David F. Johnson presented his paper on “Remedies for Breach of Fiduciary Duty Claims” to the Tarrant County Probate Bar Association’s Litigation Seminar on August 7, 2020. Continue Reading Presentation: Remedies for Breach of Fiduciary Duty Claims
In Ramirez v. Rodriguez, three co-trustees sued a fourth trustee to have him removed due to his hostile actions: he “has engaged in a pattern of creating hostility and friction that impedes and/or affects the operations of the trust.” No. 04-19-00618-CV, 2020 Tex. App. LEXIS 1340 (Tex. App.—San Antonio Feb. 19, 2020, no pet.). The defendant filed a motion to dismiss the suit, and the court of appeals affirmed the denial of the dismissal. The court stated:
Sonia, Victor, and Javier sought to have Santiago removed as a co-trustee under section 113.082(a)(4) of the Texas Trust Code, which allows a trial court to remove a trustee based on a finding of “other cause for removal.” Tex. Prop. Code Ann. § 113.082(a)(4). “Ill will or hostility between a trustee and the beneficiaries of the trust, is, standing alone, insufficient grounds for removal of the trustee from office.” Akin v. Dahl, 661 S.W.2d 911, 913 (Tex. 1983). However, a trustee will be removed if his hostility or ill will affects his performance. Id. at 914. Furthermore, “[p]reservation of the trust and assurance that its purpose be served is of paramount importance in the law.” Id. For this reason, hostility that impedes the proper performance of the trust is grounds for removal, “especially if the trustee made the subject matter of the suit is at fault.” Bergman v. Bergman-Davison-Webster Charitable Tr., No. 07-02-0460-CV, 2004 Tex. App. LEXIS 1, 2004 WL 24968, at *1 (Tex. App.—Amarillo Jan. 2, 2004, no pet.) (mem. op.). Removal actions prevent a trustee “from engaging in further behavior that could potentially harm the trust.” Ditta v. Conte, 298 S.W.3d 187, 192 (Tex. 2009). “Any prior breaches or conflicts on the part of the trustee indicate that the trustee could repeat her behavior and harm the trust in the future.” Id. “At the very least, such prior conduct might lead a court to conclude that the special relationship of trust and confidence remains compromised.” Id.
Id. The court concluded that the plaintiffs raised sufficient allegations to support a claim:
As previously noted, a trustee can be removed if his hostility or ill will affect his performance or the proper performance of the trust. Akin, 661 S.W.2d at 913; Bergman, 2004 Tex. App. LEXIS 1, 2004 WL 24968, at *1. We hold Sonia, Victor, and Javier presented clear and specific evidence of a prima face case that Santiago’s hostility was impeding his performance as a co-trustee and the performance of the Trust. Accordingly, Sonia, Victor, and Javier satisfied their burden of proof, and the motion to dismiss was properly denied.
In Gill v. Grewal, the suit arose out of a failed business venture between old college friends. No. 4:14-CV-2502, 2020 U.S. Dist. LEXIS 104461 (S. D. Tex. June 15, 2020). Gill and Grewal attended college together in the late 1960s. After falling out of touch with each other for over thirty years, the two reconnected at a wedding. The day after the wedding, Grewal pitched Gill an entrepreneurial venture related to the healthcare industry. The parties then formed Healthema. After a dispute arose, Grewal sued his former friend for breaching fiduciary duties arising from the formation and operation of the business. Gill filed a motion for summary judgment, alleging that he did not owe any fiduciary duties to Grewal. The district court granted the summary judgment motion on this issue. The court stated:
Apart from formal fiduciary relationships, Texas courts “also recognize an informal fiduciary duty that arises from ‘a moral, social, domestic or purely personal relationship of trust and confidence.'” That being said, “[i]n order to give full force to contracts, [Texas courts] do not create such a relationship lightly.” “It has long been recognized that not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship.” “[I]n the context of a business transaction, to impose an informal fiduciary duty, the special relationship of trust and confidence must exist prior to, and apart from, any agreement made the basis of the suit.” “Where the underlying facts are undisputed, determination of the existence, and breach, of fiduciary duties are questions of law, exclusively within the province of the court.”
Here, Grewal contends that he placed “‘complete’ trust in J. Gill based on their history of close friendship, and this high degree of personal trust was the reason he allowed J. Gill and S. Gill to maintain exclusive control over Healthema’s bank account while he was in India.” The extent of the personal relationship between J. Gill and Grewal is summed up in the affidavit by Grewal that accompanied his motion for summary judgment… Summarized, Grewal and J. Gill were college friends who kept in touch for a few years, then fell out of contact for thirty-five years. They reconnected at a wedding, and based upon a number of written contracts, Healthema was launched within two months of the duo reconnecting. J. Gill argues that these facts fall well short of creating a fiduciary duty, especially in light of the Supreme Court of Texas’s statement that it “do[es] not create such a relationship lightly.”
The Court agrees. While we all hope that our old college friends hold us in high regard, few would expect these long-lost friends to make their interests subservient to our own, much less following a thirty-five-year break in communication. Yet “[t]he effect of imposing a fiduciary duty is to require the fiduciary party to place someone else’s interests above its own.” For that reason, the Supreme Court of Texas has declined to “impos[e] a fiduciary duty based on the fact that, for four years, [the parties] were friends and frequent dining partners.” Moreover, “mere subjective trust does not . . . transform arm’s length dealing into a fiduciary relationship.” Therefore, “the fact that [Grewal] [completely] trusted [S. Gill] does not transform their business arrangement into a fiduciary relationship.” For those reasons, the Court also grants J. Gill’s motion for summary judgment on Grewal’s breach of fiduciary duty claims.
In Neal v. Neal, the court of appeals affirmed a trial court’s judgment resolving who were the correct beneficiaries of a trust. No. 05-19-00364-CV, 2020 Tex. App. LEXIS 4514 (Tex. App.—Dallas June 17, 2020, no pet. history). The trial court’s judgment declaring the decedent’s sister’s children the remainder beneficiaries of his trust was in line with a prior agreed judgment and was proper because the estate’s assumption ignored the parties’ compromise settlement agreement and the agreed judgment, both of which clearly provided that the trust was amended. The court held: “We interpret an agreed judgment like a contract between the parties, seeking to harmonize and give effect to all its provisions so that none are rendered meaningless.” Id. The court then concluded that the earlier agreed judgment unambiguously stated that the sister’s children were the only remainder beneficiaries of the decedent’s trust. The trial court’s judgment was affirmed.
In JTREO, Inc. v. Hightower & Assocs., the buyer of a note and mortgage sued the attorney for the lender who facilitated the transaction by loaning money to the buyer for breach of fiduciary duty arising from the fact that there was no mortgage title policy endorsement as represented in the transaction. No. 03-19-00255-CV 2020 Tex. App. LEXIS 4523 (Tex. App.—Austin June 18, 2020, no pet. history). The attorney filed a no-evidence motion for summary judgment, alleging that he did not owe a fiduciary duty. The trial court granted the motion, and the plaintiff appealed. The court of appeals affirmed. The court noted that there was no written escrow agreement, and that the attorney was not a properly appointed escrow agent as a matter of law and did not owe any fiduciary duties as an escrow agent. The court stated:
Furthermore, the evidence conclusively establishes that at all relevant times, Hightower served solely as Libertad’s attorney with respect to the transaction, and JTREO acknowledged as much in a two-page disclosure that it signed. Texas courts have routinely held that no fiduciary duty exists between a lender (i.e., Libertad and its agent Hightower) and a borrower (i.e., JTREO). Moreover, as Libertad’s attorneys, Hightower could not have held the funds in “escrow” for its own principal (or anyone else), because as long as the funds are in the possession and control of the principal’s attorney, they remain subject to the control of the principal.
Id. Nonetheless, JTREO contends that Hightower “served as the closing/escrow agent for the sale of the Note” through its actions, despite the lack of a written escrow agreement and Hightower’s undisputed role as Libertad’s attorneys. The court disagreed because the attorney was not acting as a title company and earned no fees for being an escrow agent. “We hold that Hightower did not owe a fiduciary duty to JTREO as a matter of law…” Id.
In Smith v. Malone, parties litigated the propriety of certain transactions in an estate proceeding before a statutory probate court. No. 01-19-00266-CV, 2020 Tex. App. LEXIS 4622 (Tex. App.—Houston [1st Dist.] June 23, 2020, no pet. history). At trial, the estate’s representative asked for a record, but the court refused. After there was an adverse judgment, the representative appealed and asserted, among other arguments, that the judgment must be reversed due to the failure of the trial court to make a transcript of the evidence. Then court of appeals agreed. The court first discussed the general requirements for trial courts to make a record:
Section 52.046(a) of the Government Code placed the obligation on Scott, not the probate court, to ensure that a court reporter recorded oral testimony. See Tex. Gov’t Code § 52.046(a) (requiring an official court reporter to take full shorthand notes of oral testimony “on request”). An official court reporter must take full shorthand notes of oral testimony “on request.” Id. § 52.046(a). As Smith notes, Section 52.046(d) of the Government Code creates an exception to the “on request” language found in 52.046(a). Subsection (d) mandates that a “judge of a county court or county court at law shall appoint a certified shorthand reporter to report the oral testimony given in any contested probate matter in that judge’s court.” Id. § 52.046(d).
The court then addressed whether this rule applied to statutory probate courts:
The Estates Code defines the generic term “court” to include “a court created by statute and authorized to exercise original probate jurisdiction.” Tex. Estates Code § 22.007(a)(2). The Code provides that the terms “county court” and “probate court” are synonymous and both include “a court created by statute and authorized to exercise original probate jurisdiction.” Id. § 22.007(b)(2). The Estates Code defines a “statutory probate court” as “a court created by statute and designated as a statutory probate court under Chapter 25 [of the] Government Code. For purposes of this code, the term does not include a county court at law exercising probate jurisdiction unless the court is designated a statutory probate court under Chapter 25 [of the] Government Code.” Id. § 22.007(c). [A] plain reading of these statutory provisions leads us to conclude it does [apply to statutory probate courts]. A statutory probate court is a court created by statute and authorized to exercise original probate jurisdiction. See id. §§ 22.007(c), 32.002(c). As such, a statutory probate court meets the definition of a “county court.” Id. § 22.007(b)(2). And the Government Code directs that a judge of a “county court . . . shall appoint a certified shorthand reporter to report the oral testimony given in any contested probate matter in that judge’s court.” Tex. Gov’t Code § 52.046(d)…
Id. The court concluded that the requirement of a court reporter was mandatory on the statutory probate court, and as the court did not have a reporter, the error required reversal.
Interesting Note: A party should always request a record for any evidentiary hearing. When no reporter’s record is filed, a court of appeals must assume the evidence supports the trial court’s ruling and summarily affirm. Bryant v. United Shortline Inc. Assurance Servs., 972 S.W.2d 26, 31 (Tex. 1998). So, if a party wants to challenge a trial court’s ruling or judgment based on evidentiary complaints, it must present a record of the evidence to the court of appeals. This is why the Malone opinion is so important. If a statutory probate court could deny a party the right to a record, even when requested, then the court would effectively eviscerate any right of appellate review. A judge may like that, but it is not fair and not due process.
Further, a party wanting to challenge the trial court’s ruling on an evidentiary matter should also request findings of fact and conclusions of law. When no findings of fact and conclusions of law are filed, a court of appeals must presume the trial court made all the necessary findings to support its judgment. Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989). This may seem a little counter-intuitive: why would a losing party want the trial court to explain why the party lost? I have had many attorneys (even smart ones) make this exact point. But, if the trial court does not enter findings, the appellate court will presume that the losing party lost on all issues of fact. So, express findings cannot make it any worse and likely will assist the losing party in some respect. It should be mentioned that a party has a right to findings and conclusions after a bench trial if the party properly preserves that right, which can be a little tricky. A party does not have a right to findings and conclusions after an interlocutory order, but a trial court can enter findings and conclusions after such an order and often does when requested. So, a party who wants to challenge an interlocutory order should also request findings and conclusions.
In Caceres v. Kerri Grahamas Dependent Adm’r of the Estate of Alicia Maribel Procell, decedent was survived by a minor child and her estate was insolvent. No. 14-18-00826-CV, 2020 Tex. App. LEXIS 4198 (Tex. App.—Houston [14th Dist.] May 28, 2020, no pet. history). The trial court appointed a dependent administrator and approved the administrator’s inventory, appraisement, and list of claims. The administrator had included the decedent’s homestead on the estate’s inventory and represented that the estate had a claim for the rental income from the homestead. The trial court overruled the objections of two of the children to the inventory, appraisement, and list of claims, and granted the administrator’s motion to terminate the property’s homestead protection and to subject it, and the income it generated, to the dependent administration.
On appeal, the appellate court disagreed with the trial court because one of the decedent’s children was a minor when her mother died. The court held that the homestead remains exempt as a matter of law from the claims of the estate’s creditors and is not subject to administration. The court also held that title to the homestead vested in the decedent’s four children upon her death; thus, rent due after her death belongs to the estate. The court discussed the law governing homestead and a decedent’s minor children:
[A]n application by a person authorized to act on the minor’s behalf, the court must “set aside . . . the homestead for the use and benefit of . . . the minor children.” This means that, with a few narrow exceptions not presented here, the homestead is not liable for the payment of any of the estate’s debts. Unless one of the express exceptions applies, the homestead is not subject to administration. Instead, the decedent’s children share “absolute title” to the homestead. Second, a trial court has discretion to permit a minor’s guardian to “to use and occupy” the homestead under a court order. Third, the homestead may not be partitioned among the decedent’s heirs for so long as the trial court permits the guardian of the decedent’s minor children “to use and occupy” the homestead.
Id. The court held that the fact that the administrator included the homestead property in the inventory did not mean that it was presumptively homestead:
Although there is case law holding that inclusion of real property in the administrator’s inventory is prima facie evidence that the property is not a homestead, and thus, a homestead should not be included on the inventory, we cannot say that the inclusion of homestead property in the administrator’s inventory is per se erroneous, because the Texas Estate Code appears to permit its inclusion. “Estate” is statutorily defined to include all of a decedent’s property, and the homestead falls within that broad definition.
The court also disagreed with the trial court’s conclusion that the minor’s homestead’s rights should have been terminated when she turned eighteen. The court held: “the homestead passed free of claims by or against the estate to the decedent’s children upon their mother’s death, and it continues to be exempt homestead property even though Jennifer is no longer a minor.” Id. The court reversed the trial court’s orders and remanded for further proceedings.
In In re Estate of Scott, an annuity company sued a customer’s estate for not reporting the death of his wife, which resulted in him receiving larger monthly payments after her death than he was entitled to under the contract. No. 04-19-00592-CV, 2020 Tex. App. LEXIS 4059 (Tex. App.—San Antonio May 27, 2020, no pet. history). The customer died in 2013, and the annuity company discovered the overpayments in 2014. In 2016, the annuity company filed suit against the customer’s estate for the overpayments. Both parties filed summary judgment motions, and the trial court entered judgment for the annuity company. The estate appealed.
The court of appeals reversed and rendered for the estate. The court first addressed the annuity company’s breach of contract claim. The court held that the contract did not expressly or impliedly require the surviving spouse to report the death of the first spouse. The court held:
In sum, the annuity contract, taken as a whole, does not evidence an intent to impose an implied obligation on Harold to notify Principal of Emily’s death or an implied obligation to return money Harold received in excess of the stated contract amount. Moreover, it is undisputed that this was Principal’s contract. “In Texas, a writing is generally construed most strictly against its author and in such a manner as to reach a reasonable result consistent with the apparent intent of the parties.” Principal, a sophisticated commercial enterprise, did not include express provisions requiring Harold to notify Principal of Emily’s death or to return money received in excess of the stated contract amount. The annuity contract, as written, does not evidence an intent to imply these obligations. Because we conclude the annuity contract, taken as a whole, does not support imposition of an implied obligation on Harold to notify Principal of Emily’s death or an implied obligation to return money Harold received in excess of the stated contract amount, Principal cannot show Harold breached the annuity contract.
The court then reviewed the annuity company’s money-had-and-received claim. The court described the claim thusly: “Money had and received is an equitable doctrine designed to prevent unjust enrichment. To prevail on a claim for money had and received, the plaintiff need only prove that the defendant holds money which in equity and good conscience belongs to the plaintiff.” Id. The court held that the claim was barred by the two-year statute of limitations as the annuity company did not file its claim within two years of discovering the overpayments.
Finally, the court rejected the annuity company’s fraud by nondisclosure claim. To establish fraud by non-disclosure, “Principal must prove: (1) Harold deliberately failed to disclose material facts; (2) Harold had a duty to disclose such facts to Principal; (3) Principal was ignorant of the facts and did not have an equal opportunity to discover them; (4) by failing to disclose the facts, Harold intended to induce Principal to act or refrain from acting; and (5) Principal relied on the non-disclosure, which resulted in injury.” Id. The court held that the annuity company had an equal opportunity to discover its customer’s death:
Principal had an equal opportunity to discover Emily’s death. Principal had internal procedures in place to discover this very type of information. Angela Essick, Principal’s corporate representative, testified that between 2001 and the present, Principal utilized a third-party company and the Social Security Master Index to provide it with a list of names and social security numbers of the deceased on a quarterly basis. Principal would compare these names and social security numbers with those of its annuitants. Principal failed to discover Emily’s death through these channels because it never obtained Emily’s social security number. Principal cannot rely on its internal oversight to claim it did not have an equal opportunity to discover Emily’s death.
Id. Accordingly, the court dismissed all of the annuity company’s claims and rendered judgment for the estate of the customer.
Author David F. Johnson has been named to the board of directors for the Texas Board of Legal Specialization (TBLS). David will serve a three-year term beginning in July of 2020. The TBLS board is composed of twelve members appointed by the President of the State Bar of Texas, with the approval of its Board of Directors. The TBLS was established in 1974 by the Supreme Court of Texas. TBLS certifies lawyers and paralegals that have substantial, relevant experience in select areas of law, completed continuing legal education hours in the specialty area, and passed a rigorous exam. Out of 110,000 lawyers that are licensed to practice in Texas, only 7,400 are Board Certified. David one of less than thirty attorneys in Texas who are Board Certified in Civil Appellate Law, Civil Trial Law, and Personal Injury Trial Law. David’s main practice area is fiduciary litigation.
In Hanschen v. Hanschen, a trustee challenged a default judgment. No. 05-19-01134-CV, 2020 Tex. App. LEXIS 4075 (Tex. App.—Dallas May 28, 2020, no pet. history). The family sued the trustee in his personal capacity and in his capacity as trustee for breaching fiduciary duties. While the trustee was in Texas, the family served him in his personal capacity. The family then obtained a default judgment against him in both capacities when he did not file an answer. Later, the trustee filed a special appearance challenging the court’s personal jurisdiction, and the trial granted the motion. The family then appealed.
The court of appeals reversed the special appearance against the trustee in his personal capacity. The court held that because the trustee was personally served in Texas, the trial court had personal jurisdiction over him:
In this case, the family personally served James with the petition and citation while he was in Texas. The family concedes they “have never asserted that Texas has general jurisdiction over James or that the traditional minimum contacts analysis would be met in the absence of his physical presence.” They are correct and the case law is clear that a trial court has authority to exercise in personam jurisdiction over a nonresident where the court’s jurisdiction grew out of the personal service of citation upon the nonresident within the state. A nonresident, merely by reason of his nonresidence, is not exempt from a court’s jurisdiction if he voluntarily comes to the state and thus is within the territorial limits of such jurisdiction and can be duly served with process.
Id. The trustee also argued that the court did not have adequate jurisdiction over him in his personal capacity because there were no claims against him in that capacity, but the court of appeals disagreed:
While we may agree with James that the default judgment granted relief against the entities for which it would be necessary for Texas courts to have jurisdiction over James in representative capacities, the family’s petition pleaded causes of action against James individually for breaches of fiduciary duties arising from his role as trustee of the Progeny Trust and his roles in NBR-C2, NBR-C3, and NBR-Needham. The family seeks exemplary damages against James for these alleged breaches of fiduciary duties. James does not make a specific argument why these claims are not pleaded against him personally. In Texas, generally an agent is personally liable for his own tortious conduct. For these reasons, we agree with the family that James was personally served with process in Texas, so the trial court has personal jurisdiction over him in that capacity.
The court of appeals then turned to whether the trial court had personal jurisdiction over the trustee in his capacity as trustee. The court noted that the citation was not issued to him in that capacity. The court held that this defect was dispositive and affirmed the special appearance for the trustee in his representative capacity:
We have held, “[t]he capacity in which a non-resident has contact with a forum state must be considered in the jurisdictional analysis.” James was not served with a citation directed to him in any representative capacity; only “JAMES HANSCHEN WHEREEVER HE MAY BE FOUND.” At oral argument, the family argued the listing of all the parties in the citation was sufficient to constitute service on James in each representative capacity he was listed as a defendant. We reject this contention and the family’s counsel acknowledged in oral argument a citation addressed to one defendant inadvertently served on a different, unrelated defendant would not constitute good service of process merely because all defendants’ names were in the list of defendants in the style of the lawsuit… In this case, James was not served with citations which were returned to the court clerk stating he had been served in his representative capacities. Any failure to comply with the rules regarding service of process renders the attempted service of process invalid, and the trial court acquires no personal jurisdiction over the defendant. A default judgment based on improper service is void. Accordingly, the trial court did not have personal jurisdiction over James in his representative capacities.