Texas Durable Power of Attorney Act Amended to Limit Agency Liability

The Texas legislature made numerous changes to state laws in the estate planning area including to statutory provisions that govern wills, trusts, probate, and financial powers of attorney. One substantive change to the Durable Power of Attorney Act limits the scope of the fiduciary duties owed by the appointed agent to his principal (person granting the power) under a financial power of attorney.

Unquestionably, when exercising powers granted by a POA, the agent owes fiduciary duties to his principal. However, as discussed in a previous blog article, some Texas courts held that the agent owed general fiduciary duties to the principal in transactions unrelated to the POA,

For example, if the agent signs a contract on behalf the principal under the authority of the POA, then the agent clearly owes fiduciary duties to the principal in exercising this power. On the other hand, if the principal signs documents for the benefit of his agent, such as making his agent a beneficiary of the principal's bank account, this would not involve the exercise of a power by the agent under the POA.  

Even so, some courts indicated that the relationship created by the POA meant the agent owed general fiduciary duties to the POA applying anytime the principal bestowed these types of benefits upon the agent.  Thus, the agent could be sued for breach of fiduciary duty by accepting financial benefits or gifts from the principal.

To alleviate this, the following section of the Durable Power of Attorney Act has been amended, effective Sept. 1, 2017, as follows:

"Sec. 751.101. FIDUCIARY DUTIES.

A person who accepts appointment as an agent under a durable power of attorney as provided by Section 751.022 is a fiduciary as to the principal only when acting as an agent under the power of attorney and has a duty to inform and to account for actions taken under the power of attorney." (emphasis added).

Thus, although one should think long and hard before agreeing to act as another's agent under a financial power of attorney, this provision at least limits the scope of the fiduciary duties created by the power of attorney.

Texas Supreme Court Dismisses Libel Claim Filed Against Citizen for Facebook Posting

In 2011, the Texas legislature passed a bill that provides an expedited dismissal remedy to citizens who are wrongfully sued for speaking out about matters of public concern regarding the government or a business.  Testimony in support of the bill showed that SLAPP suits — strategic lawsuits against public participation — were often filed against these citizens to chill public debate.  Apparently, this was becoming more pervasive in the age of the internet. The bill that was passed is now Texas Civil Practice & Remedies Code Chapter 27, known as the Texas Citizens Participation Act.  Defendants who are successful under the Act are not only entitled to a dismissal of the claim for defamation but they are also entitled to recover costs and attorney fees.

On June 9, 2017, the Texas Supreme Court, in Bedford v. Darin Spassoff and 6 Tool, LLC, No. 16-0229, rendered an opinion interpreting this statute. In this case, the Defendant posted the following to Facebook, regarding one of the coaches of a baseball-instructional organization:

“ ***Be very careful. One of the coaches put my son on the team an (sic) then started calling and texting my wife. This coach is a home wrecker and the club stands behind him. I guess that’s the kind of lessons they plan on teaching the kids. Very unethical and from talking to the executives they don’t plan on changing. Please stay away!!!!!!!!!!!!!!!!!”

The owner, Spaasoff, and the baseball instructional organization, formerly known as the Dallas Dodgers, filed a lawsuit against  the Defendant alleging, amongst other things, that by posting the information on Facebook, the Defendant had committed libel and business disparagement.   The Defendant filed a motion to dismiss the libel claim, under the Texas Citizens Participation Act, arguing that the Plaintiffs brought the claims to prevent him from “engaging in constitutionally protected activities.” The Texas Supreme Court found, “Even if the Facebook posts here were defamatory, the statement is not defamation per se and Spassoff and the Dodgers failed to establish damages by clear and specific evidence.” The court went on to hold that the libel claim should be dismissed under the Act. The Texas Supreme Court  remanded the claim to the trial court for dismissal and the determination of attorney fees to which the Plaintiffs would be entitled under the Act. 

TX Supreme Court Holds No Tortious Interference with Inheritance Cause of Action

On May 26, 2017, the Texas Supreme Court refused to recognize the existence of a cause of action for tortious interference with inheritance rights.  Kinsel v Lindsey, 15-0403, 2017 WL 2324392 (Tex. May 26, 2017).  Many  Texas courts have long considered this to be a viable cause of action since the 1987 decision of King v. Acker, 725 S.W.2d 750 (Tex. App.—Houston [1st Dist.] 1987, no writ).   In that case, the decedent's widow forged a power of attorney to transfer stock from decedent to her while the decedent was still alive and in a coma. After the death of decedent, a temporary administrator was appointed to recover the stock for the benefit of decedent's estate.  This caused the estate to incur additional expenses.  The decedent's children and mother who were beneficiaries of the estate sued the decedent's widow for tortious interference with their inheritance rights. The King court upheld the jury's verdict for actual and punitive damages based upon the widow's tortious interference with the inheritance rights of decedent's children and mother.

Now, 30 years later, the Texas Supreme Court in Kinsel v. Lindsey, supra, determined that there is no cause of action in Texas for tortious interference with inheritance rights.  Does this mean that heirs who have been wrongfully cheated out of their inheritance no longer have a remedy? No, it just means that they will have to resort to more traditional causes of action like a will contest asking a court to set aside a will that has been procured by undue influence or fraud. However, even the Kinsel court seems to accept that, absent a cause of action for tortious interference with inheritance, there may be times when the heirs will not have a remedy to recover all the damages caused by someone who wrongfully interferes with inheritance rights.

New Insurance Bill - Storm Loss Claims

New Insurance Bill – Storm Loss Claims

On May 19, 2017, a bill was sent by the Texas legislature to the Governor for signature relating to claims for storm loss property damage. This bill was passed to curb alleged lawsuit abuses for property damages caused by severe storms.  According to House Research Organization Bill Analysis, the supporters of the bill state that the frequency of these types of lawsuits has increased 1400 percent since 2012, are motivated by profit rather than actual damages, and should be discouraged.  The proponents of the bill contend that the bill will obstruct the rights of property insurance policyholders to relief by restricting their rights to sue insurance carriers that wrongfully deny or underpay claims.

The bill will require an insured consumer who has suffered a storm loss to their home or real property to provide 61 days advance written notice to their insurance carrier before filing a lawsuit.  The notice must specify the acts of the carrier giving rise to the claim, the amount owed, and the amount incurred in attorney fees.  The carrier will be allowed to perform a pre-suit inspection of the property. The bill also provides a mechanism for protecting an insurance carrier’s agents and claims adjusters from personal liability.  The bill, amongst other things, places limitations upon the rights of the insured consumer to recover attorney fees and interest. Obviously, only time will tell if the bill achieves its purpose.

Texas Trade Secret Law Expanded

Modern technology is making it much more difficult for businesses to protect their trade secrets. Long gone are the days when an unscrupulous company officer or employee would have to spend hours late at night at the copy machine to copy and steal valuable trade secrets like customer lists, plans or specifications.  In the digital age, this can be accomplished in a matter of minutes by downloading the data to a flash drive that fits on a key chain. Texas is doing its best to pass laws to protect businesses from trade secret theft.  As discussed in one of my previous articles, the Texas Uniform Trade Secrets Act was passed in 2013, making it easier for businesses to protect their trade secrets.  

This act has now been amended.  On May 19, 2017, the Texas Governor signed the bill into law clarifying the meaning of the act and expanding the definition of trade secrets that are protected.  The act as amended, effective as of Sept. 1, 2017, provides that ""trade secret" means all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if....." 

The italicized language is the language that was added by the amendment.  As you can see, the amendment expands the definition of a trade secret so that a wider net is cast to make additional types of company information protectable as a trade secret. So for example, if you own an engineering firm and engineering information or plans are stolen, the act includes this information as a protectable trade secret.  Keep in mind, if your business has suffered a trade secret loss, time is of the essence and you should take immediate action. 

Texas Supreme Court Takes Permissive View on Trade Secret Damages

One area in Texas commercial litigation that continues to evolve is the cause of action for theft of trade secrets.  State and federal statutes have recently been enacted making it easier for businesses to protect their trade secrets.  This is becoming increasingly important in the digital age when large amounts of information including protected trade secrets can be downloaded in seconds or minutes.  

The Texas Supreme Court seems to be following the trend.  In its recent June 2016 opinion of  Southwestern Energy Production Co. v. Hefland, Opinion No. 13-0986, the court decides whether to uphold a verdict for trade secret theft of over $30 million.  The underlying allegations involve the alleged misappropriation of data identifying highly productive oil and gas formations. Although, the court remands the case for a new trial on the grounds the plaintiff proved up some but not all of the damages, the court cites legal precedent stating, "A "flexible and imaginative" approach is applied to the calculation of damages in misappropriation-of-trade secrets.”

The court discusses multiple ways to measure damages for trade secret theft leaving the door open for Plaintiff's to be creative in developing their damages models.  However, in reading the opinion one gets the impression that the Plaintiff may have been a little too creative and would have been better off taking more of a rifle rather than a shotgun approach to proving up damages.  For example, the court finds that the Plaintiff's expert provided no basis for valuing certain elements of the damages claimed and overstated other damages calculations.  The result is that at the end of the day the court remands the case to the trial court for a new trial. 

Lessons learned from this case are that Texas courts may take a liberal view on damages in trade secret theft cases.  Even so, plaintiffs must meet the technical requirements in offering probative expert testimony to support damages.  Otherwise, plaintiffs may find themselves retrying their cases after years of hard work, or, even worse, being completely reversed on appeal.

Texas Shareholder Derivative Actions Made Easier

Just when it looked like all was lost for minority shareholders of closely held Texas corporations after the Texas Supreme Court eliminated shareholder oppression as a cause of action, along came the Court's decision of Sneed v. Webre, 465 S.W.3d 169 (Tex. 2015).  In this fascinating decision, the Court found that shareholders of TX closely held corporations do not have to first make a formal written demand upon the board of directors as a prerequisite to filing a derivative lawsuit. (A closely held corporation is one with fewer than 35 shareholders).

A derivative lawsuit is a proceeding instituted by shareholders on behalf of the corporation when the board of directors fails to initiate the lawsuit.  This typically arises when one or more interested directors or officers has allegedly breached fiduciary duties owed to the corporation. Naturally, in these situations, even those directors who have done nothing wrong may be reluctant to file a lawsuit on behalf of the corporation against one of their fellow board members or officers. Thus, if the directors fail to act, the law provides a mechanism for the shareholders to file a derivative action on behalf of the corporation.

Generally, before the shareholders of a corporation may file a derivative action, they must first make a formal written demand upon the board of directors to institute the lawsuit. Only after the directors refuse to do so or fail to timely respond to the demand may the shareholders institute the lawsuit. However, the Texas Supreme Court held that the shareholders of Texas closely held corporations do not have to meet this demand requirement.  They may simply file the lawsuit. This saves time and money for the complaining shareholders.

One other interesting fact in this case was that the shareholders of the parent corporation were instituting the derivative action on behalf of the parent corporation's wholly owned subsidiary.  The court held that they were equitable shareholders of the subsidiary and therefore had standing to also bring the action on behalf of it.