Corporate and trust litigation can be tricky. In a recent Texas case, the Corpus Christi Court of Appeals held that trust beneficiaries failed to plead facts showing they had the legal right–standing–to bring a lawsuit on behalf of their own trusts. As a result, they lost their case on summary judgment.
The case of Am. Bank, N.A. Tr. of Lisa Marie Buckley Tr. v. Moorehead Oil & Gas, Inc., 13-17-00641-CV, 2018 WL 6219635, (Tex. App.—Corpus Christi Nov. 29, 2018, no pet. h.) involved stock held in 3 testamentary trusts set up by the Decedent for his 3 children. The stock was owned in the Moorehead company which later reorganized itself through a plan of merger to become a limited liability company. As a result, the stock held by the trusts was converted to cash. The beneficiaries of two of the trusts and the trustee of the other trust objected to the valuation of the stock, under Chapter 10 of the Texas Business & Organizations Code entitling a dissenting shareholder to obtain a judicial determination of the value. When the lawsuit was originally filed, it only named the trusts as plaintiffs. The lawsuit was later amended to name the beneficiaries of two of the trusts and the trustee of the other as the plaintiffs.
Defendant Moorehead filed a motion for summary judgment asking the court to render judgment against the plaintiffs as a matter of law on the grounds that the plaintiffs’ claims were barred by the statute of limitations. Although, the original lawsuit was filed before the expiration of the statute of limitations it did not properly name the trustees of each of the trusts as plaintiffs. A trust is not considered a separate legal entity and the lawsuit typically must be filed by the trustee on behalf of the trust. The court held that even though the lawsuit was initially improperly filed in the name of the trusts, it was sufficient to give Defendant Moorehead notice of the allegations and toll the running of the statute of limitations. Thus, Moorhead’s motion for summary judgment based upon this defense was denied.
Defendant Moorehead also requested summary judgment against the plaintiffs on the grounds that the two plaintiff beneficiaries did not have standing to bring the lawsuit as amended on behalf of the trusts. Only a trustee can bring the lawsuit, unless an exception is plead. The court agreed with Moorehead and held that the plaintiff beneficiaries did not have standing to bring the lawsuit on behalf of the trusts. Beneficiaries can only bring a lawsuit on behalf of a trust if the trustee cannot or will not bring the lawsuit. The beneficiaries failed to plead this. Thus, the court of appeals affirmed the summary judgment rendered by the trial court against the beneficiaries and overturned the summary judgment that had been rendered against the trustee.
In conclusion, this case is an example of why it is important to retain experienced counsel in handling corporate and trust litigation. Often by proper planning and pleading, the types of problems that the plaintiffs incurred in this case can be avoided.