Court Held That A Beneficiary’s Claims Against The Estate Of The Trustee Was Not Barred By Limitations
In Estate of Erwin, a husband died leaving some property to his wife and creating two trusts, naming his wife as the trustee and beneficiary with his children as remainder beneficiaries. No. 13-20-00301-CV, 2021 Tex. App. LEXIS 10160 (Tex. App.—Corpus Christi December 29, 2021, no pet.). The wife commingled property and made other transfers of property. She then died, and one of her children became the successor administrator of the husband’s estate and the administrator of the mother’s estate. A son filed suit against the executor of mother’s estate for the mother’s actions during her tenure as executor and trustee, and also raised claims against the executor of the father’s estate for failing to bring those same claims. The plaintiff also sought an accounting. The defendant filed a motion for summary judgment based on the statute of limitations, which was granted by the trial court.
On appeal, the court of appeals reviewed the relevant authority for the statute of limitations in fiduciary cases:
A party ordinarily may not recover on a claim filed after the applicable limitations period has run on that claim and the affirmative defense is raised. “Generally, a cause of action accrues when a wrongful act causes a legal injury. The date a cause of action accrues is normally a question of law.” …
There are “two doctrines that may delay accrual or toll limitations: (1) the discovery rule and (2) fraudulent concealment.” “The discovery rule applies on a categorical basis to injuries that are both inherently undiscoverable and objectively verifiable.” “When applicable, the discovery rule ‘defers the accrual of the cause of action until the injury was or could have been reasonably discovered.'” For the discovery rule to apply, “the nature of the injury incurred [must be] inherently undiscoverable and the evidence of injury [must be] objectively verifiable.” “An injury is inherently undiscoverable if it is by nature unlikely to be discovered within the prescribed limitations period despite due diligence.” “[A] person to whom a fiduciary duty is owed is either unable to inquire into the fiduciary’s actions or unaware of the need to do so.” However, “[w]hile a person to whom a fiduciary duty is owed is relieved of the responsibility of diligent inquiry into the fiduciary’s conduct, so long as that relationship exists, when the fact of misconduct becomes apparent it can no longer be ignored, regardless of the nature of the relationship.”
Fraudulent concealment, on the other hand, “is a fact-specific equitable doctrine that tolls limitations until the fraud is discovered or could have been discovered with reasonable diligence.” To constitute fraudulent concealment, the “plaintiff must establish an underlying wrong, and that (1) the defendant actually knew the plaintiff was in fact wronged, and (2) concealed that fact to deceive the plaintiff.” When the actor has a duty to disclose material facts, such as a fiduciary, silence by the fiduciary may be enough to sustain a fraudulent concealment defense to the applicable statute of limitations. “When a defendant is under a duty to make a disclosure but conceals the existence of a cause of action from the party to whom it belongs, the defendant is estopped from relying on the defense of limitations until the party learns of the right of action or should reasonably have discovered it.” When a fiduciary relationship exists, the fiduciary is under a duty to fully disclose all material facts to the beneficiaries. “Beneficiary” includes any “person for whose benefit property is held in trust, regardless of the nature of the interest.” Generally, “Texas courts have refused to apply the discovery rule to claims arising out of probate proceedings in most instances . . . even in the face of allegations of fraud.” However, the court should look to the conduct forming the genesis of the cause of action to determine the applicable statute of limitations.
The defendant argued that the plaintiff’s statute of limitations began to run when the father’s will was admitted to probate in 1993. The court of appeals disagreed:
[N]one of the cases Redding relies on hold that limitations for causes of action with regard to the administration of a testamentary trust, such as breach of fiduciary duty, begins when a will is admitted to probate. Nor do we find any. Such a holding would lead to an inherently unfair result: a trustee to a testamentary trust could simply wait a few years from the time the will was probated and engage in various breaches of fiduciary duties and the beneficiaries would be prohibited from recovery, even if the suit was filed the day following the alleged breach. Instead, a claim for breach of fiduciary duty, subject to the discovery rule or fraudulent concealment, accrues when the alleged breach of duty occurred.
The court agreed that the plaintiff’s claim relating to the mother’s failure to issues statements or keep proper accounting information was barred by the statute of limitations as the will required those acts and the plaintiff should have known of her failure to comply. Regarding the plaintiff’s claims for mismanagement, however, the court reversed and held that there was a fact issue on whether the statute of limitations had run. The court held:
The terms of Trust A prohibited Bettye from invading the corpus of the trust for her own benefit—she was only entitled to the profits generated therein. Based on the fiduciary relationship between Bettye and appellants, we conclude both the discovery rule and fraudulent concealment tolled the statute of limitations as to appellants’ claims of Bettye’s misappropriation or mismanagement of the trust property.
Nothing in the record demonstrates that Bettye’s alleged misconduct was so apparent that it could not be ignored. Bettye, as trustee, was under a duty to disclose material facts to the beneficiaries. We further conclude that appellants, as beneficiaries, were “relieved of the responsibility of diligent inquiry into [Bettye’s] conduct” because they were “either unable to inquire into [Bettye]’s actions or unaware of the need to do so.” Bettye’s act of signing warranty deeds and other real property records as trustee would likely have led the beneficiaries to believe she was acting in good faith as required. Absent evidence that appellants were actually aware of Bettye’s misconduct, if any, the limitations period did not begin to run on her alleged breaches of fiduciary duties for misappropriating or mismanaging the trust assets until her death, when the beneficiaries would have received the remainder of the trust.
Id. Regarding the plaintiff’s claims against the executor of the estate of the father for not pursuing claims against the executor of the mother’s estate, the court held: “without looking to the merits of appellants’ causes of actions against Redding as independent administrator of C.E.’s estate, we conclude that the limitations period has not expired on those claims either. Redding did not become the successor administrator until September 27, 2017, and appellants’ first petition was filed on June 1, 2018—well within the applicable limitations periods.” Id.
Finally, the court of appeals reversed the trial court’s order protecting the mother’s executor from preparing an accounting of the trusts. The court stated:
Although Redding has not been appointed the successor trustee over C.E.’s testamentary trusts, as independent administrator for Bettye’s estate, Redding assumes the responsibility of rendering an accounting. To the extent that Redding relies on the statute of limitations to shield her from rendering an accounting, she provides no case law, and we find none, that hold that the statute of limitations preventing recovery for breaches of fiduciary duty for failure to render an account prevent beneficiaries from seeking to compel an accounting. Accordingly, until a successor trustee is appointed, Redding, as administrator of Bettye’s estate, has the duty to render an accounting for the trusts.