In In re Topletz, the trial court ordered a party jailed for civil contempt for failing to comply with an order to produce documents from a family-run trust during post-judgment discovery in a suit against him individually where the party contended the documents were not within his possession, custody, or control. No. 05-19-00327-CV, 2019 Tex. App. LEXIS 8249 (Tex. App.—Dallas September 11, 2019, original proceeding). The party was a beneficiary of a trust that provided that the beneficiaries had the right to access the trust’s books and records. During post-judgment discovery, the parties agreed that the party would produce the trust instrument and tax returns from the trust subject to a protective order. After changing attorneys, the party refused to produce documents from the trust, citing In re Kuntz, 124 S.W.3d 179 (Tex. 2003) as legal authority that he did not have possession of the trust documents. Ultimately, the trial court ordered the party to produce the documents, and when he refused, the trial court held him in contempt and placed him in jail. The party then filed a petition for habeas corpus.
The court of appeals first described the Supreme Court’s Kuntz opinion:
In In re Kuntz, the relator was a manager at a consulting company that evaluated oil and gas prospects for an oil company. The favorable prospects were documented in letters of recommendation that were kept at both the consulting firm and the oil company. The consulting agreement between Kuntz’s employer and the oil company provided that the letters and associated information are the property of the oil company and may not be disclosed to a third party without the oil company’s consent. The consulting firm’s operation agreement required Kuntz to keep the information the company generated confidential and prohibited disclosure without the written consent of the company’s board. Kuntz’s ex-wife sought production of the letters as part of post-judgment discovery in the couple’s divorce case. After the trial court ordered production of the letters, Kuntz pursued mandamus relief, arguing that he did not have possession, custody or control of the letters. The supreme court agreed with Kuntz, holding that mere access to the documents does not constitute physical possession in a situation where the person with access does not have a legal right to produce the relevant documents. The court noted that if Kuntz produced the documents, he would not only be violating his company’s consulting agreement with the oil company, he would also be potentially exposing himself to a suit for damages.
Id. The party contended that like Kuntz, the trust instrument gives him access to the documents but does not permit him to copy the documents and produce them in discovery. The court disagreed and held:
Under the terms of the trust, relator, as beneficiary, has the right to access the documents at any time during regular business hours and the right to obtain prepared summary information in the form of a profit and loss statement and balance sheet toward the end of each fiscal year. Thus, unlike the defendant in Kuntz, relator has a right to access and no contractual impediment to production. As beneficiary of the trust, relator has the right to obtain possession from the trustee who is his agent. Thus, we conclude appellant has constructive possession of the trust’s financial documents and tax returns as was recognized by his former counsel who agreed to produce the documents.
Id. The court affirmed the trial court’s contempt order.
Interesting Note. This case raises an interesting issue concerning the right to access and provide trust information. Typically, a trustee has the right to control access to the trust information and has a duty of loyalty to beneficiaries. This duty of loyalty typically also includes a duty of confidentiality. Regarding the duty of loyalty, the Restatement of Trusts states:
(1) Except as otherwise provided in the terms of the trust, a trustee has a duty to administer the trust solely in the interest of the beneficiaries, or solely in furtherance of its charitable purpose.
(2) Except in discrete circumstances, the trustee is strictly prohibited from engaging in transactions that involve self-dealing or that otherwise involve or create a conflict between the trustee’s fiduciary duties and personal interests.
(3) Whether acting in a fiduciary or personal capacity, a trustee has a duty in dealing with a beneficiary to deal fairly and to communicate to the beneficiary all material facts the trustee knows or should know in connection with the matter.
Restatement (Third) of Trusts, § 78. It further provides:
The trustee is under a duty to the beneficiary in administering the trust not to be guided by the interest of any third person. Thus, it is improper for the trustee to sell trust property to a third person for the purpose of benefiting the third person rather than the trust estate.…The trustee is under a duty to the beneficiary not to disclose to a third person information which he has acquired as trustee where he should know that the effect of such disclosure would be detrimental to the interest of the beneficiary.
Restatement (Second) of Trusts §170. Further, the Restatement provides a duty of confidentiality to prevent the disclosure of trust information to third parties:
Incident to the duty of loyalty, but necessarily more flexible in its application, is the trustee’s duty to preserve the confidentiality and privacy of trust information from disclosure to third persons, except as required by law (e.g., rules of regulatory, supervisory, or taxing authorities) or as necessary or appropriate to proper administration of the trust. Thus, the trustee’s duty of loyalty carries with it a related duty to avoid unwarranted disclosure of information acquired as trustee whenever the trustee should know that the effect of disclosure would be detrimental to possible transactions involving the trust estate or otherwise to the interests of the beneficiaries.
Restatement (Third) of Trusts §78.
So, as a general proposition, a trustee should not administer the trust to benefit anyone but the beneficiary. Even though the trust provides that the beneficiary has a right to access certain information, a trustee may determine that allowing a beneficiary to access that information to provide it to a third party is not appropriate, especially if it is a spendthrift trust and the information is sought by a creditor of the beneficiary.
In the case described above, the beneficiary should have “sought” the trust’s information and have the trustee refuse to provide it for the purpose sought. The beneficiary then could have provided evidence to the trial court that he sought and was denied trust information to defend his inability to access the information. It seems that the judgment creditor should have then been in the position of having to subpoena the trustee for the information. The trustee is really the correct party for a request for information about the trust; not the beneficiary.