Receiverships in Texas Trust and Estate Litigation

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Receiverships in Texas Trust and Estate Litigation

Trust and estate litigation in Texas can be complex and contentious. If a dispute over property controlled by a trust or estate cannot be resolved amicably, a party may have the right to seek a receivership as a remedy to preserve the property while the dispute is resolved. A receivership is considered a extraordinary remedy under Texas law.  Yet Texas courts have recognized that it may, where appropriate, be used in addition to an injunction.[1]

A court may appoint a receiver to take over administration of a trust or estate or for more limited duties while serving with the personal representative or trustee. Texas courts will allow a receivership over a decedent’s estate even when there is an existing independent executor for the estate if circumstances warrant protection of the property.[2] A receiver is an officer of the court, and as such, may enjoy derived judicial immunity for acts authorized by the court but may still be held liable for breach of fiduciary duty.[3]

Receivership as a Remedy in Estate Litigation in Texas

The statute commonly utilized to seek a receivership in estate litigation is Chapter 64 of the Texas Civil Practice and Remedies Code, which 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. [4]

When property is part of an estate, the appointment of a receivership in an estate matter may be appropriate if a joint interest in that property is in jeopardy, such as in a dispute among beneficiaries to estate property. The language of Section 64.001(b) is key. And courts examine the factors carefully to determine a party’s probable interest and to determine whether the property at issue is in danger of being lost, removed, or materially injured.[5]

Receivership as a Remedy in Trust Administration in Texas

The statute commonly utilized to seek a receivership in trust litigation is Section 114.008 of the Texas Property Code, which expressly provides for a receivership as a remedy for an actual or suspected breach of trust as follows: “(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; and . . . (10) order any other appropriate relief.”[6]

A court will only appoint a receiver in certain circumstances when there is no other remedy at law or equity.[7]And generally, the appointment of a receiver over real property without notice is prohibited.[8]

Generally, a court can empower a receiver to: (1) take charge and keep possession of the property; (2) receive rents; (3) collect and compromise demands; (4) make transfers; and (5) perform other acts in regard to the property as authorized by the court.[9] A court does not have to completely turn over the administration of estate or trust assets to a receiver and can grant limited powers or duties to a receiver, such as the duties typically performed by an auditor.[10]

Receivership Under Law or Equity?

Texas law recognizes a receivership as a possible remedy under both legal and equitable principles. Rules of equity govern 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.[11] Texas courts treat receiverships as extreme remedies, and the case law regarding appointments of receivers varies depending on the specific facts of each case.

When 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.[12] In Estate of Benson, the court rejected the trustee’s arguments that appointment of co-receivers did not meet the standards under equity when the trust beneficiary had sought appointment of a receiver under section 114.008(a)(5) of the Texas Property Code and not under equitable principles.[13] In Mueller v. Beamalloy, Inc., the court reversed the appointment of a receiver for a corporation because the specific circumstances listed in section 64.001(a)(5) of the Texas Civil Practice and Remedies Code dealing with remedies for corporations were not met and therefore the trial court had no authority to appoint a receiver under the rules-of-equity provision.[14] Therefore, when seeking a receivership, a party should take care to meet the specific standards under which the receivership is being sought.

 

 

[1] See Benefield v. State, 266 S.W.3d 25, 31 (Tex. App.-Houston [1st Dist.] 2008, no pet.) (citations omitted).

[2] See 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); Blalack v. Blalack, 424 S.W.2d 646, 650 (Tex.Civ.App.-Texarkana 1968, no writ)(receiver appointed due to impasse between independent co-executors); Roy v. Roy, 234 S.W.2d 933, 935 (Tex.Civ.App.-Eastland 1950, no writ)(in suit to partition community property brought by the surviving spouse against the deceased spouse’s independent executor, receiver could be appointed to sell the land and partition the proceeds).

[3] See, e.g., Alpert v. Gerstner, 232 S.W.3d 117, 130-31 (Tex.App.-Houston [1st Dist.] 2006, pet. denied) (court-appointed receiver entitled to derived judicial immunity for all acts authorized by court, but not for breach of fiduciary duties).

[4] Tex. Civ. Prac. & Rem. Code Ann. § 64.001.

[5] 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) (court reversed appointment of receivership when there was no evidence that the real estate was in danger of being lost, removed, or materially injured); but see In re Estate of Price, 528 S.W.3d 591 (Tex. App.-Texarkana 2017, no pet.) (receivership upheld on appeal when evidence supported joint interest in subject property and that property was in danger of being removed).

[6] Tex. Prop. Code § 114.008; see also Estate of Hoskins, 501 S.W.3d 295, 301 (Tex. App.-Corpus Christi 2016, no pet.); Elliott v. Weatherman, 396 S.W.3d 224, 228 (Tex. App.-Austin 2013, no pet.).

[7] Elliott, 396 S.W.3d at 229.

[8] Id. at 230.

[9] Tex. Civ. Prac. & Rem. Code Ann. § 64.031.

[10] See Estate of Hoskins, 501 S.W.3d at 308-10.

[11] Tex. Civ. Prac. & Rem. Code Ann. § 64.004.

[12] Batchelor v. Pacific Finance Corp., 202 S.W.2d 857 (Tex. Civ. App.-Dallas 1947, no writ).

[13] See, e.g., Estate of Benson, No. 04-15-00087-CV, 2015 Tex. App. LEXIS 9477 at *20 (Tex. App.-San Antonio Sept. 9, 2015, pet. dism. by agr.).

[14] Mueller v. Beamalloy, Inc., 994 S.W.2d 855, 861 (Tex. App.-Houston [1st Dist.] 1999, no pet.).