Opinion
No. 04-05-00455-CV
Delivered and Filed: June 21, 2006.
Appeal from the Statutory Probate Court No. 2, Bexar County, Texas, Trial Court No. 2004-PC-0130, Honorable Tom Rickhoff, Judge Presiding.
Affirmed.
Sitting: Catherine STONE, Justice, Karen ANGELINI, Justice, Rebecca SIMMONS, Justice.
MEMORANDUM OPINION
James Alexander Denas, as the personal representative for the estate of Alice B. Wuelzer, brought suit against Stephanie and Steven Porter regarding ownership of an individual retirement account (IRA) established by Alice. Because the trial court held that the Porters breached a fiduciary duty and failed to rebut a presumption of unfairness, the trial court concluded the IRA belonged to Alice's estate. The Porters appeal the trial court's judgment and present numerous issues by which they challenge: 1) the trial court's assumption of jurisdiction in this case; 2) the legal and factual sufficiency of the evidence; 3) the court's determination that the Porters owed a fiduciary duty to Alice; 4) the court's application of a presumption that a gift to an agent by a principal is unfair; and 5) the court's failure to reject James' claims as an impermissible legal malpractice claim. Additionally, the Porters contend the trial court erred in failing to enter findings of fact and conclusions of law after being requested to do so. We reject each of these issues and affirm the trial court's judgment.
Factual and Procedural Background
Alice owned the IRA in question and it contained a payable on death designation. In 1996, Steven and Stephanie Porter, the nephew and grandniece of Alice, respectively, were named as the beneficiaries on the account. Prior to 1996 and until Alice's death, she received legal and accounting assistance from Steven and Stephanie, both of whom are attorneys. Steven, who is also a certified public accountant, provided assistance to Alice regarding her financial affairs and drafted several wills for Alice that were replaced by subsequent drafts prepared by Stephanie. Ultimately, a will drafted by Stephanie was probated.
The first will drafted for Alice established a trust for James Denas, Alice's only child, with Stephanie as trustee. The trust was not to be terminated until James reached the age of sixty-five. While Alice's intent was to leave the majority of her assets to James, the trust was established to prevent James' wife, Mita, from accessing the money Alice planned to leave to James. James later divorced Mita, and Alice's will was then changed to eliminate the trust and name James as the outright beneficiary and the executor. Despite Alice's intent to leave James the majority of her assets, the IRA beneficiary designation was never changed from the Porters to James.
James, as independent executor, filed suit against the Porters alleging numerous causes of action. The trial court found that the Porters breached their fiduciary duty owed to Alice and that they failed to overcome a presumption that a gift to a fiduciary by the principal is unfair to the principal. Thus, judgment was entered that the IRA belongs to Alice's estate.
Jurisdiction
The Porters contend the trial court erred in awarding the IRA to Alice's estate because the IRA was a nontestamentary transfer; thus, the statutory probate court lacked jurisdiction. Specifically, the Porters rely on sections 436 through 450 in the nontestamentary transfers chapter of the Texas Probate Code. Section 441 states that nontestamentary transfers "are effective by reason of the account contracts involved . . . and are not to be considered as testamentary or subject to the testamentary provisions of [the Probate Code]." Tex. Prob. Code Ann. § 441 (Vernon 2003).
The subject matter jurisdiction of statutory probate courts is set forth in Section 5A(b) of the Texas Probate Code, which reads:
In proceedings in the statutory probate courts, the phrases "appertaining to estates" and "incident to an estate" in this Code include . . . all claims by or against an estate . . . and generally all matters relating to the collection, settlement, partition, and distribution of estates of deceased persons. All statutory probate courts may, in the exercise of their jurisdiction, . . . hear all suits . . . filed against or on behalf of any . . . decedent's estate . . .; all such suits . . . are appertaining to and incident to an estate.
See id. § 5A(b).
Any suit involving a personal representative provides the necessary subject matter jurisdiction to a statutory probate court, regardless of "`whether or not the matter is appertaining to or incident to an estate.'" Palmer v. Coble Wall Trust Co., 851 S.W.2d 178, 182 (Tex. 1992) (quoting Tex. Prob. Code Ann. § 5A(e), repealed by Acts of June 20, 2003, 78th Leg. R.S., ch. 1060, § 16, 2003 Tex. Sess. Law Serv. 3057). While Section 5A(e) has been repealed, Section 5(h) states that "[a] statutory probate court has jurisdiction . . . over any cause of action in which a personal representative of an estate pending in the statutory probate court is a party." Id. § 5(h).
Because James is the personal representative of Alice's estate and he is a party to this suit, under Palmer and the Texas Probate Code, jurisdiction was proper at the trial court. The Porters' first issue is overruled.
Jurisdiction can be challenged for the first time on appeal, thus this court has entertained the Porters' argument concerning extrinsic evidence and the trial court's jurisdiction; however, throughout each of the Porters' other issues on appeal, they raise this same argument that it was improper for the trial court to hear extrinsic evidence. Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 851(Tex. 2000). These remaining issues do not concern the trial court's establishment of jurisdiction, thus the Porters were required to raise the extrinsic evidence argument at trial. Tex.R.App.P. 33.1(a). Because they failed to do so, these arguments have been waived. See also Hooks v. Hooks, No. 2-03-263-CV, 2004 WL 1635838, at *1 (Tex.App.-Fort Worth July 22, 2004, no pet.) (mem. op.) (declaring that appellant waived his issue concerning parol evidence pertaining to the decedent's intent because he failed to properly raise the issue at trial).
Fiduciary Duty
In issue two, the Porters argue they had no duty to inform Alice to change the primary beneficiary on her IRA from Stephanie to James or to inquire about Alice's mental competence or intent with regard to her IRA. We disagree.
A fiduciary duty arises as a matter of law with some formal relationships, including the lawyer-client relationship. Meyer v. Cathey, 167 S.W.3d 327, 330-31 (Tex. 2005). Additionally, "an informal fiduciary duty . . . arises from a `moral, social, domestic or purely personal relationship of trust and confidence.'" Id. at 331 (quoting Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998)). As Alice's attorneys and with Steven performing functions as Alice's certified public accountant, the Porters were fiduciaries to Alice as a matter of law. Indeed, the record shows that the Porters drafted Alice's various wills and consulted with her to formulate and effectuate her plan to keep money from her son while he was married to Mita.
A fiduciary relationship requires a bound party to deal fairly and in good conscience with the other party. Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 513 (1942). "[T]he parties are under a duty to act for or give advice for the benefit of another upon matters within the scope of the relation." Kline v. O'Quinn, 874 S.W.2d 776, 786 (Tex.App.-Houston [14th] 1994, writ denied).
As support that the Porters had no duty to inquire about Alice's competence or determine her intent with respect to her IRA, they rely on Edward D. Jones Co. v. Fletcher, 975 S.W.2d 539 (Tex. 1997). In Fletcher, the decedent's guardian brought an action against the caretaker relative and the stockbroker who helped transfer the decedent's stock to the relative. Id. at 541-42. The issue was "whether a stockbroker has a legal duty to ascertain an elderly person's mental capacity before assisting her in transferring stock." Id. After conducting a risk-utility balancing test, the court concluded that no such duty existed. Id. This case is distinguishable from Fletcher. James was not claiming that the Porters had a duty to inquire about Alice's mental capacity.
Rather, James contends the Porters had a duty to deal fairly and in good conscience with Alice and act for and give advice to Alice within the scope of their relationship. See Kinzbach Tool Co., 160 S.W.2d at 513; Kline, 874 S.W.2d at 786. Because the Porters were fiduciaries to Alice and because this relationship creates a duty of the highest loyalty, the question becomes whether the Porters breached their fiduciary duties. Mandell Wright v. Thomas, 441 S.W.2d 841, 846-47 (Tex. 1969).
A determination of whether a breach occurred is a question of fact, unless the facts are undisputed, then it is a question of law. Nat'l Med. Enters., Inc. v. Godbey, 924 S.W.2d 123, 147 (Tex. 1996); Villegas v. Tex. Dep't of Transp., 120 S.W.3d 26, 29-30 (Tex.App.-San Antonio 2003, pet. denied). Here the relevant facts are disputed, making the determination one of fact. Because this case involves a bench trial, the trial judge was the ultimate finder of fact; thus, we will defer to the trial court's factual determinations so long as they are supported by the evidence in the record. Pony Express Courier Corp. v. Morris, 921 S.W.2d 817, 820 (Tex.App.-San Antonio 1996, no writ).
In the judgment, the trial court stated that the Porters breached a fiduciary duty owed to Alice. The record shows that the Porters were named as the IRA beneficiaries on April 5, 1996. However, on this same day, a note was created which stated, "Change Beneficiaries to Stephanie and Steven Porter [on] all CD[s,] IRA. . . ." The evidence suggested that this note was in Stephanie's handwriting, thus attesting to the Porters' knowledge that they were listed as the IRA beneficiaries. It was undisputed that Alice's intent was to leave nearly everything to James. After James divorced his first wife, Alice had her will changed to omit the trust and provide James with the estate outright. Despite Alice's changes to the will to reflect her intent, the Porters still remained as the IRA beneficiaries. An inventory and list of claims was created regarding Alice's assets which revealed that Alice's estate consisted of nearly $114,000, excluding the $54,000 IRA. However, added together, the IRA amounted to more than 32% of Alice's assets. Witnesses stated that after Alice's death, Stephanie said that the money in the IRA was not hers and even inquired about changing the IRA beneficiary from herself to James.
As the fact finder, the trial court could have believed that the Porters' fiduciary duties included, within the scope of their relationship, advice regarding Alice's IRA. See Hettich v. Pruitt, No. 05-93-00951-CV, 1994 WL 395086, at *10-11 (Tex.App.-Dallas August 1, 1994, no writ) (not designated for publication) (acknowledging that the fact finders could have found the fiduciary had a duty to provide advice). Additionally, the trial court could have determined that the Porters failed to deal fairly or in good conscience with Alice. The evidence supports the trial court's verdict; therefore, we must defer to its ruling that a breach occurred. Morris, 921 S.W.2d at 820.
Sufficiency of the Evidence
In issue three, the Porters contend that there is no evidence of a breach of fiduciary duty, and in the alternative, there is insufficient evidence. We disagree.
When an appellant who does not have the burden of proof at trial attacks the legal sufficiency of an adverse finding, the appellant must demonstrate that there is no evidence to support such a finding. See W. Wendell Hall, Standards of Review in Texas, 34 St. Mary's L.J. 1, 182-89 (2002) (providing a detailed analysis of the standards of review used for sufficiency challenges in a bench trial). When reviewing a no evidence claim, the scope of review for an appellate court is only the evidence and inferences that tend to support the findings while disregarding all evidence or inferences to the contrary. Minn. Mining Mfg. Co. v. Nishika, Ltd., 953 S.W.2d 733, 738 (Tex. 1997). Thus, if there is more than a scintilla of evidence to support the trial court's finding, the no evidence challenge must be overruled. Formosa Plastics Corp. USA v. Presidio Eng'rs Contractors Inc., 960 S.W.2d 41, 48 (Tex. 1998).
If the appellant does not have the burden of proof at trial and is challenging the factual sufficiency of an adverse finding, the appellant must demonstrate that there is insufficient evidence to support the finding. Plas-Tex, Inc. v. U.S. Steel Corp. 772 S.W.2d 442, 445 (Tex. 1989). In reviewing a factual insufficiency challenge, an appellate court must examine all evidence in support of and contrary to the court's finding. Id. The trial court's verdict should be set aside only if the evidence supporting the verdict is so weak as to be clearly wrong and manifestly unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986).
Evidence supporting the trial court's verdict that a breach occurred has already been reviewed. Looking at the evidence supporting the trial court's verdict, there is more than a scintilla to support the trial court's verdict that the Porters breached a fiduciary duty to Alice. As a result, this court must overrule the Porters' legal sufficiency challenge. See Formosa Plastics, 960 S.W.2d at 48.
In order to determine whether there was factually sufficient evidence, we must also consider the evidence contrary to the verdict. See Plas-Tex, 772 S.W.2d at 445. Here, the Porters testified that they had no knowledge they were listed as the IRA beneficiaries. Furthermore, they spoke of Alice's secretive nature regarding her estate and finances. Mainly, they claimed Alice would ask the Porters to perform specific tasks regarding drafting her will or helping with finances but she provided them with very little information. Several witnesses stated that Alice was a very independent woman and the trial judge even described Alice as "forceful." The Porters testified that they followed all of Alice's instructions. Further, the evidence shows that Alice made several trips to the bank which held her IRA, but she never changed the beneficiary designation. Changing beneficiaries is a very simple and quick procedure which Alice could easily have done during one of her visits to the bank.
After reviewing both the supporting and contrary evidence, the evidence supporting the verdict is not so clearly wrong and manifestly unjust to warrant a reversal. Id. We overrule the Porters' factual sufficiency challenge.
Presumption Regarding Gift From Principal
The Porters contend that the trial court erred when it ruled that they did not rebut the presumption that a gift from a principal to a fiduciary is unfair. The Porters assert that this was error because the transfer of the IRA on death was not a gift as a matter of law. We agree with the Porters because the transfer of the IRA was not a gift, but also because it did not constitute an intervivos transaction.
Texas courts have applied a presumption of unfairness to transactions between a fiduciary and a party to whom the fiduciary owes its duties. Tex. Bank Trust Co. v. Moore, 595 S.W.2d 502, 507-08 (Tex. 1980); Collins v. Smith, 53 S.W.3d 832, 840 (Tex.App.-Houston [1st] 2001, no pet.). This presumption shifts the burden of showing the fairness of the transaction on the profiting fiduciary. Moore, 595 S.W.2d at 507-08. "The fiduciary must show proof of good faith and that the transaction was fair, honest, and equitable." Collins, 53 S.W.3d at 840 (citing Miller v. Miller, 700 S.W.2d 941, 947 (Tex.App.-Dallas 1985, writ ref'd n.r.e.)).
The Porters focus their argument on the fact that the transfer of the IRA on death was not a gift as a matter of law. They contend that the elements of a gift, such as the intent to make a gift and the delivery of the gift, are absent from the facts here. Therefore, because a gift was not made, the Porters argue that the presumption should not apply. We agree with the Porters and hold that the trial court erred by requiring the Porters to rebut this presumption.
The IRA was payable on the death of Alice, thus there could be no present delivery to the Porters. See Punts v. Wilson, 137 S.W.3d 889, 893 (Tex.App.-Texarkana 2004, no pet.) (holding that the transfer on death of a typical P.O.D. account is not a gift because no delivery is involved and the owner never divests title, dominion, or control). If the alleged donor has the power to revoke, then a gift was not made. Chaison v. Chaison, 154 S.W.2d 961, 964 (Tex.Civ.App.-Beaumont 1941, writ ref'd w.o.m.). Here, as the owner, Alice had the ability to change the beneficiary at any time, thus the IRA was not a gift.
Although we can find no case which states the presumption applies only when a gift is given by the principal to the fiduciary; every case that applies the presumption does so with intervivos transactions only. An intervivos transfer is "[a] transfer of property made during the transferor's lifetime." Black's Law Dictionary 1536 (8th ed. 2004). The transfer was payable on Alice's death, thus no transfer took place during her lifetime. The trial court erred when it required the Porters to rebut the presumption. Nevertheless, we overrule the Porters' fourth issue because this error was harmless.
See Alford v. Marino, No. 14-04-00912-CV, 2005 WL 3310114, at *3-4 (Tex.App.-Houston [14th] Dec. 8, 2005, no pet. h.) (mem. op.) (requiring the fiduciary to rebut the presumption the withdrawals he made from the principal's account during her lifetime were unfair); Vogt v. Warnock, 107 S.W.3d 778, 783 (Tex.App.-El Paso 2003, pet. denied) (establishing that the fiancee fiduciary had to rebut the presumptions of unfairness regarding the testator's transfers of real property during his lifetime); Collins, 53 S.W.3d at 840 (acknowledging that the presumption must be rebutted from a deed the fiduciary received before the decedent's death); Evans v. First Nat'l Bank of Bellville, 946 S.W.2d 367, 379-80 (Tex.App.-Houston [14th] 1997, writ denied) (stating that the presumption may apply when ownership of the CDs is resolved); Townes v. Townes, 867 S.W.2d 414, 417-18 (Tex.App.-Houston [14th] 1993, writ denied) (applying the presumption after the fiduciary, and also a signatory on the CDs owned by the decedent, made withdrawals before the decedent's death); Sorrell v. Elsey, 748 S.W.2d 584, 585-86 (Tex.App.-San Antonio 1988, writ denied) (involving a suit to set aside a deed of property to her nephew, also a fiduciary, required the fiduciaries to rebut the presumption of unfairness); Tuttlebee v. Tuttlebee, 702 S.W.2d 253, 256-57 (Tex.App.-Corpus Christi 1985, no writ) (concluding that the son, as the fiduciary, needed to rebut the presumption of unfairness after receiving a deed of property during the mother's lifetime).
Errors which require a reversal must be harmful. City of Brownsville v. Alvarado, 897 S.W.2d 750, 753-54 (Tex. 1995). When the presumption is applied, the burden to offer evidence that the transaction was fair is shifted to the fiduciary receiving the benefit. Stephens County Museum, Inc. v. Swenson, 517 S.W.2d 257, 261 (Tex. 1974). "[T]his evidence presented [becomes] a question for the [fact finder] as to whether there was a breach" of a fiduciary duty that would render the transaction invalid. Id. The trial court held that the Porters breached their fiduciary duties to Alice and that they failed to rebut the presumption at issue. This was merely stating that the Porters breached their fiduciary duties twice. Because this court has already concluded that the trial court did not err when it held that the Porters breached their fiduciary duties, this error was harmless.
Legal Malpractice
The Porters contend that James' claims are properly categorized as legal malpractice rather than a breach of fiduciary duty. We disagree.
Texas does not permit a plaintiff to fracture legal malpractice claims. Greathouse v. McConnell, 982 S.W.2d 165, 172 (Tex.App.-Houston [1st] 1998, pet. denied). Legal malpractice claims are based on negligence due to an attorney's failure to exercise ordinary care. Aiken v. Hancock, 115 S.W.3d 26, 28 (Tex.App.-San Antonio 2003, pet. denied). However, a claim for a "[b]reach of fiduciary duty often involves the attorney's failure to disclose conflicts of interest, failure to deliver funds belonging to the client, improper use of client confidences, or engaging in self-dealing." Id. (citing Goffney v. Rabson, 56 S.W.3d 186, 193 (Tex.App.-Houston [14th] 2001, pet. denied)).
Here the claim properly reflects one for a breach of fiduciary duty. We overrule the Porters' fifth issue.
Findings of Fact and Conclusions of Law
The Porters, in issue six, complain that the trial court erred when it failed to submit its findings of fact and conclusions of law after a proper request. Upon a proper request, the trial court has a mandatory duty to file findings of fact and conclusions of law. Cherne Indus., Inc. v. Magallanes, 763 S.W.2d 768, 772 (Tex. 1989). The trial court's failure is presumed harmful unless the record before the appellate court affirmatively shows that the party complaining has suffered no harm. Id. To determine whether harm exists, the test is whether the circumstances would force an appellant to guess the reason or reasons that the trial court ruled against it. Humphrey v. Camelot Ret. Cmty., 893 S.W.2d 55, 61 (Tex.App.-Corpus Christi 1994, no writ). If harmful error exists, an appellate court should abate the appeal and order the trial court to make its findings of fact and conclusions of law. Cherne Indus., 763 S.W.2d at 773.
The Porters properly requested findings of fact and conclusions of law, and the trial court erred by failing to adhere to this request. Although harm is presumed, the circumstances here did not force the Porters to guess the reasons why the trial court ruled against them. See Humphrey, 893 S.W.2d at 61. The trial court's written judgment provided two reasons for the ruling: 1) the Porters breached their fiduciary duty to Alice; and 2) they failed to rebut a presumption that a gift to the fiduciary is unfair to the principal. See Marquez v. Marquez, No. 04-04-00771-CV, 2004 WL 1152235, at *3 (Tex.App.-San Antonio May 3, 2006, no pet.) (mem. op.) (concluding that the trial court's failure was harmless due to the findings in the record and recitals in the judgment). The Porters competently addressed both issues and in fact demonstrated error as to the second issue. Consequently, the Porters cannot demonstrate harm.
The judgment of the trial court is affirmed.