In Dunn v. Chappelle (In re Alta Mesa Res., Inc.), a bankruptcy trustee sued the officers and directors of a limited partnership and related entities for operating a drilling program despite having lower than expected results. No. 19-35133, 2022 Bankr. LEXIS 2928 (U.S. Bankr. Ct. October 13, 2022). The defendants filed a motion to dismiss. The court granted it in part and denied it in part. The court first analyzed the partnership agreement and held that officers of the partnership’s parent corporation did not owe fiduciary duties to the partnership:

The Agreement forms a limited partnership under the laws of Texas and specifically provides that Texas law will govern. Under Texas law, “except as provided by . . . a partnership agreement, a general partner of a limited partnership . . . has the liabilities of a partner in a partnership without limited partners.” Tex. Bus. Orgs. Code Ann. § 153.152 (2021). In other words, subject to the terms of a limited partnership agreement, the general partner of a limited partnership has the same duties of a partner in a general partnership. Those duties include the duty of loyalty and the duty of care. Tex. Bus. Orgs. Code Ann. § 152.204 (2021)… Only the general partner owes fiduciary duties to Alta Mesa. Nowhere does the Agreement state that directors or officers of AMR owe fiduciary duties to Alta Mesa. Similarly, the Texas Business Organizations Code does not impose such a duty on the directors of a parent corporation.

Id. The court then analyzed whether the officers of the general partner owed fiduciary duties to the limited partnership:

The Texas Business Organizations Code states that “a partnership may have elected or appointed officers.” Tex. Bus. Orgs. Code Ann. § 151.004 (2021). An officer “shall perform the duties in the management of the entity and has the authority as provided by the governing documents of the entity.” Tex. Bus. Orgs. Code Ann. § 3.103 (2021)…

Dunn argues that the defendants’ control over Alta Mesa means that they had fiduciary duties to Alta Mesa. While Texas law supports this theory, the issue is whether Dunn has sufficiently plead factual allegations to plausibly support it. The Fifth Circuit found in Harwood that “[A]n officer of a corporate general partner who is entrusted with the management of the limited partnership and who exercises control over the limited partnership . . . owes a fiduciary duty to the partnership . . . . We emphasize that it is not only the control that the officer actually exerts over the partnership, but also the confidence and trust placed in the hands of the controlling officer. . . .” FNFS, LTD. v. Harwood (In re Harwood), 637 F.3d 615, 622 (5th Cir. 2011).

Dunn pleads numerous factual allegations that demonstrate the high degree of control that Chappelle, Ellis, and Turner exercised over the operations of Alta Mesa. Dunn alleges that they were involved in the decision-making process at every stage of the drilling program from the testing that began before the merger to the decision to install ESPs when production fell below projected levels. They were charged with presenting information on the program to the board of AMR and to investors. There is no indication that the board did anything to interfere with the officers’ control until almost a year after they approved the drilling program. Unlike the defendant in Harwood, the defendants did far more than “hold themselves out” as officers of Alta Mesa. They actually were officers of Alta Mesa, and exercised power in that capacity. The totality of the circumstances, if proven, would support a finding of a fiduciary relationship. To clarify, the Court does not base its analysis on the directors’ positions or purported positions as officers of Alta Mesa GP. That fact is merely another marker of the control the defendants exercised over Alta Mesa in their capacity as officers of Alta Mesa directly. Dunn’s complaint sufficiently alleges facts to support the claim that Chappelle, Ellis, and Turner owed fiduciary duties, looking to the totality of the nature of their relationship to Alta Mesa.

Id.

The court then held that the trustee pleaded sufficient allegations of breach of the duty of loyalty by alleging that the officers provided insufficient information about the drilling program:

The Texas Business Organizations Code codifies the internal affairs doctrine and provides that Texas law “governs the formation and internal affairs of an entity” formed under a certificate filed under the laws of Texas. Tex. Bus. Orgs. Code Ann. § 1.101 (2021). Texas limited partnerships, as entities formed by filing certificates, are subject to the internal affairs doctrine. Tex. Bus. Orgs. Code Ann. § 152.802 (2021). Therefore, Texas law governs the dispute as to whether the officers of a Texas limited partnership breached fiduciary duties to the partnership. Herington v. Univar Solutions Inc., 2021 U.S. Dist. LEXIS 165986, 2021 WL 3828702, at *2 (S.D. Tex. May 20, 2021) (“The internal affairs doctrine applies to breach of fiduciary duty claims.”). The two primary fiduciary duties in Texas are the duty of care and the duty of loyalty. Gearhart Indus., Inc. v. Smith Int’l, Inc., 741 F.2d 707, 719 (5th Cir. 1984). In Texas, the business judgment rule is treated as a “rule of substantive law that requires a plaintiff . . . to plead and prove (1) that the conduct . . . was outside the exercise of judgment and discretion the rule is meant to protect, or (2) that the directors had a personal interest in the transactions complained of.” Resol. Tr. Corp. v. Norris, 830 F. Supp. 351, 356 (S.D. Tex. 1993). Therefore, Dunn must plead around the business judgment rule in alleging the officers breached either their duty of care or their duty of loyalty to survive dismissal….

To abide by the duty of care, directors generally must “inform themselves, before making a business decision, of all material information reasonably available to them.”… A poor decision that leads to a bad outcome is not a breach; failing to properly gather and analyze information while making that decision is a breach.

The Complaint indicates that Chappelle, Ellis, and Turner went to great effort to inform themselves and had intricate knowledge of how the wells were performing. They did not breach their duty of care simply because their decisions turned out poorly. Alternatively, Dunn alleges that having gathered and analyzed all the information necessary to make an informed business decision, Chappelle, Ellis, and Turner failed to disclose that information to the AMR directors and investors and even actively withheld and hid that information from the AMR directors. (ECF No. 50 at 39-43). Like Northstar, Dunn raises the issue of the duty of loyalty rather than the duty of care.

“The duty of loyalty dictates that a director must act in good faith and must not allow his personal interests to prevail over the interests of the corporation.” Gearhart, 741 F.2d at 719. The business judgment rule does not apply to self-dealing transactions. Northstar, 616 B.R. at 739. Because the duty of loyalty is most commonly called into question in instances involving self-dealing, the business judgment rule does not typically apply to the duty of loyalty. Here, there are no allegations that the officers were self-interested, and there is little case law addressing what constitutes “good faith” in this context. The duty of loyalty in Texas includes duties of candor and disclosure. Chapman v. Arfeen, No. 09-16-00272-CV, 2018 Tex. App. LEXIS 7132, 2018 WL 4139001, at *15 (Tex. App.—Beaumont Aug. 30, 2018, pet. denied); see also McBeth, 565 F.3d at 178 (reasoning that, as fiduciaries, partners in a limited partnership owe one another a duty of disclosure). Deciding whether to share specific information is itself a business decision. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 181 (1997). Because disclosure is a business decision, to the extent the allegations of breach of the duty to disclose do not allege self-dealing, the business judgement rule applies. A complaint successfully pleads around the business judgment rule where the facts support an inference that the officers acted dishonestly or deceptively in the withholding of information. Chapman, 2018 Tex. App. LEXIS 7132, 2018 WL 4139001, at *15 (citing Sneed v. Webre, 465 S.W.3d 169, 178 (Tex. 2015)).

Dunn alleges not only that Chappelle, Ellis, and Turner withheld information from the board, but further suggests they intentionally manipulated data presented to the AMR board and to investors to obscure the fact that the drilling program’s performance fell below projections. Specifically, the complaint alleges that Chappelle and Turner decided to present “cleaned up” data. They cut off a graph comparing well production to type curves right before the point where the graph showed actual production falling below the type curves. They also recalculated average production from the wells by removing the poorest performing wells from that calculation. Additionally, the complaint alleges that Ellis knew the patterns were underperforming and did not inform the board, and he participated in presentations of manipulated data to the investors and the board knowing the data had been similarly “cleaned up.” These factual allegations involve dishonesty and deception and call into question whether the officers acted in good faith or, as the trustee alleges, in an effort to save their jobs. Motive will be a matter for trial. But, the complaint sufficiently overcomes the business judgment rule’s presumption to plausibly plead a breach of the duty of loyalty with respect to defendants Chappelle, Ellis, and Turner.

Id.

In Donnelly v. Donnelly, a widow sued her deceased husband’s son for failing to change the beneficiary designation on the husband’s IRA to name her. No. 14-21-00592-CV, 2022 Tex. App. LEXIS 7615 (Tex. App.—Houston October 13, 2022, no pet. history). The IRA account had the husband’s three sons listed as beneficiaries. The widow alleged that the husband told his son, who was his financial advisor, to change the beneficiary designation, and the son said that he had done so. After the husband died, the widow discovered that the beneficiary designation had not been changed and sued for breach of fiduciary duty. The trial court granted the son a summary judgment, and the widow appealed.

The court of appeals first held that the beneficiary designation was not ambiguous and her testimony about what the husband intended after its execution was not relevant to its validity. Further, the court of appeals affirmed the trial court’s striking of the widow’s affidavit discussing her husband’s statements due to the dead man’s rule. The court stated:

The Dead Man’s Rule provides that: “In civil actions by or against executors, administrators, or guardians, in which judgment may be rendered for or against them as such, neither party shall be allowed to testify against the others as to any oral statement by the testator, intestate, or ward, unless that testimony to the oral statement is corroborated or unless the witness is called at the trial to testify thereto by the opposite party; and, the provisions of this article shall extend to and include all actions by or against the heirs or legal representatives of a decedent based in whole or in part on such oral statement.” Tex. R. Evid. 601. The purpose of the Dead Man’s Rule is threefold: (1) to put the parties on an equal footing at trial, (2) to prevent one, to the detriment of the other, from taking advantage of the fact that the lips of the deceased have been sealed, and (3) to render incompetent testimony as to conversations and transactions with a deceased in a suit in which the deceased might deny the conversations and transactions if he were alive. Lewis v. Foster, 621 S.W.2d 400, 402 (Tex. 1981). The test has been stated as: If the witness offered should testify falsely, could the deceased, if living, controvert it by his own personal knowledge? Id.

Texas courts construe the Dead Man’s Rule narrowly. Quitta v. Fossati, 808 S.W.2d 636, 641 (Tex. App.—Corpus Christi 1991, writ denied) (citing Lewis, 621 S.W.2d at 404)). The rule does not prohibit testimony concerning statements by the deceased that are properly corroborated. See id. Corroborating evidence must tend to support some of the material allegations or issues that are raised by the pleadings and testified to by the witness whose evidence is sought to be corroborated. Id. It may come from any other competent witness or other legal source, including documentary evidence. Id. Corroborating evidence need not be sufficient standing alone, but must tend to confirm and strengthen the testimony of the witness and show the probability of its truth. Id. For example, it is sufficient if the corroborating evidence shows conduct by the deceased that is generally consistent with the testimony concerning the deceased’s statements. Fraga v. Drake, 276 S.W.3d 55, 61 (Tex. App.—El Paso 2008, no pet.). Corroboration may come from any other competent witness or other legal source, including documentary evidence. Powers v. McDaniel, 785 S.W.2d 915, 920 (Tex. App.—San Antonio 1990, writ denied) (holding that checks reflecting property purchase were sufficient to corroborate oral agreement concerning sale of property).

Id. The court then found that the widow’s evidence was not sufficient to corroborate the statements:

Maria asserts that she presented evidence that:

• John was a member of the Briar Club;

• John testified that he had no reason to dispute that he met Maria and George for dinner at the Briar Club in June of 2017;

• George gave John a copy of his will during this meeting;

• George changed the beneficiary of his life insurance policy to Maria; and

• John, according to Maria, repeated George’s instruction to change the beneficiary of the IRA.

The alleged corroboration asserted by Maria does not tend to confirm and strengthen her testimony that George intended to change the IRA beneficiary, nor does it tend to show the probability of its truth. The fact that George changed the beneficiary of his life insurance to Maria and changed his will to bequeath his entire estate to Maria is not corroborative of his alleged intent to change his IRA beneficiary.

Maria’s allegation that John repeated George’s testimony is not corroboration as it is still Maria’s testimony. Corroboration of an interested party’s testimony may not emanate from her or depend on her credibility. Garcia v. Garcia-Giesick, No. 04-00-00360-CV, 2001 Tex. App. LEXIS 7768, 2001 WL 1479244, at *2 (Tex. App.—San Antonio Nov. 21, 2001, no pet.) (mem. op.) (citing Tramel v. Estate of Billings, 699 S.W.2d 259, 262 (Tex. App.—San Antonio 1985, no writ)). Maria is an interested party. Accordingly, we cannot look to Maria’s own affidavit to corroborate her affidavit. See id. None of the statements in Maria’s affidavit that purport to reveal George’s intent were corroborated by sufficient evidence reflecting conduct by George that is generally consistent with Maria’s testimony concerning George’s statements. We therefore conclude the trial court did not abuse its discretion in excluding Maria’s affidavit under the Texas Rules of Evidence.

Id.

The court then affirmed the no-evidence summary judgment on the breach of fiduciary duty claim because the widow did not have any evidence to support her claims (with her affidavit struck). The court stated: “The only evidence Maria presented to support her tort claims was her affidavit reporting the alleged instruction from George to John about changing the IRA beneficiary. The trial court excluded Maria’s affidavit and we have concluded the trial court did not err in excluding the affidavit. Therefore, Maria presented no evidence of a breach of any fiduciary duty or of a fact that was not disclosed.” Id.

Finally, the widow complained that the trial court placed the burden of proof on her as there was a presumption of unfairness that shifted the burden to the defendant. The court held, however, that there was no evidence of a self-interested transaction in the first place that would then shift the burden to the defendant:

The person challenging the validity of an instrument generally bears the burden of proving the elements of undue influence by a preponderance of the evidence. Quiroga v. Mannelli, No. 01-09-00315-CV, 2011 Tex. App. LEXIS 1959, 2011 WL 944399, at *5 (Tex. App.—Houston [1st Dist.] Mar. 17, 2011, no pet.) (mem. op.). In some cases involving confidential or fiduciary relationships, however, the burden shifts to the person receiving the benefit to prove the fairness of the transaction. Estate of Danford, 550 S.W.3d 275, 281-82 (Tex. App.—Houston [14th Dist.] 2018, no pet.) (fiduciary relationship created by power of attorney shifted burden of proof to fiduciary to show fairness of transaction). In other words, when a fiduciary transacts with the principal or accepts a gift or bequest from the principal, a burden is placed on the fiduciary to demonstrate the fairness of the transaction. Estate of Grogan, 595 S.W.3d 807, 818 (Tex. App.—Texarkana 2020, no pet.). The gravamen of Maria’s complaint on this issue is that George told John to change the beneficiary of the IRA and John refused to do so and failed to tell George that he had not done so. Maria’s only evidence of an alleged transaction was her own self-serving affidavit, which the trial court properly excluded. Maria, therefore, offered no evidence of a transaction on which John could be required to offer evidence of fairness. Because there was no evidence of a transaction, the presumption of unfairness was never triggered. We overrule Maria’s second issue challenging the summary judgment on this ground.

Id. The court affirmed the judgment for the defendant except for an award of attorney’s fees.

In In re Pitts, the parties in a case settled and had a special needs trust drafted. No. 05-22-00542-CV, 2022 Tex. App. LEXIS 4143 (Tex. App.—Dallas June 16, 2022, original proceeding). The trial court entered a different trust. The parties filed a petition for writ of mandamus challenging the trust entered by the trial court. The court of appeals denied the mandamus because the parties never requested that the trial court enter the trust that they drafted: Continue Reading Court Refused Mandamus Relief Due To Party’s Failure To Ask Trial Court To Issue New Special Needs Trust

In In re Guardianship of Margol, a mother named her son as her power of attorney agent and as a trustee of a trust in which she was a beneficiary. No. 05-21-00255-CV, 2022 Tex. App. LEXIS 4119 (Tex. App.—Dallas June 16, 2022, no pet. history). A daughter filed an application to name a guardian of her mother’s person and estate. The son opposed that application and filed one of his own. The trial court granted the guardianship of the mother’s estate, but not person, and also found that the son had an adverse interest and did not have standing. The son appealed. The court of appeals held as follows: Continue Reading Court Holds That Trustee Who Engaged In Self-Interested Transactions Did Not Have Standing To Challenge Guardianship Proceeding Involving The Beneficiary

In Ackers v. Comerica Bank & Trust, N.A., a life-time beneficiary of a trust filed a claim for a declaration regarding whether certain contingent remainder beneficiaries were beneficiaries. No. 21-0233, 2022 Tex. LEXIS 997 (Tex. October 28, 2022)(Busby, J., Concurring). The trial court ruled that the claim was not ripe because the contingent remainder beneficiary class could not be determined until the life-time beneficiary died, which had not occurred. The court of appeals affirmed. The life-time beneficiary then sought Texas Supreme Court review. After briefing on the merits, the life-time beneficiary died, which then terminated the trust. The Court denied the petition for review after this death. However, one of the justices wrote an opinion concurring with the denial due to the death, but explaining that the lower courts incorrectly ruled on the ripeness issue.

The justice stated that the court of appeals’s conclusion on ripeness was “incorrect because it focuses solely on the Heirs’ contingent future interest in a remainder distribution of the ‘corpus of the trust’ upon Larry’s death, while ignoring their present rights as putative contingent remainder beneficiaries prior to the trust’s termination.” Id. “Because those present rights were also in dispute, the contingent nature of the future interests of Larry’s ‘then-living descendants’ does not render this suit unripe.” Id. The justice stated:

Although a contingent interest, by definition, is conditioned on the occurrence of an event that may or may not take place, this does not mean that every suit involving a contingent interest is unripe. Rather, the Trust Code allows “interested person[s]” to sue concerning a trust, and an interest can be “any interest, whether . . . present or future, vested or contingent.” … [T]he “contingent status” of an interest cannot render it insufficient because that conclusion “would essentially undo the [Trust Code’s] express grant of rights to parties with ‘contingent’ interests.” It would make no sense to hold that the Legislature, in enacting the Trust Code, gave trial courts jurisdiction over suits they can never hear because the nature of a contingent beneficiary’s interest renders them categorically unripe. Rather, chapters 111 and 115 of the Trust Code indicate that the mere involvement of contingent interests does not necessarily render a case unripe.

There are good reasons that the Trust Code authorizes contingent beneficiaries to sue: they have present as well as future rights that may be affected by a particular dispute. Among these are the right to sue for an accounting by the trustee and the right to sue to remove a trustee. By sending account statements to the Heirs, Comerica treated them as beneficiaries with present rights. The declaration Larry sought would resolve a real dispute regarding whether the Heirs are in fact beneficiaries with such rights.

A trustee owes fiduciary duties to the trust. One such duty is the duty of loyalty, which obligates the trustee to preserve the confidentiality of trust information. To facilitate a trustee’s compliance with its duties of disclosure as well as confidentiality, it is important that both trustees and beneficiaries have access to the judicial forum provided by the Legislature for resolving any disputes regarding present rights. A declaratory judgment regarding whether Comerica properly treated the Heirs as contingent beneficiaries would “actually resolve” this dispute.

Id.

 

It is common for wills or trusts to provide that the fiduciary has the right to construe the document. For example, a provision may state that the fiduciary shall resolve any question regarding the construction, interpretation, or operation of the will/trust or any matter involving the administration of the estate/trust or any rights of any beneficiary and that the executor’s/trustee’s decision shall be conclusive on all persons ever interested in the estate/trust. Is this provision enforceable, and if so, under what circumstances and to what extent?

Courts have upheld provisions in a will that authorize the executors to settle disputes among beneficiaries concerning the construction of the will or administration of the estate since at least 1828, when the United States Supreme Court decided Pray v. Belt, 26 U.S. (1 Pet.) 670 (1828).  But, from the beginning, courts have emphasized that the executors’ decisions are subject to judicial review and may be overridden when “an unreasonable use be made of the power, one not foreseen, and which could not be intended by the testator.” Id. at 680 As Chief Justice Marshall explained in Pray:

This power is given in the apprehension that [the testator] may have committed error. It is to be exercised in order to ascertain his intent in such cases. It certainly does not include the power of altering the will. It cannot be contended, that this clause would protect the executors in refusing to pay legacies altogether, or in paying to A, a legacy bequeathed to B, or in any other plain deviation from the will. In such case, what would be the remedy of the injury party? Is he concluded by the decision of the executors, or may he resort to a Court of Justice? But one answer can be given to these questions. So gross a departure from the manifest intent of the testator, cannot be the result of an honest endeavor to find that intent; and must be considered as a fraudulent exercise of a power, given for the purpose of preserving peace, and preserving expensive and frivolous litigation.

Id.

One treatise provides:

In the absence of a provision in a will authorizing the executor or trustee to construe it, beneficiaries are not bound by any construction given by the executor. A will may specifically provide for the submission of questions as to construction to certain designated persons, generally the executors or trustees. Under such provisions, the decision of the designated person as to any doubtful question is said to be binding on all parties in interest, unless it is made arbitrarily or in bad faith, or is clearly contrary to other provisions of the will. The umpire’s decision may be binding in such a case even though he has a personal interest in the result, as where the question for construction relates to executor’s fees. There must be a bona fide question in order to give the executor the right to exercise the power. It is said in some jurisdictions that, since construction is a matter for the courts, a legatee cannot be deprived of his right to judicial review of a clearly erroneous decision, and if such a case comes before the court it must construe the will correctly.

4 Page on Wills § 31.15.

Texas courts have enforced provisions giving the executor or trustee discretion to construe the document. Key v. Metcalf, No. 14-04-00782-CV, 2006 WL 348149, at *2 (Tex. App.—Houston [14th Dist.] Feb. 16, 2006, no pet.) (Will provisions making executors’ decision regarding will construction binding on all interested parties valid.); Grant v. Stephens, 200 S.W. 893, 896 (Tex. Civ. App.—Fort Worth 1917, writ ref d). One way to look at these types of provisions is that they are a dispute-resolution process that is binding on beneficiaries. See Rachal v. Reitz, 403 S.W.3d 840, 844 (Tex. 2013) (holding that “We enforce the settlor’s intent as expressed in an unambiguous trust over the objections of beneficiaries that disagree with a trust’s terms” in enforcing an arbitration clause in a trust dispute even though the trustee and the beneficiary did not sign the trust document: “[T]he settlor determines the conditions attached to her gifts, and we enforce trust restrictions on the basis of the settlor’s intent. The settlor’s intent here was to arbitrate any disputes over the trust.”). “The rule, as we conceive it, is, when an arbiter honestly and in good faith exercises his power and passes upon a doubtful question, either of law or of fact, his decision will not be revised by a court, notwithstanding the court, whose interposition is invoked, may think his decision erroneous.” Counts v. Holland, 107 S.W. 913, 916 (Tex. Civ. App.—1908, writ ref d).

Texas courts have held that the executor’s interpretation is binding on the beneficiaries if (1) “such a decision is fairly and honestly made” and (2) “the will is reasonably susceptible of such construction.” Nations v. Ulmer, 139 S.W.2d 352, 356 (Tex. Civ. App.—El Paso 1940, writ dism’d); see also Key v. Metcalf, No. 14-04-00782-CV, 2006 WL 348149, at *2 (Tex. App.—Houston [14th Dist.] Feb. 16, 2006, no pet.) (stating that the executor’s decision, “if fairly and honestly made and reasonably susceptible to the terms of the will, are binding and final on all interested parties”); Grant v. Stephens, 200 S.W. 893, 896 (Tex. Civ. App.—Fort Worth 1917, writ ref d) (stating that the executor’s decision must be “fairly and honestly made and reasonably to be predicated upon the terms of the will taken as a whole”); Couts v. Holland, 107 S.W. at 916 (“The rule . . . is, when an arbiter honestly and in good faith, exercises his power and passes upon a doubtful question, either of law or in fact, his decision will not be revised by a court.”). In short, regardless of whether executors/trustees act reasonably, honestly, and in good faith, their interpretation of the document must be “reasonably reached and deduced from the language used.” Grant, 200 S.W. at 896.

“[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.” Est. of Nunu, 542 S.W.3d 67, 81 (Tex. App.—Houston [14th Dist.] 2017, pet. denied) (quoting Lee v. Lee, 47 S.W.3d 767, 795 (Tex. App.     Houston [14th Dist.] 2001, pet. denied)). 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. See Medina Cty. Commit’s’ Court v. Integrity Grp., Inc., 944 S.W.2d 6, 10 (Tex. App.—San Antonio 1996, no writ); see also Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 164-65 (Tex. 2004) (holding that uncontroverted facts established as a matter of law that a litigant acted in good faith); Looper v. Hous. Crnty Coil. Sys., No. 14-07-00040-CV, 2007 WL 4200642, *7 (Tex. App.—Houston [14th Dist.] Nov. 29, 2007, pet. denied) (mem. op.) (same).

Those holdings are consistent with the executors’ fiduciary duty to administer the estate in accordance with the will’s terms.  Executors, who hold the estate’s property for the benefit of the devisees, owe the same fiduciary duties as trustees.  Humane Soc’y of Austin & Travis Cty. v. Austin Nat’l Bank, 531 S.W.3d 574, 577 (Tex. 1975); Geeslin v. McElhenney, 788 S.W.3d 683, 684-85 (Tex. App. Austin 1990, no writ). One of those duties is to “administer the trust in good faith according to its terms . . .” Tex. Prop. Code Ann. § 113.051. Additionally, the terms of a trust cannot limit that duty or “the power of a court, in the interest of justice, to take action or exercise jurisdiction.” See id. § 111.0035. Further, a trustee or executor may never act arbitrarily, and his discretion must be reasonably exercised to accomplish the purposes of the trust according to the settlor’s intent. State v. Rubion, 158 Tex. 43, 51, 308 S.W.2d 4, 9 (1957); In re Estate of Dillard, 98 S.W.3d 386, 395 (Tex. App. Amarillo 2003, pet. denied). The Texas Trust Code provides: “Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of terms such as “absolute,” “sole,” or “uncontrolled,” the trustee shall exercise a discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.” Tex. Prop. Code Ann. § 113.029.

For example, in In re Estate of Bryant, a couple set up three trusts for their three children: Bill, Leslie, and Jane. No. 07-18-00429-CV, 2020 Tex. App. LEXIS 2131 (Tex. App.—Amarillo March 11, 2020, no pet.). After the couple had both passed away, their son Bill assumed the role of trustee of three trusts: Irrevocable Trust, the Children’s Trust, and the Family Trust. Under the terms of the three trusts, following the couple’s deaths, trust assets were to be distributed to the three siblings equally, with the partial exception of the Family Trust assets. Under the Family Trust, Bill and his sister Leslie were to each receive one million dollars, after which any remaining assets would be distributed equally among all three children. Bill then received three checks from life insurance companies: one, for $500,041.00, was payable to the Children’s Trust and two, totaling $510,938.82, were payable to the Family Trust. The insurance proceeds ended up in the Family Trust, and Bill distributed $500,000 in Family Trust funds to himself and $500,000 in Family Trust funds to his sister Leslie. Jane sued Bill, alleging breaches of fiduciary duty and seeking to remove him from his roles as executor and trustee.

The court of appeals first addressed the issue of whether the trial court erred in holding that a loan from the parents to Jane should have been accounted for in an advancement clause or whether it was still an asset of the Family Trust, as argued by Bill. The court addressed Bill’s argument that the trial court improperly invaded his discretionary authority provided under the trust document to construe the trust. Bill noted that the Family Trust gave him authority to interpret and manage the trust, specifically providing:

If and when in good faith any doubt arises as to the proper construction, interpretation, or operation of a trust established hereunder . . . or as to any other or additional matter involving the administration of a trust established hereunder or the rights of any beneficiary thereof . . . the Trustee is authorized to resolve those doubts as it deems equitable and proper, it being the Settlors’ intention to avoid suits for construction or instruction to the fullest extent possible.

Id. Bill noted that the trial court found that the dispute arising from the parties’ conflicting viewpoints as to the meaning and scope of the advancement clause was “a legitimate one” and “brought in good faith.” He argued that these findings demonstrated that the trial court acknowledged that reasonable minds could differ, and that the trial court then erroneously usurped his authority as trustee to interpret the clause. The court of appeals disagreed:

While Bill suggests that his exercise of discretion in determining the status of the Elsbeth loan under the Advancement Clause could not be disturbed by the trial court, Jane counters that the trial court had authority to ensure that Bill effectuated the purpose of the Advancement Clause. We agree with Jane. Even where a trustee is vested with broad discretion, courts may assert control over the trustee’s exercise of power “to prevent the frustration of the fundamental intent of the settlor” and compel the trustee’s performance of his duty. Boyd v. Frost Nat’l Bank, 145 Tex. 206, 196 S.W.2d 497, 504 (Tex. 1946). The Advancement Clause provides that the trustee “shall consider and account for the advancements made to Jane in the amount of One Million Dollars ($1,000,000) before making any further distribution to Jane from any trust created herein.” The language of the clause is mandatory, not discretionary. The trial court was vested with, and properly exercised, the authority to construe the trust to determine whether Bill complied with the Advancement Clause.

Id.

Accordingly, in Texas, a clause providing a trustee/executor with discretion to interpret or construe a trust/will is enforceable, but there are limits to the clause and its enforcement. The trustee/executor must act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries and the interpretation or construction must be a reasonable one. But where the trustee/executor has a reasonable construction and acts in good faith, a trial court should not step in and usurp the trustee’s/executor’s decision even if the court disagrees with the trustee/executor.

In In re Estate of Hogan, a father executed a new will, leaving his estate to one of his sons (Harold) and disinheriting his other son (Gary). No. 11-20-00170-CV, 2022 Tex. App. LEXIS 3863 (Tex. App.—Eastland June 9, 2022, no pet. history). Gary filed a will contest, and the trial court heard same in a bench trial. After the court ruled against Gary, he appealed. Continue Reading Appellate Court Affirms Findings That Decedent’s Will Was Not A Product Of Undue Influence And That He Had Mental Capacity

In In re Eisenbise, the parties, a mother and son, argued about a trial court’s order requiring an executrix to produce certain documents pursuant to her duty to provide initial disclosures in a dispute concerning the grandmother’s estate. No. 10-22-00090-CV, 2022 Tex. App. LEXIS 3866 (Tex. App.—Waco June 8, 2022, original proc.). Continue Reading Appellate Court Denies Mandamus Regarding A Trial Court’s Initial Disclosure Order In An Estate Case

David Johnson presented his paper on “The More The Merrier: Issues Arising From Co-Trustees Managing Trusts” to the Tarrant County Probate Bar Association on September 16, 2022. This presentation addressed the benefits and drawbacks to co-trustee management, who can be a co-trustee, fiduciary duties, the duty to participate, the duty to cooperate, decision-making authority, delegation and directed trusts, the duty to disclose, deadlock issues, the duty to police co-trustees, the duty to sue co-trustees, and paying for attorney’s fees in co-trustee disputes.

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David F. Johnson co-authored a paper entitled “Voir Dire (In a Post COVID World)” with Jason Smith of the Law Offices of Jason Smith for the State Bar of Texas’s Business Disputes Course, held in Austin, Texas, on September 15-16, 2022. The paper covered the waterfront of voir dire topics in Texas litigation, including preservation of error, selecting the array, size of the jury, jury shuffle, questions to the venire, comments by venire members, challenges for cause, preemptory challenges, and Batson issues. Most trial attorneys will say that selecting a jury is the most important part of a trial. This paper provides important guidance to trial attorneys on what is allowed or not allowed in the selection process and what is necessary to preserve error.

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