Originally published by David Fowler Johnson.
In Duncan v. O’Shea, three co-trustees brought a declaratory judgment action against a fourth co-trustee, seeking a declaration that the sale of trust real property was valid over the objection of the fourth co-trustee. No. 07-19-00085-CV, 2020 Tex. App. LEXIS 6564 (Tex. App.—Amarillo August 17, 2020, no pet. history). The trial court granted the relief via summary judgment, and the fourth co-trustee appealed.
The fourth co-trustee first complained that the trial court erred in awarding declaratory relief because she had filed a suit in Maine that raised breach of fiduciary duty claims, and that the relief in Texas “will not settle the dispute between the parties or resolve all of the issues pending in the Maine lawsuit, such relief cannot be granted.” Based on the Texas Uniform Declaratory Judgment Act, the court of appeals disagreed:
Appellant’s argument disregards the plain language of section 37.003 of the TUDJA which provides: “[a] court of record within its jurisdiction has power to declare rights, status, and other legal relations whether or not further relief is or could be claimed.” While Appellant argues that a declaratory judgment must terminate any and all controversies between the parties, such a conclusion is not required under the language of the TUDJA, nor has it been interpreted in such a way by any known case law, including Annetta South… So long as there is a justiciable controversy existing between the parties and the declaratory judgment will resolve that dispute, a declaratory judgment may be sought with respect to that dispute.
That being said, a question of jurisdiction does arise “if there is pending, at the time of the commencement of the declaratory action, another action or proceeding to which the same persons are parties, in which are involved and may be adjudicated the same identical issues that are involved in the declaratory action.” However, the “mere pendency of another action between the same parties, without more, is no basis for refusing declaratory relief.” A declaratory judgment may not be refused because of the pendency of another suit if the controversy will not necessarily be determined in that suit. Where speedy relief is “necessary to the preservation of rights which otherwise may be impaired or lost, courts will entertain an action for a declaratory judgment as to questions which are determinable in a pending action or proceeding between the same parties.”
While we agree with Appellant that the suit in Maine involves the same parties and the same real property at issue here, the dispute between the parties here, i.e., the authority of a majority of cotrustees to act on behalf of the Marital Trust, will not be determined in the Maine suit. Therefore, we agree with Appellees that the trial court had the authority to grant declaratory relief in this matter.
Id. The fourth co-trustee argued that the district court did not have jurisdiction because it should have been in probate court. The court of appeals disagreed, and held that the Texas Property Code specifically provided for jurisdiction over trust disputes to district courts. Id. (citing Tex. Prop. Code Ann. § 115.001(a)).
The court of appeals also disagreed with an argument that the judgment was improper due to a failure to add necessary parties:
[N]ecessary parties to an action like the one before us include (1) a beneficiary of the trust on whose act or obligation the action is predicated; (2) a beneficiary of the trust designated by name, other than a beneficiary whose interest has been distributed, extinguished, terminated, or paid; (3) a person who is actually receiving distributions from the trust estate at the time the action is filed; and (4) the trustee, if a trustee is serving at the time the action is filed. See Tex. Prop. Code Ann. § 115.011 (West Supp. 2019). There is nothing in the record showing that any of the beneficiary grandchildren satisfy the criteria set forth above. As such, those parties are not necessary and are not required to be joined in this matter.
Id.
The court of appeals also held that the three co-trustees had the authority to sale the real property over the objection of the fourth co-trustee:
[T]he declaratory judgment granted does not specifically authorize the sale of any property. It merely declares that under applicable law and the terms of the Marital Trust, if Appellees, being a majority of the cotrustees, decide to sell a piece of real property held in the Marital Trust, then they may do so without her agreement. Appellees also note that if an actual sale violated the terms of the trust instrument or otherwise breached a fiduciary duty, Appellant would have a claim at that time.
Id. The court also held that this declaratory relief was not an impermissible advisory opinion:
Appellees contend the declaratory relief sought is not some abstract question of law, but is, instead, a justiciable controversy existing between the parties. Appellees contend that, in situations like the present controversy, where multiple trustees serve concurrently, cotrustees may act by majority decision. Appellees’ position is not contrary to either the terms of the Marital Trust or applicable statutory authority. Reviewing the trust and the applicable statutes, the trial court’s judgment did not determine an abstract question of law, nor did it address a hypothetical injury only. When this declaratory judgment becomes final, Appellees will be able to move forward with a sale of real property held in the Marital Trust, with the assurance that the agreement of all four cotrustees is not needed, so long as a majority of the cotrustees are in agreement. Under the facts of this case, we see nothing advisory about the trial court’s declaratory judgment.
Id. The court affirmed the trial court’s judgment in all things.
Interesting Note: This case raises several interesting issues that arise when co-trustees manage trusts; such as how co-trustees are to manage trusts, what rights co-trustees in the minority have, etc. Co-trustees are obligated to manage the trust together. The first place to look for who co-trustees are to manage a trust is the trust document itself. If the trust document requires unanimity or allows action by a minority of co-trustees, the trust document should control. However, in the absence of language in the trust expressly stating how the co-trustees are to manage the trust, Texas has statutory guidelines.
At common-law, the co-trustees had to act with unanimity: “The traditional rule, in the case of private trusts, was that if there were two or more trustees, all had to concur in the exercise of their powers.” Scott and Ascher on Trusts, When Powers Are Exercisable By Several Trustees, § 18.3. The Texas Property Code, however, provides that, in the absence of trust direction, co-trustees generally act by majority decision. Tex. Prop. Code § 113.085(a); Berry v. Berry, no. 13-18-00169-CV, 2020 Tex. App. LEXIS 1884 (Tex. App.—Corpus Christi March 5, 2020, no pet.). See also Restatement (Third) of Trusts, § 39. Co-Trustees in the majority have the power to act for the trust. They can, of course, abuse that power. A co-trustee in the minority has the right and duty to sue its co-trustees when they have a serious breach of fiduciary duty. Tex. Prop. Code § 114.006. Under this provision a co-trustee has a duty to prevent its co-trustee from committing a serious breach of trust and/or compel a co-trustee to redress such a breach. In re Cousins, 551 S.W.3d 913, n.2 (Tex. App.—Tyler 2018, orig. proceeding).
Absent trust language to the contrary, co-trustees who are in the minority do not have authority or power to act for the trust. For example, one court held that a co-trustee did not have authority to sue a third party on behalf of the trust where he was in the minority. Berry v. Berry, no. 13-18-00169-CV, 2020 Tex. App. LEXIS 1884 (Tex. App.—Corpus Christi March 5, 2020, no pet.). His remedy was to sue his co-trustees. Id. See also Ward v. Stanford, 443 S.W.3d 334 (Tex. App.—Dallas 2014, pet. denied) (the court of appeals held that a trust would not have accelerated a note where two of the three trustees voted against that action.).
There are circumstance when less than a majority of co-trustees can act for the trust under the Texas Trust Code. If a vacancy occurs in a co-trusteeship, the remaining co-trustees may act for the trust. Tex. Prop. Code § 113.085(b). If a co-trustee is unavailable to participate and prompt action is necessary to achieve the efficient administration or purposes of the trust or to avoid injury to the trust property or a beneficiary, the remaining co-trustee or a majority of the remaining co-trustees may act for the trust. Id. § 113.085(d). Otherwise, an act by less than a majority of the co-trustees (absent trust document approval) is not valid, may result in liability to the improperly acting co-trustee, and may be voided depending on the innocence of the third party.
Co-trustees each owe fiduciary duties, and they should exercise their duties jointly, as a unit. So, one co-trustee should not take any action without the consent of the other co-trustees. Shellberg v. Shellberg, 459 S.W.2d 465, 470 (Civ. App.—Fort Worth 1970, ref. n.r.e.) (“The trust instrument conveyed the property to two trustees and provided that their powers were joint; the management, control and operation of the trust was to be by the joint action of the two trustees.”). For example, if a trust calls for two co-trustees, it cannot operate with just one. Id. For further example, in Conte v. Conte, the court of appeals affirmed a trial court’s order denying a co-trustee’s request for reimbursement for attorney’s fees expended in connection with a declaratory judgment action brought by another co-trustee. 56 S.W.3d 830 (Tex. App.—Houston [1st Dist.] 2001, no pet.). The court noted that the trust expressly provided that “any decision acted upon shall require unanimous support by all co-trustees then serving,” and “[c]learly, Joseph Jr.’s decision to employ counsel to defend against his co-trustee’s declaratory judgment action was not the subject of unanimous support by all co-trustees.” Id. Thus, he was not entitled to reimbursement from the trust for his attorneys’ fees, despite the trust’s provision that “[e]very trustee shall be reimbursed from the trust for the reasonable costs and expenses incurred in connection with such trustee’s duties.” Id. In a footnote, the court also noted that the other co-trustee had paid for her attorneys from the trust without the consent of the other co-trustee and noted that this was an issue that the successor trustee or beneficiary could raise in a later proceeding. Id. See also Stone v. King, No. 13-98-022-CV,2000 Tex. App. LEXIS 8070, 2000 WL 35729200 (Tex. App.—Corpus Christi 2000, pet. denied) (co-trustee had no authority to pay funds to third party without consent of co-trustee or to pay his attorneys for defense of claims).
Of course, co-trustees have duties to cooperate and work together, to facilitate a positive relationship, and they can be removed for hostility that impacts the management of the trust. Co-trustees also have duties to participate in management and disclose information to each other. The Author suggests that anyone interested in co-trustee management of trusts refer to his article and webinar from September of 2020 that is posted on this blog.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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