In the January 2021 case of Marshall v. Marshall, the Texas appellate court determined that appellants did not violate an in terrorem clause in the will, and instead that appellants demonstrated that disputing conduct as violating the in terrorem provisions triggered the Texas Citizens Participation Act because it was based on the filing of a petition.
The Facts of Marshall v. Marshall
Pierce Marshall settled the EPM Marital Income Trust (the “Texas Trust”) and named his wife Elaine as the trustee and income beneficiary. His sons, Preston and Pierce Jr., are the beneficiaries of two inter vivos trusts that are equal principal beneficiaries of the Texas Trust. According to Pierce’s will, the primary purpose of the Texas Trust was Elaine’s financial security. The will included provisions regarding the powers of the trustee, the selection of successor trustees, the choice of law applicable to the trust, and an in terrorem clause. We have written about in terrorem clauses in Texas probate and trust litigation here, here, and here.
The In Terrorem Clause In the Texas Trust
The Texas Trust contained an in terrorem clause:
If any beneficiary under this will or under any Trust created by this Will shall contest the probate or validity of this Will, or any provision thereof, or shall institute, provide financial support for, or join in (except as a party defendant) any proceeding to contest the validity of this Will or to prevent any provisions hereof from being carried out in accordance with its terms (regardless of whether or not such proceedings are instituted in good faith and with probable cause), then all gifts, fiduciary appointments, or other benefits (collectively, the “Benefits”) provided for such beneficiary hereunder are revoked, and all such Benefits shall pass to the persons who would receive Benefits under the provisions of this Will as if such contesting party predeceased me.
The Wyoming Trust
In 2014, Elaine merged the Texas Trust into a new trust in Wyoming. In furtherance of this plan, she formed the EPM Purpose Trust and the EPM Fiduciary Service Company, LLC (the “Company”). Elaine and the Company then created the EPM Marital Income Trust (the “Wyoming Trust”) and merged the Texas Trust into the Wyoming Trust, with the Wyoming trust to be the “surviving trust.”
Like the Texas Trust, the primary purpose of the Wyoming Trust was to provide for the financial security of Elaine. Also like the Texas Trust, upon Elaine’s death the corpus is to be distributed in equal amounts to the two inter vivos trusts that E. Pierce Marshall had created for the benefit of Preston and Pierce individually.
However, the Wyoming Trust’s provisions regarding successor trustees, choice of law, and an in terrorem clause differ from the provisions in E. Pierce Marshall’s will.
The in terrorem clause in the Wyoming Trust stated in part that if any person:
directly or indirectly contests or attacks this Declaration or the Merger Agreement or any trust or beneficial interest created hereunder or thereunder, . . . then such person is specifically disinherited; all interests and properties given to or created for the benefit of such person, directly or in trust, under this Declaration shall be forfeited, and such property shall be disposed as if such person had predeceased E. Pierce Marshall.
The Wyoming Lawsuit
The Company filed a “petition for instructions” in a Wyoming court and alleged that the merger of the Texas Trust and Wyoming Trust and subsequent division of the Wyoming Trust would affect only the governing law and trusteeship of the trusts and would not enlarge or diminish the beneficial interest of any beneficiary.
The Company attached as an exhibit Elaine’s “Affidavit, Acceptance of Service, and Consent to Proceed.” In the affidavit, Elaine testified that she consented to the modifications of the trusts “[a]s such beneficiary and trustee.” The Wyoming court signed an order granting the petition and ordered, among other things, that the settlement agreement was “confirmed, and the Petitioner [was] authorized to undertake the merger of the Trusts and the division of the surviving Wyoming Trust as described therein.”
Preston sued Elaine and Pierce. Preston sought declarations that Elaine and Pierce violated the in terrorem clause of the will, and alleged that Elaine breached her fiduciary duties. Specifically, Preston alleged that Elaine consented to the Wyoming lawsuit to ratify the modifications to the Texas Trust, and thus violated the in terrorem clause of the will and her duties as trustee. Preston alleged that Pierce aided and abetted the breach as a co-beneficiary.
Elaine and Pierce each filed motions to dismiss based on the Texas Citizens Participation Act. Elaine sought to dismiss the in terrorem clause claims against her. Pierce sought to dismiss the in terrorem clause claims and the breach of fiduciary claims against him.
What Is the Texas Citizens Participation Act?
The Texas Citizens Participation Act (TCPA) protects the “rights of persons to petition, speak freely, associate freely, and otherwise participate in government to the maximum extent permitted by law and, at the same time, protect[s] the rights of a person to file meritorious lawsuits for demonstrable injury.”
In other words, the TCPA is a constitutional safeguard and provides litigants an opportunity to seek dismissal of a lawsuit that infringes on their First Amendment rights, and, if successful, an award of attorney fees. The purpose is to dispose of lawsuits that are designed to chill First Amendment rights, not to dismiss meritorious claims. In re Lipsky, 460 S.W.3d at 589.
Burdens Under the Texas Citizens Participation Act
To be entitled to dismissal under the TCPA, the defendant has the initial burden to show by a preponderance of the evidence that the plaintiff’s claim “is based on, relates to, or is in response to” the defendant’s exercise of the right to petition, association, or speech. See In re Lipsky, 460 S.W.3d 579, 586 (Tex. 2015).
If the defendant satisfies this initial burden, the burden shifts to the plaintiff to establish by clear and specific evidence a prima facie case for each essential element of the claim in question. See ExxonMobil Pipeline Co. v. Coleman, 512 S.W.3d 895, 899 (Tex. 2017).
To establish a prima facie case, a plaintiff must provide enough detail to show the factual basis for its claim. In re Lipsky, 460 S.W.3d at 591.
Does the Texas Citizens Participation Act Apply To Texas Will and Trust Contests?
It sure can. In this case, the question was whether the TCPA applied to the in terrorem claims.
Elaine contended that the TCPA applies to Preston’s claims seeking Elaine’s disinheritance based on the in terrorem clause because the claims implicate Elaine’s right to petition.
Preston alleged that Elaine violated the in terrorem clause by instituting or joining in a “proceeding” to contest the will, and this proceeding was a “lawsuit” in Wyoming.
Under the plain terms of the statute, the filing of a petition and an affidavit are communications in or pertaining to a judicial proceeding, and thus, implicate Elaine’s exercise of the right to petition. Elaine established by a preponderance of the evidence that Preston’s in terrorem claim is based on, relates to, or is in response to Elaine’s exercise of the right to petition. Elaine satisfied her initial burden.
The Texas appellate court stated:
[N]one of the changes that Elaine consented to in the Wyoming proceeding had a substantive effect on the distribution of E. Pierce Marshall’s property. Elaine continued to be the income beneficiary, and the inter vivos trusts remained beneficiaries of the corpus. As Preston alleged in his petition, the Wyoming suit had the purpose of “ratifying” the actions Elaine took as trustee before filing the petition for instruction.
Elaine had the right to bring her petition, and failing to dismiss Preston’s claims based on the in terrorem clause under the TCPA was error.
The Court concluded that the trial court also erred by denying Pierce’s motion to dismiss Preston’s claims based on the in terrorem clause. That is, the Wyoming proceeding did not seek to contest the validity of the will or to prevent any provisions of it from being carried out.
The court also determined that Appellee’s breach of fiduciary duty claims were not covered by the Texas Citizens Participation Act.
Texas probate and trust litigators should be aware of the use of the Texas Citizens Participation Act in will and trust disputes.