This article was originally published on Winstead – https://www.winstead.com/
In Kohlhausen v. Baxendale, the court affirmed a summary judgment for a trustee on the basis of an exculpatory clause in a trust document. No. 01-15-00901-CV, 2018 Tex. App. LEXIS 1828 (Tex. App.—Houston [1st Dist.] March 13, 2018, no pet. history). A mother created a testamentary trust for the benefit of her son Kelley William Joste. The will, which named Kelley as trustee and beneficiary of his trust, also set forth the provisions governing the administration:
6.2 With regard to each trust created by this [Article VI], my Trustee shall distribute to the Beneficiary of such trust or any descendant of such Beneficiary such amounts of trust income and principal as shall be necessary, when added to the funds reasonably available to each such distributee from all other sources known to my Trustee, to provide for the health, support, maintenance and education of each such distributee, taking into consideration the age, education and station in life of each such distributee.
9.4 . . . Any Executor or Trustee shall be saved harmless from any liability for any action such Executor or Trustee may take, or for the failure of such Executor or Trustee to take any action if done in good faith and without gross negligence.
Id. After the mother died, Kelley exercised his right to become the sole trustee of his trust. After Kelley died, his estranged daughter received control of the trust’s assets. She then died. Her executor then sued her father’s executor for the father allegedly breaching his fiduciary duty by: (1) failing to disclose information; (2) engaging in self-dealing, i.e., gifting himself trust assets in excess of his support needs; (3) failing to make any distributions to his daughter or consider her support needs; (4) failing to consider his other sources of support and his own station in life before making distributions to himself; (5) commingling trust assets with personal assets; (6) pledging trust assets as collateral in violation of the will’s terms; and (7) failing to document his activity as trustee.
The father’s executor filed a motion for summary judgment and argued that the claims should be dismissed because the will’s exculpatory clause relieved the trustee from liability for any actions or omissions “if done in good faith and without gross negligence.” Id. After a hearing, the trial court granted the motion.
The court of appeals held that an exculpatory clause argument is an affirmative defense. “A defendant urging summary judgment on an affirmative defense is in the same position as a plaintiff urging summary judgment on a claim,” and that the party asserting an affirmative defense has the burden of pleading and proving it. Id. The court held that after the trustee established the existence of the exculpatory clause, the burden shifted to the non-movant to bring forward evidence negating its applicability. The court stated:
In this case, Baxendale pleaded the exculpatory clause and attached a copy of the Will containing the clause to his summary judgment motion. The Will plainly states that Kelley is not liable for any acts or omissions so long as such conduct was done “in good faith and without gross negligence.” Because Baxendale established that he was entitled to summary judgment as a matter of law on all of Kohlhausen’s claims based on the plain language of the Will, Kolhausen was required to bring forth more than a scintilla of evidence creating a fact issue as to the applicability of the clause, i.e., evidence that Kelley’s acts or omissions were done in bad faith or with gross negligence.
In her affidavit, Kohlhausen averred that after reviewing the financial documents available to her she was “unaware of any evidence that Kelley made any distributions to Valley from the Trust between 1997 and 2012.” Kohlhausen further averred: “I have reviewed the account statements produced by [Baxendale]. These statements are incomplete and I am unable to ascertain from them an accurate account of what receipts and distributions were made from the Trust during the time Kelley was trustee.” Kohlhausen also stated that she was “unaware of any documentation to suggest Kelley ever contacted Valley to inquire about her support needs during the time he was trustee.”
Kohlausen’s affidavit does not raise a fact issue as to whether Kelley failed to disclose information regarding the Trust to Valleyessa, make distributions to Valleyssa, consider her support needs, or document his activities as trustee. The paucity of evidence in this case is a result of the fact that both principals to the dispute have passed away. There is no one to depose and no affidavits to file establishing key facts. Moreover, the terms of the Will provided that Valleyessa was a contingent beneficiary, and Kelley, as the primary beneficiary, was allowed but not required to make a distribution to Valleyessa. Kohlhausen’s attorney is reduced to an attempt to build a case on the scant records left behind by Kelley. Such evidence amounts to no more than a scintilla and is insufficient to even establish what actions Kelley took or failed to take as trustee, much less that Kelley acted in bad faith or with gross negligence.
Id. The court held that because the summary judgment evidence failed to raise an issue of material fact as to whether any of the father’s alleged acts or omissions were taken in bad faith for involved gross negligence, the plaintiff failed to meet her burden of establishing the inapplicability of the exculpatory clause to such acts or omissions and affirmed the summary judgment for the defendant.