Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Texas Court Affirms Removal Of Administrator For Failing To Properly Administer Estate

Posted in Cases Decided, Texas Court of Appeals

In In the Estate of Sakima, the probate court appointed a decedent’s sister as his administrator in 2011. No. 05-18-01288-CV, 2019 Tex. App. LEXIS 8209 (Tex. App.—Dallas September 10, 2019, no pet. history). After multiple show-cause notices, the probate court removed the administrator in 2018. The court held that an estate with a foreclosed home and a $30,000 bank account should not still be open after seven years. There was also a $8,000 check had not been negotiated, and the administrator filed incorrect accountings. The administrator appealed.

The court of appeals noted that a personal representative may be removed by the court if the representative: (1) has misapplied, embezzled all or a part of the property entrusted to the representative’s care; (2) fails to return any account required by law to be made; (3) fails to obey a proper order of the court; (4) is guilty of gross misconduct or mismanagement in the performance of the representative’s duties; (5) becomes incapacitated, is sentenced to the penitentiary, or from any other cause, becomes incapable of properly performing the duties of the representative’s trust, or (6) fails to make a final settlement by the third anniversary of the date letters testamentary or of administration are granted, unless the period is extended by the court on a showing of sufficient cause supported by oath or timely filed affidavit or certificate required under section 308.004 of the estates code. Id. (citing Tex. Est. Code Ann. § 361.052).

The court affirmed the probate court, holding:

At the show cause hearing, the probate court judge expressed that this case had been open and languishing without reason. Administration opened in 2011 and the show cause hearing was conducted on June 5, 2018. There had not been a significant change in the assets yet Aihara was still dealing with bank accounts and could not figure out how to negotiate a check for $8,000. In addition, despite being ordered to show cause on three occasions, a proper accounting had not been made, although Aihara made attempts to file a final accounting. Accordingly, statutory grounds existed for the removal of Aihara as administrator of the estate.

Id. The court also held that the trial court’s oral findings at the end of the hearing were sufficient and did not reverse due to a lack of written findings of fact and conclusions of law.

Interesting Note: A representative of an estate is not qualified to serve if the person is: “(1)  incapacitated; (2) a felon convicted under the laws of the United States or of any state of the United States unless, in accordance with law, the person has been pardoned or has had the person’s civil rights restored; (3) a nonresident of this state who: (A) is a natural person or corporation; and (B) has not: (i) appointed a resident agent to accept service of process in all actions or proceedings with respect to the estate; or (ii) had that appointment filed with the court; (4) a corporation not authorized to act as a fiduciary in this state; or (5) a person whom the court finds unsuitable.” Tex. Est. Code Sec. 304.003. The most commonly litigated issue is whether an executor is suitable. The Estates Code does not define “unsuitable,” as used in section 304.003, and cases interpreting this provision have recognized that no comprehensive, discrete explanation exists delineating the attributes which make someone unsuitable under the Estates Code. In the Estate of Luthen, 2014 Tex. App. LEXIS 10625 (Tex. App.—Corpus Christi, Sept. 25, 2014, no pet.) (citing Boyles v. Gresham, 158 Tex. 158, 309 S.W.2d 50, 53 (Tex. 1958)). “It would appear, therefore, that the legislature intended for the trial court to have wide latitude in determining who would be appropriate for the purpose of administering estates.” Id. (citing Dean v. Getz, 970 S.W.2d 629, 633-34 (Tex. App.—Tyler 1998, no pet.)).

However, several cases provide guidance in determining whether the trial court acted properly in determining that a person was unsuitable to serve. An administrator was disqualified as “unsuitable” when the bank in which he owned stock claimed certain of the estate’s assets as its own property. Haynes v. Clanton, 257 S.W.2d 789, 792 (Tex. Civ. App.—El Paso 1953, writ dism’d by agr.). An individual was disqualified from serving as administrator of the estates of both a husband and his wife wherein each estate had adverse claims to the same insurance proceeds. Hitt v. Dumitrov, 598 S.W.2d 355, 356 (Tex. Civ. App.—Houston [14th Dist.] 1980, no writ). A surviving spouse was found unsuitable because she claimed property of the husband’s separate estate as community property. Ayala v. Martinez, 883 S.W.2d 270 (Tex. App.—Corpus Christi 1994, writ denied). A finding by the trial court that a surviving wife was unsuitable as the representative of her husband’s estate was affirmed where her appointment “would be inimical to the interests of the Estate.” Inimical was defined as adverse, antagonistic, and hostile. Formby v. Bradley, 695 S.W.2d 782, 785 (Tex. App.—Tyler 1985, writ ref’d n.r.e.). Family discord has also been grounds for disqualifying an applicant. As the court stated “each estate should have a representative that will assume the role of an advocate to achieve the best possible advantage for the estate.” Hitt, 598 S.W.2d at 356. If one has personal interests that are so adverse to those of the estate or the beneficiaries thereof that both cannot be fairly represented by the same person, then that person is not a proper person to administer the estate.

It is typically harder to remove a representative of an estate than to have a court hold that he is disqualified at the outset due to the breadth of the term “unsuitable.” Kappus v. Kappus, 284 S.W.3d 831 (Tex. 2009). Also, Texas courts have routinely held that a party can challenge an executor named in a will and not trigger a no-contest clause. Ard v. Hudson, No. 02-13-00198-CV, 2015 Tex. App. LEXIS 8727, at *20 (Tex. App.—Fort Worth Aug. 20, 2015, pet. dism. by agr.).

Texas Court Compels A Limited Partner’s Employment And Defamation Claims To Arbitration Due To The Partnership Agreement’s Arbitration Clause

Posted in Cases Decided, Texas Court of Appeals

In Gray vs. Ward, Ward and Gray started a limited partnership where Ward was a limited partner and Gray was a limited partner and the manager of the general partner. No. 05-18-00266-CV, 2019 Tex. App. LEXIS 6992 (Tex. App.—Dallas August 9, 2019, no pet.). Ward was also an employee of the partnership, but there was no written employment agreement. Ward wanted to exit the relationship, and the parties had a dispute concerning the amount to buy him out. Ward alleged that Gray fired him, but told employees that Ward resigned. Ward sued Gray and the general partner for breach of contract and fiduciary duties arising out of the buy-out of his interests, wrongful termination related to his firing, and defamation. Gray filed a motion to compel arbitration due to the following arbitration clause in the partnership agreement:

All disputes and claims relating to this Agreement, the rights and obligations of the parties hereto, or any claims or causes of action relating to the performance of either party that have not been settled through mediation will be settled by arbitration by the American Arbitration Association in either Boca Raton, Florida or Arizona in accordance with the Federal Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association.

Id. The trial court compelled the buy-out claims to arbitration but retained the employment and defamation claims. Gray appealed.

The court of appeals reversed the trial court and held that all of Ward’s claims should have been compelled to arbitration. The trial court first reviewed an argument that the arbitrator should have decided the arbitrability issue due to the incorporation of the AAA rules into the arbitration clause. The AAA rules expressly state that the arbitrator, not a trial court, shall determine arbitrability issues. The court of appeals did not disagree with that argument, but held that Gray waived that argument by failing to raise it in the trial court:

In the court below, Accidents argued only that all of the claims were within the scope of the arbitration clause and urged the court to compel arbitration on all claims. Because the arbitrability of the scope issue was first raised on appeal, we do not consider whether the parties agreed to arbitrate arbitrability and instead limit our review to whether the excluded claims fall within the clause’s scope.

Id. The court then reviewed whether the trial court abused its discretion in deciding that the employment and defamation claims were not arbitrable and fell outside the scope of the arbitration clause.

Ward argued that two independent relationships were at issue: (i) his employment relationship and (ii) his relationship with and interest in the partnership. According to Ward, only the latter relationship pertains to the partnership agreement containing the arbitration provision, and thus the employment relationship claims were not subject to arbitration. The court disagreed. The court noted that the agreement provided that no general partner or interest holder will receive any salary for services rendered on the partnership’s behalf except as provided in the agreement. It further provided that if a limited partner serves as an employee or agent of the partnership, the agent or employee will not be deemed to be participating in the control of the business for liability purposes. Thus, at a minimum, the agreement “relate[d] to” Ward’s employment by the partnership. Additionally, the agreement provided that if a party resigns while he owns a limited partnership interest, the partnership is obligated to purchase that party’s interest within ninety days. The parties disagreed about this provision’s applicability when the limited partner’s employment status was terminated. This disagreement was the linchpin of the parties’ dispute. The court held: “Thus, there can be no question that Ward’s employment status ‘relates to’ the LP Agreement.” Id. Regarding Ward’s two-relationship argument, the court stated: “But even if there is a separate oral employment agreement that exists apart from the LP Agreement, our analysis does not change. The LP Agreement expressly relates to such employment. And an arbitrable claim can relate to two agreements at the same time.” Id.  The court compelled all claims to arbitration.

There was a dissenting justice, who would have affirmed the trial court’s arbitration order. That justice took a much more narrow view of the partnership agreement and fundamentally disagreed with the majority’s application of the phrase “relating to.”

Interesting Note. It is very common for partners or members of a limited liability company or limited partnership to also be employees of the entity that they own. However, there is rarely a written employment agreement in addition to the partnership or company agreement. In business divorce cases, partners or members sue each other for various claims. Where the plaintiff fights the application of an arbitration clause in the partnership or company agreement, the plaintiff often makes a two-relationship argument: my claim is based on my unwritten employment relationship and not the written partnership or company agreement. The Gray opinion is yet another opinion that supports the breadth of arbitration clauses and compels arbitration for all of the parties’ claims that relate to the partnership or company agreement. A best practice would involve drafting an arbitration clause that states that it applies to “all disputes between the parties, whether arising from this Agreement or not.” Further, where a partner or member is also acting as an employee, the entity should have a written employment agreement that has a similarly broad arbitration clause.

Presentation: Detecting Elder Abuse and The Duty to Report Financial Exploitation

Posted in Items of Interest, Knowledge Library

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, presented “Detecting Elder Abuse and The Duty to Report Financial Exploitation” to the Southwest Association of Bank Counsel on Thursday, September 26, 2019, in Santa Fe, New Mexico.  This presentation focused on factors to detect the two main tools of elder abuse, undue influence and mental incompetence, and also discussed a financial institution’s duty to report elder abuse to the proper authorities.  David also discussed financial institutions’ potential liability risk for failing to detect and report elder abuse. The paper, PowerPoint, and a recent CFPB alert on elder abuse are attached.

READ HERE:

POA and Duty To Report Financial Exploitation _Paper

SWABC Duty To Report Elder Abuse_Slides

Suspected Elder Financial Exploitation by Financial Institutions_Report

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

Recorded Webinar – Trustee Compensation in Texas

Posted in Uncategorized

Recorded Webinar

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, discusses the law in Texas and practical advice regarding a trustee’s right to compensation.

CLICK HERE FOR WEBINAR

Trustee Compensation_Slides

Trustee Compensation Paper

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

Presentation: Summary Judgments in Texas

Posted in Items of Interest, Knowledge Library, Texas Supreme Court

Presentation

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog recently presented his paper on “Summary Judgments in Texas” at the State Bar of Texas’s Advanced Civil Appellate Course in Austin, Texas.  This presentation included a discussion of the finality of summary judgments, the standard and scope of review of traditional and no-evidence summary judgments in the trial court and court of appeals, preservation of error hot topics, recent Texas Supreme Court decisions impacting summary judgments, challenging the denial of a motion for summary judgment, and record/briefing issues. The paper is attached below.

Read Here:  Summary Judgments in Texas

Trial Court Lacked Jurisdiction To Alter Its Previous Probate Order, and An Administrator Waived Any Challenge To A Damages Finding

Posted in Cases Decided, Texas Court of Appeals

In In the Estate of Brazda, the trial court found an administrator guilty of neglecting to timely distribute the property and ordered the administrator to pay one of the heir’s damages for the neglect. No. 01-18-00324-CV, 2019 Tex. App. LEXIS 5924 (Tex. App.—Houston [1st Dist.] July 11, 2019, no pet. history). The administrator moved for reconsideration of the damages order, the trial court later entered written orders reconsidering and removing the personal liability against the administrator. The complaining heir appealed. The court of appeals held that the trial court lacked jurisdiction to enter the orders reconsidering and removing the damages against the administrator because the original order awarding the damages was final and appealable in its own right and because the trial court lost plenary power over that order before the time that it entered the written reconsideration orders.

Regarding the finality of probate orders, the court held:

[P]arties generally may appeal only from final judgments. However, appeals from probate courts, which adjudicate estate administrations, involve an exception to the final-judgment rule because multiple final judgments or orders may be rendered on discrete issues before an entire probate-court proceeding is final. There are two categories of probate-court orders that are considered final, and therefore appealable, even if not every party and issue in the entire proceeding is disposed of by the order. First, statutes may declare certain orders to be final, appealable orders: “If there is an express statute, such as the one for the complete heirship judgment, declaring the phase of the probate proceedings to be final and appealable, that statute controls.” Second, orders that dispose of all parties and issues “in a particular phase of the proceedings” are final, appealable orders: “Otherwise, if there is a proceeding of which the order in question may logically be considered a part, but one or more pleadings also part of that proceeding raise issues or parties not disposed of, then the probate order is interlocutory. . . . [U]nder Crowson, the trial court’s order was interlocutory because it did not dispose of all parties or issues in a particular phase of the proceedings.”

Id. The court held that the order was sufficiently final: “In reviewing the relevant portions of the record, the March 27, 2018 Orders resolved the entirety of Brazda’s live pleadings. Brazda had applied for a show-cause order against the Administrator and asked for relief under Section 360.301. The March 27, 2018 Orders resolved those requests. All of Brazda’s issues therefore were resolved.” Id.

The court then held that the trial court lacked jurisdiction to amend its order after its plenary power period ended:

[W]hether the Administrator’s motion for reconsideration was a motion for new trial or not, it certainly sought either to vacate, modify, correct, or reform the final and appealable October 31, 2017 Order. Undoing that order therefore should have been done by written order under Rule 329b before the rule operated to deny the motion by operation of law. The March 27, 2018 Orders post-dated even the extended 105-day period allowable under Rule 329b(c)-(g). Therefore, the trial court had lost plenary power over the October 31, 2017 Order before it entered the March 27, 2018 Orders.

Id. Further, although not addressed in the opinion, the administrator also failed to timely appeal the original order, so the administrator waived any challenge to the appeal.

Interesting Note. The area of finality for probate orders is a complex area. This case highlights the need for trial counsel to seek advice from an appellate attorney when trying to correct or overturn a trial court’s order. An appellate attorney would likely have analyzed whether the original order was final and what the timeline was for filing an appeal and seeking a hearing in the trial court to correct the order while the trial court still had plenary jurisdiction.

Court Holds That A Trustee Has To Serve Until Properly Replaced

Posted in Cases Decided, Texas Court of Appeals

In Waldron v. Susan R. Winking Trust, a daughter was a beneficiary of a trust set up by her parents. No. 12-18-00026-CV, 2019 Tex. App. LEXIS 5867 (Tex. App.—Tyler July 10, 2019, no pet. history). The original trustee resigned, and the trust document provided:

Successor. If the original trustee fails or ceases to serve for any reason, then Southside Bank, Tyler, Texas, shall be successor trustee. If this or any other successor trustee fails or ceases to serve for any reason, then any bank or trust company may be appointed successor trustee by delivery of written notice to the successor trustee signed by the grantor, or if either grantor is legally disabled or deceased, then signed by the other grantor, or if both grantors are legally disabled or deceased, then signed by the beneficiary, or the beneficiary’s attorney-in-fact or legal guardian.

Id. When the proposed corporate trustee declined to serve, the daughter could not find any other bank or trust company to serve. She then filed suit to appoint an individual as trustee, which was granted. Later, she then filed an application asking the court to name her as successor trustee. The successor trustee then responded and stated: “Trustee is willing to resign and/or has no objection to his removal upon appointment of a qualified trustee as provided for in the Trust or as otherwise determined by the Court.” He asked for a declaratory judgment and requested a finding that he complied with the Trust’s terms, that he be removed or allowed to resign, that an appropriate successor trustee be appointed, and that he be discharged from any further liability. The trial court held a bench trial and found that the final accounting fairly and accurately set forth the trust’s assets, liabilities, income, and expenses and the court approved it. The trial court further found that the successor trustee administered the trust in accordance with its terms and the applicable law and was not liable to the daughter on any claims. The judgment appointed another individual as successor trustee, her term to begin ten days after the judgment became final or all appeals exhausted, whichever was later. The trial court also found that all expenses and professional fees paid or incurred by the successor trustee were reasonable and necessary. The daughter appealed and complained that she had the right to terminate the trustee by letter and that the successor trustee’s fees and compensation should not have been paid by the trust after his termination.

The court of appeals first addressed the law regarding appointing a successor trustee:

The terms of the trust prevail over any provision of the Texas Trust Code with certain exceptions which are not applicable in this case. In this case, the Trust provided that the beneficiary could terminate a trustee by letter and appoint a successor bank or trust company that was willing to serve. But no bank or trust company was willing to serve. Therefore, the trust instrument did not provide a procedure for the appointment of a successor trustee under these circumstances. In such situation, the Trust Code provides that “[i]f for any reason a successor is not selected under the terms of the trust instrument, a court may and on the petition of any interested person shall appoint a successor in whom the trust shall vest.” A trustee’s fiduciary duties are not discharged until the trustee has been replaced by a successor trustee.

Id. The court affirmed the trial court’s order:

Waldron contends that she can remove the trustee at any time by written letter. In her view, Cozby was no longer trustee after the receipt of her termination letter. Therefore, he was not thereafter entitled to claim reimbursement from the Trust for expenses or professional services. Although Article 4.3 of the Trust provides for termination by letter, Article 4.2 requires that any successor trustee be a bank or trust company. Since no bank or trust company could be found that was willing to serve, Waldron could not appoint a successor and her attempt at removal by letter without naming a bank or trust company as successor was ineffective. The only procedure available for the trustee’s replacement under these circumstances was by petition to the district court for the appointment of a trustee. Although ready and willing to be replaced, Cozby, as trustee, was obligated to continue in the performance of his duties until replaced by a successor trustee. The trial court correctly interpreted the trust instrument and correctly applied the pertinent provisions of the Texas Trust Code. The trial court’s judgment is supported by the evidence.

Id. The court affirmed the trial court’s judgment.

Statute of Limitations Barred Estate Representative’s Claim To Void Beneficiary Designations

Posted in Cases Decided, Texas Court of Appeals

In Sanders v. Hathaway, the decedent’s estate’s representative sued her sister for various claims arising from the decedent’s beneficiary designation changes, deed transfers, and accounts payable on death changes that benefited the sister. No. 01-18-00661-CV, 2019 Tex. App. LEXIS 5708 (Tex. App.—Houston [1st Dist.] July 9, 2019, no pet. history). The sister alleged that the claims were barred by the statute of limitations. The trial court granted summary judgment for the sister, and the representative appealed. The court of appeals first held that limitations had run on the claims:

“It is settled law in Texas that a contract executed by a person who lacks mental capacity is voidable, not void.” A cause of action to void a contract is personal and belongs to the parties to a contract. The right to disaffirm a contract survives the death of an incompetent person and descends to his heirs or his personal representative. The right to disaffirm is subject to a four-year statute of limitations. Texas Civil Practice and Remedies Code section 16.062 suspends the running of an applicable limitations period for twelve months after the death of a person against whom or in whose favor there may be a cause of action. Thus, Sanders had to bring her cause of action to set aside the contracts executed by Brown no later than five years from the date of their execution. Here, … the right to disaffirm those contracts ran on March 17, 2015 and March 22, 2015—five years from the March 17, 2010 and March 22, 2010 execution dates. Sanders did not file her lawsuit until June 10, 2016.

Id. The court then held that the discovery rule did not apply to extend the statute of limitations period because the representative knew sufficient information to place her on a duty to investigate her claims:

In her summary judgment response and on appeal, Sanders admits that she knew Brown had property but that she “had absolutely no idea of the nature and extent of such property.” She argues that she “did not know and could not have known exactly when the beneficiary designations and bank accounts were changed, or when the property was transferred.” However, the summary judgment evidence demonstrates that Sanders only began investigating the extent and nature of Brown’s assets and later filed suit after she learned from an uncle that Brown had assets worth approximately $1,000,000 before he died. Sanders knew of her alleged injury, i.e., that Brown gave almost all of his property to Hathaway and left her virtually nothing, on September 12, 2010, two days after Brown died. It is the fact of the alleged injury—that Hathaway kept property that Sanders may have been entitled to—that started the running of the statute of limitations. Once Sanders knew of facts that might constitute some injury, the statute of limitations began to run even if she did not yet know “the specific cause of the injury; the party responsible for it; the full extent of it; or the chances of avoiding it.” That Sanders did not know the extent of her alleged injury, i.e., the dollar value of Brown’s assets, is irrelevant to determining when the statute of limitations began to run. Thus, applying the discovery rule, the four-year statute of limitations (plus the additional year due to Brown’s death) began to run from the date Sanders knew of her legal injury, i.e. September 12, 2010. The statute of limitations ran by September 12, 2015, nine months before Sanders filed her suit on June 10, 2016.

Id.

Finally, the court affirmed the dismissal of the estate’s claim for breach of fiduciary duty against the sister for taking the decedent’s assets:

To prove breach of fiduciary duty, Sanders must establish that (1) a fiduciary relationship existed between the plaintiff and the defendant; (2) the defendant breached her fiduciary duty; and (3) the breach resulted in injury to the plaintiff or benefit to the defendant. In her summary judgment response, Sanders argued that the evidence showed that (1) an informal fiduciary duty existed between Brown and Hathaway; (2) Hathaway breached her fiduciary duty to Brown by transferring the entirety of Brown’s estate to herself; and (3) Hathaway’s breach was detrimental to Brown and Sanders. Contrary to Sanders’s assertion, there is no evidence that Hathaway “transferred the entirety of Brown’s estate to herself.” The evidence shows that, on March 17, 2010, Brown changed the beneficiary designations on three of his four insurance policies to Hathaway but left Sanders and Hathaway as co-beneficiaries under one of his policies. That same day, Brown also executed four warranty deeds transferring his real property to Hathaway, and the deeds were signed and notarized before a notary public. Five days later, on March 22, 2010, Brown went to his credit union and executed documents in front of credit union employees to make his checking, savings, and share certificated accounts payable on death to Hathaway. This evidence shows that Brown, not Hathaway, distributed his property to Hathaway. Because Sanders has not produced any evidence showing that Hathaway breached a fiduciary duty to Brown, summary judgment on her breach of fiduciary duty claim was proper.

Id.

Court Holds That Economic Loss Rule Bars Conspiracy To Breach Fiduciary Duty Claims

Posted in Cases Decided, Texas Court of Appeals

In Shopoff Advisors, LP v. Atrium Circle, GP, the buyer and seller to a real estate transaction sued each other. No. 04-18-00438-CV, 2019 Tex. App. LEXIS 5764 (Tex. App.—San Antonio July 10, 2019, no pet. history). The plaintiff alleged that the defendant conspired with the escrow agent, who owed the plaintiff a fiduciary duty. The defendant filed a SLAPP motion, which the trial court denied. The Texas Citizens Participation Act (“TCPA”) is also known as Texas’s anti-SLAPP statute. Id. (citing Tex. Civ. Prac. & Rem. Code Ann. §§ 27.001-.011). The defendant appealed. The court of appeals affirmed in part on other claims, but reversed as to the conspiracy claim. Regarding conspiracy, the court held:

“[C]ivil conspiracy is not an independent tort.” It “is a theory of vicarious liability”; “a lawsuit alleging a civil conspiracy that committed some intentional tort is still a ‘suit for’ that tort.” Thus, a party must prove the underlying tort. Additionally, to hold a party vicariously liable under a theory of civil conspiracy, a party must show the following: “(1) two or more persons; (2) an object to be accomplished; (3) a meeting of minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result.”

Id. (citing Agar Corp. v. Electro Circuits Int’l, LLC, No. 17-0630, 2019 WL 1495211, at *4 (Tex. Apr. 5, 2019)).

The court of appeals held that there were no compensable damages due to the economic loss rule. The court stated:

With respect to the element of damages, the economic loss rule is not an affirmative defense; it “is a consideration in measuring damages.” … Furthermore, as the economic loss rule is a legal consideration of what should and should not be part of the proper measure of damages, the rule is applicable to whether Atrium has met its prima facie case on the element of damages with respect to its claims against Shopoff for conspiracy to breach the fiduciary duty owed to Atrium and for conspiracy to breach the escrow contract. “The economic loss rule generally precludes recovery in tort for economic losses resulting from a party’s failure to perform under a contract when the harm consists only of the economic loss of a contractual expectancy.” However, it does not prevent economic losses from being “recoverable under a variety of intentional tort theories absent a contractual obligation.” Further, “[e]ven if the matter in dispute is the subject of a contract, a party may elect a recovery in tort if the duty breached stands independent from the contractual undertaking, and the alleged damages are not solely the result of a bargained-for contractual benefit.” Thus, in deciding whether the economic loss rule applies to Atrium’s claims, we look to the source of the alleged duty and the nature of the claimed injury. In making this determination, we do not look to “the manner in which” a cause of action was pled, but instead “look to the substance of the cause of action.” Here, the underlying claims brought by Atrium are breach of fiduciary duty and misapplication of fiduciary property. Atrium generally alleged First American owed the following duties: (1) “the duty of loyalty”; (2) “the duty to make full disclosure”; and (3) “the duty to exercise a high degree of care to conserve the money and pay it only to the people entitled to receive it in accordance with the agreement.” The substance of the alleged breach by First American in relation to those duties was First American “refusing to release the funds required during periods when the judgment was not superseded.” This alone might show a breach of a contractual duty, but it is insufficient to raise breach of fiduciary duty or misapplication of fiduciary funds. Further, nothing in Atrium’s response to Shopoff’s motion to dismiss shows a breach of a duty separate from the alleged failure to comply with the contractual agreement. Thus, under the facts presented by the record in this appeal, we conclude the economic loss rule applies to Atrium’s claims and is a consideration in how Atrium can show proof of the element of damages. Because Atrium has not met its burden of establishing by clear and specific evidence a prima facie case for the element of damages with respect to its claims based on the email sent by Shopoff’s attorney, we conclude the trial court erred in denying Shopoff’s motion to dismiss pursuant to the TCPA.

Id. The court reversed and rendered under the TCPA that the plaintiff’s conspiracy to breach fiduciary duty claim should be dismissed.

Court Holds That A Testamentary Trust Did Not Fail Because The Primary Beneficiary Predeceased The Decedent

Posted in Cases Decided, Texas Court of Appeals

In In re Estate of Moore, a decedent executed a will that provided that the residuary of his estate would be held in trust for his mother, and such trust would terminate on her death with the assets then passing to certain charitable remainder beneficiaries. No. 05-18-00019-CV, 2019 Tex. App. LEXIS 3871 (Tex. App.—Dallas May 14, 2019, no pet. history). The decedent’s mother predeceased him. The decedent’s sole heir then alleged that the trust failed because the sole beneficiary predeceased the decedent and that she should receive the assets. The remainder beneficiaries of the trust alleged that the trust did not fail and that they should receive the assets. The trial court ruled for the charities, and the heir appealed.

The court of appeals first discussed construing a will:

Our primary “objective in construing a will is to discern and effectuate the testat[or]’s intent as reflected in the instrument as a whole.” In doing so, we do not focus on what the testator may have meant to write; rather, we focus on the meaning of the words the testator actually used. We must, however, construe the instrument as a whole and seek to harmonize any apparent conflicts or inconsistencies in the language. Moreover, we should avoid, whenever possible, a construction that results in partial intestacy. Indeed, “[t]he mere making of a will is evidence that the testator had no intent to die intestate and creates a presumption that the testator intended to dispose of his entire estate, and that he did not intend to die intestate as to the whole or any part of his property.” Where, as here, a “will contains a residuary clause, the presumption against intestacy is especially strong.”

Id. The court stated that the appellant’s challenge to the trial court’s construction was based on two arguments: (1) there were no living beneficiaries of the trust at the time of the decedent’s death; and (2) the trust’s creation was made expressly contingent on the decedent’s mother surviving him. The court disagreed with both arguments. The court noted that a trust beneficiary is “a person for whose benefit property is held in trust, regardless of the nature of the interest.” The court stated that the trust provided for two types of property interests—“a life estate for Moore’s mother and remainder interests for the other named individuals and entities.” Id. Regarding the first argument, the court concluded:

Here, Section IV manifests Moore’s intent to create a trust for the benefit of multiple beneficiaries, including his mother and the Arkansas Entities. His mother was intended to be a life beneficiary of the residuary estate, to the extent she survived Moore, and the Arkansas Entities were intended to be beneficiaries with vested interests in the remainder of the residuary estate held in trust following the death of Moore’s mother. Thus, even though the trust’s life beneficiary (Moore’s mother) was no longer living at the time the conveyance became operative, there were other named remainder beneficiaries sufficient to prevent the trust from failing.

Id. Regarding the second argument, the court held:

Section IV provides: “My residuary estate shall pass and vest in the Trustee hereinafter named, IN TRUST, in the following manner . . . .” This statement is not qualified by a condition precedent; rather, it is the subsequent statement creating Moore’s mother’s interest in the trust that is qualified by a condition precedent: “My residuary estate shall be held as a trust for the benefit of my mother, . . . if she is surviving at the time of my death[.]” Because Moore’s mother did not survive him, the condition precedent to her interest was not satisfied. Thus, her interest in the trust terminated, and the remainder interests either became present interests or became closer to present interests.

Id. The court concluded:

The will explains what must happen upon the death of Moore’s mother: “The trust herein created shall terminate at the death of my said mother, . . . and the trust estate shall be distributed as follows . . . .” On Moore’s death, the residuary estate passed into a trust for the benefit of its life and remainder beneficiaries. Because the life beneficiary was no longer living, the trust immediately terminated according to its own terms, leaving the corpus to be distributed to the remainder beneficiaries. The probate court did not err by concluding that Moore’s residuary estate passed into a valid trust and that it should be distributed according to Section IV.C.4 of the will.

Id.

.