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In In the Estate of Johnson, a decedent’s daughter filed a will contest after accepting over $146,000 from the estate. No. 05-18-01193-CV, 2019 Tex. App. LEXIS 9646 (Tex. App.—Dallas November 4, 2019, no pet.). The executrix filed a motion in limine challenging the daughter’s standing and asked the trial court to dismiss the will contest, which the trial court did. The daughter appealed.

The court of appeals first addressed whether the daughter had standing to file a will contest. The court held that “[d]evisees and heirs-at-law are interested persons.” Id. (citing Tex. Est. Code § 20.018). The court concluded:

Though Lisa Jo claims that Tia did not meet this burden because she failed to introduce the Will into evidence with her petition, we assume the trial court took judicial notice of the Will and its contents, as well as the inventory, which was in the trial court’s files. Because the face of the Will established Tia’s standing as a devisee and an heir-at-law, Tia satisfied her threshold burden.

Id. The court then reviewed the estoppel defense arising from the daughter’s acceptance of estate assets. The court reviewed the law and its own precedent on estoppel in this context: Continue Reading Court Holds That Will Contestant Was Not Estopped From Challenging The Will Due To Accepting Assets

 

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David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, was selected for JD Supra’s “Most Popular Estate Planning Reads in 2019.”

The blog post, “Court Holds That a Will Left a Partial Intestacy,” is listed as the #9 most well-read estate planning article published by JD Supra in 2019.  Click here to view the complete list.  

David serves as the managing shareholder of Winstead’s Fort Worth office.   He maintains an active trial practice focused on advising and representing clients in the financial services industry.  David is one of twenty attorneys in the state of Texas (of 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

In In re Troy S. Poe Trust, trustees of a trust that was embroiled in litigation filed suit to modify the trust to increase the number of trustees and change the method for trustees to vote on issues. No. 08-18-00074-CV, 2019 Tex. App. LEXIS 7838 (Tex. App.—El Paso August 28, 2019, no pet.). After the trial court granted the modification, a party to the proceeding appealed and argued that the trial court erred in refusing him a jury trial on initial issues of fact.

The court of appeals first looked at a party’s general right to a jury trial in Texas:

 The Texas Constitution addresses the right to a jury trial in two distinct provisions. The first, found in the Bill of Rights, provides that the “right of trial by jury shall remain inviolate.” But this provision has been held to “maintain a right to trial by jury for those actions, or analogous actions, tried by jury when the Constitution was adopted in 1876.” And Richard has not shown that trust modifications were tried to a jury in 1876 or before. The Texas Constitution also contains another provision governing jury trials in its judiciary article: “In the trial of all causes in the District Courts, the plaintiff or defendant shall, upon application made in open court, have the right of trial by jury; but no jury shall be empaneled in any civil case unless demanded by a party to the case, and a jury fee be paid by the party demanding a jury, for such sum, and with such exceptions as may be prescribed by the Legislature.” This section is broader than the Section 15 right to jury in the sense that it does not depend on court practice in 1876 or before. It is narrower in the sense that it only applies to “causes.” But the Texas Supreme Court views the term “causes” expansively, and that court has only restricted the right to jury trial in specific contexts where “some special reason” made jury trials unsuitable, such civil contempt proceedings, election contests, suits to remove a sheriff, and appeals in administrative proceedings. The Texas Constitution also gives the legislature authority to regulate jury trials to maintain their “purity and efficiency.” In that regard, we look to the statutory framework to determine whether parties possess a right to a jury trial.

Id. (internal citation omitted). The court then analyzed whether the Texas Property Code waived a party’s right to a jury trial regarding a claim to modify a trust: Continue Reading Court Holds That A Party Was Entitled To A Jury Trial On Initial Issues Before A Trial Court Could Modify A Trust

In In re Estate of Poe, the son of a car dealership owner who was frozen out of control of the business by the dying father’s decision to issue new stock sued his father’s estate, trust, and officers of the business. No. 08-18-00015-CV, 2019 Tex. App. LEXIS 7842 (Tex. App.—El Paso August 28, 2019, no pet. history). The court of appeals held that the son had the burden to overcome the business judgment rule as a part of his breach of fiduciary duty claim. The court held that the son’s claim that the directors breached their duty by delegating responsibilities to others failed:

Bound up within the duty of care is the obligation to actually manage the affairs of the corporation. Yet we do not read into that duty the obligation to micromanage corporate affairs. Good corporate boards often rely on skilled employees to handle day-to-day operating decisions. Nothing suggests that Bock and Castro did not do that here. They continued the employment of two long-time managers at the Dodge and Chrysler dealerships, both of which Dick had originally hired. Sergent explained they did so to keep a continuity of experienced management who had relationships with the employees. They retained John Attel and initially placed him in charge of the parts and service departments of the dealerships. No witness criticized, or even specifically analyzed the profitability of those departments. Attel was later promoted to general manager, but with the approval of Chrysler. Finally, the board regularly met with management, and reviewed financials. We find no evidence of the breach of the duty of care in this record and the directed verdict was properly granted on that claim.

Id. The court found that the issue of whether the directors breached their duties by hiring a director to do legal work should have gone to the jury:

 Officers or directors self-deal when they make a personal profit from a transaction by dealing with the corporation. The burden of proof is on the interested officer or director to show that the action under consideration is fair to the corporation. As interested director transactions, each of the billings for professional services we note above might well be justified as fair to the corporation. The rates charged may have been appropriate for the service rendered. The burden of fairness, however, fell on the interested directors and not Richard. Just as Richard failed to explain the business decisions in sufficient detail for us to conclude there was some evidence of a violation of the business judgment rule, the record is similarly limited, or at least conflicting, on the fairness issue for these billings. We therefore remand the claims for disgorgement under the fiduciary duty of loyalty claim as to Bock and Sergent.

Id. The court then reviewed the conspiracy to breach fiduciary duty claims against the individual defendants, and held that those claims were properly dismissed because there was no evidence that they knew of an improper purpose in the transactions.

David F. Johnson presented his paper “The Use of Arbitration, Forum-Selection, and Jury-Waiver Clauses in Trust and Estate Litigation in Texas” to the Texas Bar Association’s Fiduciary Litigation Course in San Antonio on December 5, 2019. This presentation discussed the general purposes for those clauses, the standards for enforcement, procedural aspects of enforcement, the impact of choice-of-law clauses, and most importantly, current authority from across the county on using those clauses in trust and estate disputes. The paper and presentation are attached below.

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

In Klinek v. Luxeyard, Inc., a company sued its majority shareholder in a suit for breach of fiduciary duty arising from a pump-and-dump scheme and later settled that claim. No. 14-17-00899-C, 2019 Tex. App. LEXIS 9421 (Tex. App.—Houston [14th Dist.] October 29, 2019, no pet. history). The company then sued a third party for common-law fraud, unjust enrichment, and for conspiring in a breach of fiduciary duty, but asserted no claims for breach of fiduciary duty. After a lengthy bench trial, the trial court ordered the defendant to pay the company $395,146.63 as equitable disgorgement of profits from the sale of free-trading shares. The defendant appealed.

The defendant alleged that the trial court should have dismissed the conspiracy to breach fiduciary duty claim because the party who owed the fiduciary duty was not a party to the case and had previously settled his claim. The court of appealed disagreed:

We are not persuaded that the underlying tortfeasor must be sued in the same suit with the conspirators. If this were so, then a plaintiff who learned of the conspiracy or of additional conspirators after successfully suing the tortfeasor could not prevail against the tortfeasor’s confederates. The claims would be defeated not because the plaintiff was unable to prove the underlying tort, but because the plaintiff already had proved it. Such a result seems inconsistent with the Texas Supreme Court’s recent statement that “a civil conspiracy claim is connected to the underlying tort and survives or fails alongside it.” Nor do we think the result is changed if the plaintiff settled the claims against the tortfeasor. The legislature has declared that “[i]t is the policy of this state to encourage the peaceable resolution of disputes . . . and the early settlement of pending litigation through voluntary settlement procedures.” Texas courts likewise “promote a public policy that encourages settlements.” If the plaintiff and the tortfeasor have reached a compromise agreement, requiring the plaintiff to continue litigating the resolved claim in order to prove a different defendant’s liability “would contravene the policy of the courts to encourage settlements and to minimize litigation.” Further, “[c]ivil conspiracy depends entirely on the injury caused by the underlying tort,” and a party may prosecute consecutive suits against different defendants for a single indivisible injury. This is true regardless of whether the various defendants are joint tortfeasors. The plaintiff may even bring the second suit after the first case settles… On the particular facts presented in this case, we conclude that LuxeYard’s claim against Klinek for conspiring in Casey’s breach of fiduciary duty is not foreclosed by LuxeYard’s settlement of such claims against Casey in a separate suit.

Id.

The court of appeals then reviewed whether the majority shareholder owed fiduciary duties. The court held that that issue was controlled by Delaware law as the company was a Delaware company. Under Delaware law, a controlling shareholder who exercises actual control of the board of directors has the same fiduciary duties as a director. The court also found that there was evidenced that the majority shareholder breached his duties by conducting concealed transactions, that put free-trading shares in the hands of his confederates, who used them to execute, and to profit by, the pump-and-dump scheme.

The court then held that there was sufficient evidence that the defendant conspired with the majority shareholder even though there was no evidence of direct communications about the scheme:

In arguing that there is no evidence to support the trial court’s determination that Klinek conspired in Casey’s breach of fiduciary duty, Klinek states that his only direct contact with Casey was a single email confirming that Klinek would proceed with the investment, although Bahr also forwarded to Klinek emails written by Casey. But direct communication with the primary tortfeasor is not an essential element of conspiracy, and there is evidence supporting an inference that communications with Klinek about the conspiracy were passed through Bahr. For example, on March 9, 2012, 105,000 shares of LuxeYard were traded, and the 100,000 shares Klinek bought had been sold by Friedlander’s company Equity Highrise to fund the unauthorized “marketing blitz” that artificially inflated the price of LuxeYard’s shares. While there is no evidence that Klinek and Friedlander spoke together directly, each of them had frequent phone conversations with Bahr preceding the trade, from which the trial court could infer that this trade was a “matched order.” Bahr also testified that he had over a hundred phone calls with Casey after Casey introduced him to LuxeYard, and about a dozen emails; however, Bahr claimed that his computer hard-drive crashed in April 2012 so that there is no record of the emails. Presumably, the trial court did not find this explanation credible.

Id. The court affirmed the judgment for the plaintiff company against the conspiracy defendant.

In Budri v. FirstFleet, Inc., an employee sued his employer and supervisor for a number of causes of action, including a claim for breach of fiduciary duty. No. 3:19-CV-0409-N-BH, 2019 U.S. Dist. LEXIS 188251 (N.D. Tex. September 20, 2019). The federal magistrate recommended dismissing the breach of fiduciary duty claim because there were no allegations that supported the defendants owing a fiduciary duty to the employee:

Under Texas law, the essential elements of a breach of fiduciary duty claim are “(1) a fiduciary relationship must exist between the plaintiff and defendant; (2) the defendant must have breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach must result in injury to the plaintiff or benefit to the defendant.” Hunn v. Dan Wilson Homes, Inc., 789 F.3d 573, 581 (5th Cir. 2015) (quoting Graham Mortg. Corp. v. Hall, 307 S.W.3d 472, 479 (Tex. App.—Dallas 2010, no pet.)). Whether a party owes a fiduciary duty is a question of law. Meyer v. Cathey, 167 S.W.3d 327, 330 (Tex. 2005). Courts impose fiduciary duties on parties based on the special nature of the relationships between such parties. Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 199 (Tex. 2002). A fiduciary duty arises from certain formal relationships as a matter of law, such as an attorney-client or trustee relationship. Id. Courts also recognize an informal fiduciary duty that arises from “a moral, social, domestic or purely personal relationship of trust and confidence.” Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998). Here, Plaintiff alleges that on January 30, 2017, he put in a request to purchase a new headlamp bulb to replace the burnt-out bulb in his commercial truck as was necessary to comply with safety regulations, but Supervisor denied his request. Plaintiff contends by denying his request, Supervisor breached his fiduciary duty by failing to comply with a provision in the employee handbook that required him to assist Plaintiff while he was on the road, and to authorize electronic payments to allow him to pay for “parts and/or accessories of the truck equipment for minor repairs . . . to be made by the . . . [him] on the road” in order to comply with safety regulations. (Id.) Although Plaintiff appears to allege that Supervisor owed him a duty to assist him while on the road, he fails to identify any “special relationship” between him and Supervisor or any other Defendant, and he fails to allege how any breach directly resulted in an injury to him. (See id.) Even accepting all of his allegations as true, Plaintiff fails to state a claim for breach of fiduciary duty, and this claim should be dismissed. See Richardson v. Ocwen Loan Servicing, LLC, No. 3:13-CV-2578-O, 2014 U.S. Dist. LEXIS 177318, 2014 WL 7336890, at *7-8 (N.D. Tex. Dec. 24, 2014) (dismissing breach of fiduciary duty claims where plaintiff failed to allege existence of a “special relationship of trust and confidence”); see also Johnson v. Affiliated Computer Servs., Inc., No. 3:10-CV-2333-B, 2011 U.S. Dist. LEXIS 102128, 2011 WL 4011429, at *6 (N.D. Tex. Sept. 9, 2011) (dismissing breach of fiduciary duty claim where plaintiff failed to plead sufficient facts that would indicate the existence of a fiduciary duty owed by the defendant); cf. Kardell v. Union Bankers Ins. Co., No. 05-01-00662-CV, 2002 Tex. App. LEXIS 5760, 2002 WL 1809867, at *7 (Tex. App.—Dallas Aug. 8, 2002, no pet.) (finding that a fiduciary duty did not exist between an employer and employee “based solely on the length of the employment relationship and the employee’s subjective trust of the employer.” (citing cases)).

Id.

In Melton v. Waddell, a sister sued her brother for breach of fiduciary duty for misapplying funds in a joint account and not properly allocating revenues from real estate that they owned as tenants in common. No. 07-18-00105-CV, 2019 Tex. App. LEXIS 9531 (Tex. App.—Amarillo October 30, 2019, no pet. history). The brother filed a motion for summary judgment alleging that the statute of limitations had run because the sister had access to the account and could have discovered the alleged breaches of fiduciary duty. The trial court granted the motion, and the sister appealed.

The court of appeals held that the brother had the duty to establish when the statute of limitations accrued and to disprove the application of the discovery rule. Regarding the discovery rule, the court held that there was a fact issue:

The discovery rule applies in instances of breached fiduciary duty. Goughnour v. Patterson, No. 12-17-00234-CV, 2019 Tex. App. LEXIS 1665, at *8-9 (Tex. App.—Tyler Mar. 5, 2019, pet. filed) (mem. op.). Normally, under that rule, the accrual of a cause of action is deferred until the  plaintiff knew or, in exercising reasonable diligence, should have known of facts giving rise to the claim. Id. at *8. Yet, the second prong of the test is inapplicable in fiduciary situations. Id. That is, our Supreme Court deemed a fiduciary’s misconduct to be inherently undiscoverable. S.V. v. R.V., 933 S.W.2d 1, 8 (Tex. 1996). So, the person to whom the fiduciary duty is owed is relieved of the responsibility of diligent inquiry. Id. That means the cause accrues when the misconduct becomes known or apparent. See id.; Goughnour, 2019 Tex. App. LEXIS 1665, at *8-9. Consequently, Rhea’s ready access to the account and her ability to have discovered the alleged misconduct had she used diligence is irrelevant given the alleged fiduciary relationship. Furthermore, Rhea proffered summary judgment evidence indicating that she did not know of his supposed misconduct until 2015. Having filed suit in 2016, a material issue of fact existed as to whether the four-year limitations period had lapsed. See Agar Corp. v. Electro Circuits Int’l, L.L.C., 580 S.W.3d 136, 139 (Tex. 2019) (noting that the four-year period applies to claims of breached fiduciary duty).

Id. The court also held that the brother’s summary judgment motion did not address the sister’s other claims, especially the claim that the brother did not properly allocate revenues from their cattle operation. The court reversed the trial court’s summary judgment.

In In re Estate of Ethridge, a testatrix signed a will that provided that “all my personal effects” would be devised to her nephew in law and that her half interest in a home went to another person. No. 11-17-00291-CV, 2019 Tex. App. LEXIS 9564 (Tex. App.—Eastland October 31, 2019, no pet.). The trial court concluded that the term “all my personal effects” did not include all of the testatrix’s property other than the home, and that she died partially intestate. The nephew in law, who had argued to the contrary, appealed.

The court of appeals described the commonly understood meaning of “personal effects”:

Personal effects has customarily been defined narrowly as a subset of personal property. Estate of Neal, No. 02-16-00381-CV, 2018 Tex. App. LEXIS 120, 2018 WL 283780, at *4 (Tex. App.—Fort Worth Jan. 4, 2018, no pet.) (mem. op.). The term generally refers to articles bearing intimate relation or association to the person of the testator. Id.; see also Dearman v. Dutschmann, 739 S.W.2d 454, 455 (Tex. App.—Corpus Christi 1987, writ denied) (explaining that “personal effects” are “articles of personal property” that bear an intimate relation to a person, such as “clothing, jewelry, and similar chattels”); Teaff v. Ritchey, 622 S.W.2d 589, 591-92 (Tex. App.—Amarillo 1981, no writ) (defining “personal effects” to include items such as “clothes, toilet articles, eye glasses[,] and dentures”); First Methodist Episcopal Church S. v. Anderson, 110 S.W.2d 1177, 1182 (Tex. App.—Dallas 1937, writ dism’d) (finding “personal effects” to mean “articles pertaining to or associated with the person of the deceased, such as wearing apparel, luggage, jewelry, and the like”). “[W]here the meaning of the language used in the will has been settled by usage and sanctioned by judicial decisions, it is presumed to be used in the sense that the law has given to it, and should be so construed, unless the context of the will shows a clear intention to the contrary.” Stephens v. Beard, 485 S.W.3d 914, 917 (Tex. 2016) (alteration in original) (quoting Mitchell v. Mitchell, 151 Tex. 1, 244 S.W.2d 803, 806 (Tex. 1951)). As was the case in Stephens, Mildred’s will does not clearly demonstrate an intent to use “personal effects” contrary to its well-settled legal usage. See id.

Id. The court held that mineral interests do not fall within the typical definition of personal effects. The court held “it does not appear that Mildred intended ‘personal effects’ to include any of her real property.” Id.

The court held that because the testatrix’s will did not contain a residuary clause, it failed to dispose of all of her property and she died partially intestate. The court held that the following presumption did not apply: “[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.” Id. Finally, the court affirmed the trial court’s finding that the nephew in law had improperly taken possession of assets of the estate.