Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Court Denied Preliminary Injunction To Breach-Of-Fiduciary-Duty Plaintiff Due To Delay In Seeking Relief

Posted in Items of Interest

In Embarcadero Techs., Inc. v. Redgate Software, Inc., a former employer sued four former employees and their new employer for a number of claims, including breach of fiduciary duty and aiding and abetting breach of fiduciary duty arising out of alleged inappropriate competition and the use of trade secrets. No. 1:17-cv-444-RP, 2017 U.S. Dist. LEXIS 191317 (W.D. Tex. November 20, 2017). The plaintiff sought a preliminary injunction prohibiting the defendants from competing and contacting former customers. The district court denied the motion.

The court noted that a plaintiff seeking a preliminary injunction must establish that (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest. The court held that the plaintiff failed  to make a sufficient showing of irreparable harm “with respect to all of their claims primarily because of the extensive delay they have exhibited in seeking a preliminary injunction.” The court held:

A long delay by plaintiff after learning of the threatened harm also may be taken as an indication that the harm would not be serious enough to justify a preliminary injunction. Undue delay in seeking a preliminary injunction tends to negate the contention that the feared harm will truly be irreparable. There was a significant delay between the time that Plaintiffs discovered that Frignoca was employed by Redgate—the genesis of this lawsuit—and when they sought an injunction. Plaintiffs were aware that Frignoca was working at Redgate as early as November 11, 2016, when Michael Shea told Embarcadero and Idera CEO Randy Jacops that Frignoca was now working at Redgate. Although Jacops suggested at the hearing that he was not completely certain that this information was correct until a few months later, when he saw Frignoca’s name on a United Kingdom document listing members of boards of directors, Jacops testified that Shea had not given him inaccurate information in the past. Additionally, shortly thereafter, on November 17, 2016, Embarcadero acted upon this information by having an attorney send Frignoca a cease-and-desist letter reminding him of the agreement he signed while employed with Embarcadero. This action was filed on May 11, 2017, about six months later. Plaintiffs did not request a hearing on or file a brief in support of their application for a preliminary injunction until June 13. When the Court set a hearing for July 25, Plaintiffs sought a delay of the hearing to a date in early September, nearly five months after they became aware of all of the facts underlying their claims in this lawsuit.

If the harm Plaintiffs feared were indeed irreparable, it is unclear why they, knowing all of the primary facts forming the basis for their claims by April at the latest, filed the complaint on May 11, did not request a hearing or file a brief supporting their application for a preliminary injunction until June 12, and, once the Court set a hearing for July 25, requested that the hearing be moved to early September.

Id. Finding that there was no evidence if irreparable harm, the court denied the motion.

Interesting Note: Parties who want to seek equitable relief from a federal court should not slumber on their rights. They have a duty to seek equitable relief in a timely fashion. In the context of preliminary injunction applications, delay in seeking the extraordinary remedy of a preliminary injunction is an important factor bearing on the actual need for injunctive relief. Wireless Agents, LLC v. T-Mobile USA, Inc., Civ. No. 3:05-cv-0094, 2006 U.S. Dist. LEXIS 36590, 2006 WL 1540687, at *13 (N.D. Tex. June 6, 2006) (citing High Tech Med. Instrumentation v. New Image Indus., Inc., 49 F.3d 1551, 1557 (Fed. Cir. 1995)); Rimkus Consulting Grp., Inc. v. Cammarata, 255 F.R.D. 417, 438 (S.D. Tex. 2008) (denying injunctive relief after an alleged breach of a non-compete where movant unreasonably delayed to file suit, then requested multiple continuances to the injunction hearing). With respect to delay, the relevant period of delay begins when the plaintiff learned of the alleged violation. Fashion Week, Inc. v. Council of Fashion Designers of Am., Inc., No. 16-CV-5079 (JGK), 2016 U.S. Dist. LEXIS 107358, 2016 WL 4367990, at *3 (S.D.N.Y. Aug. 12, 2016). If a party unduly delays seeking injunctive relief, then logically, that party “demonstrates that there is no apparent urgency to the request for injunctive relief.” Wireless Agents at *15; High Tech Med. Instrumentation, 49 F.3d at 1557. Such delay is inapposite of immediate and irreparable harm. Polymer Techs., Inc. v. Bridwell, 103 F.3d 970, 974 (Fed. Cir. 1996). Delay, or too much of it, indicates that a suit or request for injunctive relief is more about gaining an advantage (either a commercial or litigation advantage) than protecting a party from irreparable harm. Pippin et al. v. Playboy Entm’t Group, Inc. et al., 2003 U.S. Dist. LEXIS 25415, *6 (M.D. Fla. 2003). Delay alone has been held to be evidence of a lack of the irreparable harm needed to obtain a preliminary injunction. Thus even if laches is not held to bar preliminary relief, the fact of delay may serve to bar relief on the ground that such delay indicates the absence of irreparable harm. Chase Manhattan Corp. v. N.W. Mut. Life, 1993 U.S. Dist. LEXIS 2271 (S.D.N.Y. 1993) (denying injunctive relief where movant waited six months to file suit and one year to seek injunctive relief after discovering alleged misappropriation). The use of delay in this context is a direct denial of a plaintiff’s claim for injunctive relief in that it confronts an element of the plaintiff’s claim.

Federal courts across the country have denied preliminary injunctions where the movants waited just a few months to seek such relief. Norman Bridge Drug Co. v. Banner, 529 F.2d 822, 826 (5th Cir. 1976) (Drug Enforcement Agency’s seven-month delay in seizing controlled substances from pharmacy was inconsistent with its assertion that imminent danger to the public health and safety required seizure without notice, so that the public interest element of preliminary injunction analysis did not favor such seizure); Badillo, et al. v. Playboy Entm’t Group, Inc., et al., 2004 U.S. Dist. LEXIS 8236, *7 (M.D. Fla. 2004) (denying motion for preliminary injunction in that irreparable harm not established where movant waited over nine months before moving to enjoin); Chase Manhattan Corp. v. N.W. Mut. Life, 1993 U.S. Dist. LEXIS 2271 (S.D.N.Y. 1993) (citing Lanvin Inc. v. Colonia, Inc., 739 F.Supp. 182, 192 (S.D.N.Y. 1990)) (“Thus, a delay in seeking preliminary injunctive relief, even if not amounting to laches barring such relief, demonstrates that speedy action to protect the erosion of movant’s rights is not needed and thus that movant is not entitled to a preliminary injunction in the first place. Parties cannot seek relief for the erosion of their rights if such erosion arose because they sat on those rights”) (citations omitted); Citibank, N.A. v. Citytrust, 756 F.2d 273, 276 (2nd Cir. 1985); Le Sportsac, Inc. v. Dockside Research, Inc., 478 F. Supp. 602, 609, 205 U.S.P.Q. (BNA) 1055, 1062 (S.D.N.Y. 1979) (one-year delay “undercuts the sense of urgency that ordinarily accompanies a motion for preliminary relief and suggests that there is, in fact, no irreparable injury”); High Tech Med. Instrumentation, Inc. v. New Image Indus., Inc., 49 F.3d 1551, 1557 (2nd Cir. 1995) (17 month delay meant no irreparable harm); Fisher Price, Inc. v. Well Made Toy Mfg., 25 F.3d 119, 124, 125 n.1 (2nd Cir. 1994) (indicating that three-month delay is unreasonable in seeking injunctive relief).

The impact of delay on a finding of irreparable harm is a different issue from the impact of delay for the equitable defense of laches. Laches would be an affirmative defense to a claim for injunctive relief. The defense of laches is an equitable doctrine that prevents a plaintiff from postponing the assertion of his or her rights. National Ass’n of Gov’t Employees v. City Pub. Serv. Bd., 40 F.3d 698, 708 (5th Cir. 1994). Laches is an inexcusable delay in taking legal action that prejudices the defendant. Westchester Media v. PRL USA Holdings, Inc., 214 F.3d 658, 668 (5th Cir. 2000). To succeed on a defense of laches, a defendant must show that plaintiff “delayed in asserting the rights at issue; that the delay is inexcusable; and that [the opposing parties] have suffered undue prejudice as a result of the delay.” Uptown Grill, L.L.C. v. Shwartz, 817 F.3d 251, 256 (5th Cir. 2016). “The period for laches begins when the plaintiff knew or should have known of the infringement.” Elvis Presley Enters. v. Capece, 141 F.3d 188, 205 (5th Cir. 1998). Laches specifically applies when a defendant incurs significant expenses and will suffer losses that could have been avoided if the plaintiff did not delay in the assertion of a claim. See Abraham v. Alpha Chi Omega, 708 F.3d 614, 625 (5th Cir. 2013) (finding significant investments in equipment, advertising, and employee salaries provided evidence of prejudice to support laches in a trademark infringement case); Compaq Comput. Corp. v. Ergonome, Inc., 210 F. Supp. 2d 845, 848 (S.D. Tex. 2002) (holding prejudice may be “economic, that is, loss of monetary investments, incurring damages that might otherwise have been avoided by an earlier suit”). For example, one court held that the failure to enforce rights after sending a cease-and-desist letter prejudices an opposing party as it implicitly indicates that the holder will not further attempt to enforce its asserted rights. H.G. Shopping Centeres L.P. v. Birney, 2000 U.S. Dist. LEXIS 21062, at *35–36 (S.D. Tex. Nov. 27, 2000) (mem. op.) (holding laches applies upon finding that the failure to pursue a legal claim after sending a cease and desist letter misled an IP infringer to believe further use would not be challenged); accord Conan Props. v. Conans Pizza, Inc., 752 F.2d 145, 152-53 (5th Cir. 1985).

Court Held That Retirement Benefits Belonged To The Worker’s Sister, Who Was Designated Beneficiary, And Not The Wife

Posted in Cases Decided, Texas Court of Appeals

In Estate of Gibson, a man named his sister as the beneficiary of his retirement plan in 1989. No. 06-17-00059-CV, 2017 Tex. App. LEXIS 9963 (Tex. App.—Texarkana October 13, 2017, no pet.). The man married in 2003, but failed to change the beneficiary designation. When he died in 2011, his wife, who was his executor, sued in probate court for a declaration that she was entitled to the benefits. The probate court disagreed, ordered that the benefits were not community property, and ordered that they were to go to the sister. The wife appealed.

The court of appeals disagreed with the probate court’s holding on separate property, but affirmed the judgment. The probate court’s conclusion of law stated that “[a]ny presumption that the TRS Plan Benefits were community property . . . w[as] rebutted by the proof, by clear and convincing evidence, of the beneficiary designation . . . .” Id. The wife argued that, because the plan benefits were in the possession of the man during their marriage, they were presumed to be community property and that the sister did not offer any evidence to overcome that presumption. The court of appeals held that “[d]eferred compensation plans, such as the TRS plan, are considered community property only to the extent they are attributable to the spouse’s employment during marriage.” Id. The court of appeals held that “that portion of the TRS plan benefits attributable to Gibson’s employment while he was married to Fox-Gibson is community property.” Id.

That did not end the inquiry. “Property passing at death pursuant to the terms of a contract, such as contributory retirement plans, are non-probate assets that are not subject to disposition by will or by the rules of intestate succession.” Id. (citing Valdez v. Ramirez, 574 S.W.2d 748, 750 (Tex. 1978)). The court held that the disposition of these assets is controlled by lifetime transfer rules. Id. While being earned by the employee spouse, the right to the benefits under the retirement plan is subject to the employee spouse’s sole management, control, and disposition. This includes the right to designate how the benefits will be paid, whether at retirement or in the event of the employee spouse’s death. “By statute, a TRS plan member may “designate one or more beneficiaries to receive benefits payable by [TRS] on the death of the member” and file it with TRS.” Id. (citing Tex. Gov’t Code Ann. § 824.101(a)).

Therefore, the probate court’s unchallenged findings of fact that “the TRS plan benefits are non-probate assets; that the TRS plan, to the extent it accrued benefits during the marriage of Gibson and Fox-Gibson, was the sole management community property of Gibson; that Gibson designated Ward as his plan beneficiary in June 1989; that the designation was never revoked, amended, or changed; and that at Gibson’s death the TRS plan benefits became payable to Ward” “are consistent with the Supreme Court’s holdings in Valdez.” Id. The court held that “since the probate court entered the proper judgment, its erroneous conclusion of law does not require reversal.” Id.

Federal Court Dismisses Breach of Fiduciary Duty Claim Because It Was Preempted By The Texas Uniform Trade Secret Act

Posted in Items of Interest

In Embarcadero Techs., Inc. v. Redgate Software, Inc., four employees left their employer and began working at a new company. No. 1:17-cv-444-RP, 2018 U.S. Dist. LEXIS 1902 (W.D. Tex. January 5, 2018). The plaintiffs sued the four former employees for breach of fiduciary duty and sued their new employer for aiding and abetting breach of fiduciary duty and also sued the defendants for misappropriation of trade secrets under the Texas Uniform Trade Secrets Act (“TUTSA”), Tex. Civ. Prac. & Rem. Code § 134A.001 as well as other claims. The defendants file a motion to dismiss the plaintiffs’ breach of fiduciary duty and aiding and abetting claims due to preemption by the TUTSA.

The TUTSA contains a preemption provision: “(a) Except as provided by Subsection (b), this chapter displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret. (b) This chapter does not affect: (1) contractual remedies, whether or not based upon misappropriation of a trade secret; (2) other civil remedies that are not based upon misappropriation of a trade secret; or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.” Tex. Civ. Prac. & Rem. Code § 134A.007.

The parties’ dispute centered on the meaning of “based upon misappropriation of a trade secret” in subsection (b)(2). The defendants argued that the breach of fiduciary duty claim is preempted by TUTSA because it was based on the same underlying facts as plaintiffs’ TUTSA claim—the improper taking of confidential business information—and is therefore “based upon misappropriation of a trade secret.” Id. Plaintiffs contended that their breach of fiduciary duty claim was not preempted because it alleged the improper taking of confidential information, and not trade secrets. The court stated:

After reviewing the reasoning in Super Starr and that of various other courts across the country applying Uniform Trade Secrets Act preemption, the Court finds that TUTSA’s preemption provision encompasses all claims based on the alleged improper taking of confidential business information. Without more, a breach of fiduciary duty claim cannot proceed. The underlying purpose of the TUTSA preemption provision is, as many courts have noted, to “prevent inconsistent theories of relief for the same underlying harm by eliminating alternative theories of common law recovery which are premised on the misappropriation of a trade secret.” To narrow the preemption’s application exclusively to information that qualifies as a trade secret under the statute would frustrate this purpose. Plaintiffs would like to have a TUTSA claim for all of their information taken by Frignoca that qualifies as a trade secret and a fiduciary duty claim for all of the information taken by Frignoca that does not qualify as a trade secret. But both claims stem from the same underlying harm—the taking of Plaintiffs’ confidential information. To allow multiple theories of relief for this same underlying harm would be to read the preemption provision too narrowly. Accordingly, the Court finds that TUTSA’s preemption clause applies to a breach of fiduciary duty claim that is based solely upon taking confidential information.

….

Plaintiffs would like for TUTSA to permit them a cause of action for every piece of information claimed to be improperly taken by Frignoca, whether or not it satisfies the statutory elements of a trade secret. This reading has been adopted by at least one federal district court in Texas. See AMID, Inc. v. Medic Alert Foundation U.S., Inc., 241 F. Supp. 3d 788, 826-27 (S.D. Tex. 2017) (finding an unfair competition claim based on confidential information not preempted by TUTSA). But given the purpose behind TUTSA’s preemption provision and the number of cases across the country applying Uniform Trade Secrets Act preemption and finding to the contrary, the Court finds that a breach of fiduciary claim based only on the improper taking of confidential information is preempted by TUTSA.

Here, Plaintiffs’ sole basis for their breach of fiduciary duty claim is the misappropriation of confidential business information. Plaintiffs state in their amended complaint that their breach of fiduciary duty claim is expressly based upon the misappropriation of trade secrets. (See Pls.’ Am. Compl., Dkt. 33, ¶ 38 (“Frignoca breached these fiduciary duties by accessing Plaintiffs’ valuable confidential and proprietary information and trade secrets for activities that were disloyal to, and harmful to, the interests of Plaintiffs. Frignoca took and used Plaintiffs’ confidential and proprietary information and trade secrets both during and after his employment with Plaintiffs for the benefit of his new employer.”)). Indeed, this language is strikingly similar to the wording of the claim for breach of fiduciary duty found preempted by TUTSA in Super Starr, which alleged the diversion of accounts and business “by using confidential and proprietary information owned by [the defendant] against the interests of [the defendant].” 531 S.W.3d at 843. Plaintiffs allege no other factual basis for the breach of fiduciary duty claim. The fact that some of the confidential information taken may not fit the statutory definition of trade secret does not change the outcome. Because Plaintiffs have not pleaded any facts unrelated to misappropriation of confidential information to support their claim for breach of fiduciary duty, the claim is preempted by TUTSA.

Id. The court also held that the aiding and abetting breach of fiduciary duty should be dismissed because it required the existence of a breach of fiduciary duty. Id.

Court Held That A Testator Was Partially Intestate And Did Not Leave His Real Property To His Niece Under His Will

Posted in Cases Decided, Texas Court of Appeals

In In re Estate of Neal, Larry Ronald Neal executed a will in which he bequeathed his personal property to his niece, Valorie Jean White, and omitted a devise to his daughter. No. 02-16-00381-CV, 2017 Tex. App. LEXIS 10541 (Tex. App.—Fort Worth November 9, 2017, no pet. history). The will stated: “I do give and bequeath to my niece, Valorie Jean (Neal) White, all my personal effects and all my tangible personal property, including automobiles, hangars, aircraft, fly-drive vehicles, patents, companies, and all other things owned by me at the time of my death, including cash on hand in bank accounts in my own name, or companies[‘] names, or securities, or other intangibles.” Id. The determinative question in the case was whether Larry also devised his real property to Valorie. The trial court found that he did, awarded Larry’s real property to Valorie, and determined that no part of Larry’s estate passed by intestacy. Larry’s daughter appealed, claiming that Larry died partially intestate and that she should inherit his real property.

The court of appeals set forth the rules for construing wills as follows:

The cardinal rule for construing a will is that the testator’s intent must be ascertained by looking at the language and provisions of the instrument as a whole, as set forth within its four corners. The question is not what the testator intended to write, but the meaning of the words he actually used. Terms used are to be given their plain, ordinary, and generally accepted meanings unless the instrument itself shows them to have been used in a technical or different sense. If possible, all parts of the will must be harmonized, and every sentence, clause, and word must be considered in ascertaining the testator’s intent. We must presume that the testator placed nothing meaningless or superfluous in the instrument. Where practicable, a latter clause in a will must be deemed to affirm, not to contradict, an earlier clause in the same will. Whether a will is ambiguous is a question of law for the court. A term is not ambiguous merely because of a simple lack of clarity or because the parties proffer different interpretations of a term. Rather, a will is ambiguous only when the application of established rules of construction leave its terms susceptible to more than one reasonable meaning. If the court can give a certain or definite legal meaning or interpretation to the words used, the will is unambiguous, and the court should construe it as a matter of law.

Id. (quoting Steger v. Muenster Drilling Co., 134 S.W.3d 359, 372-73 (Tex. App.—Fort Worth 2003, pet. denied)). The court went on to state that when construing wills that the court “cannot divorce text from context”:

The meaning of words read in isolation is frequently contrary to the meaning of words read contextually in light of what surrounds them. Given the enormous power of context to transform the meaning of language, courts should resist rulings anchored in hyper-technical readings of isolated words or phrases. The import of language, plain or not, must be drawn from the surrounding context, particularly when construing everyday words and phrases that are inordinately context-sensitive.

Id. (quoting In re Estate of Tyner, 292 S.W.3d 179, 182 (Tex. App.—Tyler 2009, no pet.)). “When the meaning of language used in a will has been settled by usage and sanctioned by judicial decisions, it is presumed to be used in the sense that the law has given to it, and should be so construed, unless the context of the will shows a clear intention to the contrary.” Id.

The court of appeals held that Larry first gave Valorie “all [his] personal effects,” which describes a subset of personal property. He then gave Valorie “all [his] tangible personal property, including automobiles, hangars, aircraft, fly-drive vehicles, patents, [and] companies,” which did not indicate an intent to devise real property. Id. He then gave Valorie “all other things owned by [him] at the time of [his] death, including cash on hand in bank accounts in [his] own name, or companies[‘] names, or securities, or other intangibles.” Id. The administrator argued that the “all other things” phrase devised Larry’s real property to Valorie. The court of appeals disagreed, stating:

Larry expressly linked “all other things” to bank account balances, which are intangible personal property; to securities, which are intangible personal property; and to “other intangibles,” a reference to the intangible personal property he had just described. Thus, we hold that without ambiguity, when read in context, the plain meaning of “all other things owned by me at the time of my death” is that Larry gave Valorie, without limitation, what remained of his personal property that was not encompassed in personal effects or tangible personal property, namely, his intangible personal property. Considering all three phrases together, nothing within Article II, the only provision within the will that purports to dispose of Larry’s property, expressly or implicitly refers to his real property. The natural, plain meaning of Article II is that the article applies to tangible and intangible personal property, not real property.

Id. The court stated that it would not apply the strong presumption against partial intestacy in the presence of an executed will: “The presumption ‘must yield,’ however, when the ‘the testator, through design or otherwise, has failed to dispose of his entire estate.’” Id.

Finally, the executor argued that the language that allows him to dispose of and convey “any property, real or personal,” in distributing the estate clearly indicates Larry intended real property to pass” under the will. Id. The court of appeals disagreed because the law permits an independent executor to exercise control over real property even when that property passes through intestacy, and Larry’s reference to “real or personal” property confirms that he knew the difference between those two types of property. Id. The court reversed the trial court’s judgment and held that the real property passed intestate to his daughter and not via Larry’s will to his niece.

Court Held That Will Contestant Expressly Waived Right To Appeal From Bench Trial

Posted in Cases Decided, Texas Court of Appeals

In Estate of Crawford, after the first day of a will contest, the parties’ attorneys announced on the record that they agreed that neither party would assert a claim for attorney’s fees via a good-faith finding and that they would not appeal the trial court’s judgment. No. 14-17-00703-CV, 2017 Tex. App. LEXIS 10554 (Tex. App.—Houston 14th Dist.] November 9, 2017, no pet. history). Later, the trial court signed a judgment, found the will submitted was valid and enforceable, and denied the contest. The judgment noted that:

Pursuant to the agreement of the parties read into the Court record on May 22, 2017, Defendant/Will Contestant Jimmy Crawford is prohibited from appealing this Judgment regarding the Court’s finding of an enforceable Will and is further prohibited from asserting any claims or actions against Judy Taylor, Lauren Crawford, Adam Crawford and/or Heath Crawford that arise or might arise from the filing and probating of the Will by the Executrix, Judy Taylor.

Id. Notwithstanding this statement, the contestant filed a notice of appeal and argued that the agreement to not appeal was not enforceable because it was not in writing and he fired his attorney. The court of appeals disagreed with the contestant/appellant and dismissed the appeal, stating:

An attorney may execute an enforceable agreement on behalf of the attorney’s client. An attorney’s authority to do so flows from the agency relationship that exists between the attorney and the client; the attorney’s acts and omissions within the scope of the attorney’s employment are regarded as the client’s acts. It is presumed that the attorney has actual authority conferred by the client to act on the client’s behalf, and that the attorney is acting in accordance with the client’s wishes. This presumption may be rebutted by affirmative proof that the client did not authorize the attorney to enter into an agreement, such as an affidavit from the client to that effect. “Every reasonable presumption is to be indulged in favor of a settlement made by an attorney duly employed, and especially so after a court has recognized such an agreement and entered a solemn judgment on it.” Appellant contends that because he fired his attorney the day after the agreement was announced in open court, the agreement is unenforceable. The record does not contain affirmative proof that appellant did not authorize his attorney to enter into the agreement. We conclude that these circumstances do not overcome the presumption that appellant’s attorney acted with actual authority in making the agreement read into the record in open court on appellant’s behalf. By the terms of the agreement, appellant agreed not to appeal the court’s judgment. The right to appellate review may be waived by agreement. Because appellant expressly agreed not to appeal from the judgment in this appeal, we will enforce the terms of his agreement.

Id.

Recorded Webinar – Fiduciary Litigation Update 2016-2017

Posted in Items of Interest, Knowledge Library, Webinars

Recorded Webinar

Thank you to everyone who joined us on December 12 for the webinar “Fiduciary Litigation Update.” The recorded webinar link is now available.  If you are interested in joining our next complimentary webinar, please send your request to dfjohnson@winstead.com.

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, discusses Texas cases that impact fiduciaries. Topics cover: mental anguish and punitive damages for breach of fiduciary duty, lost trust documents, venue for trust disputes, claims against trust property, release of trustees, public policy for voiding wills/trusts, tortious interference with inheritance, conspiracy/aiding and abetting breach of fiduciary duty, right to pre-suit depositions, will construction, and preliminary remedies.

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

CLICK HERE FOR WEBINAR

 

Court Holds That Lender Did Not Have Standing To Sue An Estate For A Deficiency After Electing That Its Claim Is A Preferred Debt And Lien

Posted in Cases Decided, Texas Court of Appeals

In In re Estate of Chapman, Peoples Bank (the Bank) conducted a non-judicial foreclosure sale of secured real estate owned by an estate and then sued the administrator of the estate in district court due to a deficiency remaining on the note after the foreclosure sale. No. 06-17-00051-CV, 2017 Tex. App. LEXIS 10478 (Tex. App.—Texarkana November 9, 2017, no pet. history). The Bank obtained a default judgment against the estate and then filed an action in the probate court seeking to remove the administrator and to enforce its claim against certain funds that might be payable to the estate in a separate lawsuit. After a hearing, the probate court ordered that any funds payable to the estate be paid first to the Bank. The administrator appealed, arguing that the Bank did not have standing to intervene in the lawsuit and obtain an order directing payment to itself that should have gone to the estate.

The court of appeals noted that to have standing in probate cases, the Texas Estates Code “requires the person to qualify as an ‘interested person,'” and an “interested person” is “an heir, devisee, spouse, creditor, or any other having a property right in or claim against an estate being administered.” Id. (citing Tex. Est. Code Ann. § 22.018(1)). The Bank asserted that it was an interested person because it was a creditor. The court of appeals described the process that a secured creditor must follow to assert a claim against an estate:

Under the Texas Estates Code, if a secured creditor does not elect to have its claim treated as a matured secured claim within a prescribed time period, the creditor has effectively elected that the claim will be a preferred debt and lien against the property securing the indebtedness “and the claim may not be asserted against other assets of the estate.” Explaining the effect of the predecessor Probate Code provisions, the Texas Supreme Court has explained that, when a secured creditor elects for its claim to be approved as a matured secured claim, upon any sale of the collateral, the creditor’s claim has priority over any other claim, except for claims for funeral and last illness expenses and for the expenses of administering the estate. Further, if the proceeds from the sale of the collateral did not pay off its note, the matured secured claimant can “collect[] the deficiency as an unsecured seventh-class creditor.” However, when the secured creditor elects to have its claim approved as a preferred debt and lien, the creditor has priority over all other claims on sale of the collateral, but the preferred debt and lien claimant “forfeit[s] any possibility of collecting a deficiency from the estate.”

In other words, the Texas Estates Code provides that, when a secured creditor elects to have its claim approved as a preferred debt and lien claim, if the independent executor defaults in the payment of the debt, the secured creditor may look only to its collateral for the satisfaction of any claim it may have against the estate. By foreclosing on the secured real estate, the Bank satisfied any debt or claim against the Chapman estate and did not have a deficiency claim as asserted in its notice of claim and motion to remove the Administrator. Therefore, the Bank’s pleadings do not support its contention that it had a claim against the Chapman estate.

By foreclosing on its collateral, the bank effectively satisfied its claim against the estate, and under Tex. Estates Code Ann. § 403.052 (2014), the bank was forbidden from asserting the claim against any other asset of the estate; by obtaining the deficiency judgment in the district court based on the amount remaining after foreclosure, and seeking to enforce that judgment in the probate court, the bank attempted to do indirectly what the Texas Estates Code forbid it from doing directly. Because neither the bank’s pleadings nor the record showed that it was an interested person, it lacked standing to sue on a deficiency.

Id. (internal citations omitted). The court then held that the deficiency judgment was void:

In this case, the Bank elected to have its claim allowed as a preferred debt and lien against its secured real property, thereby electing to look only to its collateral for the satisfaction of its claim. By foreclosing on its collateral, the Bank effectively satisfied its claim against the estate. Under the Texas Estates Code, the Bank was forbidden from asserting the claim against any other asset of the estate. By obtaining the Deficiency Judgment in the District Court based on the amount remaining after foreclosure, and seeking to enforce that judgment in the Probate Court, the Bank attempted to do indirectly what the Estates Code forbids it from doing directly. Under these circumstances, the Deficiency Judgment is void and does not constitute a claim against the estate.

Id. (internal citations omitted).

Presentation: Dealing With Policies and Protocols of Banking Institutions In Texas (State Bar of Texas, Fiduciary Litigation Course)

Posted in Items of Interest, Knowledge Library

On December 1, 2017, David F. Johnson presented his paper “Dealing with Policies and Protocols of Banking Institutions in Texas” to the State Bar of Texas’s 19th Annual Fiduciary Litigation Course in San Antonio, Texas. This presentation covered unique statutes that impact bank litigation, new statutes on vulnerable persons and durable powers of attorney, arbitration clauses, and the use of bank policies as evidence in litigation. The presentation and paper are attached below.

Dealing With Policies And Protocols Of Banking Institutions In Texas_PPT

Dealing With Policies And Protocols Of Banking Institutions In Texas_Paper

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

 

Webinar – Fiduciary Litigation Update 2016-2017 (Dec. 12 at 10:00 am CST)

Posted in Items of Interest, Knowledge Library, Webinars

David F. Johnson will present a forty-five minute webinar on Texas cases that impact fiduciaries. Some of the topics will include: mental anguish and punitive damages for breach of fiduciary duty, lost trust documents, venue for trust disputes, claims against trust property, release of trustees, public policy for voiding wills/trusts, tortious interference with inheritance, conspiracy/aiding and abetting breach of fiduciary duty, right to pre-suit depositions, will construction, and preliminary remedies.

Date: Tuesday, December 12, 2017
Time: 10:00 – 10:45 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson
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Court Holds That Contractual Relationship Does Not Create Fiduciary Duties

Posted in Items of Interest

In Na Ins. Servs. Holding Corp. v. Hilb Group of Ind., a federal magistrate recommended that the district court grant a defendant’s motion to dismiss a breach of fiduciary duty claim. No. 4:17CV600-ALM-KPJ, 2017 U.S. Dist. LEXIS 186544 (E.D. Tex. October 23, 2017). The plaintiff alleged that it entered into a contract whereby it would sell the defendant’s insurance products. The commissions for those sales would go to the defendant, who would then send the commissions to the plaintiff, who would then distribute the commissions to the selling agents. Plaintiff alleged that at some point, the defendant failed to pay the correct amount of commissions due under the terms of the contract. Plaintiff sued and asserted the following causes of action: declaratory judgment, breach of contract, breach of fiduciary duty, and theft.

Regarding the breach of fiduciary duty claim, the magistrate stated:

The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship between the plaintiff and defendant; (2) the defendant must have breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach must result in injury to the plaintiff or benefit to the defendant. Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App.—Dallas 2004), pet. denied. Contractual relationships do not typically give rise to fiduciary duties among the parties to the contract. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997). A fiduciary or confidential relationship may arise from the circumstances of a particular case; however, to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from, the agreement made the basis of the suit. Id. In the complaint, Plaintiff asserts no allegations to indicate that a prior fiduciary relationship had previously arisen between Plaintiff and Defendant, or between NALP and Defendant. Plaintiff only alleges that Defendant assumed rights under an existing contract between non-parties NALP and MAH. These bare allegations without more factual detail are insufficient to survive a motion to dismiss.

Id.  The magistrate therefore recommended dismissing breach of fiduciary duty claim.

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