Summary
holding that mandamus covers issues of standing, which is a component of subject-matter jurisdiction
Summary of this case from In re TorresOpinion
NO. 01-18-00561-CV
12-20-2018
IN RE KAREN A. DUDDLESTEN, KATHY YOUNG, AND KELLY E. KELSEY AS CO-TRUSTEES OF THE WAYNE B. DUDDLESTEN MARITAL DEDUCTION TRUST, Relators
Original Proceeding on Petition for Writ of Mandamus
MEMORANDUM OPINION
Karen A. Duddlesten, Kathy Young, and Kelly E. Kelsey, as Co-Trustees of the Wayne B. Duddlesten Marital Deduction Trust (collectively, "the Trustees"), have filed a petition for writ of mandamus challenging the trial court's denial of their plea to the jurisdiction in the underlying suit for an accounting.
The underlying case is Jerri A. Duddlesten, as a Director and Second Vice-President of the Wayne Duddlesten Foundation and a Beneficiary of the Wayne Duddlesten Trust v. Karen A. Duddlesten, Kathy Hix Berry (Now Known As Kathy Leigh Young), and Kelly Elizabeth Kelsey, as Co-Trustees of the Marital Deduction Trust, cause number 396,993-401, pending in the Probate Court No. 3 of Harris County, Texas, the Honorable Rory R. Olsen presiding.
Jerri Duddlesten Moore, the daughter of Wayne Duddlesten, sued the Trustees to compel them to provide an accounting of the Wayne B. Duddlesten Marital Deduction Trust (the "Marital Trust"), which was created to benefit Wayne's wife, Karen, during her lifetime. Jerri sued both individually and as a director of the Wayne Duddlesten Foundation, which is the Marital Trust's remainder beneficiary. The Trustees contend that Jerri has no standing to sue because she has no legal or equitable interest in the Marital Trust's assets or administration and is not authorized to act on the Foundation's behalf.
We hold that the trial court's order denying the Trustees' plea was a clear abuse of discretion and that the Trustees lack an adequate appellate remedy. We therefore conditionally grant mandamus relief.
Background
Karen is the surviving spouse of Wayne B. Duddlesten. Karen is a director of the Wayne Duddlesten Foundation and the co-trustee of the Marital Trust. During her lifetime, Karen is the trust's sole beneficiary, and the Foundation is the trust's remainder beneficiary. Jerri is Wayne's daughter and Karen's step-daughter. Like Karen, Jerri is one of the Foundation's directors.
This proceeding arises out of a dispute between the Trustees, on the one hand, and Jerri, on the other. Jerri is suing for an accounting of the trust, the imposition of restrictions on the Trustees, and monetary relief arising from the allegedly improper administration of the trust. Wayne's assets are distributed to various trusts , including the Marital Trust
In 2002, Wayne created the Wayne B. Duddlesten Trust ("WBD Trust") and eventually named it the sole beneficiary of his will. When Wayne died in 2010, the assets passing under his will all went to the WBD Trust. The WBD Trust's assets were then used to fund separate trusts for specific members of Wayne's family created by the WBD Trust Agreement. The Trust Agreement was created at the same time as the WBD Trust and amended several times over the following years.
The Trust Agreement created three different categories of trusts for Wayne's family members. First, the Trust Agreement created the Marital Trust for his wife, Karen. The Trust Agreement provides that Karen is "the sole beneficiary of [the Marital Trust] during her lifetime" and that "no distributions may be made to anyone else during her lifetime." Under the Trust Agreement, the Marital Trust's net income is to be distributed to Karen "at least quarterly" and distributions of the Marital Trust's principal may be made "as are necessary" to maintain the standard of living to which Karen was accustomed at the time of Wayne's death. When Karen dies, the Marital Trust's remaining principal will be distributed to the Foundation.
Second, the Trust Agreement created individual trusts for Wayne's three children: Terri Layne Duddlesten; Wayne B. Duddlesten, Jr.; and Jerri. Each child is the "primary beneficiary" of a separate trust. Under the Trust Agreement, the assets in each of the children's trusts will pass, upon such child's death, to Wayne's other surviving children, Wayne's grandchildren, Wayne's other descendants, or the Foundation.
Third, the Trust Agreement created individual trusts for Wayne's two grandsons. Each grandson is the "primary beneficiary" of his trust. Under the Trust Agreement, the assets in each of the grandsons' trusts will pass, upon the grandson's death, to the grandson's descendants per stirpes, Wayne's other descendants, or the Foundation.
Thus, the Trust Agreement created individual trusts for Karen; Wayne's three children, Terri, Wayne Jr., and Jerri; and Wayne's two grandsons. There are no circumstances under which Jerri will ever be a Marital Trust beneficiary. And there are no circumstances under which Karen will be a beneficiary of the other trusts created by the Trust Agreement.
The WBD Trust's remaining assets were distributed to the Foundation.
Jerri sues to compel an accounting of the Marital Trust
In 2016, Jerri filed an original petition to compel an accounting of the Marital Trust. Jerri claimed that she brought suit as a member of the Foundation's Board of Directors and, alternatively, as a derivative action on the Foundation's behalf.
The Trustees filed a plea to the jurisdiction, arguing that the trial court had no subject-matter jurisdiction because Jerri lacked standing. The Trustees argued that Jerri could not sue as a member of the Foundation's Board because, under the Foundation's by-laws, only the Board—and not individual directors—could bring lawsuits on the Foundation's behalf. The Trustees further argued that Jerri could not bring a derivative action because Texas law does not provide for derivative claims on behalf of non-profit corporations.
After the Trustees filed their plea, the Foundation filed a petition in intervention, seeking a declaratory judgment that Jerri has "no standing or authority to act on the Foundation's behalf" because its "seven-person Board of Directors . . . never authorized [Jerri] to file a direct lawsuit on the Foundation's behalf" and did "not wish for [Jerri's] lawsuit to procced."
Shortly before the hearing on the Trustees' plea to the jurisdiction, Jerri amended her petition, withdrawing her derivative claim and asking for an accounting to be made to her personally. Jerri also filed a response to the Trustees' plea. Jerri argued that, under Section 111.004(7) of the Property Code, she qualifies as an "interested person" with standing to sue because she is a beneficiary of the WBD Trust and a director of the Foundation. Jerri further argued that, even if she did not qualify as an "interested person," she still had standing as a director and officer of the Foundation.
In June 2018, the trial court held a hearing on the Trustees' plea to the jurisdiction. At the end of the hearing, the trial court denied the plea. The Trustees then filed this original proceeding.
Plea to the Jurisdiction
In their petition, the Trustees argue that the trial court clearly abused its discretion in denying their jurisdictional plea because they proved as a matter of law that Jerri is not an "interested person" with standing to sue for an accounting of the Marital Trust. The Trustees further argue that, because Jerri lacks standing, the trial court lacks subject-matter jurisdiction, and mandamus is therefore an appropriate remedy.
A. Standard of review and applicable law
"To be entitled to mandamus relief, a relator must show both that the trial court abused its discretion and that there is no adequate remedy by appeal." In re M & O Homebuilders, Inc., 516 S.W.3d 101, 104 (Tex. App.—Houston [1st Dist.] 2017, orig. proceeding).
The principal issue here is whether Jerri has standing to sue for an accounting of the Marital Trust. Standing is a component of subject-matter jurisdiction that focuses on whether a party has a "justiciable interest" in the outcome of the suit. Tran v. Hoang, 481 S.W.3d 313, 316 (Tex. App.—Houston [1st Dist.] 2015, pet. denied). Standing can be raised in a plea to the jurisdiction. See Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000). We review a trial court's determination of standing de novo. Tran, 481 S.W.3d at 316.
Jerri contends that she has standing as an "interested person" under the Property Code. See TEX. PROP. CODE §§ 113.151(b), 115.001(a), (c), 115.011(a). Under the Property Code, an "interested person" may sue to compel a trust's accounting. See id. An "interested person" is defined as "a trustee, beneficiary, or any other person having an interest in or a claim against the trust or any person who is affected by the administration of the trust." Id. § 111.004(7). "Whether a person, excluding a trustee or named beneficiary, is an interested person may vary from time to time and must be determined according to the particular purposes of and matter involved in any proceeding." Id.
B. Jerri lacks standing
We begin by considering whether the trial court clearly abused its discretion in denying the Trustees' plea to the jurisdiction. "A trial court abuses its discretion if it reaches a decision that amounts to a clear and prejudicial error of law or if it clearly fails to analyze the law correctly or apply the law correctly to the facts." In re Fuentes, 530 S.W.3d 244, 249 (Tex. App.—Houston [1st Dist.] 2017, orig. proceeding).
The Trustees argue that the trial court failed to correctly analyze and apply the law because Jerri is not an "interested person" and therefore has no standing to sue for an accounting. It is undisputed that Jerri is neither a beneficiary nor a trustee of the Marital Trust. Thus, to qualify as an "interested person," Jerri must be either a person with "an interest in or a claim against the trust" or a "person who is affected by the administration of the trust." TEX. PROP. CODE § 111.004(7). Jerri advances three arguments for standing under these clauses of the statute. We consider each argument in turn.
First, Jerri argues that she is an "interested person" because she is a "beneficiary under the Duddlesten Trust." Jerri does not specify whether she is referring to the WBD Trust or her own trust, the Jerri Duddlesten Moore Trust. Regardless, Jerri does not explain how her status as a beneficiary of either trust grants her an interest in the assets or administration of the Marital Trust—a separate trust with different assets, different governance, and different beneficiaries. Whether Jerri is a beneficiary of the WBD Trust or her own trust is irrelevant to whether she is an "interested person" with respect to the Marital Trust.
Second, Jerri argues that she is an "interested person" because she is a Foundation director and thus has a fiduciary duty to protect the Foundation's remainder interest in the Marital Trust. Jerri contends that "the only persons who have an 'interest' on behalf of the [Foundation] are its officers and directors" and that "the directors of the [Foundation] are trusted with 'the entire management and control of the business.'" We disagree.
Under the Foundation's by-laws, individual directors are not entrusted with the management of the Foundation. The Foundation's by-laws provide that "the Board of Directors shall have the entire management and control of the business of the [Foundation]." The by-laws further provide that "a majority vote of the directors in attendance [at a Board meeting] shall be the act of the Board of Directors." Thus, the Foundation's by-laws do not vest any authority in individual directors to take actions or exercise rights of the Foundation. Only the Board can act for the Foundation. And the Board, on behalf of the Foundation, opposes Jerri's lawsuit. Jerri is not an "interested person" by virtue of her Foundation position. In filing her lawsuit, Jerri was not acting on the Foundation's behalf; she was acting individually, erroneously invoking the title of "director."
Third, Jerri argues that she is an "interested person" because she (and the other Foundation directors) might be affected by the Marital Trust's administration. Specifically, she contends that she could face individual tax liability arising from allegedly improper trust distributions, which she characterizes as self-dealing transactions under Section 4941 of the Internal Revenue Code. See 26 U.S.C. § 4941(d)(1). But Section 4941 defines what constitutes self-dealing within a private foundation, and the Marital Trust is not a private foundation. See id. Neither Jerri nor the other directors can be subjected to tax liability because the tax laws on which Jerri relies do not apply to the Marital Trust. Distributions of trust assets are not governed by the Internal Revenue Code's restrictions on private foundations. See generally id. §§ 4941, 4945, 4946.
We conclude that Jerri is not an "interested person" under the Property Code because she is not a beneficiary or trustee of the Marital Trust and does not otherwise have a legal or equitable interest in the trust's assets or administration. She does not have standing to sue individually. Nor does she have standing to sue on the Foundation's behalf. We hold that the trial court clearly abused its discretion in denying the Trustees' plea.
C. Mandamus relief is appropriate for lack of standing
We now consider whether the Trustees have an adequate remedy by appeal. Under Texas law, "mandamus relief is appropriate to 'spare private parties and the public the time and money utterly wasted enduring eventual reversal of improperly conducted proceedings.'" In re John G. & Marie Stella Kenedy Mem'l Found., 315 S.W.3d 519, 523 (Tex. 2010) (quoting In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex. 2004)). Thus, the Texas Supreme Court has held that there is no adequate remedy by appeal when, as here, a plaintiff lacks standing. In re John G. & Marie Stella Kenedy Mem'l Found., 315 S.W.3d at 523 (holding that mandamus relief was appropriate when plaintiff had "no standing to seek exhumation for genetic testing").
Jerri nevertheless contends that the Trustees have an adequate appellate remedy. Citing an opinion recently issued by the Beaumont Court of Appeals, Jerri contends that an adequate appellate remedy exists for an order compelling a trust's accounting. See In re Ng, No. 09-17-00386-CV, 2017 WL 4848706, at *1 (Tex. App.—Beaumont Oct. 27, 2017, orig. proceeding). But the Trustees are not seeking relief from an order compelling an accounting of a trust; they are seeking relief from an order denying their plea to the jurisdiction based on Jerri's lack of standing. In Ng, the court of appeals did not hold—or even address whether—the plaintiff lacked standing. Ng is therefore inapposite.
Because the Trustees have established that Jerri lacks standing to raise the claims asserted in her petition, mandamus is appropriate.
Conclusion
We conditionally grant mandamus relief and direct the trial court to vacate its order denying the Trustees' plea to the jurisdiction and grant the plea. The writ will issue only if the trial court fails to comply with this order.
Harvey Brown
Justice Panel consists of Justices Keyes, Massengale, and Brown.