Court Discusses De Facto Trustee Status In Texas

• Published date: 12 August 2021
• Subject Matter: Litigation, Mediation & Arbitration, Court Procedure, Trials & Appeals & Compensation, Civil Law
• Law Firm: Winstead PC
• Author: Mr David F. Johnson

In Bird v. Carl C. Anderson, a trust beneficiary sued a defendant for usurping a trustee's role and breaching fiduciary duties as a de facto trustee. No. 03-21-00140-CV, 2021 Tex. App. LEXIS 5036 (Tex. App.'Austin June 24, 2021, no pet. history). The plaintiff complained that the defendant "reinvested the proceeds into 'high-risk and non-diversified investments that exposed the trusts and [their] beneficiaries to inappropriate levels of risk,' causing the trusts to substantially diminish in value; distributed assets to himself, Jennifer, and perhaps others to the Foundation's detriment; and had Jennifer sign all of the transactional documents in her role as trustee even though she was and is incapacitated." Id. The defendant filed a motion to dismiss under Texas Rule of Civil Procedure 91, arguing that there was no de facto trustee status in Texas. The trial court denied the motion, found that "Texas law recognizes the legal capacity of 'de facto trustee' in the context of the administration of private trusts," but certified the issue for permissive appeal.

The court of appeals declined to accept the petition for interlocutory appeal. The court held that resolving that issue would not materially advance the termination of the litigation due to the existence of similar alternative theories:

John does not explain how the termination of this litigation would be materially advanced by a determination that a "de facto" trustee capacity does not exist. Instead, the related alternate theory the Foundation is pursuing against John-knowing participation in Jennifer's alleged breach of fiduciary duty-is based on the same underlying factual allegations and would require substantially the same proof and impose the same liability as the direct claim against him for breach of fiduciary duty.

Id. Without opining on the merits of whether there is a de facto trustee status in Texas, the court did imply that the defendant may owe fiduciary duties depending on the facts of the case even though he was not formally appointed a trustee:

While the precise legal issue the trial court determined at this stage, per John's motion, is the viability of the de facto trustee "capacity" in which the Foundation has sued John, the trial court has yet to make the more salient determination of whether John owed the beneficiaries a fiduciary duty-either as a "de facto trustee" or under equitable principles-which is a question of law for the court that turns on the specific facts yet to be developed rather than on the legal capacity in which John was sued, considering that "fiduciary duties are equitable in nature and generally not subject to hard and fast rules," see National Plan Adm'rs, Inc. v. National Health Ins., 235 S.W.3d 695, 702 (Tex. 2007); see also Ritchie v. Rupe, 443 S.W.3d 856, 868 (Tex. 2014) (noting that "those acting as directors" owe fiduciary duty to corporation even if not formally appointed as such); Strebel v. Wimberly, 371 S.W.3d 267, 281 (Tex. App.-Houston [1st Dist.] 2012, pet. denied) ("Even where no fiduciary duties normally arise, they spring into existence when a limited partner actively engages in control over the operation of the business so as to create duties that otherwise would not...