of a statute of limitations defense, the Texas Supreme Court held:

In Simpson v. McDonald, we stated: “It appears to be well settled that an agreement in advance to waive or not plead the statutes of limitation is void as against public policy.” Since Simpson was decided, courts of appeals have built upon its holding to require that a waiver of a statute of limitations is void unless the waiver is “specific and for a reasonable time.” Indeed, the requirement that in order to be enforceable the statute-of-limitations waiver must be “specific” and “only for a reasonable time” was already understood to be part of the law at the time Simpson was decided.… Blanket pre-dispute waivers of all statutes of limitation are unenforceable, but waivers of a particular limitations period for a defined and reasonable amount of time may be enforced.

Id. The Court ruled that the clause in the case was sufficiently specific and was for a reasonable time and ruled for the lender.

Interesting Note: Fiduciaries are often in the position of a lender. For example, a trustee may make a loan to a beneficiary of a trust. Sometimes the trustee has to collect on that debt when the borrower defaults, and that fight can revolve around the statute of limitations. Indeed, a trustee never wants to sue its beneficiary for any reason, and delay is often present in these circumstances. For example, recently, a court of appeals held that the statute of limitations did not apply to bar a trustee’s claim on a promissory note under the facts of that case. DeRoeck v. DHM Ventures, LLC, No. 03-15-00713-CV,  2019 Tex. App. LEXIS 4721 (Tex. App.—Austin June 7, 2019, no pet. history). The Godoy opinion arms a trustee with one more tool. A trustee can have the note, guaranty agreement, or other similar document expressly state that the borrower waives the defense of the statute of limitations for a certain period of time (negotiate notes have a six year statute of limitations in Texas, and potentially, a waiver clause could extent that to eight years).

Fifth Circuit Affirmed Judgment Against A Company’s Former Officer For Breach Of Fiduciary Duty

Posted in Items of Interest

In Ebert v. Dejoria (In re Latitude Sols., Inc.), a bankruptcy trustee sued a company’s former officers for breach of fiduciary duty. No. 18-10382, 2019 U.S. App. LEXIS 13060 (5th Cir. April 30, 2019). The trustee asserted that LSI was a sham company set up to fail from the outset and a vehicle for the officers to participate in a securities-fraud scheme known as “pump-and-dump,” while the officers claimed LSI was legitimately founded to develop and commercialize technology capable of remediating contaminated water. LSI was a publicly traded company that began operating in 2009 and developed patented technology for treatment of wastewater in the oil and gas industry. LSI was a speculative venture that eventually filed for bankruptcy in November 2012. After a jury trial, the jury found that an officer, Cowan, breached his fiduciary duties to the company, and awarded damages. Cowan appealed.

The Fifth Circuit held that the trustee had to prove: 1) that a fiduciary relationship existed; 2) that Cohen breached his fiduciary duty to LSI; and 3) that Cohen’s breach resulted in injury to LSI or benefitted him. The first element was not in dispute, and Cohen’s fiduciary duty required a duty of loyalty and duty of care to LSI.

The trustee’s case began by alleging an elaborate pump-and-dump scheme of LSI’s stock and wide scale fraud, but by the time the case was submitted to the jury, her argument was based entirely on alleged improper conduct related to a contract, the Jabil contract. The court quoted from the trustee:

[T]he fraud, the improper conduct, was entering into the Jabil contract in May 2011. That’s what inevitably caused this company to collapse, that’s what caused the damages, and that was the impetus of why or purpose of this fraudulent scheme was to enter into that Jabil contract, make a big splash, make it seem like this was a legitimate business when it had no hope for survival.

Id. The court noted the following evidence to support the trustee’s claim:

Cohen took on Appel as an advisor and spoke to him daily; Cohen sent Appel non-public information, including lists of shareholders and stock sales on a weekly basis; Cohen dealt personally with Jabil; prior to the Jabil contract, Cohen had not told anyone at Jabil about Appel’s conviction for securities fraud manipulation; LSI had no idea whether the machinery from the Jabil contract would work; LSI had no business plan, or leads to monetize the equipment from the contract, but Cohen and Appel drafted LSI press releases together to generate good news and publicize it; and while still a director, Cohen sold his stock in LSI for $400,000 because he “needed to have some money in the bank.”

Id. The court noted that the officer contended that his conduct was protected by the business judgment rule:

In Texas, the “rule . . . protects corporate officers and directors, who owe fiduciary duties to [a] corporation[] from liability for acts that are within the honest exercise of their business judgment and decision.” Sneed v. Webre, 465 S.W.3d 169, 173 (Tex. 2015) (citation omitted). Negligent, unwise, inexpedient, or imprudent actions are protected so long as “the actions [are] ‘within the exercise of their discretion and judgment in the development or prosecution of the enterprise in which their interests are involved.’” Id. at 178 (quoting Cates v. Sparkman, 73 Tex. 619, 11 S.W. 846, 849 (Tex. 1889)) (footnote omitted). The jury charge, however, instructed the jury on both what is required to show a breach of fiduciary duty, along with the parameters of the business judgment rule. Given Cohen’s actions, a reasonable jury could weigh the evidence, consider the business judgment rule, but conclude that Cohen breached his fiduciary duty to LSI.

Id. The court then disagreed with an argument that the trustee had to have expert testimony regarding the alleged pump-and-dump securities fraud scheme. The court also found that there was sufficient evidence to support the jury’s damages findings. “Considering the jury found Cohen liable for a breach of fiduciary duty based on an alleged pump-and-dump scheme and improperly propping up LSI by entering the Jabil contract for nefarious purposes, there is legally sufficient evidence for a reasonable jury to award $400,000 in damages.” Id.

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