In Ard v. Hudson, a beneficiary sued testamentary trustees and executors for breach of fiduciary duty and also sought an accounting, temporary injunctive relief, and a receiver. No. 02-13-00198-CV, 2015 Tex. App. LEXIS 8727 (Tex. App.—Fort Worth August 20, 2015, pet. granted). The trial court granted a summary judgment for the defendants on the basis of a no-contest clause. The court of appeals held that a breach of a forfeiture clause will be found only when the beneficiary’s or devisee’s actions fall clearly within the express terms of the clause. The court mentioned other precedent where challenging a fiduciary did not trigger a no-contest clause. The defendants agreed with that, but argued that the beneficiary’s requests for temporary and permanent injunctive relief and her motions to suspend her brothers as co-trustees and to appoint a receiver triggered the clause. The court held: “[The] inherent right [to challenge a fiduciary] would be worthless absent the beneficiary’s corresponding inherent right to seek protection during such an ongoing challenge of what is left of his or her share of the estate or trust assets, and any income thereon, that the testator or grantor, as the case may be, intended the beneficiary to have.” Id. The defendants also argued that a condition precedent barred the beneficiary’s claims: “Each benefit conferred herein is made on the condition precedent that the beneficiary shall accept and agree to all provisions of this Will.” Id. The court rejected this argument, holding: “We construe the condition precedent language located within the forfeiture clause to be consistent with the forfeiture clause as a whole.” The court reversed the summary judgment.
The executors/trustees then filed a petition for review with the Texas Supreme Court. That Court announced today that it has accepted the case and set oral argument for March 9, 2017. The Court’s staff attorney describes the issue in the case as: “The principal issue is whether a will beneficiary who seeks an accounting, alleges breach of fiduciary duty against co-executors and seeks a receiver violates a forfeiture clause.” The petitioners argue that the appellate court’s opinion incorrectly allows a beneficiary to artfully describe will-violating conduct as a breach of fiduciary duty claim in order to side step the impact of a no-contest clause. They argue that doing so will encourage “vexatious or prolonged interfamilial litigation.” Obviously, the beneficiaries disagree.
This appeal also involves Texas Estates Code section 254.005, which codified the common law and held that no-contest clauses will not be enforced where just cause existed for bringing the action and the action was brought in and maintained in good faith. The Texas Supreme Court has not yet written on this provision.
Interesting Note: The existence of a no-contest or in-terrorem clause in a will or trust deters litigation. Attorneys have to warn clients that they risk losing assets by bringing claims – no one ever knows exactly what a court or jury will do. The fact that the Texas Supreme Court is taking this case and discussing the enforcement of a no-contest clause in a case that does not involve mental competence and undue influence claims is important for will and trust disputes.
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