In In the Estate of Mahaffey, a testatrix executed a new will nine days before she died of cancer. No. 04-19-00122-CV, 2019 Tex. App. LEXIS 11171 (Tex. App.—San Antonio December 27, 2019, no pet. history). A niece offered the new will for probate. The new will cut out one of the testatrix’s sisters, and the sister offered an earlier will for probate and argued that the testatrix did not have mental capacity to execute the new will. The court granted summary judgment for the proponent of new will holding, as a matter of law, that the testatrix had mental capacity. The sister appealed.

The court of appeals held that:

A testator has testamentary capacity at the time of execution if she possesses sufficient mental ability to: (1) understand the effect of making the will and the general nature and extent of her property, (2) know the testator’s next of kin and the natural objects of her bounty, and (3) have sufficient memory to assimilate the elements of executing a will, to hold those elements long enough to perceive their obvious relation to each other, and to form a reasonable judgment as to them.

Id. As evidence in support of her traditional motion for summary judgment, the niece attached a copy of the new will and self-proving affidavit; the drafting attorney’s affidavit; the partial deposition testimony of the drafting attorney; and the partial deposition testimony of a witness to the execution of the new will. Based on this evidence, the court held that the niece met her initial summary judgment burden of establishing the elements of testamentary capacity:

Based on the foregoing summary judgment evidence, Mahaffey understood that the effect of the October 25th Will would result in the disinheritance of Crosswhite. On October 24 and 25, 2016, Mahaffey maintained that her intention was to remove Crosswhite from her will. Mahaffey knew the general nature and extent of her property. Mahaffey knew she had cash at her house, a home in Kerrville, and various bank accounts. Mahaffey managed her own banking and financial accounts. Mahaffey knew her next of kin and the natural objects of her bounty. Mahaffey provided Jesko with her family history, the date of her husband’s death, and that her family consisted of her sisters and her late husband’s great-niece. Mahaffey understood that she was disposing of assets to her sisters and the remainder to DeBellis. Mahaffey had “sufficient memory to assimilate the elements of executing a will, to hold those elements long enough to perceive their obvious relation to each other, and to form a reasonable judgment as to them.” There was not a noticeable difference in Mahaffey’s mental abilities or sharpness. Mahaffey handled her business like always and managed her own banking and financial accounts. Jesko always found Mahaffey to be of sound mind. Mahaffey was clear in her directions to Jesko regarding how she wanted her assets distributed and was able to articulate her reasons for making such a disposition. Throughout the will execution ceremony, Mahaffey was alert, lucid, and had all her mental faculties. She actively participated in the will execution ceremony by reading the documents one by one, signing each page, and expressing her satisfaction with the will’s provisions.

Id.

The court noted that the burden then shifted to the sister to create a genuine issue of material fact on mental capacity. The court noted that the sister presented no direct evidence that the testatrix lacked testamentary capacity on the day the will was executed. However, the court stated: “[e]vidence of incompetency at other times can be used to establish incompetency on the day the will was executed.” Id. A “testator’s mental condition on the date of execution may be inferred ‘from lay opinion testimony based upon the witnesses’ observations of [the] testator’s conduct either prior or subsequent to the execution.’” Id. The court held:

Thus, to successfully challenge a testator’s [testamentary] capacity with circumstantial evidence from time periods other than the day on which the will was executed, the will contestants must establish (1) that the evidence offered indicates a lack of testamentary capacity; (2) that the evidence is probative of the testator’s capacity (or lack thereof) on the day the will was executed; and (3) that the evidence provided is of a satisfactory and convincing character . . . .

“Importantly, the number of witnesses supporting or contesting the question of testamentary capacity is irrelevant. The only question [to resolve for a traditional summary judgment] is whether the testimony raised a question of fact.”

Id.

The sister provided some evidence showing that the testatrix was mentally incompetent both before and after the date the new will was executed. The court described that evidence as the testatrix having intense pain and taking medication for such pain. She was tired all the time, irrational, and forgetful to the point where she would easily lose her train of thought. The day before the will execution, her pain was so unbearable that she requested emergency assistance for pain relief. At some point later in the evening, she demanded all of her pills so that she could commit suicide. The testatrix refused hospice care and that included her pain relief medications, which showed that she was not thinking rationally because of the tremendous pain she was in. The day after the will execution, she again requested emergency assistance for pain relief. She  reported to EMS that she had been without her pain relief medications for twenty-four hours and her hospice care had been terminated the day before. Medical records showed that she experienced periods of confusion, fatigue, forgetfulness, and was prone to poor judgment. The court held that:

Viewing the evidence in the light most favorable to Crosswhite and indulging every reasonable inference in her favor, there is some evidence that Mahaffey, as a result of her declining condition, suffered from periods of confusion, a failing memory, and irrational decision-making on the day preceding and the day after the will’s execution. Given evidence of Mahaffey’s declining condition, periods of confusion, and worsening memory, there is a genuine issue of material fact as to whether Mahaffey possessed sufficient mental ability to understand the effect of making the October 25th Will…

Id. The court reversed the summary judgment and remanded for further proceedings.

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In Taylor v. Rothstein Kass & Co., PLLC, a receiver for a failed business sued an accounting firm for various claims arising from the auditor’s issuance of a clean audit report concerning certain financial statements. No. 3:19-CV-1594-D , 2020 U.S. Dist. LEXIS 17435 (N.D. Tex. February 4, 2020). The defendants filed a Federal Rule of Civil Procedure 12(b)(6) motion, challenging the claims.

The court addressed the receiver’s claim for aiding and abetting breach of fiduciary duty and held that such a claim did not exist in Texas:

The Supreme Court of Texas “has not expressly decided whether Texas recognizes a cause of action for aiding and abetting.” First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 224 (Tex. 2017) (citing Juhl v. Airington, 936 S.W.2d 640, 643 (Tex. 1996)). But the Fifth Circuit has held that “no such claim [for aiding and abetting] exists in Texas” and has refused to recognize such a claim because “a federal court exceeds the bounds of its legitimacy in fashioning novel causes of action not yet recognized by state courts.” In re DePuy Orthopaedics, Inc., Pinnacle Hip Implant Prod. Liab. Litig., 888 F.3d 753, 782, 781 (5th Cir. 2018) (citing Johnson v. Sawyer, 47 F.3d 716, 729 (5th Cir. 1995)). Taylor’s contention that DePuy’s holding is limited to “aiding and abetting strict liability” is misplaced. In a case that did not involve strict liability claims, the Fifth Circuit has recently reaffirmed that “aiding and abetting does not exist as a distinct cause of action in Texas.” Midwestern Cattle Mktg., L.L.C. v. Legend Bank, N.A.,     Fed. Appx.    , 2019 U.S. App. LEXIS 36966, 2019 WL 6834031, at *7 (5th Cir. Dec. 13, 2019) (per curiam) (citing DePuy, 888 F.3d at 781-82) (analyzing aiding and abetting claims as applied to checking-kiting scheme). For this reason, the court dismisses Taylor’s aiding and abetting claims. See Garcia v. Vasilia, 2019 U.S. Dist. LEXIS 147243, 2019 WL 4105559, at *11 (S.D. Tex. Aug. 29, 2019) (granting motion for summary judgment on aiding and abetting fraud claim “because no such claim has been expressly recognized by the State of Texas.”).

Id. at *14. The court then held in a footnote, however, that Texas does recognize a knowing participation claim:

Although the Supreme Court of Texas has not explicitly recognized a cause of action for aiding and abetting, it does recognize a cause of action for knowing participation in a breach of a fiduciary duty. “[W]here a third party knowingly participates in the breach of duty of a fiduciary, such third party becomes a joint tortfeasor with the fiduciary and is liable as such.” Meadows v. Hartford Life Ins. Co., 492 F.3d 634, 639 (5th Cir. 2007) (quoting Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (Tex. 1942)); see also Milligan, Tr. for Westech Capital Corp. v. Salamone, 2019 U.S. Dist. LEXIS 143577, 2019 WL 4003093, at *1 (W.D. Tex. Aug. 23, 2019) (collecting cases that explain that “Texas appellate courts have routinely recognized the existence of a cause of action for knowing participation in the breach of fiduciary duty.”). “To establish a claim for knowing participation in breach of fiduciary duty, a plaintiff must assert: (1) the existence of a fiduciary relationship; (2) that the third party knew of the fiduciary relationship; and (3) that the third party was aware that it was participating in the breach of a fiduciary relationship.” D’Onofrio v. Vacation Publ’ns, Inc., 888 F.3d 197, 216 (5th Cir. 2018) (quoting Meadows, 492 F.3d at 639).

 

Id. at n. 4.

The court then addressed whether the receiver’s claim for knowing participation in breach of fiduciary duty was really just a malpractice claim and violated the anti-fracturing rule. The court held that the receiver pled more than a simple negligence-type claim and asserted affirmative misconduct that justified a separate claim for participation in breaches of fiduciary duties:

These pleaded facts demonstrate that Taylor has not simply recast, and thereby fractured, a professional negligence claim based on what Rothstein Kass allegedly failed to do. Instead, Taylor’s allegations that Rothstein Kass issued an unqualified opinion despite knowledge of its falsity exceed what is typically characterized as negligence, and, at a minimum, give rise to a separate claim for participation in breaches of fiduciary duties. See, e.g., Bonner v. Henderson, 2001 Tex. App. LEXIS 2024, 2001 WL 301581, at *5 (Tex. App. Mar. 29, 2001, pet. denied) (not designated for publication) (holding that “allegations that [the auditor] prepared annual audit reports that falsely presented . . . the financial condition of [the trust]” and that the auditor “concealed . . . illegal compensation received by [the trustee]” were sufficient to “support a claim that [the auditor] assisted [the trustee] in breaching his fiduciary duties.”). Because Taylor’s allegations based on the issuance of the clean audit present “a viable basis” for “pursuit of a negligence-based malpractice claim” based on what Rothstein Kass allegedly failed to do, and for “a separate breach of fiduciary duty or fraud claim,” the court concludes that Taylor’s claims do not violate the prohibition on fractured claims. Huerta, 498 Fed. Appx. at 427. The court therefore declines to dismiss Taylor’s claims for participation in tortious conduct based on the anti-fracturing rule. See, e.g., Mia Reed & Co. v. United Fire & Cas. Co., 2012 U.S. Dist. LEXIS 89412, 2012 WL 2499932, at *6 (S.D. Tex. June 27, 2012) (declining to apply anti-fracturing rule to grant Rule 12(b)(6)-based motion to dismiss where defendants did not “establish[] that [plaintiff’s] breach of fiduciary duty claim must, as a matter of law, be brought as a negligence claim.”).

Id. at *18-19.

In Energy Transfer Partners, L.P. v. Enter. Prods. Partners, L.P., one pipeline company sued another for breaching a duty of loyalty that allegedly arose out of a partnership to develop a pipeline. No. 17-0862, 2020 Tex. LEXIS 46 (Tex. January 31, 2020). One company decided to no longer work with the other and developed the project with other parties. The company that was left out of the project sued. The jury answered “yes” to the question whether the parties had created a partnership to market and pursue a pipeline project and found that the defendant company had not complied with its duty of loyalty. The jury found that $319,375,000 would compensate the plaintiff for its damages and that the value to the defendant of the benefit gained as a result of its misconduct was $595,257,433. The trial court reduced the disgorgement award to $150 million and otherwise rendered judgment on the verdict for plaintiff for a total of $535,794,777.40 plus postjudgment interest. The court of appeals reversed and rendered for the defendant, holding that the parties had not created a partnership. The plaintiff appealed to the Texas Supreme Court.

The Texas Supreme Court first reviewed the Texas statutes that discuss the creation of a partnership. The Court stated:

Section 152.051(b) of the TBOC states that “an association of two or more persons to carry on a business for profit as owners creates a partnership, regardless of whether: (1) the persons intend to create a partnership; or (2) the association is called a ‘partnership,’ ‘joint venture,’ or other name.” Under § 152.052(a), [f]actors indicating that persons have created a partnership include the persons’: (1) receipt or right to receive a share of profits of the business; (2) expression of an intent to be partners in the business; (3) participation or right to participate in control of the business; (4) agreement to share or sharing: (A) losses of the business; or (B) liability for claims by third parties against the business; and (5) agreement to contribute or contributing money or property to the business. Section 152.003 provides that “[t]he principles of law and equity and the other partnership provisions supplement this chapter unless otherwise provided by this chapter or the other partnership provisions.”

Id. The Court held that it had never squarely addressed whether parties’ freedom to contract for conditions precedent to partnership formation can override the statutory default test, in which intent is a mere factor.

The Court held that an agreement not to be partners unless certain conditions are met would ordinarily be conclusive on the issue of partnership formation as between the parties. However, the Court also noted: “Performance of a condition precedent, however, can be waived or modified by the party to whom the obligation was due by word or deed.” Id. The Court did not have to address the exception to the rule, however, because it agreed with the court of appeals that the plaintiff had waived the issue as it was required either to obtain a jury finding on waiver or to prove it conclusively, and it had done neither.

The Court then provided guidance on what evidence a court should look at in determining the intent to form a partnership:

Courts should only consider evidence not specifically probative of the other factors. In other words, evidence of profit or loss sharing, control, or contribution of money or property should not be considered evidence of an expression of intent to be partners. Otherwise, all evidence could be an “expression” of the parties’ intent, making the intent factor a catch-all for evidence of any of the factors, and the separate “expression of intent” inquiry would be eviscerated. Similarly, where waiver of a condition precedent to partnership formation is at issue, only evidence directly tied to the condition precedent is relevant. Evidence that would be probative of expression of intent under § 152.051(a)—such as “the parties’ statements that they are partners, one party holding the other party out as a partner on the business’s letterhead or name plate, or in a signed partnership agreement” —is not relevant. Nor is evidence that would be probative of any of the other § 152.052(a) factors. Otherwise, a party in ETP’s position could claim waiver in virtually every case.

Id. Regarding waiver of the contract’s terms, the Court held:

ETP has not pointed to any evidence that Enterprise specifically disavowed the Letter Agreement’s requirement of definitive, board-of-directors-approved agreements or that Enterprise intentionally acted inconsistently with that requirement. ETP’s challenge to the court of appeals’ holding is premised on the argument we have already rejected that the effect of the conditions precedent in the Letter Agreement was subsumed in Question 1. The only record evidence that ETP points to—the parties held themselves out as partners and worked closely together on the Double E project—is not relevant to the issue of waiver of definitive, board-approved agreements.

Id. The Court concluded that because parties can conclusively negate the formation of a partnership through contractual conditions precedent, the evidence showed that the parties did so in this case and that there was no evidence that the defendant waived those conditions. The Court affirmed the court of appeals’s judgment for the defendant.

In In re Estate of Klutts, a son held his mother’s power of attorney when he assisted in securing a new 2008 will, which enhanced his share of the estate. No. 02-18-00356-CV, 2019 Tex. App. LEXIS 11063 (Tex. App.—Fort Worth December 19, 2019, no pet. history). Siblings attempted to probate an earlier will and alleged that the new will was the product of undue influence. The son filed a traditional and no-evidence motion for summary judgment on the undue influence claim, which the trial court granted. The siblings appealed.

The court of appeals held that the son’s fiduciary status shifted the burden to him to overcome the resulting presumption of unfairness. The court stated:

The person challenging the validity of an instrument generally bears the burden of proving the elements of undue influence by a preponderance of the evidence. This general rule applies to transfers from parent to child. Such transfers, standing alone, do not give rise to a presumption of undue influence, leaving the burden with the party challenging the transaction’s validity. This is because “nothing is more common or natural than for a [parent] to bestow gifts upon his [or her] children.” However, in cases involving fiduciary relationships, a presumption of undue influence may arise, requiring the person receiving the benefit to prove the fairness of the transaction. And “a power of attorney creates an agency relationship, which is a fiduciary relationship as a matter of law.” Thus, an attorney in fact, as a fiduciary, carries the burden of proof to overcome the presumption of unfairness that arises in self-dealing transactions… [I]n situations involving self-dealing in fiduciary or confidential relationships, a presumption of unfairness arises that shifts both the burden of production and the burden of persuasion to the fiduciary seeking to uphold the transaction.

Id.

The court held that because the burden of proof shifted to the son, the trial court was precluded from granting his no-evidence motion on that basis:

It is undisputed that Michael held his mother’s power of attorney when he assisted in securing the 2008 will, which enhanced his share of the estate and upon which he relies in attempting to show that she revoked the 2007 will. As the holder of his mother’s power of attorney, Michael was her fiduciary. Thus, Michael’s fiduciary status shifted the burden to him to overcome the resulting presumption of unfairness. Because the burden of proof shifted to Michael, the trial court was precluded from granting his no-evidence motion on that basis.

Id. (citing Estate of Danford, 550 S.W.3d 275, 282 (Tex. App.—Houston [14th Dist.] 2018, no pet.) and distinguishing Fielding v. Tullos, No. 09-17-00203-CV, 2018 Tex. App. LEXIS 7136, 2018 WL 4138971, at *7 (Tex. App.—Beaumont Aug. 20, 2018, no pet.)).

The court of appeals also reversed the trial court’s grant of a traditional summary judgment for the son. The court held that the son’s proof did not fall within the category of conclusive proof that allowed only one logical inference:

To discharge his summary judgment burden, Michael offered four witnesses—Donald Barley, Sandra Barley, Marti Luttrall, and Linda Solomon—who each attested to Wynell’s capacity at the time the 2008 Will was executed. However, because a factfinder was not bound to believe Michael’s four witnesses, his proof does not fall within the category of conclusive proof that allows only one logical inference. Nor does any admission as to Wynell’s testamentary capacity appear in this record. Because Michael failed to present conclusive proof of Wynell’s testamentary capacity, he fell short of the legal standard that would entitle him to a traditional summary judgment, and the burden never shifted to Jan, Donna, and Paula to produce any evidence at all. Accordingly, the trial court erred when it granted Michael’s motion for traditional summary judgment, and we sustain Jan, Donna, and Paula’s third issue.

Id.

Interesting Note: This case raised a very interesting procedural question concerning a defendant’s ability to file a no-evidence motion for summary judgment on a breach of fiduciary duty claim arising from a self-interested transaction. Such a transaction shifts the burden of production to the defendant to prove that the transaction was fair. The court held that the defendant could not file a no-evidence motion on such a claim because the initial burden of proof was on the defendant. Historically, a plaintiff could not file a traditional motion for summary judgment on a self-interested transaction based on a presumption of unfairness because courts held that a traditional summary judgment non-movant never had the initial burden to produce evidence. Those historical cases, however, were decided before Texas created a no-evidence motion in 1997. Presumably, a plaintiff could now file a no-evidence motion on such a claim because the initial burden would be on the defendant, which is allowed under such a motion.

This case also posed an interesting issue under the new statutes dealing with powers of attorneys. The son argued that the 2017 Durable Power of Attorney Act made “case authority cited by his siblings arising under the former statute” (former Texas Probate Code § 489B(a), now Estates Code Section 751.101) no longer applicable. He conceded on appeal, however, that the statutory amendment “applies only to [powers of attorney] executed after the effective date” of September 1, 2017 and did not apply to the power of attorney document at issue in the case, which was executed under the older statute. Notwithstanding, the siblings argued that the 2017 Act would impose on the son the duty to preserve the principal’s estate plan.

In Hawes v. Peden, a client sued a deceased attorney’s estate and her law firm in district court due to the attorney failing to finish the representation before her death. No. 06-19-00053-CV, 2019 Tex. App. LEXIS 10841 (Tex. App.—Texarkana December 16, 2019, no pet. history). The law firm filed a plea to the jurisdiction, alleging that the statutory probate court where the attorney’s estate was pending had exclusive jurisdiction over the dispute. The trial court agreed, and the plaintiff appealed the dismissal order.

The court of appeals discussed the statutory probate court’s jurisdiction:

“In a county in which there is a statutory probate court, the statutory probate court has original jurisdiction of probate proceedings.” Tex. Estates Code Ann. § 32.002(c). “In a county in which there is a statutory probate court, the statutory probate court has exclusive jurisdiction of all probate proceedings . . . .” Tex. Estates Code Ann. § 32.005(a). “A cause of action related to the probate proceeding must be brought in a statutory probate court unless the jurisdiction of the statutory probate court is concurrent with the jurisdiction of a district court as provided by Section 32.007 or with the jurisdiction of any other court.” Tex. Estates Code Ann. § 32.005(a). The term “probate proceeding,” as used in the Texas Estates Code, has been defined to include “an application, petition, motion, or action regarding the probate of a will or an estate administration, including a claim for money owed by the decedent.” Tex. Estates Code Ann. § 31.001(4) (Supp.); see Tex. Estates Code Ann. § 22.029 (“probate matter,” “probate proceedings, “proceeding in probate,” and “proceedings for probate” are synonymous and include matters or proceedings related to decedent’s estate). “[A] matter related to a probate proceeding includes . . . an action for trial of the right of property that is estate property.” Tex. Estates Code Ann. § 31.002(a)(6), (c)(1) (defining matters “related to a probate proceeding”).

Id. The court then concluded that the plaintiff sought damages against the estate that would, if awarded, be satisfied from property of the estate. Id. (citing In re Hannah, 431 S.W.3d 801, 809-810 (Tex. App.—Houston [14th Dist.] 2014, orig. proceeding) (because suit sought damages which would be satisfied from defendant’s individual assets rather than from estate property, claims were not related to probate proceeding)). The court affirmed the dismissal and concluded: “Because the petition names Peden’s estate as a defendant and seeks damages directly from the estate, the petition is properly classified as a matter related to the probate proceeding. As such, the trial court was correct to dismiss the lawsuit because the Harris County Probate Court No. 1 had exclusive jurisdiction over this matter.” Id.

Plaintiffs in civil litigation often seek punitive or exemplary damages. “Exemplary damages” means any damages awarded as a penalty or by way of punishment but not for compensatory purposes. Exemplary damages are neither economic nor noneconomic damages. “Exemplary damages” includes punitive damages. Tex. Civ. Prac. & Rem. Code Ann. § 41.001(5). A jury may only award exemplary damages if the claimant proves, by clear and convincing evidence, that the harm resulted from: (1) fraud; (2) malice; or (3) gross negligence. Id. at § 41.003(a). Under Texas case law, exemplary damages may be proper in breach of fiduciary duty cases where the plaintiff can prove by clear and convincing evidence that the action arose by actual fraud, malice, or gross negligence. Murphy v. Canion, 797 S.W.2d 944, 949 (Tex. App.—Houston [14th Dist.] 1990, no pet.); see also Lesikar v. Rappeport, 33 S.W.3d 282, 311 (Tex. App.—Texarkana 2000, pet. denied); Natho v. Shelton, No. 03-11-00661-CV, 2014 Tex. App. LEXIS 5842, 2014 WL 2522051, at *2 (Tex. App.—Austin May 30, 2014, no. pet.).

A jury must consider multiple factors in determining the amount of an exemplary damages award: “(1) the nature of the wrong; (2) the character of the conduct involved; (3) the degree of culpability of the wrongdoer; (4) the situation and sensibilities of the parties concerned; (5) the extent to which such conduct offends a public sense of justice and propriety; and (6) the net worth of the defendant.” Tex. Civ. Prac. & Rem. Code Ann. § 41.011. So, a jury may consider the defendant’s net worth (size) in determining the amount of damages to assess as exemplary damages. A jury may determine that a larger exemplary damages award may be appropriate to punish a larger defendant in order to dissuade future similar bad conduct.

One issue that arises is whether a plaintiff is entitled to discovery into the net worth of a defendant by simply pleading an exemplary damages claim. Many defendants, especially individuals and private entities, understandably consider that type of information to be confidential or even trade secrets. Those defendants have argued that before they have to turn over that type of sensitive information, there should be some evidentiary showing that there is some merit to the exemplary damages claim.

More than twenty-five years ago, the Texas Supreme Court expressly rejected an argument that net-worth discovery should be limited until plaintiffs show that they are entitled to exemplary damages. Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex. 1988) (orig. proceeding), overruled on other grounds by Walker v. Packer, 827 S.W.2d 833, 842 (Tex. 1992) (orig. proceeding). Under prior Texas law, a party seeking discovery of net-worth information did not need to satisfy any evidentiary prerequisite, such as making a prima facie showing of entitlement to exemplary damages, before discovery of net worth was permitted. In re Jacobs, 300 S.W.3d 35, 40-41 (Tex. App.—Houston [14th Dist.] 2009, orig. proceeding [mand dism’d]); In re House of Yahweh, 266 S.W.3d 668, 673 (Tex. App.—Eastland 2008, orig. proceeding); In re Garth, 214 S.W.3d 190, 192 (Tex. App.—Beaumont 2007, orig. proceeding [mand. dism’d]); In re W. Star Trucks US, Inc., 112 S.W.3d 756, 763 (Tex. App.—Eastland 2003, orig. proceeding); Al Parker Buick Co. v. Touchy, 788 S.W.2d 129, 131 (Tex. App.—Houston [1st Dist.] 1990, orig. proceeding).

On June 19, 2015, Senate Bill 735 was signed into law changing the way net-worth discovery will be conducted going forward. Act of June 19, 2015, 84th Leg., R.S., ch. 1159, § 2, 2015 Tex. Sess. Law Serv. 3923, 3923 (West 2015). The bill, codified as Section 41.0115 of the Civil Practice And Remedies Code, requires a party seeking net worth discovery to first demonstrate and obtain a finding from the trial court that there is a substantial likelihood of success on the merits of a claim for exemplary damages. See Tex. Civ. Prac. & Rem. Code § 41.0115(a) (West Supp. 2015).

The provisions of section 41.0115 did not become effective until September 1, 2015, and apply only to an action filed on or after that effective date. See Act of June 19, 2015, 84th Leg., R.S., ch. 1159, § 3, 2015 Tex. Sess. Law Serv. 3923, 3923 (West 2015). Parties have requested that courts apply this statute retroactively, but at least one court has expressly denied that request. In re Michelin N. Am., Inc., No. 05-15-01480-CV, 2016 Tex. App.  LEXIS 2467 (Tex. App.—Dallas March 9, 2016, original proceeding). Further, the Texas Supreme Court denied a petition for review seeking a similar holding after full briefing on the merits. In re Robinson Helicopter Co., 2016 Tex. App. LEXIS 378 (Tex. May 13, 2016). So, at this point, the only authority is that Section 41.0115 is not retroactive and only applies to cases filed after September 1, 2015. Of course, this issue becomes less important as time passes and fewer cases that were filed before 2015 exist.

Texas Civil Practice and Remedies Code Section 41.0115 provides:

(a) On the motion of a party and after notice and a hearing, a trial court may authorize discovery of evidence of a defendant’s net worth if the court finds in a written order that the claimant has demonstrated a substantial likelihood of success on the merits of a claim for exemplary damages. Evidence submitted by a party to the court in support of or in opposition to a motion made under this subsection may be in the form of an affidavit or a response to discovery.

(b) If a trial court authorizes discovery under Subsection (a), the court’s order may only authorize use of the least burdensome method available to obtain the net worth evidence.

(c) When reviewing an order authorizing or denying discovery of net worth evidence under this section, the reviewing court may consider only the evidence submitted by the parties to the trial court in support of or in opposition to the motion described by Subsection (a).

(d) If a party requests net worth discovery under this section, the court shall presume that the requesting party has had adequate time for the discovery of facts relating to exemplary damages for purposes of allowing the party from whom net worth discovery is sought to move for summary judgment on the requesting party’s claim for exemplary damages under Rule 166a(i), Texas Rules of Civil Procedure.

Tex. Civ. Prac. & Rem. Code Ann. § 41.0115.

This provision sets up several steps for a plaintiff to obtain net worth information. First, the plaintiff must file a written motion requesting that information. The statute does not state what is required in this motion. The statute does not appear to require that the motion be verified. Presumably, it can be a simple one page motion stating a request for the net worth discovery, and then the movant can elaborate at the hearing. An advocate may choose to have a longer motion that describes the facts, claims, evidence, and explains how the evidence establishes a substantial likelihood of success on the merits.

Second, the plaintiff must set a hearing and provide notice of same to the defendant. There is no express requirement for how much notice should be provided. Certainly, many courts are so busy that a short notice period will not be possible. The Texas Rules of Civil Procedure provide that there should, generally, be at least three-days’ notice of a hearing.

Third, the statute provides that the opposing party can file evidence. The statute does not require a written response though it requires a written motion. So, a party opposing such a motion can forego a written response and simply show up at the hearing and offer evidence and argument to contradict the plaintiff’s motion. However, once again, an advocate may decide to prepare and file a detailed response that contradicts the plaintiff’s claims and evidence.

Fourth, there must be a hearing where the plaintiff must “demonstrate[] a substantial likelihood of success on the merits of a claim for exemplary damages.” Id. The statute does not describe what this standard means or provide other guidance. The Texas Civil Practice and Remedies Code provides that, at trial, a party has to establish a claim for exemplary damages by clear and convincing evidence. Clear and convincing evidence is “proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.” In re J.O.A., 283 S.W.3d 336, 345 (Tex. 2009). This is an intermediate standard, falling between the preponderance standard of ordinary civil proceedings and the reasonable doubt standard of criminal proceedings. State v. Addington, 588 S.W.2d 569, 570 (Tex. 1979). While the proof must weigh heavier than merely the greater weight of the credible evidence, there is no requirement that the evidence be unequivocal or undisputed. Id. This burden of proof should be compared to a preponderance of the evidence. Under a preponderance of the evidence burden, the fact finder must decide if the plaintiff’s allegations meet the legal standard of the preponderance of the evidence meaning that they are “more likely true than not.” Essentially, the fact finder must be convinced that it is at least 51% likely that the plaintiff’s allegations are correct.

However, Legislative history indicates that the phrase “substantial likelihood is not intended to be the same as the clear and convincing standard” nor is it even a “preponderance standard.” The intent is that, for the “the plaintiff to be entitled to net worth discovery, it’s only necessary that the claimant present a prima facie case, but not to demonstrate that he is certain to win.” The plaintiff need only raise “questions on the merits to make them fair ground for more deliberative investigation.” A similar standard may be the “probably right to recovery” standard that is required for a court to issue temporary injunctive relief. To show a probable right of recovery, an applicant need not establish that it will finally prevail in the litigation, rather, it must only present some evidence that, under the applicable rules of law, tends to support its cause of action. Camp v. Shannon, 162 Tex. 515, 348 S.W.2d 517, 519 (Tex. 1961); Butnaru v. Ford Motor Co., 84 S.W.3d 198, 211, (Tex. 2002); IAC, Ltd. v. Bell Helicopter Textron, Inc., 160 S.W.3d 191, 197 (Tex. App.—Fort Worth 2005, no pet.); Glattly v. Air Starter Components, Inc., 332 S.W.3d 620, 638 (Tex. App.—Houston [1st Dist.] 2010, pet. denied); Gatlin v. GXG, Inc., No. 05-93-01852-CV, 1994 Tex. App. LEXIS 4047 (Tex. App.—Dallas April 19, 1994, no pet.); 183/620 Group Joint Venture v. SPF Joint Venture, 765 S.W.2d 901, 904 (Tex. App.—Austin 1989, writ dism’d). To establish a probable right of recovery, a party need only show that a bona fide issue exists as to its right to ultimate relief. Gatlin, 1994 Tex. App. LEXIS at 4047; 183/620 Group Joint Venture, 765 S.W.2d at 904; Camp v. Shannon, 162 Tex. 515, 348 S.W.2d 517, 519 (1961). The common law clothes the trial court with broad discretion in determining whether an applicant has met its burden. Recon Exploration, Inc. v. Hodges, 798 S.W.2d 848, 851 (Tex. App.—Dallas 1990, no writ).

What type of evidence can a trial court consider in making this determination? The statute provides that this finding may be supported or opposed by “an affidavit or a response to discovery.” So, parties may file affidavits, interrogatory responses from the opposing party, responses to requests for admission, documents, deposition transcripts, etc. The statute, however, does not limit evidence to affidavits and discovery products. A party can potentially call a witness and have live sworn testimony.

Fifth, if the court grants the discovery, the trial court must file a written order that “that the claimant has demonstrated a substantial likelihood of success on the merits of a claim for exemplary damages.” So far there is only one case that has applied Section 41.0115: In re WTG Fuels, Inc., No. 11-19-00390-CV, 2020 Tex. App. LEXIS 280 (Tex. App.—Eastland January 13, 2020, original proceeding). In that case, a trial court allowed the net worth discovery and signed an order that stated:

BE IT REMEMBERED that on this the 25th day of September, 2019, came on to be heard Plaintiffs’ Motion to Conduct Net Worth Discovery for Gross Negligence Claims Against Defendant WTG Fuels, Inc., and the Court having reviewed the pleadings and heard the arguments of counsel finds that said motion should be GRANTED on a limited basis. IT IS THEREFORE ORDERED that Plaintiffs’ Motion to Conduct Net Worth Discovery for Gross Negligence Claims Against Defendant WTG Fuels, Inc. is GRANTED. However, it is limited to discovery of the Balance Sheet of WTG for the current year and the preceding year only.

Id. There was no express finding of that the claimant had demonstrated a substantial likelihood of success on the merits of a claim for exemplary damages. The court of appeals granted mandamus relief to reverse the order, stating: “In the October 9, 2019 order, Judge Satterwhite did not make a finding that Plaintiffs had demonstrated a substantial likelihood of success on the merits of their claim for gross negligence. In the absence of that statutorily required finding, Judge Satterwhite could not exercise discretion to order discovery of WTG’s net worth.” Id. So, the court held that the statute means what it says, the trial court must expressly state that there is a substantial likelihood of success on the merits. There are no implied findings that support the order. However, it should be noted that the statute does not require the trial court to discuss the evidence and explain why the plaintiff met the statutory burden.

If a trial court authorizes net worth discovery, the court’s order will require the defendant to produce the net worth evidence. Tex. Civ. Prac. & Rem. Code Ann. § 41.0115. Section 41.001 of the Texas Civil Practice and Remedies Code defines net worth as: “the total assets of a person minus the total liabilities of the person on a date determined appropriate by the trial court.” Id. at § 41.001. Generally, parties are entitled to only documents that show the current net worth of a defendant. See In re Michelin N. Am., Inc., No. 05-15-01480-CV, 2016 Tex. App.  LEXIS 2467 (Tex. App.—Dallas March 9, 2016, original proceeding); In re Ameriplan Corp., No. 05-09-01407-CV, 2010 Tex. App. LEXIS 31, 2010 WL 22825, at *1 (Tex. App.—Dallas Jan. 6, 2010, orig. proceeding) (mem. op.) (trial court erred in ordering production of corporation’s balance sheets for two prior years and its current and prior income statements because documents did not reflect current net worth).

The statute provides that the court’s order may only authorize use of the least burdensome method available to obtain the net worth evidence. Tex. Civ. Prac. & Rem. Code Ann. § 41.0115. This could include tax returns, financial statements, or Securities and Exchange Commission filings. To the extent the information is already public, a defendant objecting to a request for net worth information could plausibly defeat such a motion by arguing that the publicly available information is equally available to both parties and therefore defendant is not required to produce documents or information in response to request. Potentially, a trial court may permit broader discovery in cases in which it is necessary to provide an accurate reflection of the defendant’s net worth. See In re Brewer Leasing, Inc., 255 S.W.3d 708, 713 (Tex. App.—Houston [1st Dist.] 2008, orig. proceeding [mand. denied]) (permitting additional net worth discovery where trial court implicitly found that previously provided unaudited balance sheets did not adequately represent the net worth of the relator).

There is no express right to appeal a trial court’s decision on a motion. Because there is no immediate relief by an interlocutory appeal, one court granted mandamus relief from a trial court’s order granting net worth discovery under the statute. In re WTG Fuels, Inc., No. 11-19-00390-CV, 2020 Tex. App. LEXIS 280 (Tex. App.—Eastland January 13, 2020, original proceeding). The statute does provide that when there is appellate review, the reviewing court may “consider only the evidence submitted by the parties to the trial court in support of or in opposition to the motion.” Tex. Civ. Prac. & Rem. Code Ann. § 41.0115(c). So, a party on appeal should not be able to cite to other evidence in the record to support or attack the trial court’s order. This will require the parties to refile any evidence that they want the court of appeals to consider in conjunction with the motion and response. It is unclear whether the statute abrogates a trial court’s ability to take judicial notice of its own file or a party’s right to incorporate evidence on file with the court in its motion for net worth discovery or response thereto.

Finally, the party seeking net worth discovery via this motion should be prepared to defend a no-evidence or traditional motion for summary judgment on its exemplary damages claim. The statute provides: “the court shall presume that the requesting party has had adequate time for the discovery of facts relating to exemplary damages for purposes of allowing the party from whom net worth discovery is sought to move for summary judgment on the requesting party’s claim for exemplary damages under Rule 166a(i), Texas Rules of Civil Procedure.” Tex. Civ. Prac. & Rem. Code Ann. § 41.0115(d). So, if the plaintiff seeks net worth discovery very early in a case, it should be prepared to have to answer a no-evidence motion for summary judgment on the exemplary damages claim early in the case. A cautious plaintiff may want to wait until near the end of discovery to file a motion for net worth to ensure that it will have time to discover underlying facts and be prepared to respond to a no-evidence summary judgment motion.

The new procedure for obtaining net worth discovery is intended to protect a defendant from the disclosure of confidential information where the plaintiff’s exemplary damages claim is facially meritless. Texas courts will wrestle with how the procedure works in the years to come.

In Lavizadeh v. Moghadam, a trustee purchased real estate and then had a dispute with a guarantor. No. 05-18-00955-CV, 2019 Tex. App. LEXIS 10835 (Tex. App.—Dallas December 13, 2019, no pet. history). The trial court ruled against the trustee, and the trustee objected to the failure to have a jury trial. The trial court overruled that objection, and the trustee appealed. The court of appeals first held that the trustee waived any issue on the procedure by expressly agreeing to same:

During the hearing conducted prior to jury selection, the Trust’s counsel initially stated “for the record that we’re here on a jury trial setting” and he believed “factual issues [existed] that may need to be presented to the jury. . .”, however, he subsequently agreed to Moghadam’s counsel’s proposal to stipulate all exhibits into evidence. More specifically, the Trust agreed, “it would be appropriate” to have a “summary trial by the Judge on those issues, and then if we need a jury on a fact issue . . . “ the parties would return to court for further proceedings. Following this exchange and an off-the-record discussion, the Trust offered 18 exhibits into evidence, and the court admitted them. Moghadam’s exhibits were likewise deemed admitted at the same time although submitted electronically a few days later. We conclude the Trust’s agreement with this procedure waived any objection to the court’s refusal to submit any issues to a jury.

Id. The court also held that any failure to provide a jury trial was harmless as there were no questions of fact: “The right to a jury trial attaches only when controverted questions of fact exist.” Id. Continue Reading Court Rules Against Trustee’s Right to a Jury Trial Where the Trustee Agreed To A Summary Proceeding

In Leland House v. Webb, a husband sued his deceased wife’s executor to quiet title in real estate that she obtained from her aunt. No. 06-19-00054-CV, 2019 Tex. App. LEXIS 10012 (Tex. App.—Texarkana November 19, 2019, no pet. history). The executor argued that the transfer was not a sale of property, but was a gift. The trial court ruled for the executor, and the husband appealed. The court of appeals first reviewed the law regarding community property and presumptions concerning same:

In general, characterization of property is determined by the time and circumstances of its acquisition, often referred to as the ‘inception of title’ doctrine.” It is presumed that property possessed by spouses during marriage is community property, but this presumption can be overcome by clear and convincing evidence that it is the separate property of a spouse. Property a spouse acquires “during marriage by gift, devise, or descent” is separate property.

Id. The court then stated that it was undisputed that the aunt conveyed tracts of land to the wife while she was married to the husband. The court held that the property was presumed to be community property unless clear and convincing evidence demonstrated that it was a gift.

The court then reviewed the deed conveying the property, which stated:

I, ELIZABETH SPRADLEY BAUMAN, . . . for and in consideration of the love and affection which I have for my niece, the Grantee, have GRANTED, SOLD AND CONVEYED, and by these presents do GRANT, SELL AND CONVEY unto DIAN[N]E HOUSE . . . all of the surface (without the present merchantable timber) and mineral estate in the following described real property in Nacogdoches County, Texas, to-wit: . . . “Big Loco Farm” . . . and “Little Farm.”

Id. The husband argued that the deed does not contain the word “gift” or indicate that it is to be the wife’s sole and separate property. The court disagreed: Continue Reading Court Holds That A Husband Had No Interest In His Deceased’s Wife’s Real Estate That Was Obtained Via A Gift Deed

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In In the Estate of Johnson, a decedent’s daughter filed a will contest after accepting over $146,000 from the estate. No. 05-18-01193-CV, 2019 Tex. App. LEXIS 9646 (Tex. App.—Dallas November 4, 2019, no pet.). The executrix filed a motion in limine challenging the daughter’s standing and asked the trial court to dismiss the will contest, which the trial court did. The daughter appealed.

The court of appeals first addressed whether the daughter had standing to file a will contest. The court held that “[d]evisees and heirs-at-law are interested persons.” Id. (citing Tex. Est. Code § 20.018). The court concluded:

Though Lisa Jo claims that Tia did not meet this burden because she failed to introduce the Will into evidence with her petition, we assume the trial court took judicial notice of the Will and its contents, as well as the inventory, which was in the trial court’s files. Because the face of the Will established Tia’s standing as a devisee and an heir-at-law, Tia satisfied her threshold burden.

Id. The court then reviewed the estoppel defense arising from the daughter’s acceptance of estate assets. The court reviewed the law and its own precedent on estoppel in this context: Continue Reading Court Holds That Will Contestant Was Not Estopped From Challenging The Will Due To Accepting Assets