Family partnerships often face transition challenges when a partner dies. The surviving partners may reach settlement agreements to resolve partnership interests, but what happens when one party later tries to back out based on claims about the partnership’s condition? Can Texas courts still enforce these agreements?
The Eleventh Court of Appeals recently considered the enforceability of a Rule 11 settlement agreement in a family probate dispute after one party attempted to avoid performance. The case, In the Estate of Michael Allen Hallmark, Deceased, No. 11-23-00244-CV (Tex. App.—Eastland Jan. 9, 2025), provides an opportunity to consider whether settlement agreements are enforceable when partnership issues surface after signing.
Facts & Procedural History
The probate dispute involved a partnership owned by three siblings. After the death of one of the partners, his surviving siblings, along with the independent executor of the estate, entered into a Rule 11 settlement agreement.
Under this agreement, one of the surviving siblings would purchase both the estate’s interest and the other sibling’s interest for $1,875,000 each within 75 days. If the sibling failed to complete these purchases, the agreement required dissolution of the partnership, sale of all assets, and equal division of proceeds, with the defaulting sibling responsible for closing costs.
When the sibling failed to complete the purchases, the other parties sued for breach of contract to enforce the Rule 11 agreement. The probate court ordered specific performance by dissolving the partnership and naming a liquidating trustee. The court also awarded attorneys’ fees to the other parties.
Rule 11 Agreements in Texas Probate Disputes
Parties can contract with one another and do not need the court’s permission to do so. This does not change just because the parties happen to be in litigation. This is where Rule 11 agreements come in.
Rule 11 of the Texas Rules of Civil Procedure provides a mechanism to make a contract between the parties to a lawsuit. Rule 11 agreements are only signed by the parties and not submitted to the court for approval.
The Rule 11 agreement can address various timing and other aspects of the litigation or it can even get into the substance of the litigated matter. The courts have recognized that these agreements can even be effective tools for finalizing settlements through objective manifestation.
Rule 11 sets out two methods for creating enforceable settlement agreements: they must be either in writing, signed, and filed with the court, or made in open court and entered of record. While parties may withdraw consent to a Rule 11 agreement before judgment, this withdrawal does not void the agreement. Instead, the non-withdrawing party may seek enforcement through a breach of contract action.
These agreements differ from having the court sign an order approving the settlement agreement. A court order approving the settlement is enforceable by contempt–which, unlike a Rule 11 agreement, is brought in the same legal action and enforceable by the court without having to file a separate contract action. This differs from a Rule 11 agreement as the Rule 11 agreement provides a less direct method of enforcing the contract.
Requirements for Defending Against Rule 11 Enforcement
The separate suit for enforcing a Rule 11 agreement is its key feature. This means that the parties have to follow all of the rules with respect to that additional claim. This even means that the breaching party has to raise any special exceptions or affirmative defenses in response to the additional claim.
Specifically, when faced with a breach of contract claim for violating a Rule 11 agreement, parties must properly plead their defenses. Affirmative defenses like fraudulent inducement or mistake require specific pleading and supporting evidence.
In this case, the defaulting sibling attempted to defend against enforcement by claiming ignorance of partnership deficiencies, including unfiled federal tax returns and unpaid property taxes. The court found these arguments insufficient because the sibling failed to plead any affirmative defenses or present supporting evidence at trial.
The court emphasized that affirmative defenses allow defendants to introduce evidence establishing independent reasons why plaintiffs should not prevail. However, failure to plead these defenses prevents defendants from asserting them. This requirement applies even when defendants claim they discovered partnership problems after signing the agreement.
Partnership Buy-Sell Agreements
When partnerships are involved in probate, these Rule 11 settlement agreements only come up if the partners did not already define the terms as to what happens to the partnership when one party dies. An estate plan for an individual who owns partnerships should include drafting or updating partnership agreements and/or buy-sell agreements.
Buy-sell agreements serve as a preemptive solution to partnership transitions after death. These agreements typically specify the purchase price or method for determining the price, payment terms, and timing for the buyout of a deceased partner’s interest. The agreement can provide for life insurance funding to ensure surviving partners have sufficient funds to complete the purchase.
Well-drafted buy-sell agreements address many of the issues that arose in this court case. They often include provisions requiring regular financial reporting and tax compliance, which helps prevent situations where partnership deficiencies surface after a partner’s death. They also typically outline specific procedures for handling partnership liabilities and documentation requirements, reducing the likelihood of post-death disputes about partnership conditions.
The Takeaway
This case demonstrates that Texas courts will enforce Rule 11 agreements despite claims about undiscovered partnership conditions. Parties seeking to avoid enforcement must do more than merely argue about partnership deficiencies – they must properly plead specific affirmative defenses and support them with evidence. For practitioners handling family partnership disputes, this ruling emphasizes the importance of investigating partnership conditions before entering Rule 11 agreements.
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Disclaimer: The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.
