Upcoming Webinar

Join us for a complimentary webinar that will discuss the different types of exculpatory clauses in trust documents, why they exist, the historical treatment of exculpatory clauses in Texas, Texas’s current statutory provisions that impact their enforcement, and current precedent impacting the enforcement of such clauses.

Date: Tuesday, February 23, 2021
Time: 10:00 – 11:00 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson

Continuing Education Credit Information:
This course is pending approval for MCLE and CTFA credit by the State Bar of Texas Committee on MCLE in the amount of 1 credit hour

Who should attend:
In-house counsel and other litigation contacts, trust officers, risk management contacts, and wealth advisors

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In In re Ruff Mgmt. Trust, the settlor and primary beneficiary sought and obtained a modification of a trust regarding who could name a successor trustee. No. 05-19-01505-CV, 2020 Tex. App. LEXIS 9467 (Tex. App.—Dallas December 3, 2020, no pet. history). The trust document provided that the settlor and her son would name a successor trustee. If they did not do so, then the settlor’s children would automatically be named co-trustees. The settlor had previously had a very contentious arbitration dispute with her son, and sought to modify the trust to have it state that she could, by herself, name a successor trustee. After the trial court granted that relief, the settlor’s other children (other than the son) appealed that decision. The court of appeals affirmed the modification, not because there was evidence to support it, but because the modification allegedly did not affect the appealing children’s rights. The court held that the children were automatically co-trustees as the mother and her son did not appoint a successor, and that they were still co-trustees. The court stated: “Therefore, as a practical matter, the order does not affect the Children’s rights. Under the Trust agreement’s express terms, the Children became co-trustees when Frost resigned, and the complained-of order does not remove them. Although Suzann may seek court approval to have the Children removed, she has not done so. In short, the only person whose rights are affected by this order is Mike, and he is not a party to this appeal.” Id.

The children also alleged that the modification was contrary to the trust’s purpose. The court disagreed:

The Trust agreement further provides that “[t]he Trustee shall distribute to Settlor so much of the net income and principal of the trust estate as the Trustee determines for Settlor’s Needs or Best Interests.” “Needs” are defined to include “health, support maintenance and education.” But “Best Interests” are as the trustee “deems advisable.” The Children argue that the modification is contrary to the Trust’s terms because it leaves Suzann “unassisted and unchecked relative to her expenditure of the Trust’s dwindling assets,” terminated the remainder beneficiaries’ rights, and removed the Children as co-trustees. We disagree. As previously discussed, the order at issue does not remove the Children as co-trustees. Likewise, it does not appoint Suzann trustee, or affect how the trustees makes distributions. The only Trust term affected by the order is who may participate in decisions concerning the appointment of a new trustee. Before modification, § 6.2 (A) required Suzann and Mike to act jointly to appoint a new trustee. This reflects the Trust’s intent that someone join Suzann in this decision to ensure that the Trust’s purpose and all beneficiaries are served. That person was Mike. The modification, however, simply substitutes the trial court for Mike by requiring Suzann to seek court approval for § 6.2 (A) decisions. Accordingly, because an objective third party is still participating in Suzann’s decisions, the modification is consistent with the Trust’s intent.

Id. Finally, the children alleged that the modification was improper because they were denied their rights to a jury trial. The court of appeals held that they waived the right to a jury trial by failing to assert that right before the first witness testified. Id. The court affirmed the order

In Denson v. JPMorgan Chase Bank, N.A., Sandra Denson went to her bank to deposit $730 when a $50 bill became temporarily stuck in the cash counting machine, causing the teller to miscount the amount of the deposit as $680. No. 01-19-00107-CV, 2020 Tex. App. LEXIS 9412 (Tex. App.—Houston [1st Dist.] December 3, 2020, no pet. history). Denson then cursed at the teller, calling her “stupid” and a “dumb bitch,” told her that she needed her “ass whipped,” and suggested that the teller needed to be retrained and that the teller was “going to keep that $50 for lunch.” The missing bill was discovered moments later, and Denson’s account was immediately credited with the full deposit amount of $730. In light of this and previous documented incidents during which Denson verbally abused bank employees, the bank decided to end its relationship with Denson and close her accounts. Denson then sued the bank for numerous claims, including breach of fiduciary duty. The trial court awarded summary judgment for the bank, and Denson appealed. The court of appeals affirmed:

[JPMorgan] asserted that it owed no duty to Denson regarding the accounts, which were general deposit accounts, because the relationship was only one of creditor/debtor. It further argued that the DAA authorizes the very actions that Denson claims constitute a breach of fiduciary duty. The burden shifted to Denson to come forward with more than a scintilla of evidence for each challenged element. Denson’s summary judgment response and “reply in opposition” wholly failed to address JPMorgan’s arguments. She did not address the challenged elements or point to any evidence supporting any of the challenged elements.… In her brief on appeal, Denson addresses only one of the challenged elements, stating in a conclusory manner that “the Bank owed Sandra Denson and Robert Denson a fiduciary duty.” As noted above, however, Denson did not make this argument to the trial court below. Denson also bore a burden in the trial court to identify evidence creating a fact issue on each challenged element of her breach of fiduciary duty claim. Having failed to carry the burden, she may not now make the argument for the first time on appeal… Having failed to carry her burden in response to JPMorgan’s no-evidence motion, the trial court did not err in granting summary judgment on her breach of fiduciary duty claim.

Id.

Selected by Texas Bar Today as a “Top 10 Blog Post”

In In the Estate of Hohmann, the decedent died without leaving an executed will, but his caretaker found a hand written document wherein the decedent stated his wishes for his property. No. 04-20-00237-CV, 2020 Tex. App. LEXIS 9216 (Tex. App.—San Antonio November 25, 2020, no pet. history). The decedent’s cousin filed an application to probate the hand written document as a written will, and an heir of the decedent filed an opposition. The trial court granted summary judgment for the opponent, and the applicant appealed.

The court of appeals held that generally, “a valid last will and testament must be: (1) in writing; (2) signed by the testator; and (3) attested by two or more credible witnesses.” Id. “However, a document that does not meet the attestation requirement may be admitted to probate as a holographic will if it “is handwritten entirely by the testator” and the testator “affix[ed] a signature or initial to the document to execute the instrument.” Id. The applicant contended “the handwritten phrase “R. Hohmann Estate” in the body of the written instrument constitutes more than a scintilla of evidence that Raymond signed that document.” Id. The court held that the hand-written document had not been signed and was not valid:

Bobby notes that “Texas courts have been lenient concerning the location and form of a ‘signature’” on a holographic will. “However, while the signature may be informal and its location is of secondary importance, it is still necessary that the maker intend that his name or mark constitute a signature, i.e., that it expresses approval of the instrument as his will.” Here, we see no evidence in the written instrument indicating that Raymond intended the phrase “R. Hohmann Estate” to serve as his signature. That phrase is used only once, in connection with a purported bequest to three named individuals. When the written instrument is viewed as a whole, the phrase “R. Hohmann Estate” bears no apparent connection to any of its other provisions. Because nothing in the written instrument indicates the phrase “R. Hohmann Estate” expresses Raymond’s approval of that document as a whole, these facts are distinguishable from the authority upon which Bobby relies.

Id. (internal citations omitted).

In Cohen v. Newbiss Prop., a limited partner sued a transferee of real property for aiding and abetting breach of fiduciary duty and conspiracy to breach fiduciary duty. No. 01-19-00397-CV, 2020 Tex. App. LEXIS 9190 (Tex. App.—Houston [1st Dist.] November 24, 2020, no pet. history). While the limited partners were suing the general partner, the defendants/transferees bought the property. The trial court granted the transferees’ motion for summary judgment, and the limited partners appealed.

The court of appeals held that “to prevail on his claim that the purchasers aided and abetted Dilick’s breach of fiduciary duty, Cohen must show that (1) Dilick committed a breach of fiduciary duty to Cohen, (2) the purchasers knew that Dilick’s conduct constituted a breach of his fiduciary duties, (3) the purchasers intended to assist Dilick in breaching his fiduciary duty, (4) the purchasers gave Dilick assistance or encouragement in his breach, and (5) the purchasers’ assistance or encouragement was a substantial factor in causing the tort.” Id.

The court of appeals affirmed the summary judgment on the aiding and abetting claim as there was not sufficient evidence to support multiple elements:

In this case, it is undisputed that the purchasers were not involved in anything Dilick and or his related companies may have done before the sales. Cohen’s only allegation is that the purchasers were aware of his dispute (and lawsuit) with Dilick before they purchased their properties. Cohen brought forth no evidence that either Sandcastle or NewBiss were aware of what Dilick intended to do with the proceeds from the sales. While the purchasers’ knowledge of the underlying lawsuit between Cohen and Dilick might deprive them of a bona fide purchaser defense in a title dispute, such knowledge, without more, is no evidence that they intended to assist Dilick in committing a tort by diverting the proceeds from the sales for his personal use, assisted and encouraged Dilick in doing so, or that their actions were a substantial factor in Dilick’s breach of his fiduciary duty. Because Cohen failed to come forth with evidence raising a genuine issue of material fact as to these three elements of his claim that the purchasers aided and abetted Dilick’s breach of fiduciary duty, the trial court properly granted the purchasers’ no-evidence summary judgment on this claim.

Id. The court also affirmed the dismissal of the conspiracy claim as there was no evidence of a meeting of the minds:

We agree with the purchasers’ argument that knowledge of the lawsuit between Cohen and Dilick is no evidence that there was any “meeting of the mind” between the purchasers and Dilick regarding Dilick’s intention to breach his fiduciary duty to Cohen. … [w]hile the purchasers may have known about Dilick’s breach of fiduciary duty to Cohen via the lawsuit, their only involvement was to pay fair market value for the properties. In this case, the underlying tort of breach of fiduciary duty was that Dilick sold the properties to pay off his own personal loan. However, there is simply no evidence that the purchasers had any knowledge about what Dilick intended to do with the proceeds once he sold the properties. In a civil conspiracy case, “the parties must be aware of the harm or wrong at the inception of the combination or agreement,” or there is no meeting of the minds. “One ‘cannot agree, either expressly or tacitly, to the commission of a wrong which he knows not of.'” Absent evidence that the purchasers knew that Dilick intended to misappropriate the proceeds of the sale for his own personal use, they cannot have, as a matter of law, intended to facilitate that wrong.

Id.

In Tomlinson v. Khoury, a judgment creditor discovered that the judgment debtor was the trustee and beneficiary of a spendthrift trust and brought a turnover action to invalidate the trust. No. 01-19-00183-CV, 2020 Tex. App. LEXIS 8427 (Tex. App.—Houston [1st Dist.] October 27, 2020, no pet. history). The judgment creditor was never sued in his capacity as trustee of the trust, but the trial court invalidated the trust and ordered a turnover of trust assets. The court of appeals reversed, holding that the trustee was a necessary party to the proceeding concerning a trust. The court of appeals held:

In Texas, a trust is not a separate legal entity, but instead is a fiduciary relationship between the trustee and the trust property. Texas law is clear that in all suits “by or against a trustee and all proceedings concerning trusts,” the trustee is a necessary party to the action. And where the trustee is not properly before the court as a result of service, acceptance, waiver of process, or an appearance, Texas courts have invalidated orders that grant relief against a trust.

….

Accordingly, in light of the limited purpose of the Turnover Statute—which is merely to ascertain whether an asset is in the possession or control of a judgment debtor and not to determine third parties’ substantive rights—and the underlying due process and personal-jurisdiction concerns, we conclude that the requirement that a trustee must be added as a party to actions involving purported trust assets, including the invalidation of a trust, is even more appropriate in the context of turnover proceedings.6Link to the text of the note We therefore apply it here. Like the order at issue in Asche, the two modified, post-judgment turnover orders in this case expressly invalidate the Trust and order the parties to treat the Trust assets as Tomlinson’s personal property—without first having the Trust, through its trustee, properly before the trial court. But this is undoubtedly a proceeding concerning a trust in which the trustee was a necessary party. Although Tomlinson was before the court in his individual capacity, he was not sued, and did not appear, in his capacity as trustee of the Trust. Therefore, he, as trustee of the Trust, was not “properly before the trial court as a result of service, acceptance, or waiver of process, or an appearance.” Under these circumstances, we conclude the trial court lacked jurisdiction over the Trust and thus erroneously invalidated the Trust, and erroneously required the turnover of Trust assets, in its February 12 and 14, 2019 modified turnover orders. Accordingly, we hold that these two post-judgment, modified turnover orders are void.

Id.

In Ochse v. Ochse, a mother created a trust that provided that the trustee was authorized to make distributions to her son and the son’s spouse. No. 04-20-00035-CV, 2020 Tex. App. LEXIS 8922 (Tex. App.—San Antonio November 18, 2020, no pet. history). At the time of the trust’s execution, the son was married to his first wife, but he later divorced and married his second wife. The son’s children then sued the son for breaching fiduciary duties as trustee and joined their mother, the first wife, as a necessary party. The first wife and the son then filed competing summary judgment motions on whether the first wife or the second wife was the son’s “spouse” as referenced in the trust agreement. The trial court ruled the second wife was the correct beneficiary at the time of the suit, and the first wife appealed.

The second wife and the son argued that the use of the term “spouse” in the trust document did not mean the first spouse’s actual name, but that the term meant a class of whoever was currently married to the son. The court of appeals disagreed:

Cynthia responds that in the absence of an expression of contrary intent, a gift to a “spouse” of a married person must be construed to mean the spouse at the time of the execution of the instrument and not a future spouse. Thus, Cynthia contends that the terms “primary beneficiary’s spouse” and “son’s spouse” in the Trust solely referred to her because she was William’s spouse at the time the Trust was executed. We agree. Carol and William’s interpretation would ask this Court to view “spouse” as a status or class gift. This interpretation is inconsistent with Texas precedent regarding the use of classes in trust instruments and wills and, further, fails to harmonize all provisions of the irrevocable Trust before us. A class gift is defined as a gift of an aggregate sum to a body of persons uncertain in number at the time of the gift. Here, it was possible to identify a specific “spouse” at the time the Trust was executed in 2008. In contrast, there is no evidence Amanda intended the term “spouse” to encompass a body of persons uncertain in number at the time of the gift. Therefore, we hold that the grantor’s use of the term “spouse” referred to William’s spouse at the time the Trust was executed, and did not refer to a class of persons including future spouses.

Id. (internal citations omitted). The court therefore reversed and rendered for the first wife.

In Ec & Sm Guerra v. Phila. Indem. Ins. Co., an insured sued its property insurer for breach of fiduciary duty and other claims arising from the insurer’s denying a claim for wind damage and disagreeing with an appraiser’s report. SA-20-CV-00660-XR, 2020 U.S. Dist. LEXIS 196735 (W.D. Tex. October 21, 2020). The insurer filed a motion to dismiss, which the court granted. The court stated:

Under Texas law, “there is no general fiduciary duty between an insurer and its insured.” Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85, 96 (Tex. App.—Hou. [1st Dist.] 2003, pet. denied). “Proving the existence of a fiduciary relationship requires more than just evidence of prior dealings between the parties, and subjective trust by one party in another does not establish the requisite confidential relationship.” Id. “To impose an informal fiduciary relationship in a business transaction, the requisite special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit.” Id. Plaintiff has not presented facts that establish a duty owed by PIIC prior to, or apart from the issue at suit. Plaintiff’s allegations rely on the fact that the PIIC holds a percentage of funds from the premium to pay out claims. However, even accepting this as true, this does not establish that a relationship existed prior to or part from Plaintiff’s and PIIC’s insurance agreement. The Court cannot reasonably infer that Defendant owed Plaintiff a fiduciary duty because the Amended Complaint does not set forth any facts to establish the existence of an informal relationship with PIIC’s agents outside of the policy. Wayne Duddlesten, Inc., 110 S.W.3d 85 at 96. Even if an insurance contract’s mere existence created a fiduciary duty, the Amended Complaint’s factual allegations do not give the Court any indication of how Defendant allegedly breached this heightened duty. Accordingly, the claim for breach of fiduciary duty must be dismissed.

Id.

In In re Equinor Tex. Onshore Props., a trustee filed two cases against different defendants in the same county regarding a royalty dispute under oil and gas leases. No. 05-20-00578-CV, 2020 Tex. App. LEXIS 8042 (Tex. App.—Dallas October 7, 2020, original proceeding). Because the second-filed case was transferred to Dallas County, Texas, lacked dominance over the interrelated case still pending in the original venue, the court of appeals held that mandamus relief was appropriate to order the trial court to grant the plea in abatement. In conjunction with this ruling, the court resolved whether Dallas was an appropriate venue for the second case. The court held:

Equinor objected to venue in Dallas County by denying “Plaintiffs [sic] venue facts and contention that venue is appropriate under Tex. Prop. Code § 115.002 because this action is not brought pursuant to Tex. Prop. Code § 115.011 [sic] which pertains to administration of a trust.” The objection rests on a misreading of the property code and the statutory language. “[S]ection 115.001 was amended in 2007 to provide that a district court has original and exclusive jurisdiction over not only all proceedings concerning a trust, but also ‘all proceedings by or against a trustee.'” Thus, Equinor’s challenge failed to demonstrate improper venue pursuant to the property code. In addition, although Equinor argues to this Court that Bank failed to establish it maintained more than a mailbox or a designated agent or representative in Dallas County, in the trial court Equinor failed to specifically challenge Dallas County as Bank’s principal place of business. Properly pleaded venue facts “shall be taken as true unless specifically denied by the adverse party.” “Specifically denied” requires denial of the challenged fact; not just denial of unspecified facts upon which the plaintiff relies for its venue choice. Equinor failed to specifically deny Bank’s venue facts, and accordingly those facts are presumed true. Bank’s third amended petition pleaded facts sufficient to lay venue in Dallas County pursuant to the property code.

Id.

In this presentation, David F. Johnson will cover Texas cases dealing with fiduciary issues over the survey period. Some of the issues involve the removal of a trustee, the resignation of a trustee, the production of confidential trust information, the attorney/client communication privilege, right to jury trial in trust modification proceedings, the standing of contingent remainder beneficiaries to sue over trust administration issues, trust protector liability, will construction issues, and the statute of limitations.

This course has been approved for 1 MCLE and 0.25 Ethics credit hours by the State Bar of Texas Committee on MCLE. This course has also been approved for CTFA Credit, attendees will be able to self-report once the webinar has concluded.

Please contact rbond@winstead.com if you need assistance with receiving your credit.

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