Texas Fiduciary Litigator

Texas Fiduciary Litigator

The Intersection of Texas Courts and the Fiduciary field

Court Affirmed Judgment Against Trust Settlor Who Raised Fraud And Other Related Claims Against An Insurance Agent

Posted in Cases Decided, Texas Court of Appeals

In Jessen v. Duvall, an investor who established trusts to purchase life insurance policies sued an insurance agent for tort claims, including fraud, conspiracy, and aiding and abetting breach of fiduciary duty based on the insurance policies not being good investments and the investor losing more than $3.2 million dollars. No. 14-16-00869-CV, 2018 Tex. App. LEXIS 1369 (Tex. App.—Houston [14th Dist.] February 22, 2018, no pet. history). Three alleged events formed the plaintiff’s claims: the defendant mispresenting the resale value of the policies, the failure to disclose the commission structure of the policies, and that he failed to disclose that he paid a referral fee to the plaintiff’s tax attorney’s son. The defendant filed a motion for summary judgment, which the trial court granted. The plaintiff appealed.

The court of appeals first addressed whether the plaintiff had standing to assert the claims because the insurance policies were owned by the trusts and the plaintiff was not the trustee. The court of appeals held that the plaintiff did have standing because he asserted claims based on the advice given to acquire the policies and not a breach of contract claim under the policy:

[W]hile it is undisputed that the trustees purchased and sold the insurance policies, Jessen does not pursue claims based on duties created by the policies (contractual claims). Rather, Jessen asserts claims arising under state law (extra-contractual claims). Specifically, Jessen’s claims for fraud, aiding and abetting and conspiracy to breach a fiduciary duty, and equitable theories remain viable because he seeks redress for misrepresentations made to him prior to the trusts being created and policies purchased. There is no indication here that Jessen assigned or relinquished the extra-contractual causes of action to the trustees. As such, Jessen has standing to assert them in this litigation. See Lee v. Rogers Agency, 517 S.W.3d 137, 144-153 (Tex. App.—Texarkana 2016, pet. filed) (op. on rehearing).

Id. Regarding the claims based on the alleged failure to disclose the market value of the policies, the court held that the plaintiff failed to provide evidence that the defendant made any representations, indirectly, regarding the future market value of the policies, caused the reduced market value of the policies, or caused the plaintiff to receive a reduced value by some fraud or conspiracy. Rather, the court stated that the defendant was the only party to offer an explanation as to why the policies were sold at a loss by submitting an uncontroverted affidavit of the vice president of a company that traded in life policies, who attested to the financial collapse in the life insurance industry in 2008 and the negative financial impact it had on the resale market for life insurance policies. The court concluded that the plaintiff proffered no evidence that the reduced resale value of the policies was the result of anything more than unforeseen market conditions.

Regarding the commission structure, the court held that there was no evidence that the defendant had a duty to disclose the commission structure or that the commissions received by him were the result of a conspiracy to defraud. The evidence demonstrated that the commission was in line with industry standards, and the court held that there was no evidence that the defendant had a duty to disclosure the commission structure that was within industry norms. Moreover, in terms of damages, the plaintiff did not show he was damaged by the defendant receiving a commission as the plaintiff’s damages were based upon the decreased resale value of the life policies.

Regarding the referral fee, the plaintiff maintained that the nondisclosure of the referral fee paid by defendant was fraudulent. The court held that it was undisputed that referral fees were customary in the insurance industry and that defendant gave up part of his compensation to pay a referral fee. There was no evidence that the plaintiff paid more for the policies due to the referral fee, and the court held that there was no evidence that the defendant had any duty to disclose the referral fee. The court affirmed the summary judgment on the fraud and conspiracy to commit fraud claims.

The court then turned to the aiding and abetting breach of fiduciary duty claims. The plaintiff alleged that the defendant’s nondisclosure of the referral fee provided substantial assistance in his tax attorney’s breach of his fiduciary duty by “secretly agreeing to and then paying Bond’s son a part of the commission generated from the sale of the insurance policies to Plaintiff.” Id. “To establish aiding and abetting, the plaintiff must demonstrate that the defendant, with unlawful intent, substantially assisted and encouraged a wrongdoer in a tortious act.” The court noted that “[a]iding and abetting is a dependent claim which is premised on an underlying tort.” Id. The court then held that because the plaintiff failed to establish his breach of fiduciary duty claim against his attorney, his aiding and abetting claim also failed:

With respect to the second element, Jessen contends “Jessen has submitted evidence that Bond breached that fiduciary duty by enticing Jessen to participate in the scheme alleged, while knowing that Jessen would not be able to sell the policies for a substantial profit in the manner intended.” Jessen further claims “there is evidence that Duvall paid Jessen’s attorney Bond a kickback in order to induce him to recommend that Jessen invest in the insurance policies at issue.” … Jessen makes no reference to any part of the Texas Disciplinary Rules of Professional Conduct or case law to support his claim that Bond breached his fiduciary duty. Without the underlying tort being established, there can be no claims of aiding and abetting a breach of Bond’s fiduciary duty and/or conspiracy to breach Bond’s fiduciary duty. Moreover, even assuming, arguendo, that Jessen could establish the underlying tort, there is no evidence of Duvall knowingly aiding and abetting Bond, Sr. with such a breach. Similarly, there is no evidence of any meeting of the minds between Duvall and Bond to breach Bond, Sr.’s, fiduciary duty to Jessen. Because Jessen failed to raise any evidence to support his claim of aiding and abetting and conspiracy to breach fiduciary duty claim, summary judgment was proper.

Id. The court of appeals affirmed the summary judgment on all of the plaintiff’s claims.


Court Affirms Punitive Damages In A Breach-Of-Fiduciary-Duty/Partnership Dispute

Posted in Cases Decided, Texas Court of Appeals

In Home Comfortable Supplies, Inc. v. Cooper, the defendant induced others to start a new limited partnership with his corporation. No. 14-16-00906-CV, 2018 Tex. App. LEXIS 1381 (Tex. App.—Houston [14th Dist.] February 22, 2018, no pet. history). Among other things, he then seized the new business’s tangible assets and gave the use of the assets to a new company formed by his wife. The plaintiffs sued for fraudulent inducement, breach of fiduciary duty, conversion, and breach of contract, and trial court awarded actual damages, punitive damages, and attorney’s fees. On appeal, the defendant argued that the only actual damages proven and awarded were for breach of contract, which did not support an award of punitive damages. The defendant did not ask the trial court to identify the actual damages awarded or link them to a specific cause of action.

The court of appeals first described an appealing party’s duty to request findings:

Unchallenged findings of fact bind the appellate court unless the contrary is established as a matter of law or no evidence supports the finding. McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986). If the factual findings include at least one element of a given ground of recovery or defense, any omitted unrequested elements that are supported by the evidence are supplied by a presumption in support of the judgment. Tex. R. Civ. P. 299. Although a party can avoid a presumed finding by requesting additional or amended findings that include the omitted element, see Tex. R. Civ. P. 298, no such request was made here.

The court then held that there was evidence to support a finding of breach of fiduciary duty, which would support the award of punitive damages:

Punitive damages also are available for breach of fiduciary duty. See Manges v. Guerra, 673 S.W.2d 180, 184 (Tex. 1984) (op. on reh’g). Partners share “the obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise.” Bohatch v. Butler & Binion, 977 S.W.2d 543, 545 (Tex. 1998). Zhao and Home Comfortable Supplies do not challenge the trial court’s findings that clear and convincing evidence establishes that Zhao, individually and as president of Home Comfortable Supplies, wrongfully took possession and control of Paragon’s business assets and transferred them with the intention of destroying Paragon’s business, harming Paragon’s partners, and enriching himself. Thus, damages may have been awarded for breach of fiduciary duty. These damages may have included the value of Cooper’s and Bonner’s interest in Paragon’s assets, if the assets had been liquidated as required, as well as the money Cooper invested to obtain a larger membership interest in the General Partner.

Id. Thus, the court of appeals affirmed the trial court’s award of punitive damages.

Interesting Note: Many attorneys and clients that lose in a trial court via a bench trial are reluctant to want the trial court to explain its ruling and awards. They may feel that the findings will make them look worse than the actual judgment. That may be true, but any good appellate attorney will recommend that a losing party request findings of fact and conclusions of law. A trial court will usually not rule for the wining party on every element of every claim, and may focus the findings on just one claim or a few claims. Moreover, there is nothing to lose because if a losing party does not request findings, all findings will be presumed found to support the judgment. Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990). So, generally, express findings cannot be worse than the presumption, and there is no harm in obtaining adverse express findings whereas there can be more harm in having adverse presumed findings.

Parties should be aware that in Texas there are strict requirements to preserve a request for findings. The party must file a request for findings of fact and conclusions of law within twenty days of the signing of the judgment. Tex. R. Civ. P. 296. The court is supposed to file its findings of fact and conclusions of law within twenty days of the request. Tex. R. Civ. P. 297. If the court fails to do so, then the requesting party must file a notice of past due findings of fact and conclusions of law within thirty days of the filing of the original request. See id. Thereafter, the court should file findings of fact and conclusions of law within forty days from the filing of the original request. See id. If a party fails to file a notice of past due findings of fact and conclusions of law, he has waived any error in the court failing to file such, and all facts will  be presumed in  favor of the judgment. Curtis v. Commission for Lawyer Discipline, 20 S.W.3d 227, 232 (Tex. App.—Houston [14th Dist.] 2000, no pet.). Once the court files findings, a party can file a request for additional findings of fact within ten days after the original findings are filed. Tex. R. Civ. P. 298. This request for additional findings must be specific and must contain proposed findings, otherwise any error in refusing the request is waived. Alvarez v. Espinoza, 844 S.W.2d 238, 241‑42 (Tex. App.—San Antonio 1992, writ dism’d).

Just as a losing party should want express findings, a winning party should generally not want the court to issue express findings because of the presumption. Because it is difficult to preserve error on a trial court’s failure to issue findings, a winning party should be reluctant to prepare proposed findings for a trial court just because a judgment is entered or just because the losing party initially requests findings.

Court Held That Estate Beneficiary Did Not Have Standing To Assert Forfeiture Or Breach Claim Against Executrix’s Attorneys, That An Executrix Had No Authority To Pay Her Attorney’s Fees From The Estate In The Interim In Defending A Removal Action, And That The Trial Court Erred In Refusing A Motion To Compel Distribution Of The Estate

Posted in Cases Decided, Texas Court of Appeals

In re Nunu, an estate beneficiary sued the executrix to have her removed due to alleged breaches of fiduciary duty and also sought to have the court refuse to pay her attorneys in representing her in a removal action and/or sought to have those fees forfeited. No. 14-16-00394-CV, 2017 Tex. App. LEXIS 10306 (Tex. App.—Houston [14th Dist.] November 2, 2017, pet. filed). Texas Estates Code section 404.0037 provides: “[a]n independent executor who defends an action for the independent executor’s removal in good faith, whether successful or not, shall be allowed out of the estate the independent executor’s necessary expenses and disbursements, including reasonable attorney’s fees, in the removal proceedings.” Id. (citing Tex. Est. Code Ann. § 404.0037(a)). The executrix used estate funds to pay at least some of the attorneys’ fees incurred in her defense in this suit. The beneficiary challenged the payment of the attorneys’ fees by (a) arguing that the attorneys were professionally negligent and breached fiduciary duties they owed to the executrix and to the estate, or perhaps to the beneficiaries, and that as a result of this misconduct, their fees should be forfeited; (b) seeking declaratory judgment that the fees should be forfeit or disallowed; and (c) arguing that the requirements of section 404.0037 for payment of attorneys’ fees from estate have not been met.

The court of appeals first held that the beneficiary had no standing to assert a fee forfeiture claim against the attorneys in his personal capacity because he had no attorney/client relationship with the attorneys. The court also held that the beneficiary had no standing to assert a breach claim against the executrix’s attorneys. The fact that the attorneys owed fiduciary duties to the executrix and that the executrix owed fiduciary duties to the beneficiary, did not mean that the attorneys owed duties to the beneficiaries. The court held: “These are separate relationships, however, and the distinction between them cannot be ignored.” Id.

The court then addressed the declaratory judgment claims. Texas Civil Practice and Remedies Code Section 37.005(3) allows declaratory relief “to determine any question arising in the administration” of an estate. The court, however, held that “although section 37.005(3) does not limit ‘the types of questions’ that a litigant may ask, it does not remove the limitations on the questions that the trial court can answer.” Id. “A declaratory judgment requires a justiciable controversy as to the rights and status of parties actually before the court for adjudication, and the declaration sought must actually resolve the controversy.” Id. The court held that a declaration that the fees “should be” forfeited would not actually result in fee forfeiture because Section 37.006(a) provides that when declaratory relief is sought, all persons who have or claim any interest that would be affected by the declaration must be made parties and the attorneys were not parties. Further, even though Texas Civil Practice and Remedies Code Section 37.005(4) allows declaratory relief “to determine rights or legal relations of an independent executor . . . regarding fiduciary fees and the settling of accounts,” the court held that this provision dealt with the compensation of the executrix, not her attorneys. Id.

The court next turned to Texas Estate’s Code Section 404.0037, which states that if an independent executor defends a removal action in good faith that the reasonable and necessary attorney’s fees for the defense “shall be allowed out of the estate.” Id. (citing Tex. Est. Code Ann. § 404.037(a)). The court noted that good faith is an issue on which the independent executor bears the burden of proof. The court held:

“[A]n executor acts in good faith when he or she subjectively believes his or her defense is viable, if that belief is reasonable in light of existing law.” Good faith is established as a matter of law if reasonable minds could not differ in concluding from the undisputed facts that the person in question acted in good faith. Because it is an incontrovertible fact that Paul nonsuited his removal action against Nancy with prejudice, whether Nancy defended the action in good faith is a question of law. As a matter of law, “a dismissal or nonsuit with prejudice is ‘tantamount to a judgment on the merits.’” Moreover, a party who voluntarily nonsuits his claims generally cannot obtain reversal of the order on appeal. And where, as here, the party seeking the executor’s removal voluntarily and unilaterally nonsuits all such claims with prejudice on the third day of a jury trial, reasonable minds could not differ in concluding that the executor’s “efforts cause[d] [her] opponents to yield the playing the field.” Thus, when Paul irreversibly conceded his claim for Nancy’s removal, the viability and reasonableness of Nancy’s defense were established as a matter of law. Although Paul points out that the trial court made no finding that Nancy resisted her removal in good faith, a finding is unnecessary if a matter is established as a matter of law. Paul now attempts to resurrect the same grounds on which he sought Nancy’s removal as grounds for challenging Nancy’s good faith in defending the action; in essence, he contends that Nancy could not have resisted her removal in good faith because Paul would have prevailed on the merits. Those arguments must fail because his voluntary nonsuit of his removal claims with prejudice constitutes a judgment against him on the merits, and he does not (and cannot) challenge that portion of the judgment on appeal.


The court held that the executrix had no authority to pay her attorneys from estate funds in the interim and before the court allowed such an award after the removal issue was resolved:

There is no such order in the record, and the trial court could not properly have approved payments made before the removal action had been decided. See Klein v. Klein, 641 S.W.2d 387, 387 (Tex. App.—Dallas 1982, no writ) (dismissing an executor’s claims for attorneys’ fees and expenses as premature because the removal action was still pending)…. Although Nancy appears to have assumed that she could pay her legal fees without first obtaining findings that the fees were both necessary and reasonable, the statute does not authorize such a procedure.”

Id. The court sustained the beneficiary’s issue in part and remanded to the trial court the determination of the amount to be paid from the estate for the executrix’s “necessary expenses and disbursements, including reasonable attorney’s fees, in the removal proceedings.” Id.

Finally, the beneficiary challenged the trial court’s denial of his two motions to compel the executrix to distribute the estate. “A person interested in an estate may petition the court for an accounting and distribution any time after the expiration of two years from the date the court clerk first issued letters testamentary or letters of administration to any personal representative of the estate.” Id. (citing Tex. Est. Code § 405.001(a)). “Unless the court finds a continued necessity for administration of the estate, the court shall order its distribution by the independent executor to the persons entitled to the property. If the court finds there is a continued necessity for administration of the estate, the court shall order the distribution of any portion of the estate that the court finds should not be subject to further administration by the independent executor.” Id. The court held that the trial court did not abuse its discretion in denying the first motion because it was filed before the removal issue was resolved, and there were still issues continuing for the administration of the estate. However, the court held that the trial court should have granted the second motion, which was filed after the removal action was nonsuited. The court “reverse[d] this portion of the judgment, and remand the cause to the trial court (1) to determine the amount of Nancy’s reasonable and necessary attorneys’ fees and expenses to be paid from the Estate; (2) to authorize Nancy to pay that amount from Estate funds (and, if necessary, to order her to reimburse the Estate for excess legal fees and expenses already paid without authorization); and (3) to order distribution of the Estate.” Id.

Recorded Webinar – Remedies For A Breach of Fiduciary Duty Claim in Texas

Posted in Items of Interest, Knowledge Library, Webinars

Recorded Webinar

Thank you to everyone who joined us on February 27 for the webinar “Remedies for a Breach of Fiduciary Duty Claim in Texas. The recorded webinar link is now available.  If you are interested in joining our next complimentary webinar, please send your request to dfjohnson@winstead.com.

David F. Johnson, lead writer for the Texas Fiduciary Litigator blog, discusses the potential remedies that plaintiffs can obtain for breach of fiduciary duty claims with an emphasis on trust disputes, and covers: 1) pretrial remedies of temporary injunctive relief, receiverships, and audits; 2) legal remedies of damages, attorney’s fees, pre-judgment interest; 3) equitable remedies of fee forfeiture, profit and consideration disgorgement, rescission, equitable lien, constructive trust, declaratory relief, and more. Special emphasis is placed on recent developments for obtaining or defending against these remedies.

Target Audience: In-house counsel and other litigation contacts, trust officers, risk management contacts, and wealth advisors


Court Holds That A Wife Devised Her Property In Fee Simple Determinable To Her Husband With An Executory Interest To Her Son; So, After The Husband Died, If He Still Owned The Property, It Went To The Son

Posted in Cases Decided, Texas Court of Appeals

In In re Estate of Hernandez, the issue in the case was whether clauses in a will conveyed a life estate to the decedent’s husband. No. 05-16-01350-CV, 2018 Tex. App. LEXIS 755 (Tex. App.—Dallas January 24, 2018, no pet. history). The will stated:

The rest and residue of my estate, both real, personal and mixed property of every kind and character whatsoever I may own or have any interest in at my death, is hereby bequeathed to my husband, ARTURO HERNANDEZ, to do with as he desires. Upon the death of my husband, ARTURO HERNANDEZ, I give, devise and bequeath any of the rest and residue of my estate both real, personal and mixed property of every kind whatsoever that he may own or have any interest in to my son, ERIC H. FARLEY.

Id. The court of appeals noted as follows regarding fee simple absolute:

“An estate in land that is conveyed or devised is a fee simple unless the estate is limited by express words or unless a lesser estate is conveyed or devised by construction or operation of law.” Generally, the greatest estate will be conferred on a devisee that the terms of the devise permit. “[W]hen an estate is given in one part of a will, in clear and decisive terms, it cannot be cut down or taken away by any subsequent words that are not equally clear and decisive.” A lesser estate must be created by express words or operation of law. Otherwise, a devise is read to be in fee simple absolute. A “fee simple absolute” is an estate over which the owner has unlimited power of disposition in perpetuity without condition or limitation. A fee simple absolute is an estate in fee simple that is not subject to a special limitation, a condition subsequent, or an executory limitation. A fee simple estate subject to an “executory limitation” is called a “determinable fee simple estate” or a “fee simple determinable.” An “executory limitation” is an event which, if it occurs, automatically divests one of the devised property. A “fee simple determinable” is an estate that automatically expires on the happening of a named event. This is a fee simple interest in every respect, except that it passes to another if the contingency occurs. Until the occurrence of the contingency, the recipient has an “executory interest.” While no specific words are needed to create a fee simple determinable, certain words generally indicate an intent to create one. The terms “while,” “during,” “until,” or “so long as” are examples of words used to establish an intent to create a fee simple determinable. Typical language establishing a fee simple determinable includes: “When I die, my property goes to A (in fee), and when A dies, any property remaining goes to B.” The first taker of a fee simple determinable has complete power of control and disposition of the property during his lifetime. In a fee simple determinable, the first taker is entitled to the proceeds of the property disposed of by him. The first taker may devise the proceeds, and the executory interest holder has no right to trace and recover those proceeds.

Id. (internal citations omitted). The court then described life estates:

A will creates a “life estate” if the language of the will manifests an intention on the testator’s part to pass to the first taker a right to possess, use, or enjoy the property during his life. A testator may give the power of disposition with the life estate. No particular language is required to make a life estate. A “life estate” is created by words showing intent to give the right to possess, use, and enjoy the property during life. There can be no life estate in property, real or personal, without a remainder. Dispositions of life estate property by the life tenant must be within the authority of the will. If the life tenant is given the power to sell and reinvest any life tenancy property, the life tenant is subject, with respect to the sale and reinvestment of the property, to all of the fiduciary duties of a trustee imposed by the Texas Trust Code or the common law. Because a life estate terminates upon the death of the life tenant, the power to dispose of the property does not empower a life tenant to devise any of the property that remains at his death. Proceeds of the sale made by the life tenant, undisposed of at the time of his death, as well as the unsold part of the very property devised, pass to the remainderman. If a life estate holder has the right of full disposition and the right to use the proceeds without accounting to anyone, then the remainderman is entitled to trace the proceeds of the sale.

Id. (internal citations omitted).

Under this precedent, the court analyzed whether the spouse had a life estate or fee simple determinable in the property:

The part of the residuary clause devising the estate to Arturo Hernandez is not limited to his right to possess, use or enjoy the property during his life. Instead, the will states that Arturo Hernandez has the right “to do with [the property] as he desires.” Although there is no specific formula of words required to create a life estate, Patricia Hernandez’s will must have clearly and unequivocally provided for a life estate to overcome the presumption that she intended to give Arturo Hernandez an estate greater than a life estate. Here, the clause does not explicitly grant Arturo Hernandez the property for his life using a phrase such as “during his life” or “as long as he lives.” Further, the will states the “rest and residue” of the estate passes to Eric Farley. In accordance with the applicable rules of interpretation, we conclude the language in Paragraph IV of the will unambiguously, as a matter of law, conveyed the property of Patricia Hernandez to Arturo Hernandez in fee simple determinable. The first sentence in Paragraph IV, “my estate . . . is hereby [devised] to my husband, ARTURO HERNANDEZ, to do with as he desires,” definitively conveys a fee simple in Arturo Hernandez. However, the second sentence in Paragraph IV limits that fee simple interest by expressly stating, “[u]pon the death of my husband, ARTURO HERNANDEZ, I give, devise and bequeath any of the rest and residue of my estate . . . that he may own or have any interest in to my son, ERIC H. FARLEY,” devised to Eric Farley whatever interest Arturo Hernandez, upon his death, still held in the property. The occurrence of the “executory limitation,” i.e., Arturo Hernandez’s death, automatically divested his estate of the remaining devised property operating as a fee simple determinable causing that property to pass to Eric Farley in fee simple absolute. Our conclusion is consistent with standard words and phrases that indicate an intent to create a fee simple determinable.

Id. The court held that the will conveyed the property in fee simple determinable to Arturo Hernandez with an executory interest to Eric Farley in fee simple absolute.

Court Interpreted the Phrase “In Equal Shares Per Stirpes” in a Trust Document

Posted in Cases Decided, Texas Court of Appeals

In Archer v. Moody, the litigants in the declaratory judgment action were remainder beneficiaries of a trust created in 1934 and owned a 15,000-acre ranch near Junction, Texas. No. 14-15-00945-CV, 2017 Tex. App. LEXIS 11642 (Tex. App.—Houston [14th Dist.] December 14, 2018, no pet. history). The legal dispute focused on how to calculate the fractional shares of the trust estate allocable to the remainder beneficiaries when the trust terminated in 2014. The issue was whether the grandchildren should be treated equally (1/8 share each) or whether they should take an interest in their parent’s share (some individual shares increase from 1/8 to 1/6 and others decrease from 1/8 to 1/12). The court described the trust’s language as follows:

Under Article III, W.L. Moody, III’s grandchildren are remainder beneficiaries entitled to share in the trust estate at the trust’s termination upon Bill Moody’s death. Article III distributes the trust estate upon termination as follows: “. . . [T]he Trustee shall, upon the termination of the Trust, distribute the Trust Estate in equal shares per stirpes to the then living grandchildren of William Lewis Moody, III, and the surviving issue of his deceased grandchildren.”

Id. The court’s task was to determine the meaning of the phrase “in equal shares per stirpes” in Article III. The court concluded: “Article III’s operative phrase ‘in equal shares per stirpes’ requires an initial division of the trust estate in thirds among W.L. Moody, III’s three children; W.L. Moody, III’s grandchildren share equally in the 1/3 share of the sibling from whom they are descended.” Id. The court explained:

“Per stirpes” is defined as “[p]roportionately divided between beneficiaries according to their deceased ancestor’s share.” The grandchildren are descendants of W.L. Moody, III’s three children: Edna Moody, Virginia Moody, and Bill Moody. By instructing that the trust estate be disbursed to W.L. Moody, III’s grandchildren “in equal shares per stirpes,” Article III contemplates a distribution to the grandchildren dependent on their deceased ancestor’s share. The deceased ancestors here are Edna Moody, Virginia Moody, and Bill Moody. Second, the Edna and Virginia Moody Appellants’ interpretation of Article III’s operative phrase comports with an examination of the trust instrument as a whole.…

Third, cases and secondary sources analyzing similar dispositive language provide additional support for the interpretation of Article III advanced by the Edna and Virginia Moody Appellants…. The Restatement (Second) of Property also supports the Article III interpretation advanced by the Edna and Virginia Moody Appellants. It concludes that a “per stirpes” class distribution requires a distribution by ancestor: “If a gift is made to the ‘grandchildren’ of a designated person ‘per stirpes,’ the described class members stem from different children of the designated person. In such case, the words ‘per stirpes’ suggest an initial division of the subject matter of the gift into shares, one share for the children of each child of the designated person, thereby overcoming the per capita division otherwise called for by the rules of this section.” Restatement (Second) of Prop.: Donative Transfers § 28.1 cmt. i. (1988) (emphasis added).

Id. The court concluded: “Accordingly, the trust estate initially is divided into three shares for each of W.L. Moody, III’s children, and the grandchildren share equally in the 1/3 interest of the sibling from whom they are descended.” Id.


Court Holds That Plaintiff Did Not Establish Continuing Tort Theory To Defeat A Statute Of Limitations Defense To A Breach Of Fiduciary Duty Claim

Posted in Cases Decided, Texas Court of Appeals

In Vaschenko v. Novosoft, Inc., a partner from an alleged oral partnership sued his partner for breach of fiduciary duty. No. 03-16-00022-CV, 2018 Tex. App. LEXIS 771 (Tex. App.—Austin January 26, 2018, no pet. history). The trial court granted the defendant’s motion for summary judgment based on limitations, and the plaintiff appealed.

The court of appeals first held that the plaintiff waived his appellate argument that his claims were not barred because the partnership and the defendant’s fiduciary duties were still ongoing. The court held that a summary judgment nonmovant has to preserve its arguments or issues in the trial court. “To expressly present issues to the trial court, ‘the written answer or response to the motion must fairly apprise the movant and the court of the issues the non-movant contends should defeat the motion.’” Id. Further, “the fair-apprisal requirement ‘clearly contemplates that the trial court is not required to guess why a non-movant presents certain evidence or consider every possible reason the evidence might defeat summary judgment.’” Id. The court concluded: “the mere fact that the alleged existence of a partnership underpinned Vaschenko’s causes of action was insufficient to apprise the trial court, in a summary-judgment proceeding regarding the applicability of limitations, of his specific appellate argument that the limitations period was tolled because the partnership was never terminated.” Id. The court then addressed the issue that was preserved in the trial court:

We now turn to the general continuing-tort allegation that Vaschenko did raise in his response to Novosoft’s motion for traditional summary judgment. The allegedly tortious conduct that seems to form the basis of his defense are (1) Novosoft’s use of the Russian legal system to deprive him of assets, (2) that Brenan and Eure “deconstruct[ed] the business that Vaschenko had set-up into” various independent companies, and (3) that those companies are selling software he and Brenan developed to Vaschenko’s clients. However, Vaschenko fails to demonstrate how any such conduct constitutes tortious conduct that would support a continuing-tort defense to limitations. See Texas Disposal Sys. Landfill, Inc. v. Waste Mgmt. Holdings, Inc., 219 S.W.3d 563, 587-88 (Tex. App.—Austin 2007, pet. denied) (“Texas Disposal has not offered any authority, nor have we found any, that broadens the continuing tort doctrine to include actions based on defamation, tortious interference, or tortious acts that are intermittent and irregular in nature. Rather, our research has revealed only contrary authority.”).

Id. The court affirmed the summary judgment for the defendant.

Court Rejects Claim That Mortgage Lender Owed Fiduciary Duties To Borrower And Addressed The Discovery Rule For The Statute of Limitations

Posted in Cases Decided, Texas Court of Appeals

In Wakefield v. Bank of Am., N.A., a borrower stopped paying on her mortgage because she felt she was assisting in a fraud. No. 14-16-00580-CV, 2018 Tex. App. LEXIS 545 (Tex. App.—Houston [14th Dist.] January 18, 2018, no pet. history). She later sued the lender for breach of fiduciary duty, and the lender filed a motion for summary judgment based on the statute of limitations, which the trial court granted. The court of appeals discussed the discovery rule in the context of a breach of fiduciary duty claims:

The limitations period for fraud and breach of fiduciary duty is four years. “As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy.” A cause of action “accrues when a wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all resulting damages have yet to occur.” There is, however, a “very limited exception” to the general rule for determining accrual of the cause of action. “The discovery rule exception defers accrual of a cause of action until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to the cause of action.” Under the discovery rule, accrual may be deferred if “the nature of the injury incurred is inherently undiscoverable and the evidence of injury is objectively verifiable.” “An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence.” The issue of when a cause of action accrues is a question of law. And, whether an injury is inherently undiscoverable is a legal question “decided on a categorical rather than case-specific basis; the focus is on whether a type of injury rather than a particular injury was discoverable.”


In the context of a fiduciary relationship, “the nature of the injury is presumed to be inherently undiscoverable, although a person owed a fiduciary duty has some responsibility to ascertain when an injury occurs.” The rationale for this presumption is that fiduciaries are presumed to possess superior knowledge, meaning the injured party is presumed to possess less information than the fiduciary. Consequently, the Supreme Court of Texas has repeatedly “held a fiduciary’s misconduct to be inherently undiscoverable.” If a fiduciary relationship exists, “a person to whom a fiduciary duty is owed is relieved of the responsibility of diligent inquiry into the fiduciary’s conduct.”

Id. The court then addressed whether the mortgage lender owed fiduciary duties to the borrower and held that it did not:

Generally, the relationship between a borrower and a lender does not create a fiduciary duty. “[T]he great weight of authority is that while the relationship between the mortgagor and mortgagee is often described as one of trust, technically it is not of a fiduciary character.” “A special relationship does not usually exist between a borrower and lender, and when Texas courts have found one, the findings have rested on extraneous facts and conduct, such as excessive lender control or influence in the borrower’s business activities.” Not every relationship involving a high degree of trust and confidence gives rise to an informal fiduciary duty, and for an informal fiduciary duty to arise in a business transaction, “the relationship must exist prior to, and apart from, the agreement made the basis of the suit.” Wakefield did not allege an informal fiduciary relationship; in her pleadings she based her breach-of-fiduciary-duty claim on her status as “lendee” and did not plead any facts to support the existence of an informal relationship.

Id. After holding that the lender did not owe fiduciary duties, the court held that there was no presumption that the claim was undiscoverable and affirmed the summary judgment based on the statute of limitations.

Fiduciary Litigation Practice Tip: Streamlining Discovery To Threshold Legal Issues

Posted in Items of Interest

Litigation can unfortunately be a costly endeavor. This is as true with fiduciary litigation as with any other type of litigation. The parties have to exchange documents, take depositions, retain experts, conduct legal research on many issues, prepare dispositive motions and respond to same, prepare for trial, prepare lengthy jury instructions, etc. However, there are often certain threshold issues that, if determined early in a case, may streamline the disposition of the case. For example, there are a number of issues in fiduciary cases that may make the rest of the case moot: personal jurisdiction, forum issues, the statute of limitations, exculpatory and/or release clauses, whether fiduciary duties are owed, etc. When a case has a threshold issue, it would make sense to bifurcate discovery and allow the threshold issue to be resolved before the remainder of the case is fully litigated.

Of course, plaintiffs often fight these attempts. Plaintiffs see the cost of litigation as a leverage tool to pressure a more friendly settlement. They also do not want to limit their discovery as they may believe that egregious facts on liability or damages may impact the way a court will view a threshold issue. There may be some truth to those beliefs. However, for most cases, it really is better for all parties, and certainly the court system, to streamline the case and have an orderly and thoughtful schedule for its resolution.

So, what is a defendant to do when it wants to advocate for a streamlined scheduling order? What discretion does a trial court have to enter such an order?

Texas Rule of Civil Procedure 166 provides that a district court has discretion to determine what issues need to be decided and in what order. Tex. R. Civ. P. 166. The Rule states:

In an appropriate action, to assist in the disposition of the case without undue expense or burden to the parties, the court may in its discretion direct the attorneys for the parties and the parties or their duly authorized agents to appear before it for a conference to consider: … (c) A discovery schedule; … (e) Contested issues of fact and the simplification of the issues;… (g) The identification of legal matters to be ruled on or decided by the court; … (p) Such other matters as may aid in the disposition of the action. The court shall make an order which recites the action taken at the pretrial conference, the amendments allowed to the pleadings, the time within which same may be filed, and the agreements made by the parties as to any of the matters considered, and which limits the issues for trial to those not disposed of by admissions, agreements of counsel, or rulings of the court; and such order when issued shall control the subsequent course of the action, unless modified at the trial to prevent manifest injustice. The court in its discretion may establish by rule a pretrial calendar on which actions may be placed for consideration as above provided and may either confine the calendar to jury actions or extend it to all actions.

Tex. R. Civ. P. 166. The purpose of Rule 166 is to assist in the disposition of the case without undue expense or burden to the parties. Walden v. Affiliated Computer Servs., Inc., 97 S.W.3d 303, 2003 Tex. App. LEXIS 314 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). Rule 166(g) expressly allows a trial court to use a pretrial conference to consider the identification of legal matters to be ruled on or decided by the court. Id.

Moreover, in Texas, a court has discretion to stay discovery on issues that may be mooted by a threshold issue. In discovery, a trial court is granted latitude in limiting or tailoring discovery. Tex. R. Civ. P. 192.4. Generally, a trial court should limit discovery methods to those which are more convenient, less burdensome, and less expensive, or when the burden or expense of the proposed discovery outweighs its likely benefit. In re Alford Chevrolet—Geo, 997 S.W.2d 173, 182-83 (Tex. 1999) (orig. proceeding). See also Tex. R. Civ. P. 192.4. Discovery requests themselves must be reasonably tailored to matters relevant to the case at issue. In re Xeller, 6 S.W.3d 618, 626 (Tex. App.—Houston [14th Dist.] 1999, orig. proceeding). Consequently, the trial court has broad discretion to limit discovery requests by time, place, and subject matter. Texaco, Inc. v. Sanderson, 898 S.W.2d 813, 815 (Tex. 1995). Specifically, the Texas Rules of Civil Procedure expressly allow a trial court to protect a party from inappropriate or untimely discovery requests:

To protect [a party filing a motion for protection] from undue burden, unnecessary expense, harassment, annoyance, or invasion of personal, constitutional, or property rights, the court may make any order in the interest of justice and may – among other things – order that: . . . (3) the discovery not be undertaken at the time or place specified.

Tex. R. Civ. P. 192.6(b). A court can stay discovery – put it on hold – if it is untimely. Id. For example, the Texas Supreme Court stated: “courts may limit discovery pending resolution of threshold issues like venue, jurisdiction, forum non conveniens, and official immunity.” In re Alford Chevrolet-Geo, 997 S.W.2d at 181. For example, one court has repeatedly stayed discovery pending the resolution of a special appearance motion. Lattin v. Barrett, No. 10-03-287-CV, 2004 Tex. App. LEXIS 177 (Tex. App.—Waco January 5, 2004, no pet.); Lacefield v. Electronic Fin. Group., 21 S.W.3d 799, 800 (Tex. App.—Waco 2000, no pet.) (stayed proceedings pending disposition of special appearance appeal).

A court has the power to stay discovery until it determines the outcome of threshold issues. See Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520-21 (Tex. 1995) (affirming summary judgment granted by trial court based on interpretation of unambiguous contract provision and rejecting the argument that summary judgment was inappropriate because it was decided before the plaintiff had the opportunity to conduct discovery); Davis v. Star-Telegram, No. 05-98-00088-CV, 2000 Tex. App. LEXIS 4526, at *16-17 (Tex. App.—Dallas July 7, 2000, pet. denied) (holding that the trial judge did not abuse his discretion in staying discovery pending a ruling on a motion for summary judgment). In fact, a court can stay the entire case pending a motion for summary judgment. See In re Messervey, No. 04-00-00700-CV, 2001 Tex. App. LEXIS 430, 2001 WL 55642, at *3 (Tex. App.—San Antonio July 24, 2001, orig. proceeding) (not designated for publication) (“[The court] has the authority to stay the case temporarily while he considers the motion for summary judgment and determines whether the discovery sought by Messervey is relevant and necessary for Messervey to contest the issues raised by Northbrook.”); Ho v. Univ. of Tex. at Arlington, 984 S.W.2d 672, 693-94 (Tex. App.—Amarillo 1998, pet. denied) (no abuse of discretion for trial court to continue trial date sua sponte pending ruling on summary judgment). For example, a court of appeals affirmed a trial court’s refusal to allow discovery where an immunity issue was pending on summary judgment. Barnes v. Sulak, No. 03-01-00159-CV, 2002 Tex. App. LEXIS 5727, at *16-17 (Tex. App.—Austin 2002, pet. denied). See also Elgohary v. Lakes on Eldridge N. Cmty. Ass’n, No. 01-14-00216-CV, 2016 Tex. App. LEXIS 8876, at *21-22 (Tex. App.—Houston [1st Dist.] Aug. 16, 2016, no pet.); Doe v. Roman Catholic Archdiocese of Galveston-Houston ex rel. Dinardo, 362 S.W.3d 803, 809, 812 (Tex. App.—Houston [14th Dist.] 2012, no pet.).

Courts in the Fifth Circuit routinely stay discovery that will be mooted by dispositive motions. See, e.g., Whalen v. Carter, 554 F.2d 1087, 1098 (5th Cir. 1992); Montgomery v. United States, 933 F.2d 348, 350 (5th Cir. 1991); Williamson v., United States Department of Agriculture, 815 F.2d 368, 382 (5th Cir. 1987); Drake v. Nat’l Broadcasting Co., Inc., No. 3-04-CV-0652-R, 2004 U.S. Dist. Lexis 25090, at *3-5 (N.D. Tex. 2004) (granting a stay of discovery under federal law pending the outcome of a motion to dismiss and noting that such a stay is particularly appropriate when the disposition of a motion “might preclude the need for discovery altogether, thus saving time and expense”); Tschirn v. Kurzweg, No. 03-0369, 2003 U.S. Dist. LEXIS 8294 (E. D. La. May 8, 2003) (magistrate’s opinion); Leclerc v. Webb, No. 3-664, 2003 U.S. Dist. LEXIS 7569 (E. D. La. May 1, 2003). See also Young v. Burks, 849 F.2d 610 n.6 (6th Cir. 1988); Spencer Trask Software & Info. Servs., LLC v. RPost Int’l Ltd., 206 F.R.D. 367, 368 (S.D.N.Y. 2002); Veniard v. NB Holdings Corp., 2000 U.S. Dist. LEXIS 20518 (M.D. Fla. August 8, 2000), vacated in part on other grounds, 2001 U.S. Dist. LEXIS 22907 (August 27, 2001); Richmond v. W.L. Gore & Assocs., 881 F.Supp. 895 n.13 (S.D. N.Y. 1995); International Graphics, Div. of Moore v. United States, 3 Cl. Ct. 715, 717-18 (1983); Blair Holdings Corp. v. Rubinstein, 159 F.Supp. 14, 15 (S.D.N.Y. 1954).

For example, in Landry v. Air Line Pilots Ass’n Int’l, the Fifth Circuit affirmed a district court’s order limiting discovery pending the resolution of a summary judgment motion.  901 F.2d 404, 435-36 (5th Cir. 1990). The court stated:

“Upon motion by a party or by the person from whom discovery is sought, and for good cause shown,” a district court is authorized to “make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” F.R.Civ.P. 26(c). In their motions for protective orders, the defendants gave several reasons why this discovery was not needed prior to the resolution of the summary judgment motions which, if granted, would preclude the need for the discovery altogether.

. . . .

Discovery is not justified when cost and inconvenience will be its sole result.  On the record before it, the trial court had to reach the decision that it did reach.  The procedural posture of the case and the showings of the parties left it little choice. Whether the trial judge surmised that pilots would not be able to defeat the summary judgment motions or whether he, like us, saw sufficient disputed facts to preclude summary judgment is irrelevant. Under the circumstances, there was no abuse of discretion in the order staying discovery until the summary judgment motions were resolved.


Therefore, in state and federal court in Texas, a court has discretion to rule on whether threshold issues should be determined in a particular order and may stay discovery on other issues that may be mooted by the determination of threshold issues. That makes sense as every case should be reviewed for its particular needs and courts should enter orders to save parties from needless expense. Once again, as the Texas Supreme Court held, “a trial court should limit discovery methods to those which are more convenient, less burdensome, and less expensive, or when the burden or expense of the proposed discovery outweighs its likely benefit.” In re Alford Chevrolet—Geo, 997 S.W.2d at 182-83. Courts should exercise their discretion to do just that.

Court Affirmed Finding That An Oral Partnership Existed And That A Partner Breached Fiduciary Duties

Posted in Cases Decided, Texas Court of Appeals

In Harun v. Rashid, two individuals started a restaurant business; one operated the business and the other financed it. No. 05-16-00584-CV, 2018 Tex. App. LEXIS 231 (Tex. App.—Dallas January 9, 2018, no pet. history). After some disagreements, the operator froze the financier out of the business. The financier sued, asserting claims of breach of fiduciary duty and breach of contract, and sought actual and exemplary damages and attorney’s fees. The case proceeded to trial before the court, and the court entered a judgment awarding the financier actual damages of $36,000, exemplary damages of $36,000, and attorney’s fees of $79,768.64.

On appeal, the operator argued that there was no evidence of a partnership. The court of appeals noted:

In determining whether a partnership was created, we consider several factors, including (1) the parties’ receipt or right to receive a share of profits of the business; (2) any expression of an intent to be partners in the business; (3) participation or right to participate in control of the business; (4) any agreement to share or sharing losses of the business or liability for claims by third parties against the business; and (5) any agreement to contribute or contributing money or property to the business. Proof of each of these factors is not necessary to establish a partnership. We review the factors under the totality of the circumstances.

Id. Under these factors, the court of appeals affirmed the trial court’s finding of a partnership:

At trial, Rashid presented evidence through his testimony that: (a) Huran approached him indicating he had found a good location to open a restaurant and needed a partner to finance the operation; (b) Huran asked him to be his partner; (c) he and Huran were equal business partners in the restaurant; (d) he and Huran agreed to share equally in the profits and losses; (e) he and Huran met with the leasing agents to negotiate the lease of the restaurant space; (f) he and Huran had equal access to the restaurant’s bank account; (g) he hired and communicated with the bookkeeper; (h) he was very involved in preparing paperwork for the restaurant; (i) he paid restaurant related bills, and purchased furniture and equipment for the restaurant; (j) he was not an employee of the restaurant or Harun, nor did he receive any pay for the work he performed on behalf of the restaurant; and (k) he invested approximately $60,000 in the business. We conclude the trial court’s finding a partnership existed between Huran and Rashid is supported by more than a scintilla of evidence, and is not against the great weight and preponderance of the evidence as to be clearly wrong and unjust. Accordingly, we overrule appellants’ first issue.

Id. The court affirmed the trial court’s judgment.