Conte v. Ditta, 312 S.W.3d 951 (Tex. App.—Houston [1st Dist.] 2010, no pet.).
After the trial court removed Trustee from office, Trustee asserted
that an earlier settlement agreement addressing Trustee’s use of over
$500,000 of trust funds for her personal use was an election of remedies
precluding or waiving the removal action. The appellate court disagreed
explaining that the settlement remedied a past injury while the removal
action was to prevent future injury.
Trustee also alleged that trial court abused its discretion in removing
her from office even though the court found she used trust funds to pay
her personal expenses, violated the trust causing the trust to suffer
material financial loss, and had personal interests adverse to and in
conflict with her duties as trustee. After a review of the evidence, the
appellate court found that there was sufficient evidence to support the
trial court’s findings and thus agreed that the trial court did not
abuse its discretion when it removed Trustee from office. The court
noted that merely because Trustee acknowledged she misappropriated trust
funds after being caught does not cure the breach of trust.
Moral: A trustee who is caught misusing trust funds may be removed from
office even if the trustee (1) is found liable for damages and (2)
acknowledges the bad behavior.
Note: This is the remand of Ditta v. Conte, 298 S.W.3d 187 (Tex. 2009),
in which the Supreme Court of Texas held that “no statutory limitations
period restricts a court’s discretion to remove a trustee. A limitations
period, while applicable to suits seeking damages for breach of
fiduciary duty, has no place in suits that seek removal rather than
recovery.”
After the trial court properly removed Trustee from office, the court
appointed a successor trustee without following Settlor’s instructions
for how a successor trustee should be selected. The appellate court held
that the court exceeded its authority to deviate from the terms of the
trust under Trust Code § 112.054. Instead, the court should follow the
terms of the trust which authorized the majority of adult beneficiaries
to appoint a successor trustee. See Trust Code § 113.083. A court
exercising its deviation power must do so in the manner that conforms as
nearly as possible to Settlor’s intent. Here, Settlor’s intent was
expressed in the trust when he provided instructions on the method of
ascertaining a successor trustee. The fact that one of the beneficiaries
was the removed trustee did not impact her rights as a beneficiary.
Thus, a proper deviation would be to prevent the beneficiaries from
appointing anyone who had been already removed as a trustee.
Moral: If a trust contains instructions of the appointment of a
successor trustee, those instructions should be followed as closely as
possible under the circumstances.