In Moody Nat’l Bank v. Moody, a beneficiary sued a trustee regarding several allegations of breach of fiduciary duty. No. 14-21-00096-CV, 2022 Tex. App. LEXIS 7844 (Tex. App.—Houston [14th Dist.] October 25, 2022, pet. filed). Six months later, the beneficiary sought a receivership, and the trial court granted same. The trustee appealed the order, and the court of appeals affirmed the order on one basis concerning an alleged failure to disclose a marital property agreement entered between the settlor and his wife. Importantly, regarding the trustee’s argument that there was no evidence of any danger of loss, removal, or material injury to the trust property, the court held that it did not have to address that issue because the receiver was appointed under Texas Property Code Section 114.008(a)(5), which did not require any of the traditional elements for receivership relief. Id. at *17-18 and n. 12. Section 114.008(a)(5) of the Texas Property Code, that provides in part: “(a) To remedy a breach of trust that has occurred or might occur, the court may: … (5) appoint a receiver to take possession of the trust property and administer the trust.” Tex. Prop. Code § 114.008(a)(5). So, the court of appeals held that Texas Trust Code Section 114.008 did not require applicants for receivership to establish the traditional elements for receivership relief.
Interesting Note: Receiverships are regarded as one of the harshest remedies known to civil law. See Spiritas v. Davidoff, 459 S.W.3d 224, 232 (Tex. App.—Dallas 2015, no pet.) (“Receivership is an extraordinarily harsh remedy.”); Parr v. First State Bank, 507 S.W.2d 579, 583 (Tex. Civ. App.—San Antonio 1974, no writ) (“No more radical remedy could be devised.”). Because it is a harsh remedy, to obtain a receivership, an applicant must show that the property or fund in litigation is in danger of being lost, removed, or materially injured. B & W Cattle Co. v. First Nat’l. Bank of Hereford, 692 S.W.2d 946, 947 (Tex. App.—Amarillo 1985). There must be a showing of no lesser alternative remedies, and there must be evidence of serious injury without the receivership. Chapa v. Chapa, No. 04-12-00519-CV, 2012 Tex. App. LEXIS 10702, *12 (Tex. App.—San Antonio Dec. 28, 2012, no pet.).
Nothing in the Property Code indicates that the Legislature intended to abandon the traditional requirements for a receivership when it authorized courts to appoint receivers as a remedy for a breach of trust—especially not in the context of preliminary relief, when the liability allegations have not been fully litigated and the only justification for temporary relief is protection of the status quo. Rather, the Legislature was simply giving a non-exhaustive laundry list of remedies available to remedy a trustee’s breach. The Legislature’s intent was not to provide standards on what the procedural and substantive requirements were for each listed remedy.
To argue otherwise violates the cannons of statutory construction. Under the Code Construction Act, without regard to whether the statute is ambiguous, a court may consider the: “…(4) common law or former statutory provisions, including laws on the same or similar subjects; (5) consequences of a particular construction…” Tex. Gov’t Code § 311.023. In construing this statute, a court may consider the common law before the statute, which required a finding of harm, the law on similar subjects (such as executors and estates), which requires a finding of harm, and the consequences of the plaintiff’s construction, which would allow a trial court to effectively remove a trustee against the settlor’s intent when there is no harm in allowing the serving trustee to continue.
There is now a conflict in the courts of appeals on this subject. Some courts correctly hold that even if a specific statutory provision authorizes a receivership, a trial court should not appoint a receiver without a finding of harm or danger and only in the absence of another remedy, either legal or equitable. See, e.g., In re Estate of Hallmark, 629 S.W.3d 433, 437 (Tex. App.—Eastland 2020, no pet.) (“Even if a specific statutory provision authorizes a receivership, a trial court should not appoint a receiver if another remedy exists, either legal or equitable. ‘Rather, receivership is warranted only if the evidence shows a threat of serious injury to the applicant.’”); Elliott v. Weatherman, 396 S.W.3d 224, 228 (Tex. App.—Austin 2013, no pet.) (addressing receivership against co-trustees and holding: “Even if a specific statutory provision authorizes a receivership, a trial court should not appoint a receiver if another remedy exists at law or in equity that is adequate and complete” and also requiring showing of “great emergency or imperative necessity…”); Benefield v. State, 266 S.W.3d 25, 31 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (“Even if a specific statutory provision authorizes a receivership, as in this case, a trial court should not appoint a receiver if another remedy exists, either legal or equitable. Rather, receivership is warranted only if the evidence shows a threat of serious injury to the applicant.”); Fortenberry v. Cavanaugh, No. 03-04-00816-CV, 2005 Tex. App. LEXIS 4665, *6 (Tex. App.—Austin June 16, 2005, no pet.) (“[A] receiver will not be appointed if another remedy exists at law or in equity that is adequate and complete, even if receivership is authorized under a specific statutory provision, as in this case.”). Some courts hold that the Texas Property Code allows a receivership on a showing of a potential breach of duty where there is no harm or danger to trust assets. See, e.g., Moody Nat’l Bank v. Moody, 2022 Tex. App. LEXIS 7844; In Re Estate of Benson, No. 04-15-00087-CV, 2015 Tex. App. LEXIS 9477, 2015 WL 5258702 (Tex. App.—San Antonio Sept. 9, 2015, pet. dism’d) (mem. op.).
Unfortunately, the Texas Supreme Court denied petition for review on this issue that is important to Texas jurisprudence. Like almost all denials of petition for review, the Court is not stating that it agrees with the court of appeals’s opinion or holding, but that it does not want to review the issue at this time. Perhaps the Court is waiting for further review in the lower courts before weighing in on this issue.