In In re Mittelsted, a trial court held a former executor in contempt for over twenty acts of commingling personal property with estate property and ordered that the executor pay over $200,000 to avoid contempt. No. 14-22-00274-CV, 2023 Tex. App. LEXIS 1014 (Tex. App.—Houston [14th Dist.] February 16, 2023, original proceeding). The executor filed a petition for writ of mandamus. The court of appeals first discussed the fiduciary duties of an executor:

Upon death, a decedent’s estate immediately vests in the devisees, legatees, and heirs at law of the estate, subject to payment of the decedent’s debts. Managing or administering a decedent’s estate is an executor’s core function. Because an executor holds and manages property interests of others, he or she serves as a trustee and is held to the highest standards of conduct. As trustee of an estate’s property, an executor is subject to the fiduciary standards applicable to all trustees. An independent executor owes fiduciary duties not only to the estate but to the estate’s beneficiaries as well. The universe of an executor’s fiduciary obligations includes a duty to exercise reasonable care in the administration of the estate property, and a duty to avoid commingling of estate funds with non-estate assets, including the executor’s personal property.

Id. (internal citations omitted). The court then addressed commingling by a trustee/executor:

Commingling personal assets with trust assets constitutes a breach of trust, and courts have developed certain principles concerning the identification of trust property when commingling occurs. For example, a party alleging that a trustee commingled funds has the initial burden to show that commingling has in fact occurred. When it is shown that a trustee commingled trust property with his own, the trustee then has the burden to distinguish his or her funds from those of the beneficiary, and if the trustee cannot do so, the whole commingled fund or the property purchased with that fund becomes subject to a trust in favor of the beneficiary. This tracing burden belongs to the trustee because it would be inequitable to place the burden on the party asserting the trust when the trustee has wrongfully commingled his own funds with trust funds, especially when the proof necessary to distinguish the funds is peculiarly within the knowledge and possession of the trustee. When a trustee withdraws from an improperly commingled fund, however, the trustee is presumed to have withdrawn or expended his own money first. This is true so long as sufficient funds remain in the commingled account to cover the amount of trust property or to identify that which belongs to the trust.

Id.

The court then analyzed the alleged commingling and held that there were several instances of it, but that there were other instances that were not supported. The court held that the contempt order was void:

The court assessed one coercive penalty for all twenty-two contemptuous acts, requiring Donovan to pay $287,457 to purge himself of contempt. “If one punishment is assessed for multiple acts of contempt, and one of those acts is not punishable by contempt, the entire judgment is void.'” Because Donovan’s challenged transfers from his IRA Account and Brokerage Account are not punishable by coercive contempt, we hold that the trial court’s entire civil contempt order is void. Further, because the order does not allocate the $287,457 amount based on separate contemptuous acts and otherwise contains no findings to support a lesser coercive contempt penalty, we are unable to reform the order or sever any valid portion from the remainder.

Id.

In In re Estate of Montemayor, a buyer sued a seller regarding five real estate contracts. No. 09-21-00054-CV, 2023 Tex. App. LEXIS 1174 (Tex. App.—Beaumont May 13, 2022, no pet. history). The seller’s executor alleged that the contracts were not enforceable because the seller did not have mental capacity to execute them. The jury found for the buyer, and the seller appealed.

The court of appeals first addressed the standards for mental competence to contract:

Mental incapacity is a common law defense to the formation of a contract. Texas law presumes that a person executing a contract or instrument had sufficient mental capacity at the time of its execution to understand his legal rights. Accordingly, the burden rests on the person seeking to set aside a contract or instrument to show the lack of mental capacity of the contracting party at the time the contract or instrument was made. To establish lack of mental capacity to contract in Texas, the evidence must show that, at the time of contracting, the person could not have “‘appreciated the effect of what [he] was doing and understood the nature and consequences of [his] acts and the business [he] was transacting.'” The proper inquiry is whether the person had capacity on the days he executed the documents at issue. Generally, the question of whether a person, at the time of contracting, knows or understands the nature and consequences of his actions is a question of fact.

Id. The court then reviewed evidence from the buyer that the seller knew what he was doing and acted normally in conversations, evidence from a long-time friend that the seller had complained about the taxes associated with the property and felt the seller was lucid, and evidence that medical records showed that the seller was oriented and had normal cognition during the relevant time period. The court affirmed the jury’s verdict for the buyer.

David F. Johnson presented to the Tarrant County Probate Bar Association on May 4, 2023, on the topic of “Trust Issues in Divorce Proceedings.” This program discussed some of the many trust issues that arise in divorce proceedings, including trust basics, voiding trusts due to fraud/constructive fraud/breach of fiduciary duty, characterization of trust assets and distributions, ethics involved in estate planning for married couples, trust construction issues, standing issues involved in raising trust claims, co-trustee management issues, and Trust Code provisions that address divorced parties. The presentation is attached.

Click here for PowerPoint: Trust Issues in Divorce Proceedings

David F. Johnson participated in a panel presentation entitled “The Baby-Boomer Generation & The Largest Succession of Wealth in History: The New Frontier in Asset Recovery?” for the Offshore Alert Miami Conference on April 24, 2023, in Miami, Florida, with Martin Kenney, Dr. Alexander Stein, and Rodrigo Callejas. The presentation discussed the incredible wealth owned by the baby-boomer generation, the transfer of that wealth, family dynamics associated with that transfer, and undue influence and mental competence issues. The panel also discussed the challenges facing the victims of high-value elder abuse; dishonest breach of trust by a family member against siblings or children; and developing a practice in this area. David focused on the legal standards for undue influence and mental incompetence and the types of evidence associated with those claims. The PowerPoint presentation from the course is attached.

Click here for PowerPoint: The Baby-Boomer Generation & The Largest Succession of Wealth in History: The New Frontier in Asset Recovery

The Texas Supreme Court held that arbitration clauses in trust documents may be enforced regarding claims by beneficiaries against trustees. In Rachal v. Reitz, a beneficiary sued a trustee for failing to provide an accounting and otherwise breaching fiduciary duties. 403 S.W.3d 840 (Tex. 2013). The trustee filed a motion to compel arbitration of those claims due to an arbitration provision in the trust instrument. After the trial court denied that motion, the trustee appealed. The Texas Supreme Court reversed the court of appeals and held that the arbitration clause was enforceable. Id. The Court did so for two primary reasons: 1) the settlor determines the conditions attached to her gifts, which should be enforced on the basis of the settlor’s intent; and 2) the issue of mutual assent can be satisfied by the theory of direct-benefits estoppel, so that a beneficiary’s acceptance of the benefits of a trust constitutes the assent required to form an enforceable agreement to arbitrate. See id. The court of appeals had held that there was no mutual asset as the beneficiary and trustee did not sign the trust document. The Texas Supreme Court resolved the issue of mutual assent by looking to the theory of direct-benefits estoppel. Because the plaintiff had accepted the benefits of the trust for years and affirmatively sued to enforce certain provisions of the trust, the Court held that the plaintiff had accepted the benefits of the trust such that it indicated the plaintiff’s assent to the arbitration agreement. The Court ordered the trial court to grant the trustee’s motion to compel arbitration.

One Texas court of appeals has rejected the enforcement of an arbitration clause in a will where the court determined that direct-benefits estoppel did not apply. In Ali v. Smith, a successor administrator of an estate sued the former executor for breach of fiduciary duties arising from his management of the finances of the estate, converting assets of the estate, and using estate funds. 554 S.W.3d 755 (Tex. App.—Houston [14th Dist.] 2018, no pet.). The court of appeals held that the party asserting a right to arbitration has to prove a binding arbitration agreement. “Typically, a party manifests its asset by signing an agreement.” Id. The parties agreed that they were not signatories to the will. “But the Texas Supreme Court has ‘found assent by nonsignatories to arbitration provisions when a party has obtained or is seeking substantial benefits under an agreement under the doctrine of direct benefits estoppel.’” Id. (citing Rachal v. Reitz, 403 S.W.3d 840, 843 (Tex. 2013)). Under the facts of the case, the court held that the plaintiff was not seeking any relief under the will, but was seeking relief under Texas statutes and common law and thus direct-benefits estoppel did not apply. This result would likely have been very different if the arbitrator (and not the court) had the right to decide the issue of direct-benefits estoppel.

Issues often arise in trust and estate disputes whether the arbitration agreement is enforceable due to scope issues (construction vs. administration) or enforceability issues (mental competence/undue influence). The initial fight is whether the trial court or the arbitrator should determine these threshold issues. Generally, a plaintiff can assert in court that his or her claims fall outside of the scope of the dispute resolution clause. Lost Maples Gen. Store, LLC v. Ascentium Capital, LLC, No. 14-18-00215-CV, 2019 Tex. App. LEXIS 3549, 2019 WL 1966671 (Tex. App.—Houston [14th Dist.] May 2, 2019, no pet.) (party argued that claims fell outside of scope of contractual jury waiver). Courts may require a party to submit a dispute to arbitration only if the party has agreed to do so. Seven Hills Commer., LLC v. Mirabal Custom Homes, Inc., 442 S.W.3d 706, 714 (Tex. App.—Dallas 2014, pet. denied). A party seeking to compel arbitration must establish a valid arbitration agreement exists and that the claims asserted are within the scope of the agreement. Id. at 715. So, the general rule is that a court (and not the arbitrator) determines whether a dispute falls within the scope of an arbitration clause or whether the clause is enforceable.

However, Texas courts enforce express provisions in arbitration agreements that refer or delegate enforceability and scope issues to the arbitrators. See Darling Homes of Tex., LLC v. Khoury, No. 01-20-00395-CV, 2021 Tex. App. LEXIS 3756, 2021 WL 1918772, at *8 (Tex. App.—Houston [1st Dist.] May 13, 2021, no pet.); Dow Roofing Sys., LLC v. Great Comm’n Baptist Church, No. 02-16-00395-CV, 2017 Tex. App. LEXIS 7370, 2017 WL 3298264, at *3 (Tex. App.—Fort Worth Aug. 3, 2017, pet. denied) (mem. op.) (stating that parties can agree to arbitrate questions concerning validity of arbitration agreement, including asserted defense that arbitration agreement is unconscionable). As the Texas Supreme Court held:

Whether parties have agreed to arbitrate is a gateway matter ordinarily committed to the trial court and controlled by state law governing ‘the validity, revocability, and enforceability of contracts generally.’ Parties can, however, agree to arbitrate arbitrability. Arbitration is a matter of contract, and that which the parties agree must be arbitrated shall be arbitrated.

Jody James Farms, JV v. Altman Grp., Inc., 547 S.W.3d 624, 631 (Tex. 2018). So, if the parties contract to have the arbitrator decide threshold issues, courts will generally enforce that delegation.

One issue that has split the courts of appeals is whether the incorporation of the AAA Rules, without any other express delegation language, effectuates a delegation of threshold issues to the arbitrator. That issue has now been resolved. The Texas Supreme Court recently held that issues concerning the enforceability and scope of an arbitration clause should be compelled to arbitration due to the incorporation of AAA Rules. In TotalEnergies E&P USA, Inc., v. MP Gulf of Mexico, LLC, two oil and gas operators had a dispute arising out of the costs of certain systems in the production of minerals in the gulf of Mexico. No. 21-0028, 2023 Tex. LEXIS 315 (Tex. April 14, 2023). MP Gulf of Mexico and Total E&P owned an oil-and-gas processing system that serviced leases in the Gulf of Mexico. The parties signed two contracts to govern the system, the System Operating Agreement and the Cost Sharing Agreement. The dispute began when MP Gulf demanded that Total E&P pay certain costs incurred under the Cost Sharing Agreement. Total E&P refused and sued for a declaration construing that agreement. MP Gulf, however, initiated an arbitration proceeding before the AAA based on a provision in the System Operating Agreement stating that “any dispute or controversy aris[ing] between the Parties out of this Agreement . . . shall be submitted to arbitration . . . in accordance with the rules of the AAA.” MP Gulf argued that this provision, which incorporated the AAA Rules, required the AAA arbitrator to decide whether the parties agreed to submit their controversy to arbitration.  The trial court granted Total E&P’s motion to stay the arbitration. The court of appeals reversed, holding that by agreeing to arbitrate before the AAA and in accordance with its rules, the parties delegated the arbitrability issue to the arbitrator. The Texas Supreme Court affirmed the court of appeals.

The Court agreed with the majority of other courts that an agreement to arbitrate under the AAA means that the parties agreed to delegate issues of arbitrability: “We agree with the vast majority of courts that, as a general rule, an agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator must decide whether the parties’ disputes must be resolved through arbitration.” Id. at *18-19. The Court explained: “By this language, the parties incorporated the AAA rules into their arbitration agreement, and thus the rules are binding, at least absent any conflict between the two. As a result, the AAA rules are ‘part of’ the parties’ agreement as if they were set forth within the agreement itself.” Id. at *19.

And although parties can contractually limit their delegation of arbitrability to only certain claims, the Court concluded that the agreements did not do so here. The delegation provision incorporated the AAA Rules, and nothing in that provision or in those rules limited the scope of the delegation. The Court held:

[W]e conclude that any limitation contained within these parties’ arbitration agreement does not affect the agreement’s clear and unmistakable delegation of arbitrability issues to the arbitrator. Although we agree that parties can contractually limit their delegation of arbitrability issues to only certain claims and controversies, we do not agree that the arbitration clause contained within the System Operating Agreement accomplishes that result.

Id. at * 25. The Court rejected the position that a trial court had to determine carve-outs and limitations “because it ignores the severability rule and conflates the parties’ agreement to arbitrate disputes with their agreement to delegate arbitrability issues to the arbitrator.” Id. at *28. The Court held:

[U]nder the severability rule, not only is the broader contract (the System Operating Agreement) severable from the provision within it requiring arbitration of claims arising out of that Agreement (article 16.16), but that arbitration provision is in turn severable from the provision within it that delegates arbitrability issues to the arbitrators (the provision incorporating the AAA rules). So we must carefully distinguish between the parties’ disputes over (1) the scope of the arbitration provision (what it includes and carves out) and (2) the delegation provision (who decides the scope of the arbitration provision).

Here, the delegation provision is the clause that incorporates the AAA rules, and nothing in that provision or in those rules limits the scope of the delegation. Total E&P contends that the arbitration clause limits the scope of the delegation by limiting the claims that must be arbitrated to those “arising out of” the Agreement. But under the severability rule, our conclusion that the delegation provision (the incorporation of the AAA rules) clearly and unmistakably delegates arbitrability issues to the arbitrator requires that we enforce that provision as written and allow the arbitrator to decide the scope of the arbitration provision… We thus conclude that the fact that the parties’ arbitration agreement may cover only some disputes while carving out others does not affect the fact that the delegation agreement clearly and unmistakably requires the arbitrator to decide whether the present disputes must be resolved through arbitration.

Id. at *38-30. So, as between signatories to a contract, the incorporation of AAA Rules does effectuate a delegation of threshold issues to the arbitrator.

The Court, however, previously held in Jody James Farms that an arbitration agreement’s incorporation of the AAA Rules did not clearly and unmistakably demonstrate an agreement to delegate arbitrability of claims against a non-signatory to the arbitrator because parties “cannot be forced to arbitrate absent a binding agreement to do so.” 547 S.W.3d at 632. The Court stated:

While such deference may be the consequence of incorporating the AAA rules in disputes between signatories to an arbitration agreement, to the text of the note which we need not decide, the analysis is necessarily different when a dispute arises between a party to the arbitration agreement and a non-signatory. As to that matter, Texas courts differ about whether an arbitration agreement’s mere incorporation of the AAA rules shows clear intent to arbitrate arbitrability. We hold it does not. Even when the party resisting arbitration is a signatory to an arbitration agreement, questions related to the existence of an arbitration agreement with a non-signatory are for the court, not the arbitrator.

The involvement of a non-signatory is an important distinction because a party cannot be forced to arbitrate absent a binding agreement to do so. The question is not whether Jody James agreed to arbitrate with someone, but whether a binding arbitration agreement exists between Jody James and the Agency. What might seem like a chicken-and-egg problem is resolved by application of the presumption favoring a judicial determination. A contract that is silent on a matter cannot speak to that matter with unmistakable clarity, so an agreement silent about arbitrating claims against non-signatories does not unmistakably mandate arbitration of arbitrability in such cases.

Id. So, there appears to be a dichotomy at this time on the incorporation of AAA Rules. Such incorporation is effective as against signatories to a contract to delegate threshold issues to the arbitrator, but are not effective as against non-signatories.

Courts in other jurisdictions have since reached the opposite result of Jody James Farms in cases involving non-signatories. See, e.g., Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842, 845 (6th Cir. 2020); Wiggins v. Warren Averett, LLC, 307 So. 3d 519, 523 (Ala. 2020). The Court in TotalEnergies noted this disagreement, but stated: “Because MP Gulf and Total E&P are both signatories to the agreements at issue, neither party asks us to reconsider that holding here.” 2023 Tex. LEXIS 315, n. 10. Was the Court asking parties in the future to ask for it to reconsider Jody James Farms?

To enforce an arbitration clause, the party wanting arbitration must generally prove in court the existence of an arbitration agreement and that the claims asserted fall within the scope of the agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999). Accordingly, the Jody James Farms case will impact how arbitration clauses in trusts or wills are litigated. Those clauses may contain an incorporation of the AAA Rules. If such an incorporation was effective to send arbitrability issues to arbitration, then the arbitrator may be the correct party to determine whether claims fell within the scope, whether a trustee waived the right to arbitrate, whether the settlor was mentally competent to execute the trust document or will, etc. Arbitrators are generally inclined to keep claims and parties in arbitration where courts may be more unbiased on those issues. So, where the beneficiary or trustee does not sign the trust/will, the court will determine these issues and not the arbitrator. This may greatly impact the enforceability of arbitration clauses in trusts and wills. If the Texas Supreme Court revisits Jody James Farms, and the rule in TotalEnergies becomes the law for both signatures and non-signatories, then the incorporation of the AAA Rules will delegate to the arbitrator these important threshold issues.  

Winstead Shareholder David F. Johnson participated in a panel presentation entitled “When One Is Not Enough: Dividing Fiduciary Powers and Dispositions” for the State Bar of Texas’s 29th Advanced Estate Planning Strategies on April 20, 2023, in Lake Tahoe, California, with Phillip Lindquist, Tanya E. Feinleib, and Michaelle Rafferty. The presentation discussed co-trustee management, fiduciary duties and challenges in co-trustee management, directed trusts, trust advisors/protectors, delegation of trustee duties, tax issues, and many more issues. The PowerPoint presentation from the course is attached.

Click here for PowerPoint:  29th Advanced Estate Planning Strategies

In  In re Estate of Allen, a trial court appointed a successor independent administrator, the decedent’s son, and the decedent’s wife appealed the decision. No. 08-21-00184-CV, 2022 Tex. App. LEXIS 8841 (Tex. App.—El Paso December 2, 2022, no pet. history). The court first discussed the distinction between a dependent and independent administration:

The primary distinction between dependent and independent administrations is the level of judicial supervision over the exercise of the executor’s power. In a dependent administration, an executor or other personal representative can perform only a few transactions without seeking a court’s permission. In contrast, in an independent administration, the executor is “free from . . . the expense and control of judicial supervision except where the . . . Code specifically and explicitly provides otherwise.” As our sister court in Waco has recognized, the “independent administration of estates and the testator’s right to select an independent executor of his or her choice are foundations of Texas law.” So if an independent executor named in a will is willing to serve, the court has no discretionary power to refuse to issue letters to the named executor unless he is a minor, an incompetent, or otherwise disqualified under the Code.

Id. The court then determined the relevant statute in determining a successor independent administrator:

In the trial court, Kenneth and Corey relied on Chapter 361 of the Estates Code in their Application seeking to allow Kenneth to step down and to name Corey as the successor independent executor… We conclude, however, that Chapter 361 does not govern the appointment of a successor independent executor or administrator not named in a will.

Under section 361.002 of the Code, a court may accept the resignation of a “personal representative” of an estate, and may immediately appoint a successor representative when “necessity exists” without notice or a hearing. To be sure, section 22.031(a) of the Code defines a “personal representative” to include an “independent executor” or “independent administrator” of an estate. But section 22.031(b) provides a significant exception to the general rule that an independent executor is to be treated like a “personal representative,” stating that “[t]he inclusion of an independent executor in Subsection (a) may not be construed to subject an independent executor to the control of the courts in probate matters with respect to settlement of estates, except as expressly provided by law.” And in turn, a trial court exerts “control” over an independent executor when the court either removes him, or when it appoints a successor who has not been named in the testator’s will. Thus, a trial court may neither remove an independent executor or appoint his successor absent express statutory authority allowing it to do so.

As Lisa points out, section 404.005 of the Code, which is found in Subtitle I of the Code governs “Independent Administration,” and provides one specific instance in which a trial court may appoint a successor independent administrator not named in a will. Section 404.005(a) provides that if the will of a person names an independent executor who for any reason is unwilling or unable to serve, and if each successor executor named in the will is also either unable or unwilling to serve, “all of the distributees of the decedent” may file an “application for an order continuing [the] independent administration [and] may apply to the probate court for the appointment of a qualified person, firm, or corporation to serve as successor independent administrator.” And if the probate court finds that the “continued administration of the estate is necessary,” this provision allows the court to “enter an order continuing independent administration and appointing the person, firm, or corporation designated in the application as successor independent administrator, unless the probate court finds that it would not be in the best interest of the estate to do so.”

Given the language used in this provision—requiring “all distributees” to join in the application—we conclude that the Legislature intended to only give a probate court the limited authority to appoint a successor independent executor not named in a will when “all” of the distributees agreed; in other words, it did not intend to allow a single distributee to unilaterally apply for the continuation of an independent administration or to appoint a successor administrator. And in turn, if the distributees do not all agree on the continuation of the independent administration or the appointment of a successor independent administrator, the estate will then be converted to a dependent administration, which will be subject to judicial control, and any successor appointed by the court will be treated as a dependent executor. We therefore conclude that Lisa is correct that all “distributees of the decedent” needed to agree on Corey’s appointment as the successor independent administrator to allow the independent administration to continue.

Id. The court then determined that Lisa, the decedent’s wife, was a distribute of the estate based on her life estate in the family homestead. The court concluded:

We therefore conclude that Lisa was in fact a “distributee” under section 404.005(d) through her homestead rights, and that, consequently, her agreement was required under section 404.005(a) of the Code before the trial court could appoint Corey as the successor independent administrator of Rickey’s estate. Accordingly, the trial court erred by accepting Kenneth’s resignation and appointing Corey as his successor without obtaining Lisa’s agreement.

Id. The court also mentioned that upon remand, the decedent’s wife may have priority as the successor administrator under statute.

In In the Est. of Lemme, an administratrix of an estate hired her boyfriend to do legal work. No. 07-21-00300-CV, 2022 Tex. App. LEXIS 8829 (Tex. App.—Amarillo December 1, 2022, no pet. history). After an accounting was submitted, heirs objected to the amount of the fees paid. The trial court removed the administratrix for gross mismanagement, and she appealed.

The court of appeals first discussed the law regarding removing an administrator:

Gross misconduct or gross mismanagement is a ground for removal of an executor. “Gross misconduct” and “gross mismanagement” include, at a minimum: (1) any willful omission to perform a legal duty; (2) any intentional commission of a wrongful act; and (3) any breach of a fiduciary duty that results in actual harm to a beneficiary’s interests. “As a fiduciary, an executor has a duty to protect the beneficiaries’ interest by fair dealing in good faith with fidelity and integrity. His personal interests may not conflict with his fiduciary obligations to the estate.” In addition, a fiduciary owes a principal a high duty of strict accountability.

Id. The court of appeals then reviewed the evidence concerning the payment of attorney’s fees:

Richardson and Allen alleged that, considering the size of the estate and lack of complexity involved in handling it, the attorney’s fees charged by Durrance were not reasonable or necessary. They further asserted that fees charged for non-legal activities, such as consulting plumbers and realtors, should not have been charged to or paid by the estate. Richardson and Allen claimed that Cox’s relationship with Durrance influenced Durrance’s billing practices in this case and Cox’s decision to pay the excessive amounts, which significantly reduced the value of the estate and the ultimate amount received by the beneficiaries. Cox contends that she merely sought and paid for legal counsel and, as such, her actions could not constitute gross misconduct or gross mismanagement.

At the evidentiary hearing, Durrance’s invoice for $43,037.50, for services provided between March of 2019 and November of 2020, was admitted into evidence. Many entries were one-word descriptions of the work performed, such as “review,” “preparation,” and “plumber.” The invoice also reflected entries for “travel” and one 20-hour “site visit.” Richardson presented evidence that of the $43,037.50 paid to Durrance from estate funds, roughly $20,000 was paid for activities that were not legal in nature, such as communicating with plumbers, realtors, and utility companies. Durrance testified that he did not recall discussing any of the entries with Cox or Cox making any complaint about his invoices…

In sum, the evidence reveals that Durrance charged, and Cox paid, attorney’s fees that were not reasonable or necessary, including substantial charges for non-legal work. The evidence further shows that Cox failed to exercise meaningful oversight of the administration, instead delegating her fiduciary responsibilities to Durrance. Moreover, because Durrance and Cox are romantic partners who share a household, the payments to Durrance indicated that Cox favored her partner’s—and arguably her own—personal financial interests over those of the estate beneficiaries.

Id. The court then concluded that the evidence supported the trial court’s conclusion that the administratrix breached her fiduciary duty and engaged in gross mismanagement of the estate and affirmed the removal.

The court also affirmed the trial court’s award of attorney’s fees against the former administratrix. The court held that Section 351.003 of the Texas Estates Code allows certain costs and reasonable attorney’s fees to be assessed against an administrator when the administrator is removed for cause. The court stated: “Because Cox was removed for cause, it was proper for the trial court to charge her with the attorney’s fees incurred in removing her as administratrix.” Id. The court then reviewed the evidence of attorney’s fees, which included billing statements, hourly rate, number of hours, and testimony regarding segregation, and affirmed the award of $7,075 in attorney’s fees.

In Austin Trust Co. v. Houren, beneficiaries of a trust executed a family settlement agreement with the former trustee’s estate. No. 21-0355, 2023 Tex. LEXIS 285 (Tex. March 23, 2023). After the settlement agreement was executed, one of the parties sued the former trustee’s estate for over a $37 million alleged debt. The former trustee was the primary beneficiary and distributed the $37 million to himself over a long period of time and categorized he payments as accounts receivable on software program. The beneficiaries alleged that this was a debt due to the entries. The former executor’s estate alleged that the entries simply showed distributions, not loans. The beneficiaries asserted claims in the alternative, that the trustee’s estate owed a debt and that even if it was not a debt that the distributions were inappropriately large.

The trustee’s estate filed a motion for summary judgment based on the release in the settlement agreement, which the trial court granted. The court of appeals affirmed, finding that the release’s language was sufficiently broad to cover these claims and that the release was effective. Id. (Austin Trust Co. v. Houren. No. 14-19-00387-CV, 2021 Tex. App. LEXIS 1955 (Tex. App.—Houston March 16, 2021, pet. granted)). The Texas Supreme Court affirmed the lower courts.

The Court first addressed the scope of the release in the family settlement agreement and stated:

The parties agreed to release “the other Parties . . . with respect to any and all liability arising from any and all Claims . . . in connection with the other Parties . . . and the Covered Activities.” “Claims” is broadly defined as “any and all obligations, causes of action, suits, promises, agreements, losses, damages, charges, expenses, challenges, contests, liabilities, costs, claims, and demands of any nature whatsoever, known or unknown,  which have now accrued or may ever accrue in the future.” The released claims include, but are not limited to, “claims of any form of sole, contributory, concurrent, gross, or other negligence, undue influence, duress, breach of fiduciary duty, or other misconduct by the other parties, the professionals, or their affiliates.” And as noted, “Covered Activities” includes claims based on the “operation, management, or administration of the Estate . . . or the Trusts”; “the distribution (including, but not limited to, gifts or loans) (or failure to distribute) of any property or asset of or by [Bob], the Estate, the Companies, or the Trusts”; and “any Claims related to, based upon, or made evident in the Disclosures” or the facts stated in Article I of the Agreement.

Id. The Court held that this was broad enough to cover any claim that the former trustee’s estate had a debt or that the trustee made inappropriate distributions to himself. The plaintiff alleged that a separate provision dealing with paying of estate debts was the applicable provision and meant that the estate still had to pay back the $37 million. The Court disagreed:

Read in isolation, Paragraph 3.11’s requirement that Houren pay “all” debts of and claims against the Estate does not distinguish between the source of those claims. But Houren argues that this paragraph, when read within the context of the entire Agreement, does not require payment of claims and debts that (1) are asserted by parties to the Agreement and (2) otherwise fall within the scope of the Agreement’s releases in Article IV. We agree with the result Houren urges because other provisions within the Agreement confirm that Paragraph 3.11 was not intended to override the Article IV releases.

Id.

In the FSA, the parties agreed that the releases contained therein generally applied to “any and all liability arising from any and all Claims,” as defined in the FSA, against the other parties or relating to “Covered Activities,” as defined in the FSA. The released claims included, but were not limited to “claims of any form of sole, contributory, concurrent, gross, or other negligence, undue influence, duress, breach of fiduciary duty, or other misconduct by the other parties, the professionals, or their affiliates[.]” The FSA defined “Covered Activities” as (1) “the formation, operation, management, or administration of the Estate, . . . or the Trusts,” (2) “the distribution (including, but not limited to, gifts or loans) (or failure to distribute) of any property or asset of or by the Mayor, the Estate, . . . or the Trusts,” (3) “any actions taken (or not taken) in reliance upon this Agreement or the facts listed in Article I,” (4) “any Claims related to, based upon, or made evident in the Disclosures,” and (5) “any Claims related to, based upon, or made evident in the facts set forth in Article I” of the FSA. We conclude that this language specifically and unambiguously released appellants’ claims asserted in their First Amended Counterclaim.

Id.

The Court then addressed the validity of the releases in the family settlement agreement. The Court discussed that a fiduciary has a duty to make disclosures to a beneficiary for a release to be enforceable:

A family settlement agreement is an alternative method of estate administration in Texas that is a favorite of the law. Generally, settlement agreements are enforceable in the same manner as any other written contract. However, when the agreement purports to release claims against one who owes the other party a fiduciary duty, the policies of freedom of contract and encouragement of final settlement agreements must be balanced against the duties of care and loyalty owed by the released fiduciary. Under longstanding common law, trustees and executors owe the beneficiaries of a respective trust or estate a fiduciary duty of full disclosure of all material facts known to them that might affect the beneficiaries’ rights. With respect to agreements releasing a fiduciary from liability, the duty includes ensuring that the beneficiary “was informed of all material facts relating to the release.” The condition on release agreements involving trustees is reflected in the Texas Trust Code, which provides that “[a] beneficiary who has full legal capacity and is acting on full information may relieve a trustee from any duty, responsibility, restriction, or liability as to the beneficiary that would otherwise be imposed on the trustee by this subtitle, including liability for past violations.”

Id.

The Court next held that the beneficiaries of the trust were not a beneficiary of the estate, and that therefore, the executor of the trustee’s estate had no duty to disclose facts to those parties. The court held:

We have described an estate executor as “trustee of the property of the estate, . . . subject to the high fiduciary standards applicable to all trustees.” The executor’s duty runs to the estate and its beneficiaries. The duty is reflected in the Estates Code, which “vests” a decedent’s estate immediately in his devisees or heirs at law, subject to payment of the decedent’s debts, and requires the executor or administrator to “recover possession of the estate and hold the estate in trust to be disposed of in accordance with the law.” Here, it is undisputed that no Estate assets passed by devise to the First Marriage Children, either directly or via the respective Descendants Trusts of which they were beneficiaries, under Bob’s will. Although Bob exercised the testamentary power of appointment granted in Elizabeth’s will to direct the Marital Trust’s remaining assets to pass to the trustee of the Descendants Trusts, those assets were not probate assets that passed through the Estate, and Houren was not responsible for taking possession or disposing of them… Because the Beneficiary Parties had an interest in only nontestamentary property at the time the Agreement was signed, they did not qualify as beneficiaries of Bob’s estate to whom Houren owed a corresponding fiduciary duty. Rather, any duty Houren owed to the Beneficiary Parties as executor of the Estate was no different from the duty he owed to any other unsecured creditor.

Id. The Court then held that an executor owes no fiduciary duties to estate creditors:

[T]o the extent Austin Trust argues that an independent executor owes a fiduciary duty to the estate’s creditors, we reject that contention. We have never recognized such a relationship, nor does the Estates Code. As the Fourteenth Court of Appeals persuasively explained in FCLT Loans, L.P. v. Estate of Bracher, while an independent executor has various statutory duties regarding the approval and payment of proper claims against the estate,12Link to the text of the note the language of those provisions gives no indication that the executor holds the estate’s assets in trust for the benefit of creditors or otherwise owes them a fiduciary duty.

Id. The Court therefore affirmed the lower courts’ summary judgment on the debt claim as that claim did not involve fiduciary duties:

In the absence of a fiduciary relationship between Houren as executor and the Beneficiary Parties as creditors, we reject Austin Trust’s argument that “full disclosure” is the standard for evaluating the releases of the debt claim. Accordingly, we evaluate their enforceability using the same standard applicable to any other contract. In this Court, Austin Trust offers no contractual grounds to invalidate the releases apart from the absence of full disclosure. The court of appeals therefore properly affirmed the trial court’s summary judgment on the debt claim.

Id.

The Court then turned to the breach of fiduciary duty claim, that the decedent breached duties by distributing assets that he was not entitled to distribute and whether that claim was effectively released. The Court first held that a beneficiary’s consent is effective when it is made with full knowledge:

In Slay v. Burnett Trust, we confirmed the “established rule” governing when a beneficiary’s “consent to an act of his trustee which would constitute a violation of the duty of loyalty precludes him from holding the trustee liable for the consequences of the act.” We explained that such consent does not foreclose liability “unless it is made to appear that when he gave his consent the beneficiary had full knowledge of all the material facts which the trustee knew.” Further, releases of liability for certain fiduciaries, including trustees, are governed by statute. Under the Trust Code, “[a] beneficiary who has full legal capacity and is acting on full information may relieve a trustee from any duty, responsibility, restriction, or liability as to the beneficiary that would otherwise be imposed on the trustee by this subtitle, including liability for past violations.” Tex. Prop. Code § 114.005(a).

Id. The Court then discussed the court of appeals looking at six factors to determine whether the beneficiaries’ releases were effective:

Without addressing Section 114.005, the court of appeals here identified six “factors” it considered in holding that the releases were valid: (1) the terms of the contract were negotiated rather than boilerplate, and the disputed issue was specifically discussed; (2) the complaining party was represented by legal counsel; (3) [*24]  the negotiations occurred as part of an arms-length transaction; (4) the parties were knowledgeable in business matters; (5) the release language was clear; and (6) the parties were working to achieve a once and for all settlement of all claims so they could permanently part ways. These factors were gleaned from this Court’s precedent governing when a settlement agreement’s disclaimer of reliance on the parties’ representations forecloses one of the parties from claiming the agreement was fraudulently induced and thus unenforceable…

This Court has not addressed whether the Forest Oil factors—which assist courts in evaluating whether a disclaimer of reliance in a settlement agreement defeats a claim of fraudulent inducement—should be used to assess the validity of a release of a breach-of-fiduciary-duty claim. Nor does it appear that any Texas court, including the court of appeals here, has addressed how those factors should interact with the established common-law requirements for trustee releases we adopted in Slay. But we need not definitively answer that question in this case because (1) Section 114.005 of the Trust Code expressly enables beneficiaries to consent to the releases at issue when they have “full information” and (2) as discussed below, we hold that the Marital Trust’s beneficiaries had such “full information” when they executed the Agreement.

Under the Trust Code, a “trustee who commits a breach of trust is chargeable with any damages resulting from such breach of trust, including . . . any loss or depreciation in value of the trust estate as a result of the breach of trust.” However, as noted, “[a] beneficiary who has full legal capacity and is acting on full information may relieve a trustee from any duty, responsibility, restriction, or liability that would otherwise be imposed on the trustee by this subtitle, including liability for past violations.” Here, the Beneficiary Parties agreed to release Houren, as executor of Bob’s estate, from liability for Bob’s alleged breach of the Marital Trust, thereby triggering Section 114.005’s conditions.

Id. The Court held that Section 114.005 did apply in this case as it applies to a release of a deceased trustee’s estate. The Court also assumed without deciding that the requirement of full knowledge cannot be waived by a beneficiary. The Court reviewed the evidence and held that it proved that the beneficiaries did have sufficient knowledge to enforce the release:

Section 114.005 does not define “full information,” but we presume the Legislature enacted the provision “with full knowledge of the existing condition of the law and with reference to it.” In the context of Section 114.005, we see nothing indicating that the Legislature intended “full information” to mean something other than we have required under the common law—specifically, “full knowledge of all the material facts which the trustee knew.” Both Section 114.005 and Slay echo the Restatement (Third) of Trusts, which, in turn, gives color to the phrase “acting on full information.” According to the Restatement, which we find persuasive:

It is not necessary that the trustee inform the beneficiary of all the details of which the trustee has knowledge; but, because of the strict fiduciary relationship between trustee and beneficiary, a trustee who would rely on a beneficiary’s consent, ratification, or release normally has the burden of showing that the beneficiary (or his or her representative) was sufficiently informed to understand the character of the act or omission and was in a position to reach an informed opinion on the advisability of consenting, ratifying, or granting a release. . . .

Whether such “full information” has been provided necessarily depends on the facts and circumstances of each case. The Restatement and our precedent clarify the purpose behind the full-information requirement, which is to ensure the beneficiary makes a meaningful and informed decision before signing away any rights he may have. Knowledge of the full scope, extent, and details of the acts the beneficiary is releasing, while certainly preferable, is not required so long as he is informed enough to understand the nature and consequences of what he is giving up. We hold that the Beneficiary Parties were sufficiently informed to understand the character of the act they were releasing and were in a position to reach an informed opinion on the advisability of agreeing to the release. This conclusion is supported by both the parties’ acknowledgments in the Agreement itself as well as the circumstances surrounding its execution.

Id. The Court concluded:

In sum, while the sufficiency of disclosure will depend on the facts and circumstances of each case, the underlying legal principle remains constant: a beneficiary has full information when he is in a position to make a meaningful and informed decision about releasing a trustee from liability or, said differently, when he is informed enough to understand the nature and consequences of what he is releasing. Here, the Beneficiary Parties were fully aware that they were waiving the right to challenge the propriety of any of the prior distributions from the Marital Trust, even if they did not know the exact amount, in exchange for an expedited distribution of the trust’s remaining assets.

Id. Therefore, the Court affirmed the lower courts’ judgment for the former trustee’s estate due to the release in the family settlement agreement.

In In re Est. of Brown, a charity attempted to probate a copy of a lost will. No. 01-19-00953-CV, 2022 Tex. App. LEXIS 9259 (Tex. App.—Houston [1st Dist.] December 20, 2022, no pet. history). The trial court denied the application, and the charity appealed. The court of appeals affirmed. The court first discussed the law regarding lost wills:

A copy of a will may be probated when the original will cannot be found. A party seeking to probate a copy of a will, rather than the original, must prove the will “in the same manner as provided” for an attested written will or holographic will. The “same amount and character of testimony is required to prove the will not produced in court as is required to prove a will produced in court.” The proponent of the will must also prove “the cause of the non[-]production” of the original will in a manner “sufficient to satisfy the court that the will cannot by any reasonable diligence be produced.” The proponent satisfies this burden by showing by a preponderance of the evidence that the original will could not be located after a reasonably diligent search. The proponent need not establish how the original will was lost.

Id. The trial court found that there was not sufficient evidence as to the cause of non-production of the will. The evidence showed as follows:

At the hearing on her application to probate a copy of the October 2009 will, Eriks testified that she did not know whether Brown ever revoked the October 2009 will and she had “no firsthand knowledge” that the original October 2009 will had been accidentally disposed of. Eriks also testified that she did not think that Brown had “any reason” to tear up or dispose of the original October 2009 will, Brown “tended to save every scrap of paper,” and Brown “had a history of hiding.” Significantly though, as to non-production of the original October 2009 will, Eriks testified that she did not search anywhere for Brown’s original October 2009 will, and Eriks did not testify that anyone else searched for Brown’s original October 2009 will.

Id. The court of appeals then ignored statements by an attorney where they were not given under oath:

The Humane Society, in its briefing, points to the statements made during the hearing by Wylie, the attorney who served as Brown’s guardian ad litem and the guardian of Brown’s estate, to assert that “all the evidence demonstrate[d] that the [original October 2009] will could not be found after a diligent search.” …

Significantly, Wylie was not called as a witness at the hearing, not sworn in as a witness, and not subject to cross-examination. She did not offer her comments during the hearing as a witness. An attorney’s unsworn statements are not evidence… We conclude that the Humane Society, on appeal, has failed to show that the evidence establishes, as a matter of law, that the original October 2009 will could not be located after a reasonably diligent search… Thus, we hold that the evidence is legally and factually sufficient to support the trial court’s finding on non-production, and the trial court did not err in denying the application to probate a copy of Brown’s October 2009 will.

Id.