In Estate of Benson, a beneficiary of a trust sought to remove the trustee, her father, for allegedly violating his fiduciary duties in administering the trust assets. No. 04-15-00087-CV, 2015 Tex. App. LEXIS 9477 (Tex. App.—San Antonio Sept. 9, 2015, no pet. h.). The trustee’s relationship with the beneficiary and her adult children (who were remainder beneficiaries under the trust) became strained in December of 2014, when, according to the beneficiary, the trustee began exhibiting troubling behavior with them, as well as other business associates involved in managing trust assets. In a two-day evidentiary hearing, the beneficiary presented evidence that her father had cut off contact with her, banned her and her children from the trust’s assets’ facilities, and made a substantial and abrupt withdrawal from Lone Star Capital Bank, which the trust owned a 97% interest in and which placed the bank in an urgent situation. The beneficiary also presented evidence that the trustee had secretly relocated the office of the trust’s bookkeeper to the trustee’s condominium without telling anyone where she was going. Although the trustee himself did not testify at the hearing, he presented evidence that his relationship with the beneficiary was strained and that he no longer wanted any contact with them.
Following the hearing, the trial court entered an order appointing two temporary co-receivers to take control of the trust and the estate that created the trust, and further authorized the co-receivers to manage the business and financial affairs of the trust and essentially perform any actions necessary to preserve the trust’s value. A few days later, the court issued a temporary injunction enjoining the trustee from taking any action related to the trust.
The court of appeals reversed in part and dissolved the temporary injunction, but affirmed the appointment of the temporary co-receivers. As to the injunction, the court of appeals held that the injunction order was not sufficiently specific and therefore violated the Texas Rules of Civil Procedure. The trial court’s order merely stated in conclusory fashion that if not granted beneficiary “would be irreparably harmed,” but did not identify any injury that the beneficiary would suffer in the absence of an injunction. The court considered an addendum attached to the court’s injunction order, which did include a statement that the trustee’s actions could result in issues for Lone Star Capital Bank and its other depositors; however, the addendum did not identify how the beneficiary herself would suffer harm in the absence of an injunction.
However, the court rejected the trustee’s challenges to the appointment of temporary co-receivers and affirmed that part of the trial court’s order. The court determined that the trial court had some evidence that there was a breach of trust to support its decision to appoint co-receivers, relying on the evidence presented at the temporary injunction hearing. The trustee not only had a duty to exercise the care and judgment that he would exercise when managing his own affairs, but also a duty to fully disclose any material facts that might affect the beneficiary’s rights. Rejecting the trustee’s arguments that appointment of co-receivers could not be defended under requirements of equity, the court noted that the beneficiary had sought receivers under section 114.008(a)(5) of the Texas Property Code, not under equitable grounds. Under the statute, a movant need not prove the elements of equity; thus, the beneficiary in this case was not required to produce evidence of irreparable harm or lack of another remedy.
Interesting Note: The trustee in the case is Tom Benson, owner of the New Orleans Saints, the New Orleans Pelicans, and numerous car dealerships. The dispute with his daughter and grandchildren made national news after he announced that he was taking away future control of his assets from them and transferring them to his current (and third) wife. They in turn sued him, claiming he was not competent. News agencies reported that Benson’s current wife was manipulating him, including a claim that she was feeding him mainly candy, ice cream soda, and red wine. He issued a statement saying he was perfectly capable of handling his own affairs and vowed to fight the lawsuit.
Issue of First Impression: The court of appeals’ holding that the requirements of equity need not be satisfied for receivership applications under section 114.008 of the Texas Trust Code appears to be an issue of first impression. In another recent case involving a receivership appointment over trust assets, Elliott v. Weatherman, the court recognized the Texas Trust Code as providing separate authority for receivership appointments but held that even if a specific statutory provision authorized a receivership, “a trial court should not appoint a receiver if another remedy exists at law or in equity that is adequate and complete.” 396 S.W.3d 224, 228 (Tex. App.—Austin 2013, no pet.) (holding trial court abused its discretion in appointing a receiver over the property and citing cases not involving receiverships over trust property).
Additional Comment: The court’s dissolution of the injunction based on the beneficiary’s failure to show how she, specifically, had been harmed seems suspect. Under the Texas Trust Code, a beneficiary has standing to bring an action concerning the trust. See Tex. Prop. Code Ann. §§ 115.001, 115.011. The Trust Code expressly allows for actions “to remedy a breach of trust that has occurred or might occur….” Id. § 114.008(a). The Trust Code provisions do not require that the beneficiary himself or herself suffered harm. Practically speaking, the most obvious harm a beneficiary can suffer is when harm occurs, or – to borrow the language from the Trust Code – “might occur” to the trust property. Here, there was some evidence supporting the trial court’s finding of harm in the evidence of the effect on Lone Star Capital Bank, which the trust owned a 97% interest in.
Lesson: Practitioners should exercise caution in drafting injunction orders based on “forms” and should instead articulate the harm that will be suffered in the absence of an injunction. When in doubt, the authors suggest longer, rather than shorter explanations of the specific harm that will result.