In Gonzalez v. De Leon, two sisters (Josefina and Delfina), as part of a family estate plan, transferred certain real property to a limited partnership, formed other limited partnerships to manage and develop the property, and formed a limited liability company to act as general partner of the limited partnerships. No. 04-14-00751-CV, 2015 Tex. App. LEXIS 8940 (Tex. App.—San Antonio Aug. 26, 2015, no pet. h.). Josefina and Delfina also established an irrevocable family trust which owned 90% of the limited partnership interests in the limited partnerships, and named themselves co-trustees of the family trust. Guerra (Josefina’s daughter) and her two children were the sole beneficiaries of the family trust. When Delfina died, her will named three individuals – Zaffirini, Arredondo, and Chapa – as co-executors of her estate and as co-trustees of a trust that contained the remainder of her estate. Around the same time, Zaffirini, Arredondo, and Chapa also became Josefina’s attorneys-in-fact under a power of attorney because Josefina was incapacitated. Zaffirini, Arredondo, and Chapa had complete control over the LLC, and therefore the limited partnerships.
After the two named successor trustees named in the family trust resigned or refused to serve, Guerra filed suit in district court to have a successor trustee appointed. In March 2012, the district court rendered judgment appointing De Leon as successor trustee of the family trust. Two years later, petitioners (Zaffirini, Arredondo, and Chapa in their capacities and/or on behalf of (i) attorneys-in-fact for Josefina, (ii) co-executors of Delfina’s estate, (iii) co-trustees of Delfina’s remainder-estate trust, (iv) the limited partnerships, and (v) the LLC) filed a bill of review seeking to set aside the 2012 judgment appointing De Leon as trustee of the family trust. The trial court granted De Leon’s and Guerra’s plea to the jurisdiction, finding that the petitioners did not have standing to pursue a bill of review. The court of appeals affirmed on the jurisdictional ground.
The court first examined the definition of an “interested person” under section 111.004(7) of the Trust Code. Section 115.011 of the Trust Code limits a person’s ability to bring an action related to a trust – only an “interested person” may bring such an action, which is defined as a “trustee, beneficiary, or any other person having an interest or claim against the trust or any person who is affected by the administration of the trust.” Tex. Prop. Code Ann. § 111.004(7).
Initially, the court recognized that there was “very little case law interpreting the meaning of the phrase ‘interested person.’” The court examined each one of the claimed capacities and held that none of the petitioners had shown that they were an “interested person” for purposes of the statute. Under the family trust agreement, neither Josefina not Delfina managed any aspects of the family trust; thus, they were not affected by the administration of the family trust. Further, Delfina’s trust that consisted of the remainder of her estate was a separate entity from and unrelated to the family trust. Third, the LLC was controlled by Zaffirini, Arredondo, and Chapa and was not affected by the family trust, much less the trust’s administration. Fourth, in the various limited partnerships, the limited partners were passive and did not have a right to participate in the control of the business – only the LLC, as general partner, had that right. The court also highlighted the phrase “administration of a trust” under section 113.051 and held that although the limited partnerships might be affected by the actions of their limited partners, it did not necessarily follow that the limited partnerships were affected by the “administration” of the family trust.
Finally, the court also rejected petitioners’ argument that they had standing because the 2012 order appointing De Leon as successor trustee had ordered them to take certain action (i.e., deliver documents). In Texas, a party has standing to file a petition for bill of review if he/she was a party to the prior judgment or had a then existing interest or right which was prejudiced thereby. The court held that petitioners were not “ordered to take action” merely because the judgment required them to provide financial information regarding trust assets to the newly appointed successor trustee.
Interesting Note: The Gonzalez case involves the same litigants as the Zaffirini v. Guerra case. In Zaffirni, the court of appeals reversed a temporary injunction entered by the county court at law which prevented the trustee’s payment of attorney’s fees from the trust funds. Click here for a summary on that holding.