Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

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

Posted in Cases Decided, Texas Court of Appeals

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

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

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

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


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

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

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

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

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

Posted in Cases Decided, Texas Court of Appeals

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

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

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

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


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

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

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


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

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

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

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


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

Posted in Cases Decided, Texas Court of Appeals

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

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

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

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

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


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

Posted in Cases Decided, Texas Court of Appeals

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

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

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

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

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

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

Posted in Knowledge Library, Webinars

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

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

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



Presentation-Temporary Injunctive Relief in Texas

Posted in Items of Interest, Knowledge Library

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

Temporary Injunctive Relief in Texas _Paper

Temporary Injunctive Relief in Texas _Slides


Court Holds That Attorney Did Not Have An Attorney-Client Relationship With A Company’s Directors And Shareholders

Posted in Cases Decided, Texas Court of Appeals

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

In Pennington v. Fields, the majority of shareholders of a closely held business forced the buy-out of the minority shareholder and litigation ensued. No. 05-17-00321-CV, 2018 Tex. App. LEXIS 6601 (Tex. App.—Dallas August 21, 2018, no pet. history). Later, the minority shareholder sued the majority shareholder’s attorney and alleged that he committed legal malpractice by, among other things, negligently advising the majority to engage in oppression and breaches of fiduciary duties and that he failed to advise the minority shareholder to protect his interests against the misconduct of the majority. The attorney filed a motion for summary judgment, alleging that he owed the minority shareholder no fiduciary duty because he never represented him, which the trial court granted. The plaintiff appealed.

Regarding the existence of the attorney-client relationship, the court of appeals stated:

The existence of a duty is an element of a legal malpractice claim. The attorney—client relationship is a contractual relationship that arises from a lawyer’s agreement to render professional services to a client. The agreement may sometimes be implied from the parties’ conduct. But whether an agreement is express or implied, there must be evidence that both parties intended to create an attorney—client relationship. One party’s subjective belief is insufficient to raise a question of fact to defeat summary judgment.

Id. (internal citations omitted). The plaintiff cited to two engagement letters between the company and the attorney, which referenced doing legal services “as required by the board of directors,” of which the plaintiff was one at the time. The court of appeals held:

These two agreements do not raise a fact issue regarding the existence of an attorney—client relationship between Pennington and Collins. Both agreements are between Advantage and Collins. A corporation is a legal entity separate and apart from the people who compose it, making it distinct from its stockholders, officers, and directors. Thus, rendering legal services to a corporation does not by itself create privity between the attorney and the corporation’s officers, directors, or shareholders. We disagree with Pennington’s argument that Collins was “clearly engaged to represent Advantage’s shareholders,” including Pennington. Pennington was not named in nor did he sign the agreement. The agreement was clearly between Collins and Advantage. Evidence of an agreement between Collins and Advantage is no evidence of an attorney—client relationship between Collins and one of Advantage’s directors or shareholders.


The plaintiff then contended that there was an implied agreement for legal representation. The court stated:

Although an attorney—client relationship may be implied from the actions of the parties, the parties must manifest an intention to create an attorney—client relationship. Whether there was a meeting of the minds must be based on an objective standard, examining what the parties did and said and not their alleged subjective states of mind… Both sides discuss the case of MacFarlane v. Nelson from the Third Court of Appeals. In that case, the court of appeals noted that when a lawyer represents a small entity with extensive common ownership and management, difficulties can arise in determining the existence of an attorney—client relationship. MacFarlane v. Nelson, No. 03-04-00488-CV, 2005 Tex. App. LEXIS 7681, 2005 WL 2240949, at *4 (Tex. App.—Austin Sept. 15, 2005, pet. denied) (mem. op.). The opinion listed several factors to consider in determining whether a lawyer for the entity also represents an individual owner: (1) whether the lawyer affirmatively assumed the duty of individual representation; (2) whether the owner had independent representation; (3) whether the lawyer previously represented the owner on a personal basis; (4) and whether the evidence demonstrates the owner’s reliance on or expectations of the lawyer’s separate representation. Id. An attorney—client relationship is not created with the individual owner simply because the owner discusses matters with the lawyer that are relevant to both the owner’s and the entity’s interests. Id.

Id. The plaintiff asserted that those factors weighed in favor of a finding that an attorney-client relationship existed, but the court disagreed:

Pennington met Collins on the day he was removed as Advantage’s president. Thus, Collins had not previously represented Pennington. Although Pennington did not have independent representation at that time, he retained his own legal counsel shortly after the June 27 meeting. Pennington asserts he believed Collins was “advising him and representing his interests” because Collins represented to Pennington that Pennington’s interests were not adverse to Fields’s and Phillips’s. He contends Collins admitted he was representing all three directors. To demonstrate this, he relies on Collins’s deposition testimony. In his deposition, Collins was asked if he thought he was helping Pennington. Collins stated he was trying to “find a solution for all of the parties to work together” and if it worked out, it would have helped Pennington. His goal was to help his clients, who were Fields and Phillips and later Advantage. Pennington’s summary judgment evidence does not show that Collins affirmatively assumed a duty to represent Pennington individually. Evidence Pennington had a subjective belief that Collins was representing him is insufficient. Whether there was a meeting of the minds about representation must be based on an objective standard, and there is no objective evidence Collins intended to create an attorney—client relationship with Pennington. An attorney—client relationship was not created between Collins and Pennington simply because Collins discussed matters with Pennington that were relevant to both Pennington’s and Advantage’s interests.

Id. The court held that the evidence did not raise a fact issue regarding the existence of an attorney-client relationship and affirmed the summary judgment motions.

Interesting Note: This case raises an important issue for attorneys who represent closely held businesses and the owners and operators of those businesses. The parties should be careful to properly document who the client is and the scope of the representation. Otherwise, there may be confusion as to whom the attorney owes fiduciary duties.

Certainly, an attorney can represent more than one party; in fact, that is very common. For example, a law firm may represent a shareholder and the company in an asset sale transaction. More commonly, a law firm may represent both spouses in the sale of real property, the leasing of minerals, or in estate planning. See, e.g., Estate of Arlitt v. Paterson, 995 S.W.2d 713, 720–721 (Tex. App.—San Antonio 1999, pet. denied) (an attorney may represent a couple as joint estate planning clients, in which case the attorney will owe a duty to both clients). So, a reasonably prudent attorney should identify who he or she represents and clarify that he or she does not represent a party when the attorney first communicates with a party regarding a legal matter. See Tex. R. Disc. C. 4.03 (“In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.”). Though not dispositive, a “trier of fact may consider the construction of a relevant rule of professional conduct that is designed for the protection of persons in the claimant’s position as evidence of the standard of care and breach of the standard.” William V. Dorsaneo, Texas Litigation Guide, § 322.02 (Citing Restatement (Third) of Law Governing Lawyers § 52, Comment f).

The downside to an attorney is that an attorney may inadvertently create an attorney-client relationship and be held to fiduciary duties that are not anticipated. To have an attorney-client relationship, there does not have to be a formal agreement. “While it is generally a relationship created by contract, an attorney-client relationship can be implied based on the conduct of the parties.” Sotello v. Stewart, 281 S.W.3d 76, 80-81 (Tex. App.—El Paso 2008, pet. denied) (citing Sutton v. Estate of McCormick, 47 S.W.3d 179, 182 (Tex. App.—Corpus Christi 2001, no pet.) and Mellon Service Co. v. Touche Ross & Co., 17 S.W.3d 432, 437 (Tex. App.—Houston [1st Dist.] 2000, no pet.)). “The attorney-client relationship may be implied if the parties by their conduct manifest an intent to create such a relationship.” Daves v. Commission For Lawyer Discipline, 952 S.W.2d 573, 577 (Tex. App.—Amarillo 1997, pet. denied). For the relationship to be established, “the parties must explicitly or by their conduct manifest an intention to create it. To determine whether there was a meeting of the minds, we use an objective standard examining what the parties said and did and do not look at their subjective states of mind.” Roberts v. Healey, 991 S.W.2d 873, 880 (Tex. App.–Houston [14th Dist.] 1999, pet. denied). “More specifically, an attorney-client relationship can be implied from the attorney’s gratuitous rendition of professional services.” Sotello v. Stewart, 281 S.W.3d at 80-81 (citing Perez v. Kirk & Carrigan, 822 S.W.2d 261, 265 (Tex. App.—Corpus Christi 1991, writ denied)).

It should also be noted that an attorney may be liable for not informing a party that it is not representing the party. Querner v. Rindfuss, 966 S.W.2d 661, 667-68 (Tex. App.—San Antonio 1998, writ denied) (recognizing that an attorney’s advice may give rise to an informal fiduciary duty even when no formal attorney-client relationship is formed). The Querner court stated:

Although an attorney hired by an executor generally represents the executor and not the beneficiary, an attorney for an executor may undertake to perform legal services as attorney for one or more beneficiaries. An attorney-client relationship may develop between the attorney retained by the executor and the beneficiaries either expressly or impliedly. Even absent an attorney-client relationship, an attorney may be held negligent for failing to advise a party that he is not representing the party. ‘If circumstances lead a party to believe that they are represented by an attorney,’ the attorney may be held liable for such a failure to advise.

Id.; see also Vinson & Elkins v. Moran, 946 S.W.2d 381 (Tex. App.—Houston [14th Dist.] 1997, pet. denied); Burnap v. Linnartz, 914 S.W.2d 142, 148 (Tex. App.—San Antonio 1995, writ denied).

So, to avoid confusion, the attorney should always have a written engagement letter that expressly identifies the client or clients, the attorney is not representing any other party not expressly mentioned, the scope of the engagement, and when the engagement will be terminated. Further, if appropriate, the attorney should follow up and orally tell those that he or she is not representing, but with whom the attorney often communicates, that he or she is not representing them and is only representing his or her client(s). Further, individuals should also seek clarification and ask an attorney who the attorney represents and whether the individual should retain his or her own attorney. Everyone should strive to be on the same page regarding who is the attorney and who is the client. This important issue may also impact who may claim the attorney-client privilege regarding communications.

The Texas Supreme Court Denies Review In A Case Awarding Mental Anguish Damages, Exemplary Damages, and Other Damages For A Trustee’s Breach Of Fiduciary Duty

Posted in Cases Decided, Texas Supreme Court

Today, the Texas Supreme Court denied review in Wells Fargo v. Militello, No. 05-15-01252-CV, 2017 Tex. App. LEXIS 5640 (Tex. App.—Dallas June 20, 2017, pet. denied). In Militello, the court of appeals affirmed a trial court’s judgment against a trustee regarding a beneficiary’s claims for breach of fiduciary duty, negligence, and fraud where the trial court awarded $1,328,448.35 past economic damages, $29,296.75 disgorgement of trust fees, $1,000,000.00 past mental anguish damages, $3,465,490.20 exemplary damages, and $467,374.00 attorney’s fees. The trustee appealed, alleging that the evidence was not sufficient to support many of the damages awarded but did not appeal the liability finding. The beneficiary agreed that the economic damages should be remitted (decreased) by around $340,000, which would also impact the exemplary damages award.

The court of appeals affirmed an award of damages based on Militello’s expenses associated with dealing with tax issues, including accountant fees and attorney’s fees, incurred due to Militello having to litigate tax issues caused by the trustee’s actions. The court of appeals also affirmed, in part, the award of mental anguish damages, holding that the $1 million award was not supported by the evidence and suggested a remittitur down to $310,000 based on evidence of other actual damages. The court of appeals also affirmed the award of exemplary damages because it concluded there was clear and convincing evidence to support the trial court’s express finding that the trustee was grossly negligent. The court did suggest a remittitur due to the decrease in economic damages.

This is an interesting case because it dealt with a relatively new area of potential damages: an award for expenses incurred by a beneficiary in remedying a breach of duty by a trustee. Further, though several cases in Texas hold that a plaintiff could recover mental anguish for a breach of fiduciary duty, few cases discuss the claim and the standards for such an award in a trustee/breach-of-fiduciary-duty case. Similarly, few cases discuss the standards for an exemplary damage award in a trustee/breach-of-fiduciary-duty case. So, it would seem that the issues in the case would be ripe for Texas Supreme Court review. The trustee has the right to file a motion for rehearing on the denial of its petition for review.


On Rehearing, Court Holds That Drafts Of Wills and Trust Documents Are Not Discoverable And Discusses The Attorney-Client Privilege

Posted in Cases Decided, Texas Court of Appeals

In In re Rittenmeyer, the mother of the decedent was the executor of his estate. No. 05-17-01378-CV, 2018 Tex. App. LEXIS 6647 (Tex. App.—Dallas August 22, 2018, original proceeding). The executor sued her son’s wife and his employer, alleging that the estate had the right to certain bonuses due to a pre-nuptial agreement. The decedent’s wife alleged that the pre-nuptial agreement may not be enforceable because of fraud, i.e. fair disclosure of property and financial obligations and fraudulent inducement to sign the agreement based on statements that the son made about having the wife cared for by a trust. The wife sought discovery of drafts of wills prepared after the will admitted to probate, trust documents where the decedent was a beneficiary, and communications reflecting the decedent’s intentions regarding providing for the wife.

The mother objected to the discovery requests and asserted that the documents were privileged due to the attorney-client privilege. The wife maintained that the documents were excepted from privilege by Texas Rule Evidence 503(d)(2), which provides that the attorney-client privilege does not apply “if the communication is relevant to an issue between parties claiming through the same deceased client.” Id. The trial court granted the wife’s motion to compel, and the mother filed a petition for writ of mandamus.

The court of appeals initially denied the mandamus and issued an opinion. In re Rittenmeyer, No. 05-17-01378-CV, 2018 Tex. App. LEXIS 2812 (Tex. App.—Dallas April 19, 2018, original proceeding), which was reported by this Blog. The mother filed a motion for rehearing, and the court issued a new opinion, granting the relief sought.

The Court noted that wife had the burden of establishing that the exception applied and stated the importance of the attorney-client privilege. The court stated:

For the exception to apply, the rule first requires that the information is “relevant to an issue between parties.” It is well-established that evidence is relevant if: “(a) it has any tendency to make a fact more or less probable than it would be without the evidence, and (b) the fact is of consequence in determining the action.” Texas courts have applied the rule 503(d)(2) exception when a party contends the information is relevant to a claim that a decedent lacked capacity to execute codicils or trust documents or was subject to undue influence.”

Id. The wife argued that she believed that the mother destroyed a subsequent will that her husband had executed, and that drafts of wills and related communications would be relevant to that topic. The court disagreed and stated:

Significantly, however, Chris could not have revoked the 2011 Will “except by a subsequent will, codicil, or declaration in writing, executed with like formalities, or by . . . destroying or cancelling the same or causing it to be done in his presence.” Documents showing Chris’s “present intent to change or revoke a testamentary instrument in the future cannot accomplish revocation of the instrument, nor [are they] evidence of the revocation.” Consequently, drafts of wills are not relevant to whether Chris executed a later will. For the same reason, drafts of wills are not relevant to Nicole’s claims that Hedy and Ashley destroyed “a later Will” that Chris executed.

Id. The court concluded that the wife did not establish that an exception applied to the attorney-client privilege regarding the draft wills and related correspondence.

The mother also challenged the trial court’s order requiring her to produce trust documents naming her son and the wife. The court ruled that any trust created by the mother and the father would not be within the exception because they were the settlors and not the husband. Therefore, the court of appeals’ new opinion granted mandamus relief for the mother.