Court Addresses Breach Of Fiduciary Duty and Partition Issues In Trust Dispute

by Winstead PC
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In Koda v. Rossi, a mother created a trust that provided that her son was to serve as trustee and that she, he, and a daughter were the beneficiaries. No. 11-15-0150-CV, 2017 Tex. App. LEXIS 8194 (Tex. App.—Eastland August 26, 2017, no pet. history). Upon the mother’s death, the trust was to terminate and the trust estate would be distributed to her son and daughter. After the mother died, the son never formally terminated the trust and never distributed the trust estate. The daughter sued the son for breach of fiduciary duty and sought partition of real property owned by the trust. Her claims for breach of fiduciary duty were that the son had used trust funds to pay his own personal and business obligations and expenses in the amount of $21,921.28, and that he had never made any distributions to her. After a bench trial, the trial court entered a judgment terminating the trust, awarding her attorney’s fees and expenses of $17,349.60, and assessed “damages” against the son in the amount of $1,647.25. The trial court also held that each of the parties owned an undivided 50% interest the trust’s property, and found that the real property was susceptible to partition in kind, and it ordered a partition. The son appealed on multiple grounds.

The court of appeals first addressed the son’s argument that the trial court should have granted him a new trial because his attorney did not perform well by not admitting evidence and allowing other evidence to be admitted. The court of appeals first held that “the doctrine of ineffective assistance of counsel does not apply to civil cases where, as here, there is no constitutional or statutory right to counsel.” Id. The court then held that the trial court did not abuse its discretion in making its evidentiary rulings. The court of appeals also held that it could not grant a new trial based solely on the interest of justice where the trial court did not commit any error.

The court of appeals then turned to the partition issue. The son argued that the trial court should not have ordered a partition in kind, but rather, should have ordered a partition by sale. The court of appeals held: “Texas law favors partition in kind. The burden of proof is upon the party who opposes partition in kind and seeks instead a partition by sale. The party who seeks partition by sale bears the burden to prove that a partition in kind would not be fair and equitable.” Id. The court examined the record for the existence of testimony that would show that the real property could not be fairly and equitably partitioned in kind. The real property consisted of sixty acres that appraised for approximately $230,000, that there was a house on the property, that there was a mortgage on the real property, and that a third party leased fifty-five acres of the property for deer hunting. The court concluded that the son did not meet his burden to show that the real property was not subject to a fair and equitable division and was, therefore, incapable of an in-kind partition.

The daughter also appealed and complained that the trial court erred when it failed to find that the son’s “actions in using funds belonging to the Trust to pay his business debts, writing checks to his corporation, and depositing funds belonging to the Trust into his personal bank accounts were a breach of his fiduciary duty entitling Agnes Rossi to additional damages.” She argued that he owed her an additional $20,274.03 in trust funds that he expended for his personal benefit prior to the mother’s death. The trial court held that, before the trust terminated, the son, as a beneficiary, had the right to use the funds for himself. The son presented some testimony about the reasons for some of the withdrawals and expenditures, but the court held that “a judgment based upon that incomplete testimony is against the great weight and preponderance of the evidence upon this record.” The court sustained her cross-point and remanded the case for further proceedings.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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