Receiverships in Trust and Estate Litigation in Texas
A plaintiff in a trust or estate dispute often needs to seek a remedy before trial to protect it from immediate injury, to protect the assets made the basis of the suit, or to discover the real condition of the parties’ relationship or business. There are different types of relief that a plaintiff can seek. For example, a plaintiff may seek a writ of injunction to prohibit or require certain conduct where the plaintiff proves the elements for injunctive relief. However, an injunction may not be sufficient where there is an ongoing business or relationship that requires regular management. In that circumstance, a plaintiff may need an independent third party to step in and manage the business or relationship until there is a trial on the merits of the parties’ claims and defenses. A receivership takes the business or relationship out of the hands of the parties, and for that reason, it is a drastic remedy that should be carefully scrutinized and only granted when adequately proven.
A receiver is an “officer of the court, the medium through which the court acts. He or she is a disinterested party, the representative and protector of the interests of all persons, including creditors, shareholders and others, in the property in receivership.” Akin, Gump, Strauss, Hauer and Feld, L.L.P. v. E-Court, Inc., No. 03-02-00714-CV,2003 Tex. App. LEXIS 3966, 2003 WL 21025030 (Tex. App.—Austin May 8, 2003, no pet.) (quoting Security Trust Co. of Austin v. Lipscomb County, 142 Tex. 572, 180 S.W.2d 151, 158 (Tex. 1944)). There are multiple statutes in Texas that allow for receivership relief. The most commonly used statute allowing for receiverships is Texas Civil Practice and Remedies Code Chapter 64 that allows receiverships in specified types of cases and when permitted by the usages of equity. Tex. Civ. Prac. & Rem. Code § 64.001 et seq. There are other statutes that allow receiverships in various areas of law. For example, there are statutes that allow receiverships for trusts (Tex. Prop. Code 114.008), business entities (Tex. Bus. Orgs. Code § 11.403 et seq.), religious congregations (Tex. Civ. Prac. & Rem. Code § 126.001 et seq.), insurers (Tex. Ins. Code Art. 21.28), family law situations (Tex. Fam. Code §§ 6.502(5), 6.709(3)), and mineral interests (Tex. Civ. Prac. & Rem. Code §§ 64.091, 64.092).
The most prevalent statute used for receiverships in estate disputes is the Texas Civil Practice and Remedies Code Chapter 64 and the most prevalent statute for receiverships in trust disputes is the Texas Property Code Section 114.008. This article will address those statues and common law equity as a basis.
Receiverships for Estates: Texas Civil Practice and Remedies Code Chapter 64
“Chapter 64 of the Civil Practice and Remedies Code sets forth the circumstances under which a trial court may appoint a receiver.” Perry v. Perry, 512 S.W.3d 523 (Tex. App.—Houston [1st Dist.] Dec. 13, 2016, no pet.) (citing Tex. Civ. Prac. & Rem. Code Ann. §§ 64.001 et seq.). Section 64.001 provides:
(a) A court of competent jurisdiction may appoint a receiver: (1) in an action by a vendor to vacate a fraudulent purchase of property; (2) in an action by a creditor to subject any property or fund to his claim; (3) in an action between partners or others jointly owning or interested in any property or fund; (4) in an action by a mortgagee for the foreclosure of the mortgage and sale of the mortgaged property; (5) for a corporation that is insolvent, is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights; or (6) in any other case in which a receiver may be appointed under the rules of equity.
(b) Under Subsection (a)(1), (2), or (3), the receiver may be appointed on the application of the plaintiff in the action or another party. The party must have a probable interest in or right to the property or fund, and the property or fund must be in danger of being lost, removed, or materially injured.
(c) Under Subsection (a)(4), the court may appoint a receiver only if:(1) it appears that the mortgaged property is in danger of being lost, removed, or materially injured; or (2) the condition of the mortgage has not been performed and the property is probably insufficient to discharge the mortgage debt.
(d) A court having family law jurisdiction or a probate court located in the county in which a missing person, as defined by Article 63.001, Code of Criminal Procedure, resides or, if the missing person is not a resident of this state, located in the county in which the majority of the property of a missing person’s estate is located may, on the court’s own motion or on the application of an interested party, appoint a receiver for the missing person if: (1) it appears that the estate of the missing person is in danger of injury, loss, or waste; and (2) the estate of the missing person is in need of a representative.
Tex. Civ. Prac. & Rem. Code Ann. § 64.001.
Under Subsection (a)(1), (2), or (3), the receiver may be appointed on the application of the plaintiff in the action or another party. Id. at § 64.001(b). The party must have a probable interest in or right to the property or fund, and the property or fund must be in danger of being lost, removed, or materially injured. Id.
Section 64.001(a)(3) provides the court may appoint a receiver in an action between parties jointly interested in any property.” Hawkins v. Twin Montana, Inc., 810 S.W.2d 441, 444 (Tex. App.—Fort Worth 1991, no writ). Prior to the appointment of a receiver under subsection (a)(3), the trial court must find that the party seeking appointment of the receiver has “a probable interest in or right to the property or fund, and the property or fund must be in danger of being lost, removed, or materially injured.” Tex. Civ. Prac. & Rem. Code Ann. § 64.001(b); In re Estate of Martinez, NO. 01-18-00217-CV, 2019 Tex. App. LEXIS 2614 (Tex. App.—Houston [1st Dist.] April 2, 2019, no pet.) (reversed receivership in estate case where there was no evidence that property was in danger of being lost, removed, or materially injured). However, the plaintiff does not have to plead or prove that the defendant is insolvent, which is a normal requirement for an equitable receivership. Hawkins v. Twin Montana, Inc., 810 S.W.2d 441, 444 (Tex. App.—Fort Worth 1991, no writ).
A court’s order appointing a receiver does not impermissibly interfere with the independent administration of an estate. See In re Estate of Trevino, 195 S.W.3d 223, 226(Tex. App.—San Antonio 2006, no pet.); Kanz v. Hood, 17 S.W.3d 311, 315 (Tex. App.–Waco 2000, pet. denied) (noting district court has the power to appoint a receiver to assume management and control of estates in the process of independent administration); Metting v. Metting, 431 S.W.2d 906, 908 (Tex. Civ. App.–San Antonio 1968, no writ) (noting district court has power to appoint a receiver of an estate which is in the process of independent administration).
For example, in In re Estate of Price, Ray Price, a renowned country music singer and songwriter, died in 2013 and was survived by his wife and his biological son. 528 S.W.3d 591 (Tex. App.—Texarkana 2017, no pet.). Shortly before Price’s death, and while he was in the hospital, he transferred most of his assets to his spouse via various deeds and assignment documents. The spouse’s sister, who was a secretary, drafted the various documents. The spouse and son filed competing motions to probate wills purportedly executed by Price, as well as competing will contests. The court appointed a temporary administrator, but almost all of the assets did not belong to the estate due to the last-minute transfers to the spouse. So, the son filed an application to appoint a temporary administrator as receiver over the assets purportedly transferred to the spouse in the month of Price’s death. The son alleged that Price did not have the mental capacity to execute the documents. The application for the receiver argued that the spouse had possession and control over all of the contested assets and that she could sell them or “allow them to waste away as she is currently doing.” Id. The trial court appointed a receiver to take possession of property subject to the will contests. The spouse alleged that Price had capacity to execute the transfer documents, and appealed that order.
The court of appeals cited to Section 64.001(a)(3) of the Texas Civil Practice and Remedies Code that provides that a court may appoint a receiver “in an action between parties jointly interested in any property.” Id. The court of appeals determined that due to the contest to the transfers, the son had a showing of the requisite interest in the property. The court also determined that the trial court did not abuse its discretion in determining that there was a danger that the property would be lost, removed, or materially injured:
The trial court heard evidence that Janie had disposed of, and believed she could dispose of, assets subject to the will contests and Clifton’s petition to set aside the December 9 documents. In light of the pleadings and evidence presented in this case, we will not disturb the trial court’s finding that property Clifton had a probable right or interest in was in danger of being lost, removed, or materially injured.
Id. Therefore, the court of appeals affirmed the appointment of the receiver.
In In re Estate of Martinez, an administrator sought and obtained a receiver to sell real estate that was subject to competing claims by the heirs. No. 01-18-00217-CV, 2019 Tex. App. LEXIS 2614 (Tex. App.—Houston [1st Dist.] April 2, 2019, no pet). On appeal, the court reversed the receivership as there was no evidence that the real estate was in danger of being lost, removed, or materially injured. The court noted:
[T]he administrator relies on three categories of support for the appointment of a receiver. First, she relies on arguments made in pleadings and hearings and factual assertions in pleadings and motions. Second, she presumes that the trial court took judicial notice of its own records. Third, she relies on the judge’s recollection of testimony adduced at a prior hearing in connection with another motion. None of this is legally competent evidence capable of supporting the appointment of a receiver.
Id. at *10-11.
In Krumnow v. Krumnow, the court of appeals reversed a receivership order in an estate and trust case where there was a personal representative and a trustee appointed to maintain the assets. 174 S.W.3d 820, 829-30 (Tex. App.—Waco 2005, pet. denied). The court stated: “both the trust property and the probate property were subject to management by a fiduciary–the trustee or the personal representative of the estate. Thus, we find that these facts do not justify the appointment, on the court’s own motion, of a receiver to preserve the trust and probate property.” Id.
In Temple State Bank v. Mansfield, the court relied on a predecessor statute to affirm a receivership order in a trust case, stating:
We think when the trustee of a special fund held under an express trust not only refuses to execute the trust, but refuses to give any information to a joint owner of the fund as to its condition or as to where or in whose name it is held or deposited, it may be reasonably inferred that the fund is in danger of being “lost, diverted, misapplied, and put beyond the reach of plaintiff and of this court,” and such allegation in the petition in this case, being a reasonable inference from the facts alleged, is not a mere conclusion of the pleader. The right to have a receiver appointed under any of the first three sections of the article above cited is a legal right not dependent upon the general rules of practice in courts of equity, and, when the facts alleged in a particular case as grounds for the appointment of a receiver bring the case within the provisions of either of these sections of the article, allegations and proof of insolvency of the defendant, inadequacy of legal remedy, or other equitable grounds for the appointment of a receiver, are not required to authorize such action by the court.
215 S.W. 154 (Tex. Civ. App.—Galveston 1919, writ dismissed w.o.j.). See also Carroll v. Carroll, 464 S.W.2d 440 (Tex. Civ. App.–Amarillo 1971, writ dism’d) (affirming receivership in estate case where property was in jeopardy and family had dissention); General Ass’n of Davidian Seventh Day Adventists, Inc. v. General Ass’n of Davidian Seventh Day Adventists, 410 S.W.2d 256, 260 (Tex. Civ. App.—Waco 1966, writ ref’d n.r.e.) (proper to appoint receiver to take charge of and dispose of trust corpus when trust fails).
Under Subsection (a)(6), a “court of competent jurisdiction may appoint a receiver” in any case “in which a receiver may be appointed under the rules of equity.” Tex. Civ. Prac. & Rem. Code § 64.001(a)(6). Courts have affirmed receivership orders under this provision. A-Medical Advantage Healthcare Sys., Associated v. Shwarts, No. 10-18-00050-CV, 2019 Tex. App. LEXIS 11278 (Tex. App.—Waco Dec. 31, 2019); Pajooh v. Royal W. Invs. LLC, 518 S.W.3d 557, 2017 Tex. App. LEXIS 2759 (Tex. App.—Houston [1st Dist.] Mar. 30, 2017, no pet.); In re Estate of Trevino, 195 S.W.3d 223 (Tex. App.—San Antonio 2006, no pet.); Haugen v. Olson, 2003 Tex. App. LEXIS 10495, No. 05-03-00501-CV, 2003 WL 22939728, at *4 (Tex. App.—Dallas Dec. 15, 2003, no pet.) (appointing receiver in probate matter affirmed); In re Estate of Herring, 983 S.W.2d 61 (Tex. App.—Corpus Christi 1998 no pet.). But see In re Estate of Martinez, No. 01-18-00217-CV, 2019 Tex. App. LEXIS 2614 (Tex. App.—Houston [1st Dist.] April 2, 2019, no pet.); Genssler v. Harris County, 584 S.W.3d 1 (Tex. App.—Houston [1st Dist.] Oct. 7, 2010, no pet.) (equity did not allow trial court to institute a liquidating receivership).
In In re Estate of Herring, the court noted that a receiver may properly be appointed under section 64.001(a)(5) in a probate proceeding when “the appointment of a receiver will solve most, if not all, of the vexations and problems confronting the parties on the issue of partition, as well as management of the properties.” 983 S.W.2d at 65.
For example, in In re Estate of Trevino, the executrix of an estate was the sole beneficiary, and she inherited a bar. 195 S.W.3d at 226. The bar’s operator claimed an ownership interest under a handwritten bill of sale. Id. The executrix engaged an attorney to recover the property and resolve the operator’s ownership claims, and for that representation she agreed to 40% contingency fee. Id. When the attorney prevailed in favor of the executrix, he became a 40% owner of the bar, which he contended the executrix was mismanaging. Id. at 228. The attorney then petitioned the court for partition by sale and appointment of a receiver, which the court granted. Id. On appeal the executrix argued that, in an action between co-owners of property, a receiver may be appointed under section 64.001(a)(3) upon a showing that the property is “in danger of being lost, removed, or materially injured.” Id. at 231. The court of appeals noted that, under what was then subsection (a)(5), a trial court could appoint a receiver based on the rules of equity. Id. The court of appeals observed that “the appointment of a receiver will solve most, if not all, of the vexations and problems confronting the parties on the issue of partition, as well as management of the properties.” Id. at 231 (quoting Herring, 983 S.W.2d at 65). The court of appeals concluded that the court could have appointed a receiver on an equitable basis due to the years of disputes and ongoing litigation about the management of the bar:
The probate court could have determined that the appointment of the receiver would resolve two years of ongoing litigation and problems confronting the parties in regard to the management of the business of the bar. The ongoing litigation and nature of those problems are supported by the record. Even if the probate court were required to find that the property was in danger of being lost, removed, or materially injured, the probate court could have supported its finding with evidence that the revenues of the bar had decreased and with evidence of the decrease in value of the business as reflected in appraisals and offers to purchase the business. Although the evidence is conflicting with regard to this issue, the probate court would not have abused its discretion in concluding that sufficient evidence of such a danger was presented.
However, in Mueller v. Beamalloy, Inc., 994 S.W.2d 855 (Tex. App.—Houston [1st Dist.] 1999, no pet.), a court considered an interlocutory appeal from an order appointing a receiver to liquidate a corporation. 994 S.W.2d at 857. Mueller and Wilson jointly owned an electron-beam welding business. Id. After about 15 years, Mueller brought a shareholder’s derivative suit against Wilson. Id. On Wilson’s application, which was based on the Business Corporations Act and the “rules of equity” provision of section 64.001, the trial court appointed a receiver to liquidate Beamalloy. Id. at 857-58. Mueller appealed. Id. at 858. On appeal, the court noted that then section 64.001(a)(5) applied to corporations, but required a showing of insolvency, dissolution, or forfeiture of corporate rights to justify appointment of a receiver. Id. at 861. Beamalloy could not satisfy that requirement. Id. at 861 The court also considered the language of the rules-of-equity provision, which was then section 64.001(a)(7) and is currently codified as section 64.001(a)(6). Id.; see Tex. Civ. Prac. & Rem. Code § 64.001(a)(6). That provision authorized the appointment of a receiver “in any other case in which a receiver may be appointed under the rules of equity.” See Mueller, 994 S.W.2d at 861. The court explained: “In authorizing a receiver in any other case, subsection (a)(7) applies to instances beyond those listed” in the other subsections.” Mueller, 994 S.W.2d at 861. “Given the specific grant of authority to appoint a receiver for a corporation under the circumstances listed in section 64.001(a)(5), the trial court had no authority to appoint a receiver” for Beamalloy under the rules-of-equity provision. Id. See also In re Estate of Martinez, No. 01-18-00217-CV, 2019 Tex. App. LEXIS 2614 (Tex. App.—Houston [1st Dist.] April 2, 2019, no pet.).
Even though “[a] receiver appointed pursuant to section 64.001(a) and (b) of the Texas Civil Practice and Remedies Code is not required to show that no other adequate remedy exists,” “[t]he appointment of a receiver is a harsh, drastic, and extraordinary remedy, which must be used cautiously.” In re Estate of Trevino, 195 S.W.3d 223, 231 (Tex. App.—San Antonio 2006, no pet.); see also Anderson & Kerr Drilling Co. v. Bruhlmeyer, 134 Tex. 574, 136 S.W.2d 800, 806 (Tex. 1940); In re Estate of Price, 528 S.W.3d 591 (Tex. App.—Texarkana 2017, no pet.); Estate of Benson, No. 04-15-00087-CV, 2015 Tex. App. LEXIS 9477, 2015 WL 5258702, at *7 (Tex. App.—San Antonio Sept. 9, 2015, pet. dism’d); Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. E-Court, Inc., No. 03-02-00714-CV, 2003 Tex. App. LEXIS 3966, 2003 WL 21025030, at *4 (Tex. App.—Austin May 8, 2003, no pet.). But see Benefield v. State, 266 S.W.3d 25, 31 (Tex. App.—Houston [1st Dist.] 2008, no pet.).
Receiverships for Trusts: Texas Property Code Section 114.008
An interested party may file suit against a trustee and seek a receivership. For example, the Restatement (Second) of Trusts provides:
A receiver will be appointed by the court to take possession of the subject matter of the trust or a part thereof and to administer the trust in respect thereto, if this is necessary for the protection of the interest of the beneficiary. If proceedings are brought for the removal of the trustee and it appears necessary or proper during the course of the proceedings that the trust should be administered under the supervision of the court, the court may appoint a receiver until it is determined whether the trustee should be removed and a new trustee appointed. The receivership will be terminated by the court when it is determined by the court that the trustee may properly continue as trustee, or when a new trustee is appointed and the title to the trust property is vested in him.
Restatement (Second) Trusts, §199.
The Texas Property Code expressly provides for a receivership as a remedy for an actual or suspected breach of trust. Section 114.008 provides in part: “(a) To remedy a breach of trust that has occurred or might occur, the court may: … (5) appoint a receiver to take possession of the trust property and administer the trust; (6) suspend the trustee; (7) remove the trustee as provided under Section 113.082; … (10) order any other appropriate relief.” Tex. Prop. Code § 114.008; Estate of Hoskins, 501 S.W.3d 295, 301(Tex. App.—Corpus Christi 2016, no pet.).
For example, in Estate of Benson, a beneficiary of a trust sought to remove the trustee, her father, for allegedly violating his fiduciary duties in administering the trust assets. No. 04-15-00087-CV, 2015 Tex. App. LEXIS 9477 (Tex. App.—San Antonio Sept. 9, 2015, pet. dism. by agr.). The trustee’s relationship with the beneficiary and her adult children (who were remainder beneficiaries under the trust) became strained in December of 2014, when, according to the beneficiary, the trustee began exhibiting troubling behavior with them, as well as other business associates involved in managing trust assets. In a two-day evidentiary hearing, the beneficiary presented evidence that her father had cut off contact with her, banned her and her children from the trust’s assets’ facilities, and made a substantial and abrupt withdrawal from Lone Star Capital Bank, which the trust owned a 97% interest in and which placed the bank in an urgent situation. The beneficiary also presented evidence that the trustee had secretly relocated the office of the trust’s bookkeeper to the trustee’s condominium without telling anyone where she was going. Although the trustee himself did not testify at the hearing, he presented evidence that his relationship with the beneficiary was strained and that he no longer wanted any contact with them. Following the hearing, the trial court entered an order appointing two temporary co-receivers to take control of the trust and the estate that created the trust, and further authorized the co-receivers to manage the business and financial affairs of the trust and essentially perform any actions necessary to preserve the trust’s value. A few days later, the court issued a temporary injunction enjoining the trustee from taking any action related to the trust.
The court of appeals rejected the trustee’s challenges to the appointment of temporary co-receivers and affirmed that part of the trial court’s order. The court determined that the trial court had some evidence that there was a breach of trust to support its decision to appoint co-receivers, relying on the evidence presented at the temporary injunction hearing. The trustee not only had a duty to exercise the care and judgment that he would exercise when managing his own affairs, but also a duty to fully disclose any material facts that might affect the beneficiary’s rights. Rejecting the trustee’s arguments that appointment of co-receivers could not be defended under requirements of equity, the court noted that the beneficiary had sought receivers under section 114.008(a)(5) of the Texas Property Code, not under equitable grounds. Under the statute, a movant need not prove the elements of equity; thus, the beneficiary in this case was not required to produce evidence of irreparable harm or lack of another remedy:
Here, Renee requested the appointment of a receiver pursuant to section 114.008(a)(5) of the Texas Property Code, not based on equity. Section 114.008(a)(5) authorizes the appointment of a receiver to take possession of trust property and administer the trust so long as the court finds that “a breach of trust has occurred or might occur.” Tex. Prop. Code § 114.008(a)(5). Thus, Renee was not statutorily required to produce evidence showing irreparable harm or lack of another remedy. The appointment of a receiver is listed as one of many other equally available remedies that an applicant can request. See Tex. Prop. Code § 114.008(a)(1)-(10). Accordingly, Renee was only required to produce evidence satisfying the statutory requirements of section 114.008(a)(5), and as discussed above, there was some evidence establishing a breach of trust occurred so as to support the probate court’s discretionary decision to appoint co-receivers to oversee the Trust.
Id. at *20.
The court of appeals’s holding that the requirements of equity need not be satisfied for receivership applications under section 114.008 of the Texas Trust Code appears to be an issue of first impression. In another recent case involving a receivership appointment over trust assets, Elliott v. Weatherman, the court recognized the Texas Trust Code as providing separate authority for receivership appointments but held that even if a specific statutory provision authorized a receivership, “a trial court should not appoint a receiver if another remedy exists at law or in equity that is adequate and complete.” 396 S.W.3d 224, 228 (Tex. App.—Austin 2013, no pet.) (holding trial court abused its discretion in appointing a receiver over the property and citing cases not involving receiverships over trust property).
Under this provision, a court does not have to grant a receiver all powers and may limit those powers. In In re Estate of Hoskins, the appellate court held that the trial court’s appointing of a receiver to create a report did not require a finding that all other measures would be inadequate. 501 S.W.3d 295 (Tex. App.—Corpus Christi Sept. 8, 2016, no pet.). The court held that there was evidence of a breach of trust, and the order did not grant the duties and powers ordinarily conferred upon a receiver but instead resembled appointing an auditor. Id. The court also held that a trial court has authority to appoint a receiver to remedy breaches by prior trustees, and that Section 114.008 does not limit it application to only current trustees. Id.
In Elliott v. Weatherman, the appellate court held that the trial court abused its discretion in appointing a receiver over trust assets because the evidence was insufficient to justify the appointment of a receiver without notice to the trustee and the opportunity to be heard. 396 S.W.3d 224 (Tex. App.—Austin Feb. 8, 2013, no pet.).
In In re Estate of Herring, the trial court issued an order to an estate administrator to sell some of the estate’s community property so that the proceeds could be partitioned among the family members. 983 S.W.2d 61, 65 (Tex. App.—Corpus Christi 1998, no pet.). After the administrator failed to carry out the order, the administrator asked the court to appoint a receiver to assist him in his duties. See id. The appellate court upheld the trial court’s appointment of a receiver with the bona fide authority to control matters of the estate. Id. It saw no harm or harshness in appointing a receiver to work alongside the administrator “to take an action which [the administrator] had full authority to take on his own . . . .” Id. The court reasoned:
the past, this Court approved of the appointment of a receiver to partition property within an estate where the heirs cannot agree, noting that “the appointment of a receiver will solve most, if not all, of the vexations and problems confronting the parties on the issue of partition, as well as management of the properties. . . .”
Id. (quoting Gonzalez v. Gonzalez, 469 S.W.2d 624, 632 (Tex. Civ. App.—Corpus Christi 1971, writ ref’d n.r.e.)).
Common-Law Equity As A Basis for A Receivership
Rules of equity govern all matters relating to the appointment, powers, duties, and liabilities of a receiver, and to the powers of a court regarding receivers, to the extent that they are not inconsistent with applicable statutory provisions or with the general laws of the state. Tex. Civ. Prac. & Rem. Code Ann. § 64.004. Where, however, a receivership is sought under one of the statutory provisions authorizing the appointment of a receiver, the right to the remedy is legal and determinable primarily by the statute rather than by rules of equity. Batchelor v. Pacific Finance Corp., 202 S.W.2d 857 (Tex. Civ. App.—Dallas 1947, no writ). Questions such as the adequacy of some other remedy, the existence of a less drastic remedy in equity, and the insolvency of the defendant are not controlling with reference to the statutory right to an appointment. Friedman Oil Corporation v. Brown, 50 S.W.2d 471 (Tex. Civ. App.—Texarkana 1932); Hunt v. State, 48 S.W.2d 466 (Tex. Civ. App.—Austin 1932); Temple State Bank v. Mansfield, 215 S.W. 154 (Tex. Civ. App.—Galveston 1919, writ dismissed w.o.j.).
Regarding trust property, Texas Jurisprudence states:
Under some circumstances, a court of equity will appoint a receiver of trust property in the hands of a trustee or of anyone that may be in possession of the property. A court will not generally interfere with the interests or rights of a trustee in the absence of a showing of abuse or danger of abuse of the trust fund or unless there is danger of loss or injury if the property remains in the trustee’s possession. A receiver may be appointed where the trustees omit to act, repudiate their trust, or refuse to act. A receiver may also be appointed on a showing of the insolvency of a trustee where receivership is necessary to protect the trust fund or where the trustee has allowed trust property to be wasted by a trespasser. Similarly, where a debtor conveys property to a trustee with directions to sell it and pay certain debts, an unsecured creditor may have a receiver appointed. A receivership may also be ordered for the purpose of winding up the affairs of a common law trust n8Link to the text of the note and on the failure of a trust
64 Tex. Jur. 3rd, Receivers, § 45. Courts have affirmed receiverships in trust disputes. See, e.g., General Ass’n of Davidian Seventh Day Adventists, Inc. v. General Ass’n of Davidian Seventh Day Adventists, 410 S.W.2d 256 (Tex. Civ. App.—Waco 1966, writ refused n.r.e.); O’Dell v. Grubstake Inv. Ass’n, 38 S.W.2d 151 (Tex. Civ. App.—San Antonio 1931, writ dismissed); Driskill v. Boyd, 181 S.W. 715 (Tex. Civ. App.—Austin 1915, writ refused); Cotton v. Rand, 92 S.W. 266 (Tex. Civ. App.—1905, writ dismissed).
For example, in Pfeiffer v. Pfeiffer, the court of appeals affirmed an order granting a receivership over trust assets where there was evidence that there was a “danger that the property remaining in the trust fund would be lost, destroyed or materially injured unless a receiver was appointed, and that ultimate recovery by applicants was probable.” 394 S.W.2d 679 (Tex. Civ. App.—Houston 1965, writ dism.). The court stated:
The assets consisted of the stock certificate and a claim to certain real estate. The order grants the receiver no other powers and imposes on him no other duties. Under the record before us we are unable to say with certainty that injunctive relief would be as effective as a receivership in preserving the estate, bearing in mind the power of the court to issue further order to the receiver respecting the property. Nor can we say that the receivership is materially more onerous than an injunction would have been. The trial court, therefore, did not abuse his discretion in appointing the receiver.
Id. In Looney v. Doss, the court of appeals held that a receivership should be terminated where there was a new successor trustee that could take over management of the trust’s assets. 189 S.W.2d 207, 211 (Tex. Civ. App.—Fort Worth 1945, no writ).
Regarding estates, Texas Jurisprudence states:
Although the authority of a personal representative will not generally be displaced by the appointment of a receiver, a receiver may be appointed for property in the possession of an executor or administrator where necessary to protect the estate. A receivership is not authorized, however, merely because an executor has made some improper charges or fails to conduct a business for the estate in the most efficient manner.
64 Tex. Jur. 3rd, Receivers, § 44.
A court has the power to appoint a receiver to take charge of an independent administration in order to protect the estate from mismanagement or unauthorized dissipation. Griggs v. Brewster, 122 Tex. 588, 62 S.W.2d 980 (1933); First State Bank of Bellevue v. Gaines, 121 Tex. 559, 50 S.W.2d 774 (1932); Stanley v. Henderson, 139 Tex. 160, 162 S.W.2d 95 (1942); Oldham v. Keaton, 597 S.W.2d 938 (Tex. Civ. App.—Texarkana 1980, writ ref’d n.r.e.); Laurie v. Stabel, 482 S.W.2d 652 (Tex. Civ. App.—Amarillo 1972, no writ); Metting v. Metting, 431 S.W.2d 906 (Tex. Civ. App.—San Antonio 1968, no writ); O’Connor v. O’Connor, 320 S.W.2d 384 (Tex. Civ. App.—Dallas 1959, writ dism’d); Huth v. Huth, 110 S.W.2d 1011 (Tex. Civ. App.—San Antonio 1937, writ dism’d). The Texas Supreme Court stated: “The district court, having properly assumed jurisdiction to construe the will of Mrs. Potts and adjudicate the issues raised by the pleadings and the evidence, had the power to appoint a receiver for the preservation of the property involved. This power was inherent in the court, and was incident to the exercise of its jurisdiction until the case was finally determined.” Griggs v. Brewster, 122 Tex. 588, 62 S.W.2d at 774.
In Carroll v. Carroll, the court of appeals affirmed a receivership order in an estate case where there was much dissention in the family. 464 S.W.2d 440 (Tex. Civ. App.–Amarillo 1971, writ dism’d). The court considered a trial court order approving a receiver’s sale of farm land that constituted substantially all the corpus of a trust estate created by a joint will that expressly prohibited any sale of the trust property without consent of the trustee and various specified beneficiaries. 464 S.W.2d at 442. Some of the beneficiaries opposed the sale. The court of appeals affirmed the trial court’s order, citing evidence that the land was subject to an imminent foreclosure sale and that family dissension precluded any likelihood of agreement among the beneficiaries, and finding that “the conditions disclosed by the evidence” justified the trial court’s exercise of its inherent equitable powers. Id. at 446.
In Blalack v. Blalack, a court of appeals affirmed a receivership in an estate dispute where the co-executors were in a deadlock and were not managing the estate. 424 S.W. 2d 646, 650 (Tex. Civ. App.–Texarkana 1968, no writ). The court explained:
Evidence was presented in the receivership hearing from which the trial judge might conclude that the two joint legal representatives of the decedent’s estate had not been able to agree upon any important managerial decision affecting the estate for a period of several months prior to the hearing. Production of oil and gas from estate owned property by a long-time employee was condoned rather than agreed to by the joint legal representatives. Thousands of dollars of the indebtedness represented by notes payable had matured and demand for payment had been made. The joint legal representatives were unable to agree to use a part or all of available funds or liquidate assets to pay indebtedness or agree upon any course of action that would avert foreclosure of liens attaching to estate property. The stalemate in management caused the loss of trade discounts. The impasse was eroding the estate and subjecting its assets to the threat and danger of loss at a distress sale and ultimately the estate to bankruptcy.
In Van Grinderbeck v. Lewis, the court of appeals reversed a receivership in an estate case where the appointment of a temporary administrator was an adequate remedy. 204 S.W. 1042 (Tex. Civ. App.—Dallas 1918, no writ).
In equity, an applicant should show a right to, or interest in, the property or fund in litigation or show at least a probable right or interest in either. Continental Homes Co. v. Hilltown Property Owners Ass’n, Inc., 529 S.W.2d 293 (Tex. Civ. App.—Fort Worth 1975); Pelton v. First Nat. Bank of Angleton, 400 S.W.2d 398 (Tex. Civ. App.—Houston 1966, no writ); Wadsworth v. Cole, 265 S.W.2d 628 (Tex. Civ. App.—El Paso 1954). An applicant must show that the property or fund in litigation is in danger of being lost, removed, or materially injured. B & W Cattle Co. v. First Nat. Bank of Hereford, 692 S.W.2d 946 (Tex. App.—Amarillo 1985); Smith v. Smith, 681 S.W.2d 793 (Tex. App.—Houston [14th Dist.] 1984, no writ); Rubin v. Gilmore, 561 S.W.2d 231 (Tex. Civ. App.—Houston [1st Dist.] 1977, no writ). An applicant must show that there is some advantage from the appointment as equity does not do vain thing. Grandfalls Mut. Irr. Co. v. White, 62 Tex. Civ. App. 182, 131 S.W. 233 (1910); Simpson v. Alexander, 188 S.W. 285 (Tex. Civ. App.—Austin 1916); Bounds v. Stephenson, 187 S.W. 1031 (Tex. Civ. App.—Dallas 1916 writ ref’d). An applicant must show that another remedy does not exist at law or in equity. Trevino v. Starr County, 660 S.W.2d 140 (Tex. App.—San Antonio 1983, writ dism); Robinson v. Thompson, 466 S.W.2d 626 (Tex. Civ. App.—Eastland 1971, no writ); Pfeiffer v. Pfeiffer, 394 S.W.2d 679 (Tex. Civ. App.—Houston 1965, writ dism.). Otherwise stated, an applicant must show that there is a necessity for the receivership in order to have an equitable receivership. Pouya v. Zapa Interests, Inc., No. 03-07-00059-CV, 2007 Tex. App. LEXIS 7243, 2007 WL 2462001 (Tex. App.—Austin Aug. 13, 2007, no pet.); Whitson Co. v. Bluff Creek Oil Co., 256 S.W.2d 1012, 1015 (Tex. Civ. App.—Fort Worth 1953, writ dism’d w.o.j.). In equity, the claim for a receiver must be ancillary to an independent cause of action. Pelton v. First Nat’l Bank of Angleton, 400 S.W.2d 398, 401 (Tex. Civ. App.—Houston 1966, no writ). A party cannot solely seek an equitable receivership.
Although insolvency of the owner or the one in possession of a fund or property in controversy is usually an important element bearing on the necessity and propriety of appointing a receiver, not every case of receivership according to the usage of the court of equity depends on a showing of insolvency. Dillingham v. Putnam, 109 Tex. 1, 14 S.W. 303 (1890); Duncan v. Thompson, 25 S.W.2d 634 (Tex. Civ. App.—Dallas 1930); Rische v. Rische, 46 Tex. Civ. App. 23, 101 S.W. 849 (1907, writ dism.); Richardson v. McCloskey, 228 S.W. 323 (Tex. Civ. App.—Austin 1920, writ dismissed w.o.j.).
A pre-trial receivership is a very valuable remedy that can preserve the substance of a plaintiff’s claims in trust and estate litigation. It places an independent third party in charge of managing the trust’s or estate’s assets. This third party then owes duties and may be liable for any violations. See, e.g., Alpert v. Gerstner, 232 S.W.3d 117, 123(Tex. App.—Houston [1st Dist.] 2006, pet. denied) (trust beneficiaries could sue receiver for violating duties in management of trust assets). So, there are many benefits to a receivership when a trustee or estate representative are mismanaging, wasting, or otherwise misappropriating assets that are in their charge. However, it is an extreme remedy that takes a party’s business out of its hands and places it into the hands of another. For these reasons, courts should carefully balance the parties’ interests in awarding such relief.