Former Trustee’s Actions Not Subject to Investigation

Wednesday, September 30, 2020

In Benge v. Roberts, a beneficiary sued co-trustees and sought to take away them for breaching duties by not contemplating claims towards a former trustee. No. 03-19-00719-CV, 2020 Tex. App. LEXIS 6335 (Tex. App.—Austin August 12, 2020, no pet. historical past). The co-trustees filed a movement for abstract judgment based mostly on a clause within the belief that supplied: “No successor Trustee shall have, or ever have, any obligation, duty, obligation, or legal responsibility no matter for acts, defaults, or omissions of any predecessor Trustee, however such successor Trustee shall be liable just for its personal acts and defaults with respect to the belief funds truly acquired by it as Trustee.” Id. The beneficiary appealed, and the court docket of appeals affirmed. The court docket said that these kind of clauses are usually enforceable: “The Belief Code expressly permits such clauses.” Id. The beneficiary argued {that a} trigger exists for the co-trustees’ elimination as a result of they’ve “precise conflicts of curiosity” because of their participation with the previous trustee. She contended that elimination of the co-trustees due to their battle of curiosity was a definite declare from one alleging that they’ve legal responsibility for the previous trustee’s alleged breaches of fiduciary obligation and, due to this fact, was not topic to the exculpatory clause.

The court docket disagreed:

We reject this argument as a result of it instantly conflicts with the broad language within the exculpatory clause relieving the co-trustees from any “obligation, duty, [or] obligation” for the “acts, defaults, or omissions” of Missi. Whereas ordinarily a successor trustee has the obligation to “make an affordable effort to compel a redress” of any breaches by a predecessor, see Tex. Prop. Code § 114.002(3)—which presumably would come with impartially evaluating whether or not to “combat” Benge within the enchantment of the Consolidated Matter—the exculpatory clause within the Belief relieves the co-trustees of that obligation, as permitted by the Belief Code. See id. §§ 111.0035(b), 114.007(c). The co-trustees can not as a matter of regulation have a battle of curiosity because of allegedly missing the power to be “neutral” about deciding whether or not or the right way to redress Missi’s alleged breaches once they haven’t any obligation to redress such breaches within the first occasion. Accordingly, we maintain that the trial court docket correctly granted abstract judgment on the idea of the Belief’s exculpatory clause.

Id. The court docket additionally held that the development and utility of the exculpatory clause was a query of regulation that the trial court docket needed to decide:

[T]he trial court docket didn’t abuse its discretion in denying the movement as a result of the impact of the exculpatory clause on the information alleged—that’s, whether or not it relieves the co-trustees of any duties vis à vis Missi’s alleged breaches—is a authorized query that we evaluation de novo, and thus the trial court docket had no discretion however to find out that abstract judgment was correct on the idea of the clause. See Nowlin v. Frost Nat’l Financial institution, 908 S.W.second 283, 286 (Tex. App.—Houston [1st Dist.] 1995, no writ) (“Building of a belief instrument is a query of regulation for the trial court docket when no ambiguity exists.”); see additionally Walker v. Packer, 827 S.W.second 833, 839 (Tex. 1992) (orig. continuing) (“A trial court docket has no discretion in figuring out what the regulation is or in making use of the regulation to the information.”); Clifton, 107 S.W.3d at 760-61 (holding that as a result of exculpatory clause was legitimate, and based mostly on information alleged, there was no subject of reality about whether or not trustee was exculpated).

Id. The court docket affirmed the trial court docket’s judgment for the co-trustee defendants.

Fascinating Notice: Usually, a successor trustee has the obligation to “make an affordable effort to compel a redress” of any breaches by a predecessor. Tex. Prop. Code § 114.002(3). So, can a belief abrogate a successor trustee’s legal responsibility for prior trustee’s actions? The Texas Belief Code offers that the phrases of a belief prevail over the statutory phrases aside from sure enumerated cases. See id. at 111.0035(b). A belief might not restrict Texas Property Code Part 114.007 to an exculpation time period of a belief. Id. Part 114.007 offers:

A time period of a belief relieving a trustee of legal responsibility for breach of belief is unenforceable to the extent that the time period relieves a trustee of legal responsibility for: (1) a breach of belief dedicated: (A) in unhealthy religion; (B) deliberately; or (C) with reckless indifference to the curiosity of a beneficiary; or (2) any revenue derived by the trustee from a breach of belief.

Tex. Prop. Code § 114.007(a). So, in Benge, if the co-trustees breached their duties to evaluation the conduct of the prior trustee in unhealthy religion, deliberately, or with reckless indifference to the beneficiary’s pursuits or the place the co-trustees acted with or with out negligence the place the trustee derived a revenue, then the exculpatory clause wouldn’t be enforceable relating to the co-trustees’ legal responsibility.

The allegations have been that the co-trustees acted deliberately, with out good religion, and with a battle of curiosity in not pursuing claims towards the prior trustee as a result of they’d truly participated with the prior trustee in a few of these breaches. The beneficiary argued that that was adequate to create a reality subject on whether or not the appliance of the exculpatory clause was acceptable and on the underlying declare. Nevertheless, the evaluation doesn’t finish there.

Part 114.007(c) offers:

This part applies solely to a time period of a belief which will in any other case relieve a trustee from legal responsibility for a breach of belief. Besides as supplied in Part 111.0035, this part doesn’t prohibit the settlor, by the phrases of the belief, from expressly: (1) relieving the trustee from an obligation or restriction imposed by this subtitle or by widespread regulation; or (2) directing or allowing the trustee to do or to not do an motion that may in any other case violate an obligation or restriction imposed by this subtitle or by widespread regulation.

Tex. Prop. Code § 114.007(c). This provision states {that a} settlor can relieve a trustee of an obligation imposed by the Texas Belief Code, such because the obligation to evaluation prior a trustee’s conduct. So, below this provision, the co-trustees can be relieved of an obligation to evaluation the prior trustee’s actions, however the co-trustees’ legal responsibility is probably not waived in the event that they acted in unhealthy religion, with intent, or with gross negligence. When might the co-trustees be liable once they haven’t any obligation? That is the problem that the court docket wrestled with in Benge and located for the co-trustees.

However the evaluation mustn’t have ended with Part 114.007(c). There’s one other vital statutory provision that the court docket didn’t handle. It offers {that a} belief time period might not restrict a trustee’s “obligation to behave in good religion and in accordance with the needs of the belief.” Tex. Prop. Code § 111.0035(b)(4)(B); Martin v. Martin, 363 S.W.3d 221, 2012 Tex. App. LEXIS 2146 (Tex. App.—Texarkana Mar. 20, 2012, no pet.) (regardless that a belief provision allowed the trustee to have conflicts of curiosity, the supply was not enforceable as a jury discovered that the trustee didn’t act in good religion). There isn’t any statutory exception to this obligation of excellent religion. In Benge, if the co-trustees acted in unhealthy religion, as alleged, in not pursuing claims towards the previous trustee then below this statutory provision the exculpatory clause is probably not enforceable. In that circumstance, the trial court docket would have erred in implementing the exculpatory clause and granting abstract judgment for the co-trustees. There was no authority on the interaction between Part 114.007(c) and Part 111.0035(b)(4)(B).

It’s also troubling that the court docket on this case cited to Texas Commerce Financial institution v. Grizzle, 96 S.W.3d 240, 249 (Tex. 2002) in help of the appliance of the exculpatory clause. The Texas Legislature subsequently overruled the Grizzle opinion in 2005 by repealing Texas Property Code Part 113.059 and including Sections 111.0035 and 114.007. See Act of Might 12, 2005, 79th Leg., R.S., ch. 148, § 21, 2005 Tex. Gen. Legal guidelines 287, 293-94.