In Hooten v. Collins, a dispute arose between the trustee of a Texas trust and a beneficiary who resided overseas regarding the distribution of trust assets, which primarily consisted of real estate in Texas. No. 08-23-00327-CV, 2024 Tex. App. LEXIS 6805 (Tex. App.—El Paso September 16, 2024, no pet.). The trustee filed suit for instructions in Texas regarding approval of a distribution plan and discharge relief. The beneficiary shortly thereafter filed suit in California for breach of fiduciary duty based on the same set of facts. The beneficiary then objected to the Texas court’s jurisdiction based on an alleged lack of personal jurisdiction. After discovery, the trial court held a hearing and denied the objection, and the beneficiary appealed. The court of appeals affirmed the denial of the objection.
The first issue was whether the trial court had in rem jurisdiction over the beneficiary due to the trust assets residing in Texas. The court held that even in in rem jurisdiction, a court must still have in personam jurisdiction over a defendant:
More than a century ago, the U.S. Supreme Court distinguished between in personam and in rem jurisdiction for state-court jurisdictional inquiries. Pennoyer v. Neff, 95 U.S.714, 24 L. Ed. 565 (1877). As later explained in Shaffer v. Heitner, 433 U.S. 186, 189, 97 S. Ct. 2569, 53 L. Ed. 2d 683 (1977):
If a court’s jurisdiction is based on its authority over the defendant’s person, the action and judgment are denominated “in personam” and can impose a personal obligation on the defendant in favor of the plaintiff. If jurisdiction is based on the court’s power over property within its territory, the action is called “in rem” or “quasi in rem.”
Id. at 199. Consequently, the jurisdictional analysis following Pennoyer centered on the physical—and in some cases constructive—presence of people and things within the forum state. Id. at 201-03. Texas courts acknowledge the same distinction: “The general rule of in rem jurisdiction is that the court’s jurisdiction is dependent on the court’s control over the defendant res.” Costello v. State, 774 S.W.2d 722, 723 (Tex. App.—Corpus Christi 1989, writ denied). “[A]n in rem action affects the interests of all persons in the world in the thing,” but an in rem judgment’s effect is limited only “to the property that supports jurisdiction.” Bodine v. Webb, 992 S.W.2d 672, 676 (Tex. App.—Austin 1999, pet. denied). For that reason, the “court need not acquire jurisdiction over the person.” City of Conroe, 602 S.W.3d at 457-58 (citing Batjer v. Roberts, 148 S.W. 841, 842 (Tex. App.—El Paso 1912, writ ref’d)) (observing that service of process in in rem suits may be constructive, and persons with interest in rem may never know of suit).
Robert argues that this is not a true in rem action because it is not a suit against the property. We agree that the claim here would be better described as quasi in rem:
A quasi in rem proceeding is an action between parties where the object is to reach and dispose of property owned by them or of some interest therein. While an in rem action affects the interests of all persons in the world in the thing, a quasi in rem action affects only the interests of particular persons in the thing.
Bodine, 992 S.W.2d at 676 (internal citations omitted); see also Hanson v. Denckla, 357 U.S. 235, 246 n.12, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958) (“A judgement quasi in rem affects the interest of particular persons in designated property.”).
Drawing on these principles, Marsha contends that the court need not have in personam jurisdiction over Robert because Texas has in rem jurisdiction over the trust property. Robert disagrees with Marsha’s characterization of the claims and argues that, even if the location of property provides part of the alleged jurisdictional basis, a Texas court must still have in personam jurisdiction over him. In this respect, we agree with Robert that developments since Pennoyer have cemented due process protections into both in personam and in rem jurisdictional inquiries.
In Shaffer v. Heitner, the Court was asked to decide whether the seizure of property in the forum state could justify a court’s exercise of jurisdiction over nonresident defendants in a suit unrelated to the ownership of that property. Shaffer, 433 U.S. at 189. The Court traced the constitutional doctrine of state-court jurisdiction to Pennoyer v. Neff. See Shaffer, 433 U.S. at 196. But the Schaffer Court recognized the watershed change occasioned by International Shoe. Id. at 203 (citing Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 (1945)). After International Shoe, the focus of the personal jurisdictional inquiry changed from a state’s sovereignty over persons within its border to the “relationship among the defendant, the forum, and the litigation.” Id. at 204.
The Shaffer Court then reasoned that an assertion of jurisdiction over property is equivalent to an assertion of jurisdiction over a person’s interest in that property. It dispensed with the theoretical distinction between in rem and in personam jurisdiction and concluded that all assertions of personal jurisdiction — whether based on property ownership (i.e., “in rem” or “quasi in rem”) or personal contacts with the forum (i.e., “in personam”) — are to be measured against the minimum-contacts and fairness prongs of the International Shoe test. Id. at 212 (“We therefore conclude that all assertions of state-court jurisdiction must be evaluated according to the standards set forth in International Shoe and its progeny.”).
Several Texas courts have resolved challenges to personal jurisdiction in trust litigation where the trust res included Texas real property; each conducted a thorough minimum-contacts tests analyzing the defendant’s contacts with the state. See Johnson v. Kindred, 285 S.W.3d 895, 899 (Tex. App.—Dallas 2009, no pet.); Alexander v. Marshall, No. 14-18-00425-CV, 2021 Tex. App. LEXIS 1952, 2021 WL 970760, at *5 (Tex. App.—Houston [14th Dist.] Mar. 16, 2021, pet. denied) (mem. op.); JPMorgan Chase Bank, N.A. v. Campbell, No. 09-20-00161-CV, 2021 Tex. App. LEXIS 5001, 2021 WL 2583573, at *5 (Tex. App.—Beaumont June 24, 2021, no pet.) (mem. op.). Similarly, we must determine whether Texas has personal jurisdiction over Robert based on a detailed analysis of his alleged forum contacts and the relationship between those Texas contacts and the litigation. See Dawson-Austin v. Austin, 968 S.W.2d 319, 327 (Tex. 1998) (conducting a minimum-contacts analysis in a divorce case relating to the distribution of Texas property that was part of the marital estate); see also Smith v. Lanier, 998 S.W.2d 324, 333 (Tex. App.—Austin 1999, pet. denied) (conducting separate minimum-contacts analyses to determine the character of an estate’s property—i.e., separate or community—and to determine the propriety of jurisdiction over the nonresident representative of the deceased’s estate in her individual capacity).
Id.
The court then discussed personal jurisdiction standards:
The Texas long-arm statute extends a Texas court’s personal jurisdiction “as far as the federal constitutional requirements of due process will permit,” but no further. Thus, the contours of federal due process guide our decision.
Federal due process limits a court’s jurisdiction over nonresident defendants unless: (1) the defendant has established minimum contacts with the forum state; and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. “As a general rule, the exercise of judicial power is not lawful unless the defendant ‘purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'” Due process requires purposeful availment because personal jurisdiction “is premised on notions of implied consent—that by invoking the benefits and protections of a forum’s laws, a nonresident consents to suit there.” Purposeful availment includes deliberately engaging in significant activities within a state or creating continuing obligations with residents of the forum. It includes seeking profit, benefits, or advantage from the forum. It excludes, however, “random,” “fortuitous,” or “attenuated” contacts or the “unilateral activity of another party or a third person.” Moreover, a party may purposefully avoid a particular forum by structuring its transactions in such a way as to neither profit from the forum’s laws nor subject itself to jurisdiction there.
A plaintiff asserting that a court has specific jurisdiction over a nonresident defendant must also show that its claim arises out of, or relates to, the defendant’s contacts with the forum. Under the Texas application of that requirement, “for a nonresident defendant’s forum contacts to support an exercise of specific jurisdiction, there must be a substantial connection between those contacts and the operative facts of the litigation.” Specific jurisdiction is not as exacting as general jurisdiction in that the contacts may be more sporadic or isolated so long as the cause of action arises out of those contacts.
Id. (internal citations omitted). The court held that there was sufficient evidence to support the trial court’s exercise of personal jurisdiction over the beneficiary:
First, we acknowledge the significant role that the Texas properties play in this dispute. When it established International Shoe as the standard for all assertions of jurisdiction for in rem actions, the United States Supreme Court in Shaffer v. Heitner observed the following:
[T]he presence of property in a State may bear on the existence of jurisdiction by providing contacts among the forum State, the defendant, and the litigation. For example, when claims to the property itself are the source of the underlying controversy between the plaintiff and the defendant, it would be unusual for the State where the property is located not to have jurisdiction. In such cases, the defendant’s claim to property located in the State would normally indicate that he expected to benefit from the State’s protection of his interest.
Shaffer, 433 U.S. at 207. The Court specifically noted the interest of a forum in “the marketability of property within its borders,” “providing a procedure for peaceful resolution of disputes about the possession of that property” and the reality that “important records and witnesses will be found in the State.” Id. at 208.
The Court’s observation rings particularly true here. This trust had 21 Texas income-producing properties. Their aggregate value was in the tens of millions of dollars. The properties required the services of a property management firm to collect rents, undertake maintenance, and handle the day-to-day tasks inherent with commercial real estate. Because Robert wanted to be involved in their disposition, he asked to receive an ongoing stream of information for the properties. The income generated by the properties further required accounting advice for quarterly tax obligations, here provided to Robert by a Texas CPA. And when many of the properties were sold (at Robert’s urging), the beneficiaries only enjoyed the fruits of those sales under the benefits and protection of Texas law.
To be sure, Robert’s ownership interest in Texas property was only equitable and resulted from decisions made by the settlors and trustees. Which brings us to Robert’s core argument: as a passive trust beneficiary, he cannot be deemed to have contacts in a jurisdiction where the trust happens to own property. Owning an equitable interest in the trust property alone is insufficient to confer jurisdiction when an interested person assumes only a passive role in the trust’s administration. Johnson, 285 S.W.3d at 903 (finding no jurisdiction over passive beneficiary of trust).
…
Yet when interested parties take an active role in the trust’s affairs with the knowledge that their actions will create continuing obligations towards Texas residents, those parties are subject to personal jurisdiction in Texas… Here, Marsha’s evidence is legally sufficient to show that Robert assumed an active role in managing the trust’s assets. For example, for 18 months, Robert kept in continuous communication with the trust’s Texas-based property manager, Investar, and the trust’s tax advisor, J.M. Trippon & Co., receiving information about the financial health of the Texas trust assets. Robert attended two in-person meetings in Texas to discuss the trust’s administration, analyze its assets, and make additional requests for information from the trust’s Texas-based professionals. While Robert minimizes the Texas visit by arguing his primary purpose was to attend his father’s funeral, that explanation does nothing to refute the fact that he purposefully engaged in these contacts in Texas.
More importantly, Robert attempted to insert himself into the trust’s management such that there is some evidence he was more than a passive beneficiary… The trial court could have fairly considered how Robert’s requests had some influence over the plans to distribute the trust… Collectively, these contacts are legally sufficient to show Robert purposefully availed himself of the Texas forum: he inserted himself in the distribution plans of Trust B’s property to obtain a benefit, advantage, or profit from transactions or conveyances of Texas real estate. For the above reasons, we find the evidence is legally sufficient to confer jurisdiction over Robert.
Id. The court also held that there was a sufficient connection between the defendant, the forum, and the litigation:
This case arises out of the parties’ inability to agree on a plan to realize an appropriate and equitable distribution of a trust’s Texas property. Robert sought to influence the sale and distribution of Texas assets to beneficiaries of the trust. Additionally, Robert’s demands and criticism of Marsha’s performance as trustee are tied to the declaratory relief that Marsha now seeks. He accused Marsha of ignoring his interests and withholding information. Accordingly, some claims for declaratory relief enumerated in Marsha’s petition are a request for the court to approve her actions as trustee and an accounting of the trust.
Id. The court finally found that the exercise of jurisdiction was consistent with fair play and substantial justice and affirmed the order denying the defendant’s objection to the Texas court’s jurisdiction over him.
Interesting Note: When there are trust disputes, finding a forum or state to determine those disputes can be a very important factor in resolving them. One issue that can be confounding is filing suit in a state and a trustee or beneficiary objecting the jurisdiction’s personal jurisdiction. The Model Trust Code has a provision that expressly discusses personal jurisdiction in trust disputes. Unform Trust Code Section 202 is entitled: “Jurisdiction Over Trustee And Beneficiary,” and it states:
(a) By accepting the trusteeship of a trust having its principal place of administration in this State or by moving the principal place of administration to this State, the trustee submits personally to the jurisdiction of the courts of this State regarding any matter involving the trust.
(b) With respect to their interests in the trust, the beneficiaries of a trust having its principal place of administration in this State are subject to the jurisdiction of the courts of this State regarding any matter involving the trust. By accepting a distribution from such a trust, the recipient submits personally to the jurisdiction of the courts of this State regarding any matter involving the trust.
(c) This section does not preclude other methods of obtaining jurisdiction over a trustee, beneficiary, or other person receiving property from the trust.
The comments to the Uniform Trust Code Provision state:
The jurisdiction conferred over the trustee and beneficiaries by this section does not preclude jurisdiction by courts elsewhere on some other basis. Furthermore, the fact that the courts in a new State acquire jurisdiction under this section following a change in a trust’s principal place of administration does not necessarily mean that the courts of the former principal place of administration lose jurisdiction, particularly as to matters involving events occurring prior to the transfer. The jurisdiction conferred by this section is limited. Pursuant to subsection (b), until a distribution is made, jurisdiction over a beneficiary is limited to the beneficiary’s interests in the trust. Personal jurisdiction over a beneficiary is conferred only upon the making of a distribution. Subsection (b) also gives the court jurisdiction over other recipients of distributions. This would include individuals who receive distributions in the mistaken belief they are beneficiaries.
Under the Hooten opinion, Texas courts will lose jurisdiction to other states, who may have less of a connection to the administration of trusts, solely because of Texas’s common-law jurisdictional precedent. Other states do not require the same contacts analysis for in rem or quasi in rem jurisdiction. So, at this point, a trustee of a Texas Trust may not be able to get jurisdiction for trust disputes in Texas if there are beneficiaries who do not take an active role in trust management and live in another state. That fact does not deprive a Texas court of jurisdiction. Further, potentially, a Texas court can appoint a guardian ad litem or attorney ad litem to represent absent beneficiaries. Legislature needs to address this important issue.