Roman Alpert and Renee Picazo, Guardian of the Estate of Daniel Alpert, a Minor v. Mark Riley, Robert Alpert--Appeal from Probate Court No 2 of Harris County
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Opinion issued June 5, 2008
In The
Court of Appeals
For The
First District of Texas
NO. 01-06-00605-CV
NO. 01-06-00505-CV
ROBERT ALPERT, ROMAN ALPERT, AND RENEE PICAZO,
GUARDIAN OF THE ESTATE OF DANIEL ALPERT, A MINOR,
Appellants
V.
MARK RILEY, INDIVIDUALLY AND AS TRUSTEE, Appellee
On Appeal from Probate Court No. 2
Harris County, Texas
Trial Court Cause No. 305,232-401
OPINION
In this trust management dispute involving three separate trusts,
Roman Alpert and Renee Picazo, Guardian of the Estate of Daniel Alpert, a
minor (collectively, the beneficiaries), appeal the trial court’s judgment.
Specifically, they contend that the trial court erred in granting summary
judgment that Mark Riley, appellee, was trustee of the three trusts as a
matter of law, and in denying their motion urging the opposite conclusion—
that, as a matter of law, he was not. The beneficiaries also ask that we
reverse the judgment for other reasons, asserting that the trial court erred in
(1) disregarding the jury’s finding that Riley breached his fiduciary duty; (2)
confirming Riley’s payment of attorney’s fees and refusing to enter
judgment against Riley for their attorney’s fees; and (3) reappointing Riley
as his own successor trustee.
Robert Alpert, the trusts’ settlor and father of the trust beneficiaries,
also appeals the trial court’s judgment, which finds him liable for breach of
fiduciary duty and awards over $4 million in damages and attorney’s fees to
Riley on behalf of the trusts, pursuant to the trial court and jury findings that
Alpert breached his fiduciary duty to the beneficiaries. Alpert contends that,
as settlor of the trusts, (1) he had no fiduciary duty to the trusts, and (2)
Riley has no standing to sue him absent such a duty.
2
We conclude that (1) the trial court erred in declaring Riley to be
trustee of the three trusts as a matter of law because fact issues exist as to his
status as trustee for two of the trusts, and he is not a trustee of the third trust
pursuant to the express terms of the trust instrument; (2) the judgment
against Alpert for breach of fiduciary duty must be reversed because, under
the terms of these trusts, the settlor owes no fiduciary obligation to the
trust’s beneficiaries and Riley, as trustee, has no standing to sue the parent of
a trust beneficiary for breach of a parent’s fiduciary duty to a minor child;
(3) the trial court erred in disregarding the jury’s verdict as to Riley’s breach
of fiduciary duty but, as the jury awarded no damages, the beneficiaries
recover nothing on the jury verdict; (4) while a remand is appropriate after
reinstatement of the verdict as to Riley’s breach of fiduciary duty to consider
the remedy of equitable disgorgement of trustee compensation, a remand is
unnecessary here because Riley is not entitled to trustee compensation as a
matter of law; and (5) the trial court’s award of attorney’s fees, and the
denial of the beneficiaries’ claim for fees, must be reversed and remanded
for further proceedings, given our resolution of the merits.
Alpert and the beneficiaries also filed a separate appeal challenging
the trial court’s denial of their request that Riley post a security bond
3
pending appeal. 1 Because the trial court’s decision on the bond does not
constitute a final judgment, we lack jurisdiction over that appeal and dismiss
it for that reason, but consider its substance as a request for relief under the
main appeal pursuant to Texas Rule of Appellate Procedure 24. TEX. R.
APP. P. 24.4(a). As to the merits, we conclude that the trial court properly
denied the request for a security bond and deny the requested relief.
Facts
In 1990, Alpert, as settlor, created the Roman Merker Alpert Trust
(RAT) and the Daniel James Alpert Trust (DAT), to benefit each of his sons.
Both trusts name Lisa D. Santos, M.D., as the original trustee, and, in
identical language, empower Santos to appoint a successor trustee, who in
turn would have
the power and authority to appoint a successor or successors to
himself, to take office as Trustee hereunder, and if more than
one, singly, in the order named, upon such Trustee’s ceasing to
act hereunder.
The trusts further provide that, if Santos ceased to act as trustee and no
trustee is appointed as provided, “the successor Trustee shall be Sandra
Shulak,” Robert’s sister.
In 1996, Alpert created another trust for his children’s benefit. That
trust holds a minority interest in a company which in turn holds restricted
1
The appeal is filed in our court under cause number 01-06-00505-CV.
4
shares of a public company that Alpert co-founded. The 1996 trust names
Anna DiLieto as the original trustee. If the trustee position becomes vacant,
“and a successor Trustee who is willing and able to serve” is not “otherwise
provided for,” the 1996 trust reserves to the grantor the power to appoint a
successor trustee within thirty days.
If the grantor fails to appoint a
successor within the thirty-day period, the appointment power shifts to the
trust beneficiaries or their guardian. The 1996 trust further provides that,
“[a]ny successor Trustee, on executing an acknowledged acceptance of the
trusteeship and upon receipt of those assets which are actually delivered to
each successor Trustee by the prior Trustee, shall be vested without further
act on the part of anyone with all of the estates, titles, rights, powers, duties,
immunities and discretion granted to the prior Trustee.”
Mark Riley is Alpert’s former attorney, having assisted him from
1994 through 1998 in the administration of his business and legal affairs.
Among other duties, Riley acted as legal counsel to the three trusts, as well
as to various businesses in which Alpert had an interest.
The parties vigorously contest whether Riley was properly appointed
as trustee of the RAT and DAT. Among other evidence, the record contains
5
• Letters from successor trustee Barbara Nussbaum Carmichael to
Alpert dated August 1, 1997, tendering her resignation as trustee of
the RAT and DAT and appointing Riley as trustee 2 of those trusts;
• Testimony from Alpert and an affidavit from Carmichael stating
that Carmichael’s employer informed them that Carmichael had to
stop acting as trustee of the RAT and DAT as of September 9,
1996; and
• A July 1997 wire transfer request signed by Carmichael as trustee
of the RAT and DAT.
The parties likewise clash over whether Riley was properly appointed
trustee of the 1996 trust. Salient evidence concerning this dispute includes
• An April 3, 1997 letter from DiLieto resigning as trustee of 1996
Trust effective immediately, without naming a successor; and
• A letter dated April 3, 1997 from Riley to Alpert purporting to
accept designation as trustee to the 1996 Children’s Trust. 3
The relationship between Alpert and Riley soured in 1998, and
Riley’s professional dealings with Alpert ended. By that time, Riley came to
2
Computer word processing records and testimony in evidence demonstrate that
these letters were created on September 12 and 30, 1997, not on August 1.
3
Riley’s paralegal admitted that she did not prepare the April 3, 1997 letter until
November 18, 1997, which is consistent with the computer’s word processing
records. Alpert testified that he did not see that letter until 1999.
6
believe that Alpert had sold his own stocks to trigger a tax loss, and then
caused the RAT and DAT to buy those same stocks, which allegedly
resulted in the overpayment of taxes by the trusts.
Without Alpert’s
knowledge and without notifying the beneficiaries, Riley approached the
Internal Revenue Service with information and records relating to those
transactions and became an informant against Alpert and the trusts.
The IRS did not pursue charges against Alpert, but Riley, purporting
to be trustee of the RAT and DAT, sued Alpert to recover the tax
overpayments, based on the theory that Alpert had breached fiduciary duties
he owed to the beneficiaries.
The beneficiaries intervened in the suit,
seeking a declaration that Riley was not trustee of the RAT or DAT or,
alternatively, an order removing him as trustee for breach of fiduciary duties.
After Riley allegedly intercepted a tax refund check issued to the 1996
trust, its putative trustee initiated a separate suit, seeking a declaration that
Riley was not trustee of the 1996 trust. The trial court consolidated that suit
with the previously filed suit involving the RAT and DAT.
On April 11, 2003, the beneficiaries moved to dismiss with prejudice
all claims brought by Riley on their behalf against Alpert in this suit. The
beneficiaries renewed this request in September 2003 and again in March
2005, and reiterated their wish that Riley discontinue this lawsuit.
7
Trial Court Proceedings
The parties filed cross-motions for summary judgment addressing
whether Riley was the properly appointed trustee of the three trusts. The
trial court granted Riley’s motion for summary judgment against the
beneficiaries as to the RAT and DAT, determining as a matter of law that
Riley had been properly appointed, and had served as trustee of those trusts
since August 1, 1997. With respect to the 1996 trust, the trial court initially
denied summary judgment, but reconsidered that decision at the pretrial
hearing and ruled that Riley also had been properly appointed trustee of the
1996 trust as a matter of law. The trial court incorporated its rulings on all
three trusts into its charge to the jury. The jury found that Riley breached
his fiduciary duty to the trusts, but awarded nothing to the beneficiaries in
damages.
As to Riley’s claims against Alpert, the trial court also granted Riley’s
motion for summary judgment, establishing as a matter of law Alpert’s
liability for breach of fiduciary duty and the amount of damages suffered by
the three trusts as a result of Alpert’s stock transactions. On those issues, the
charge instructed the jury that Alpert owed fiduciary duties to the
beneficiaries, which included a duty of loyalty to the beneficiaries, and that
he had breached those duties by engaging in acts of self-dealing with trust
8
assets. The trial court also incorporated into the charge synopses of its
summary judgment rulings as to each of five stock transactions that,
according to the trial court, Alpert had undertaken in violation of his
fiduciary duties. The trial court informed the jury of its rulings concerning
the dollar value that had accrued to Alpert’s benefit as a result of the breach
of his duties, which it determined by tallying the losses to the trust and the
profit to Alpert resulting from each of those transactions. These amounts,
according to the trial court, totaled about $2 million in tax losses to the trusts
and profits enjoyed by Alpert. The court’s charge did not ask the jury for
liability findings on these matters, but did inquire whether Alpert breached
his fiduciary duty with respect to certain other transactions, with the jury
concluding that he did, but awarding nothing in damages. The jury also
awarded Riley’s attorneys $1,517,348 in attorney’s fees for the work done
on behalf of the RAT and DAT trusts, and $57,038 for the 1996 trust.
On March 28, 2006, following post-trial hearings, the trial court
entered judgment on the jury’s findings against Alpert. The trial court
awarded $1,234,445.50 to Riley, for each of the RAT and DAT trusts,
attorney’s fees of $656,200.78, prejudgment interest, additional attorney’s
fees of $208,688.03 incurred for each trust and appellate fees against Alpert
in connection with its summary judgment findings on the stock transactions
9
granted in favor of Riley. Finally, the trial court disregarded the jury’s
breach finding against Riley and its award of attorney’s fees to the
beneficiaries.
The trial court’s judgment confirms the trial court’s interim orders that
Riley was properly appointed as trustee of the RAT, the DAT, and the 1996
trust, and that he is trustee of those trusts. The judgment also terminates
Riley’s trusteeship, but then reappoints Riley to serve as trustee of the three
trusts until this appeal is final. The trial court reconfirmed its approval of
Riley’s accountings for the trusts and requests for attorney’s fees and
reimbursement of expenses incurred in connection with the litigation on
behalf of the trusts, as well as an earlier distribution of $40,000 in trustee
compensation. None of the appellants challenges the propriety or adequacy
of those accountings on appeal, and so they remain undisturbed, except to
the extent that they are affected by reversal of certain of the trial court’s
other rulings.
On April 21, 2006, the beneficiaries asked the trial court to vacate the
judgment based on their renewed request that Riley stop prosecuting the
claims against Alpert in exchange for a release. The trial court denied this
request, and Alpert and the beneficiaries gave timely notice of their appeal.
10
Discussion
I.
Trustee Status
The beneficiaries challenge the trial court’s pretrial rulings declaring
Riley to be trustee of the RAT, the DAT, and the 1996 trust as a matter of
law, contending that the plain language of the trust instruments require the
opposite conclusion. Alternatively, the beneficiaries contend, the summary
judgments should be reversed because fact issues exist concerning whether
Riley is trustee. We address the trust instruments in turn.
A.
Standard of review
To prevail on summary judgment, the movant has the burden of
proving that there is no genuine issue of material fact and the movant is
entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Cathey v.
Booth, 900 S.W.2d 339, 341 (Tex. 1995). A defendant moving for summary
judgment must either (1) disprove at least one element of the plaintiff’s
cause of action or (2) plead and conclusively establish each essential element
of an affirmative defense to rebut plaintiff’s cause. Cathey, 900 S.W.3d at
341.
In deciding whether there is a disputed material fact precluding
summary judgment, we take as true evidence favorable to the non-movant,
indulging every reasonable inference and resolving any doubts in its favor.
Provident Life & Accid. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).
11
A matter is conclusively established if reasonable people could not differ as
to the conclusion to be drawn from the evidence. City of Keller v. Wilson,
168 S.W.3d 802, 816 (Tex. 2005). When, as here, both sides move for
summary judgment and the trial court grants one motion and denies the
other, we review the summary judgment proof presented by both sides and
determine all questions presented. See CenterPoint Energy Houston Elec.,
L.L.P. v. Old TJC Co., 177 S.W.3d 425, 430 (Tex. App.—Houston [1st
Dist.] 2005, pet. denied).
B.
Waiver
Riley claims that the beneficiaries waived any objection they may
have had to Riley’s status as trustee by failing to object to the trial court’s
inclusion in the jury charge of its summary judgment decisions. Riley cites
Uro-Tech, Ltd. v. Somerset Partners, Corp., No. 05-96-01455-CV, 1999 WL
153130 (Tex. App.—Dallas Mar. 23, 1999, no pet.) (mem. op.), for the
proposition that an appellant waives any error by failing to object to
inclusion in the jury charge of issues previously decided on partial summary
judgment. See 1999 WL 153130 at *2–4. Without deciding whether we
agree with Uro-Tech’s holding, we find it distinguishable. In that case, the
parties contested whether a new statute applied to calculate royalty payments
under their contract. Id. at *1. The trial court decided that it did not apply.
12
Id. at *1–2. In accordance with that decision, the charge instructed the jury
to decide the amount of damages based on the legal standard stated in the
older version of the statute. Id. at *3. The Dallas Court of Appeals held that
the appellant waived its challenge to the summary judgment ruling by failing
to object to that jury instruction. Id.
In contrast to Uro-Tech, the jury charge in this case did not instruct
the jury to apply any law or make any fact finding that the trial court decided
in the summary judgments. Although the issue of Riley’s trustee status was
strenuously litigated both before and after trial, it was not placed at issue
during the trial, and the jury was not asked to decide the issue because the
trial court already had done so. The charge does not submit the issue to the
jury; rather, in asking the jury to make other findings, it merely reiterates the
trial court’s summary judgment rulings.4 When a trial court grants a partial
summary judgment, the issue is ripe for appeal on final judgment if no
4
In Bennett v. Coghlan, No. 01-04-00104-CV, 2007 WL 2332969 (Tex. App.—
Houston [1st Dist.] Aug. 16, 2007, pet. denied) (mem. op.), this Court decided that
any error in granting a partial summary judgment determining an attorney’s hourly
rate was rendered harmless by having that issue fully litigated at trial and
submitted to the jury without objection. That decision primarily relied on the
principle underlying the Texas Supreme Court’s holding in Progressive County
Mutual Insurance Co. v. Boyd, 177 S.W.3d 919 (Tex. 2005), that subsequent
events at trial can render harmless an erroneous grant of partial summary
judgment. 2007 WL 2332969 at *2 (citing Progressive County Mut. Ins. Co., 177
S.W.3d at 921). Here, in contrast, none of the parties requested the jury to
determine trustee status; and such determination would have contravened the trial
court’s legal decisions.
13
contested issue of fact on this matter is presented to the jury. Because the
issue of whether Riley was trustee was never presented to the jury for
resolution, Alpert and the beneficiaries were not required to object to the
charge in order to preserve their complaints concerning the trial court’s
summary judgment rulings on appeal. 5
C.
Principles of Trust Construction
We interpret trust instruments the same way as wills, contracts, and
other legal documents. Lesikar v. Moon, 237 S.W.3d 361, 366 (Tex. App.—
Houston [14th Dist.] 2007, pet. denied). The meaning of the trust instrument
is a question of law when no ambiguity exists. Nowlin v. Frost Nat’l Bank,
908 S.W.2d 283, 286 (Tex. App.—Houston [1st Dist.] 1995, no writ). If the
court can give a definite legal meaning or interpretation to an instrument’s
words, it is unambiguous, and the court may construe the instrument as a
matter of law. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). If the
language is uncertain or reasonably susceptible to more than one meaning,
however, it is ambiguous, and its interpretation presents a fact issue
precluding summary judgment. Id. at 394.
5
Nevertheless, we observe that, during the charge conference, Alpert objected to
the jury instruction that Riley was trustee and offered jury questions on trusteeship
issues, thus informing the trial court that the issue was contested.
14
A trust instrument need not contain any particular language to be
effective. For an express trust to be shown, however, “(1) the words of the
settlor ought to be construed as imperative and thus imposing an obligation
on the trustee, (2) the subject to which the obligation relates must be certain,
and (3) the person intended to be the beneficiary must be certain.” Brelsford
v. Scheltz, 564 S.W.2d 404, 406 (Tex. Civ. App.—Houston [1st Dist.] 1978,
writ ref’d n.r.e.), quoted in Pickelner v. Adler, 229 S.W.3d 516, 526 (Tex.
App.—Houston [1st Dist.] 2007, pet. denied).
D.
RAT and DAT
With respect to the trusteeship of the RAT and DAT, the beneficiaries
assert that the trial court’s summary judgment rulings must be reversed and
rendered in their favor because they conclusively proved that Riley was
never properly appointed trustee. The beneficiaries’ assertion rests on their
interpretation of the interplay between the trustee appointment and default
trusteeship provisions in the DAT and RAT. They observe that the trustee
appointment provision confers on the trustee the authority “to appoint a
successor Trustee . . . upon her ceasing to act as a trustee hereunder,” and
then states that the appointed successor is to take office “upon such
Trustee’s ceasing to act hereunder.” The default trusteeship provision states
that, if the trustee “shall cease to act as Trustee and there shall be no Trustee
15
appointed as provided . . . still able to qualify, the successor Trustee shall be
Sandra Shulak.”
According to the beneficiaries, these provisions, as applied to the
facts, require the conclusion that Carmichael “ceased to act” as trustee on
September 9, 1996, without appointing a successor. The failure to appoint a
successor at that time, the beneficiaries contend, triggered the default
trusteeship provision, making Sandra Shulak the successor trustee, and thus,
any subsequent act by Carmichael—namely, her August 1997 letter
appointing Riley as trustee—was ineffective as a matter of law.
While we agree that the beneficiaries’ interpretation is a reasonable
one, it is not the only reasonable interpretation of the trust language as
applied to these facts. The problem lies in the trusts’ use of the term
“ceasing to act” without temporal constraint or other definite limitation. In
some instances, it may be obvious when a trustee ceases to act, such as when
the trustee resigns or dies. At other times, however, it may not be clear
whether the trustee’s lack of action is temporary because of a lull in trust
activity, or whether the trustee has abandoned the position. Carmichael’s
actions and testimony concerning whether she was still trustee when she
signed the letter appointing Riley are equivocal, giving rise to a material
16
dispute about when Carmichael “ceased to act” as trustee, and therefore,
whether Shulak or Riley was the proper trustee of the RAT and DAT.
That evidence falls into three categories. The first category consists
of communications relating to Carmichael’s employer’s notice that
Carmichael could not serve as trustee of the RAT and DAT after September
9, 1996.
They include (1) an August 1996 letter from Carmichael’s
employer to a financial institution in possession of trust assets, notifying the
institution that Carmichael was permitted to serve as trustee only for an
additional 30 days, and that a successor trustee was being appointed; (2) a
September 1996 letter from Alpert to a brokerage firm notifying it that
Carmichael was no longer serving as trustee; and (3) evidence that Riley and
another individual engaged in activities relating to management of the trusts
between September 1996 and August 1997.
The second category of evidence consists of documents identifying
Carmichael as trustee on behalf of the RAT and DAT during the summer of
1997. The record reveals that (1) Carmichael’s name still appeared on some
trust accounts; (2) Carmichael signed a wire transfer request for one of the
trusts, on which she hand wrote “Trustee” following her signature; and (3)
Carmichael signed and sent a letter to Alpert notifying him that she was
17
resigning as trustee of the RAT and DAT and appointing Mark Riley as her
successor.
The third category of evidence consists of sworn statements made
during this litigation. They include (1) Carmichael’s deposition testimony
that she told Riley and Alpert that she could no longer serve as trustee of the
RAT and DAT during a discussion in the summer of 1997; (2) Carmichael’s
affidavit in which she attests that she resigned as trustee on September 9,
1996; and (3) Carmichael’s second affidavit in which she attests that she
either resigned or ceased to act as trustee on September 9, 1996.
The contemporaneous recorded evidence and Carmichael’s testimony
cannot be reconciled without determining the credibility and weight that
should be attributed to each piece, a job that belongs to the fact finder.
Accordingly, the trial court erred in granting summary judgment declaring
Riley as the properly appointed trustee of the RAT and DAT.
E.
1996 trust
In complaining that the trial court erred in declaring Riley as trustee of
the 1996 trust, the beneficiaries contend that the undisputed evidence
conclusively shows that Riley did not accept trusteeship of the 1996 trust in
accordance with the trust’s terms. We agree.
18
According to the plain language of the 1996 trust instrument, before a
named successor can become vested with the authority to act as trustee, the
named successor must execute “an acknowledged acceptance of the
trusteeship . . . .”
The only evidence of Riley’s written acceptance of
trusteeship of the 1996 trust is his letter, dated April 3, 1997, and addressed
to Alpert, stating that Riley accepted designation as trustee “effective
immediately.” This letter contains Riley’s signature, but does not contain a
formal acknowledgment, such as one that a notary would execute.
In
considering whether Riley’s acceptance of the trusteeship was effective, the
trial court stated
I think it all comes down to an interpretation of the trust
agreement as to what 4.3 requires. And I don’t think
acknowledged means acknowledgment. It means acknowledge.
If there’s not acceptance at all, then it’s never acknowledged,
and the trustee can’t be blamed for taking over because he
never took over.
Thus, the trial court viewed “acknowledged” and “accepted” as more or less
synonymous with respect to the express language of the 1996 trust. As a
result, the trial court construed the term “acknowledged acceptance” as if
“acknowledged” did not modify “acceptance” in any meaningful way and
was merely redundant. This view is contrary to the applicable rules of
construction.
19
In interpreting a contract, courts must, if possible, give effect to all
its terms so none will be rendered meaningless. Kelley-Coppedge, Inc v.
Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). Courts must read all
provisions together, interpreting the instrument so as to give each provision
its intended effect. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133
(Tex. 1994). In ascertaining the parties’ intent, we must be particularly wary
of isolating individual words, phrases, or clauses and reading them out of the
context of the document as a whole. State Farm Life Ins. Co. v. Beaston,
907 S.W.2d 430, 433 (Tex. 1995). For example, courts should presume that
words that follow one another are not intended to be redundant. See Gulf
Metals Indus., Inc. v. Chicago Ins. Co., 993 S.W.2d 800, 805 (Tex. App.—
Austin 1999, pet. denied) (interpreting “sudden,” in phrase “sudden and
accidental,” as having temporal meaning because “accidental” describes
unforeseen or unexpected event and ascribing same meaning to “sudden”
would render terms redundant and violate rule that each word in contract be
given effect); see also McCreary v. Bay Area Bank & Trust, 68 S.W.3d 727,
731 (Tex. App.—Houston [14th Dist.] 2001, pet. dism’d) (refusing to
construe addendum to IRA deposit contract as merely promise to pay
interest on interest-bearing savings account until date of its maturity because
such construction would render the addendum redundant and reduce it to
20
superfluous agreement to abide by agreement). Accordingly, we reject the
trial court’s construction of the 1996 trust’s “execute[] an acknowledged
acceptance,” to mean mere written acceptance, and consider the definition of
“acknowledged” as it might reasonably apply in the context of the trust
instrument.
Acknowledgments commonly appear in documents effecting property
transfers, such as car titles and deeds. “The general purpose of a [formal]
acknowledgment is to authenticate an instrument as being the act of the
person executing the instrument.” Onwuteaka v. Cohen, 846 S.W.2d 889,
894 (Tex. App.—Houston [1st Dist.] 1993, writ denied). In the case of a
person acknowledging her acts as a trustee, executor, or administrator of an
estate, a Texas statute expressly provides that “acknowledged” means that
“the
person
personally
appeared
before
the
officer
taking
the
acknowledgment and acknowledged executing the instrument by proper
authority in the capacity stated and for the purposes and consideration
expressed in it.” TEX. CIV. PRAC. & REM. CODE ANN. § 121.006(b)(5)
(Vernon 2005).
The term “acknowledged acceptance”—set forth in a legal instrument
drafted by lawyers and documenting a conveyance of property rights
conditioned on the execution of fiduciary duties—can only be reasonably
21
interpreted as requiring the prospective trustee to personally appear before a
notary public or other authorized officer to accept the appointment and
acknowledge executing the instrument. Riley concedes that he did not do
this, but contends that the Texas Trust Code 6 requires only that the trustee
execute a “separate written acceptance”; consequently, Riley claims, his
acceptance of the trusteeship was effective without an acknowledgment. See
TEX. PROP. CODE ANN. § 112.009(a) (Vernon 2007).
The Trust Code,
however, recognizes the primacy of the settlor’s intent as manifested in the
trust language. See TEX. PROP. CODE ANN. § 111.0035(b) (Vernon 2007)
(declaring that “[t]he terms of a trust prevail over any provision of this
subtitle,” save certain unrelated exceptions). The Trust Code thus requires
adherence to the 1996 trust’s requirement that a trustee’s acceptance be
acknowledged.
Because Riley did not accept the trusteeship in accordance with the
plain terms of the trust’s requirements, we hold that he was not, as a matter
of law, properly appointed trustee of the 1996 trust.
F.
Equitable defenses
As alternative grounds for his claim to trustee status, Riley asserted in
the trial court that the appellants’ acquiescence in, and ratification of, Riley’s
6
The Texas Trust Code appears in Title 9 of the Property Code. See TEX. PROP.
CODE ANN. §§ 101.001 – 123.005 (Vernon 2007).
22
assumption of trustee duties for the three trusts bars them from obtaining a
declaration that Riley is not trustee.
The summary judgment rulings,
however, cannot be sustained on those grounds.
We have not located, and Riley does not identify, any authority that
recognizes a trustee by estoppel in the presence of express trust language
outlining the procedure for appointment of a successor trustee. Riley first
points to Coffee v. William Marsh Rice University, which was decided
before the Legislature enacted the Texas Trust Code and involved a
charitable trust. 408 S.W.2d 269, 284 (Tex. Civ. App.—Houston 1966, writ
ref’d n.r.e.). In charitable trusts, “there is greater occasion for the exercise
of the power of the court to permit or direct a deviation from the terms of the
trust” because of the cy pres doctrine. Id. at 285. This doctrine does not
apply to private express trusts like those at issue here, and “goes quite
beyond anything which is permitted in the case of private trusts.”
Id.
(internal quotation omitted); see Amalgamated Transit Union, Loc. Div.
1338 v. Dallas Public Transit Bd., 430 S.W.2d 107, 117 n.6 (Tex. Civ.
App.—Dallas 1968, writ ref’d n.r.e.). Riley’s reliance on Brault v. Bigham,
493 S.W.2d 576 (Tex. Civ. App.—Waco 1973, writ ref’d n.r.e.), is also
misplaced. In Brault, the trial court imposed a constructive trust on life
insurance proceeds held by the named beneficiary under an insurance policy
23
for the benefit of four children and removed the beneficiary as trustee. Id. at
578–79.
In contrast to Brault, this case involves express trusts, not
constructive trusts.
Further, Brault, like Coffee, predates the enactment of the Texas Trust
Code, which governs express trusts such as those at issue here. See TEX.
PROP. CODE ANN. § 111.005 (Vernon 2007) (“If the law codified in this
subtitle repealed a statute that abrogated or restated a common law rule, that
common law rule is reestablished, except as the contents of the rule are
changed by this subtitle.”). A court’s authority to modify a trust’s terms is
subject to section 112.054(a) of the Texas Trust Code, which provides that
(a) On the petition of a trustee or beneficiary, a court may order
that the trustee be changed, that the terms of the trust be
modified, that the trustee be directed or permitted to do acts that
are not authorized or that are forbidden by the terms of the trust,
that the trustee be prohibited from performing acts required by
the terms of the trust, or that the trust be terminated in whole or
in part, if
(1) the purposes of the trust have been fulfilled or have
become illegal or impossible to fulfill;
(2) because of circumstances not known to or anticipated
by the settlor, the order will further the purposes of the
trust;
(3) modification of administrative, nondispositive terms
of the trust is necessary or appropriate to prevent waste
or avoid impairment of the trust’s administration . . . .
TEX. PROP. CODE ANN. § 112.054(a) (Vernon 2007). Under this provision’s
24
plain language, a court may order modification of trust terms only on the
petition of a trustee or beneficiary. Id. Because Riley is not trustee of the
1996 trust as a matter of law, he lacks the authority to petition for a
modification of that trust. Further, with respect to the RAT and DAT, the
only reason Riley advances for deviating from the trust terms concerns
Alpert’s mishandling of trust property, but the RAT and DAT do not contain
any provisions authorizing Alpert, the settlor, to conduct transactions on
behalf of the trusts, and thus his conduct should not subvert the express
language of the trust instrument.
Riley has not identified any of the factors under section 112.054(a) as
grounds for his request that the trial court authorize a deviation from the
trusts’ terms. Without basis in one of the statutory grounds, the trial court
lacked the power to deviate from the trusts’ terms.
Texas law prohibits the equitable rule proposed by Riley for other
reasons as well. The Texas Trust Code requires adherence to the trustee
selection method prescribed in the trust instrument, which necessarily
forecloses the exercise of equitable discretion unless that method fails. See
TEX. PROP. CODE ANN. § 113.083(a) (Vernon 2007). The record does not
reveal that the trial court ever attempted to apply the trustee selection
method prescribed by any of the trusts before appointing Riley. As the
25
Supreme Court has observed, “[w]hen a valid [instrument] already addresses
the matter, recovery under an equitable theory is generally inconsistent with
the express [instrument].” Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d
671, 684 (Tex. 2000); see also Ledig v. Duke Energy Corp., 193 S.W.3d
167, 176 (Tex. App.—Houston [1st Dist.] 2006, no pet.) (affirming
summary judgment that rejected claim for unjust enrichment, noting that,
“when a valid, express contract covers the subject matter of the parties’
dispute, there can be no recovery under a quasi-contract theory . . .”).
Consequently, Riley’s claim to trusteeship cannot be upheld on any
equitable ground.
II.
Breach of Fiduciary Duty Claims against Alpert
Alpert and the beneficiaries contend that the trial court erred in
entering judgment on Riley’s breach of fiduciary duty claims against Alpert
because, among other reasons, Riley lacks standing to bring the claims. We
agree that Riley has no standing.
A.
Standing
Standing is a necessary component of a court’s subject matter
jurisdiction. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440,
444–45 (Tex. 1993). To have standing a party must have a “sufficient
relationship with the lawsuit so as to have a ‘justiciable interest’ in its
26
outcome.” Austin Nursing Ctr. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005)
(quoting 6A CHARLES ALAN WRIGHT, ARTHUR R. MILLER, AND MARY KAY
KANE, WRIGHT, MILLER & KANE, FEDERAL PRACTICE
AND
PROCEDURE:
CIVIL 2D § 1559, 441 (2d ed. 1990)). A plaintiff must affirmatively show,
through pleadings and other evidence pertinent to the jurisdictional inquiry,
a distinct interest in the asserted conflict, such that the defendant’s actions
have caused the plaintiff some particular injury. Hunt v. Bass, 664 S.W.2d
323, 324 (Tex. 1984); see County of Cameron v. Brown, 80 S.W.3d 549, 555
(Tex. 2002).
Whether a plaintiff has standing is a legal question we
determine de novo. See Mayhew v. Town of Sunnyvale, 964 S.W.2d 922,
928 (Tex. 1998).
To determine whether Riley has standing to assert the breach of
fiduciary duty claims against Alpert, we consider (1) the scope of Riley’s
duties as a trustee, which dictates the bounds of his interest, and (2) the
nature of Alpert’s alleged wrongs.
To create an irrevocable trust, the
settlor—in this case, Alpert—transfers legal title to specific property along
with the obligation to administer the trust for the benefit of the named
beneficiaries in accordance with the terms of the trust instrument.
See
TEXAS PROP. CODE ANN. § 111.004(4) (Vernon 2007) (defining “express
trust”); RESTATEMENT (THIRD)
OF
TRUSTS §§ 70, 76–79, 82–84 (2003)
27
(defining the duties of a trustee). Once a settlor completes a transfer of
assets to a trust, the beneficiaries gain beneficial title and the trustee gains
sole legal title in, and exclusive control over, the trust property, subject to
the trust instrument.
BLACK’S LAW DICTIONARY 1546 (8th ed. 2004)
(explaining characteristics of various trusts); see also Pickelner, 229 S.W.3d
at 526. At the same time, the trustee, as a fiduciary, has equitable duties to
hold and manage the property for the benefit of the beneficiaries. TEX.
PROP. CODE ANN. §§ 113.051, 113.056(a) (Vernon 2007). Certain of those
fiduciary duties are nondelegable.
See Tex. Commerce Bank, N.A. v.
Grizzle, 96 S.W.3d 240, 249 (Tex. 2002); Slay v. Burnett Trust, 187 S.W.2d
377, 387–88 (Tex. 1945); see also Transamerican Leasing Co. v. Three
Bears, Inc., 586 S.W.2d 472, 476 (Tex. 1979) (“The general rule is that a
trustee may not delegate his discretionary power to another. A trustee may,
however, . . . give authority to another to carry out ministerial or mechanical
acts . . . .”); see generally TEX. PROP. CODE ANN. § 113.018 (Vernon 2007)
(allowing trustee to employ investment agents and brokers “as reasonably
necessary in the administration of the trust estate”).
Unless the trust
instrument expressly provides otherwise, a settlor has no duty to manage
28
trust property, and the trustee alone is responsible as a fiduciary if he allows
the settlor to mismanage trust property to the detriment of the trust. 7
None of the three trusts assigned any duty to Alpert, and thus Alpert
could not otherwise owe any fiduciary duty. Absent some assignment of
duty to the settlor in the trust instrument, a trustee has no cause of action to
sue the settlor of a trust for a breach of fiduciary duty to the trust
beneficiaries. Cf. Ray Malooly Trust v. Juhl, 186 S.W.3d 568, 570 (Tex.
2006) (noting that under Texas law, a trust refers to “the fiduciary
relationship governing the trustee with respect to the trust property”)
(emphasis added) (quoting Huie v. DeShazo, 922 S.W.2d 920, 926 (Tex.
1996) (per curiam). A trust settlor has no fiduciary obligation to a trust
beneficiary once that trust is created, and control of the trust assets is vested
with the trustee. See id.; see also TEX. PROP. CODE ANN. § 111.004(4)
(Vernon 2007 & Supp.) (defining “express trust”).
Acknowledging that Alpert, in his capacity as settlor, has no fiduciary
duty to the trust, Riley contends that “[t]he basis of [his] assertion was not
the settlor-beneficiary relationship, but rather the parent-minor child
relationship.” But Riley has no standing to sue Alpert for such a claim—it
7
Riley also sued Alpert for conversion of trust assets, but the trial court granted a
directed verdict on that theory in favor of Alpert, and Riley does not appeal it. We
therefore do not consider a trustee’s standing to sue a settlor for losses to a trust
under that theory.
29
belongs to Alpert’s children as his children, not to Riley as holder of the
legal interest in trust property held for its beneficial owners. Riley does not
stand in loco parentis to Alpert’s children. Any legal interest in the trust
property or fiduciary duty to the beneficiaries does not provide Riley with
standing to assert claims against Alpert based on the alleged breach of a
father’s fiduciary duty to his sons.
The cases Riley cites, S.V. v. R.V., 933 S.W.2d 1 (Tex. 1996), and
Thigpen v. Locke, 363 S.W.2d 247 (Tex. 1962), recognize that a parent owes
a fiduciary duty to his child, but in neither case does the Texas Supreme
Court commit the prosecution for a breach of that duty to a trustee who has
no guardianship over the child. On the contrary, the Court has made it clear
that a child, who fundamentally holds the justiciable interest in the outcome
of a suit for breach of a parent’s fiduciary duty, may appear in court only
“through a legal guardian, a ‘next friend,’ or a guardian ad litem.” See
Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 849 (Tex. 2005). We
hold that Riley, as trustee, lacks standing to sue Alpert, as a father for breach
of his parental duties to his children and thus the trial court lacked subject
matter jurisdiction over this claim.
30
B.
Other theories
In his brief, Riley advances two other bases for affirming the trial
court’s judgment against Alpert: violation of federal tax law and
constructive trust. To the extent Riley attempts to sue Alpert for violation of
federal income tax regulations through a breach of fiduciary duty theory,
that theory is also unavailing. No private cause of action lies for violation of
regulations promulgated under Internal Revenue Code except against the
U.S. Government. See Tax Analysts v. I.R.S., 214 F.3d 179, 185 (D.C. Cir.
2000) (finding no private right of action under section 6104 of the Internal
Revenue Code); Sigmon v. Sw. Airlines Co., 110 F.3d 1200, 1203–05 (5th
Cir. 1997); see also 26 U.S.C.S. § 7422(a) (LEXIS 2008) (“No suit or
proceeding shall be maintained in any court for the recovery of any internal
revenue tax alleged to have been erroneously or illegally assessed or
collected . . . until a claim for refund or credit has been duly filed with the
Secretary. . . .”); 26 U.S.C.S. § 7422(f)(1) (LEXIS 2008) (“A suit [for
erroneously or illegally assessed or collected taxes] may be maintained only
against the United States . . . .” ).
The federal income tax law’s pervasive “administrative scheme of
enforcement is strong evidence that Congress intended the administrative
remedy to be exclusive.” Sigmon, 110 F.3d at 1206 (quoting Till v. Unifirst
31
Fed. Sav. & Loan Ass’n, 653 F.2d 152, 160 (5th Cir. 1981)). A recently
enacted provision to the Internal Revenue Code underscores this conclusion.
The new section provides the Treasury Secretary with the authority to
reward whistleblowers who aid the Internal Revenue Service in “(1)
detecting underpayments of tax, or (2) detecting and bringing to trial and
punishment persons guilty of violating internal revenue laws or conniving at
the same . . . .” 26 U.S.C.S. § 7623(a) (LEXIS 2008) (eff. Dec. 20, 2006).
“When Congress acts to amend a statute, we presume it intends its
amendment to have real and substantial effect.” Stone v. I.N.S., 514 U.S.
386, 397, 115 S. Ct. 1537, 1545 (1995), quoted in Peavy v. WFAA-TV, Inc.,
221 F.3d 158, 169 (5th Cir. 2000). The enactment of the new whistleblower
reward statute suggests that Congress intended both to provide a financial
incentive where none existed before and to make such a reward available
exclusively through an administrative route. See 26 U.S.C.S. § 7263(b)(1),
(3), (4) (LEXIS 2008) (empowering IRS Whistleblower Office with broad
discretion to determine amount, if any, of award, and providing for appeal of
award determination to Tax Court). Consequently, the judgment against
Alpert cannot be sustained under federal tax law.
Riley also urges that the judgment can be sustained under either a
constructive trust theory, or the theory that Alpert knowingly participated in
32
a breach of trust, as recognized by the Texas Supreme Court in Kinzbach
Tool Co. v. Corbett-Wallace Group. 160 S.W.2d 509, 514 (Tex. 1942).
Here, however, the questions posed to the jury asked only whether Alpert’s
conduct in certain specified transactions constituted a breach of Alpert’s
duty to the trusts. None asked the jury to find whether Alpert knowingly
participated in or aided or abetted a breach fiduciary duty, or asked the jury
to make any findings that would furnish grounds to impose a constructive
trust on the trust assets. Consequently, Riley waived any claim under those
theories. See TEX. R. CIV. P. 279; Yellow Cab & Baggage Co. v. Green, 277
S.W.2d 92, 93 (Tex. 1955); Jarrin v. Sam White Oldsmobile Co., 929
S.W.2d 21, 25 (Tex. App.—Houston [1st Dist.] 1996, writ denied).
We conclude that Riley lacked standing to pursue the only claim
presented to the jury. Accordingly, we reverse the trial court’s judgment on
the breach of fiduciary duty claims against Alpert and dismiss them for lack
of subject matter jurisdiction.
III.
Breach of Trust Claim Against Riley
The beneficiaries challenge the trial court’s decision to disregard the
jury’s finding of liability on their breach of trust claim against Riley. They
contend that the trial court erred in concluding that the evidence was not
legally sufficient to support that finding. As support for their contention that
33
the evidence is legally sufficient to sustain the finding, the beneficiaries
point to (1) testimony from witnesses including Larry St. Martin, the Alpert
Companies’ former controller, that Riley had general knowledge about and
assisted in executing many of Alpert’s stock sales to the trusts; (2) evidence
that Riley intercepted a tax refund check to the trust and used it to pay his
trustee fees and the lawyers; (3) the fact that Riley pursued the claims
against Alpert in this litigation despite the beneficiaries’ protest; (4) multiple
instances in which Riley failed to communicate with the beneficiaries,
including regarding the filing of this lawsuit and his discussions with the
IRS; and (5) Riley’s representation of both Alpert and the trusts, which
potentially posed a conflict of interest.
The charge instructed the jury that Riley, as trustee, owed the
beneficiaries, among other duties, (1) the duty of loyalty to the beneficiaries
to administer the affairs of the trust in their interest alone, and (2) a duty to
disclose all material facts known to the trustee that affect the beneficiaries’
rights. The express language of the RAT and DAT trusts requires the trustee
to notify each of the beneficiaries annually of their right to withdraw an
amount equal to the aggregate amount contributed by each donor for that
calendar year, or $20,000, whichever is less. Roman Alpert, one of the
beneficiaries, testified that he received no communications from Riley
34
concerning that annual right of withdrawal, and Riley admitted that he did
not communicate with the beneficiaries concerning that matter, this suit, or
his dealings with the IRS on behalf of the trust. Based on this evidence and
the express terms of the trust, we conclude that a rational trier of fact could
conclude that Riley breached his fiduciary duty to the trusts by failing to
communicate material information.
The trial court therefore erred in
granting the judgment notwithstanding the verdict on the beneficiaries’
breach of fiduciary duty claim, and we restore the jury’s verdict.
The jury, however, also found zero damages in connection with its
finding against Riley for breach of fiduciary duty. The beneficiaries do not
appeal the no damages finding, but instead ask that we remand the case for
the court to consider equitable disgorgement based on the finding of breach.
See TEX. PROP. CODE ANN. § 114.061(b) (Vernon 2007) (“If the trustee
commits a breach of trust, the court may in its discretion deny him all or part
of his compensation.”); Burrow v. Arce, 997 S.W.2d 229, 238–41 (Tex.
1999). Given the jury’s conclusion that no damages obtained, any breach
might not amount to the kind of “clear and serious” breach of fiduciary duty
that would lead a court, acting in equity, to require the fiduciary to disgorge
his fees. See Arce, 997 S.W.2d at 241. The beneficiaries were apprised of
trust expenses through service with Riley’s court filings, they do not
35
challenge the trial court’s approval of Riley’s accountings for the trusts, and
the failures to communicate happened, in the main, after the beneficiaries
and Riley became adversaries in this suit. While the absence of actual
damages is not determinative, we hold that we need not remand for
consideration of equitable disgorgement, because, as we discuss in part VI of
the opinion, we reverse the award of trustee compensation on other legal
grounds. Our reversal of the trial court’s award of trustee compensation
obviates the need for consideration of the equitable remedy of disgorgement.
V.
Attorney’s Fees and Trustee Compensation
The beneficiaries assert that the trial court abused its discretion in
refusing to order Riley to pay their attorney’s fees. Section 114.064 of the
Trust Code, which furnishes the authority for the beneficiaries’ request,
provides that “[i]n any proceeding under this code the court may make such
award of costs and reasonable and necessary attorney’s fees as may seem
equitable and just.” TEX. PROP. CODE ANN. § 114.064 (Vernon 2007). The
charge asked the jury to determine “the reasonable fee for the necessary
services of the Beneficiaries [sic] attorneys in this case . . . .” The jury made
affirmative findings, based on uncontroverted evidence, that (1) $162,288
for preparation and trial, (2) $35,000 for appeal to the court of appeals, and
(3) $15,000 for appeal to the Texas Supreme Court were reasonable fees for
36
those necessary services. The trial court, in the exercise of its discretion,
declined to award fees.
“[O]nce the jury has found the value of reasonable and necessary
services, the court must decide whether the award would be equitable and
just.” Arce, 997 S.W.2d at 245–46. Given our disposition of other legal
issues in the case, the issue of whether any award would be equitable and
just warrants reconsideration.
Accordingly, we reverse the trial court’s
denial of the beneficiaries’ request for attorney’s fees and remand for further
proceedings on that issue.
The beneficiaries also challenge the trial court’s award of attorney’s
fees and trustee compensation to Riley. Our reversal of the trial court’s
judgment as it pertains to Riley’s trustee status and the breach of trust issue
requires us to reverse the confirmation of Riley’s payment of attorney’s fees
and remand for further proceedings on that issue as well.
We further observe that, if Riley is found to have been properly
appointed trustee of the RAT and DAT, he was statutorily prohibited from
prosecuting the damages claims against Alpert on behalf of the trusts after
April 21, 2006. Section 113.028 of the Texas Trust Code became effective
in 2005. See TEX. PROP. CODE ANN. § 113.028 (Vernon 2007). That section
provides
37
A trustee may not prosecute or assert a claim for damages in a
cause of action against a party who is not a beneficiary of a
trust if each beneficiary of the trust provides written notice to
the trustee of the beneficiary’s opposition to the trustee’s
prosecuting or asserting the claim in the cause of action.
Id. § 113.028(a).
The beneficiaries had previously expressed their
opposition to Riley’s prosecution of the claims against Alpert, but those
expressions occurred before section 113.028’s effective date, when Riley
retained discretion to continue the prosecution. The Legislature removed
that discretion before the beneficiaries filed their April 21, 2006 written
notice of opposition. Accordingly, when Riley received that opposition, he
had no choice but to heed their wishes and stop prosecuting the claims
against Alpert.
Any attorney’s fees or legal expenses incurred in prosecuting the
damages claims against Alpert after the beneficiaries’ written notice of
opposition are not authorized by the Trust Code, and are not reasonable or
necessary as a matter of law. As a result, we hold that Riley is not entitled to
reimbursement for any attorney’s fees or expenses incurred after April 21,
2006 in connection with his prosecution of the claims against Alpert.
Nor is Riley entitled to recover compensation. Both the RAT and
DAT specify that “[n]either the original Trustee nor any successor named
herein or appointed pursuant hereto shall be entitled to commissions or other
38
compensation for acting as Trustee hereunder.” The plain language of these
instruments thus precludes any recovery of trustee compensation regardless
of whether Riley was an authorized trustee of those trusts. And our holding
that Riley is not the authorized trustee under the 1996 trust precludes any
recovery of compensation as a matter of law for actions taken in connection
with that trust. We therefore reverse the trial court’s award and render
judgment that Riley take nothing on his claim for trustee compensation.
VI.
Riley’s Appointment as Successor Trustee
The beneficiaries assert that the trial court’s appointment of Riley as
successor trustee of the three trusts violates the Texas Trust Code and the
trusts themselves. We agree. The Code provides that
a successor trustee shall be selected according to the method, if
any, prescribed in the trust instrument. If for any reason a
successor is not selected under the terms of the trust instrument,
a court may and on petition of any interested person shall
appoint a successor in whom the trust shall vest.
TEX. PROP. CODE ANN. § 113.083(a). Each of the three trust instruments
expressly provides a method for appointing a successor trustee. Nothing in
the record indicates that those methods have been tried and failed. The trial
court abused its discretion by resorting to its equitable appointment power
without first attempting to follow the trustee selection methods prescribed by
39
the trust instruments. Consequently, we reverse the portion of the judgment
appointing Riley as successor trustee of the trusts.
Because the both RAT and DAT expressly preclude any
compensation for acting as trustee, the trial court also abused its discretion in
ordering that Riley receive “reasonable compensation to be approved by the
Court” for his service as successor trustee of the RAT and DAT. Riley may
not recover compensation as a successor trustee in equity that he would not
be entitled to receive under the valid express contract. See Woodward v. Sw.
States, Inc., 384 S.W.2d 674 (Tex. 1964); Allen v. Berrey, 645 S.W.2d 550,
553 (Tex. App.—San Antonio 1982, writ ref’d n.r.e.); see also TEX. PROP.
CODE ANN. § 111.0035(b) (terms of trust instrument prevail over provisions
of Trust Code); Sorrell v. Sorrell, 1 S.W.3d 867, 870 (Tex. App.—Corpus
Christi 1999, no pet.) (holding that when language of trust instrument is
unambiguous, that language controls; neither trustee nor courts can modify
trustee’s powers, but must adhere to settlor’s intent). Because the RAT and
DAT expressly foreclose the possibility that the original or any successor
trustee be compensated for his service, Riley is not entitled to recover any
compensation as successor trustee of those trusts under the judgment.
40
VII. Request for Security Bond
Alpert and the beneficiaries filed a separate appeal challenging the
trial court’s denial of their request that Riley post security pending appeal.
The general rule is that an appeal may be taken only from a final judgment.
Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2000). This rule has
exceptions, but none applies here. See TEX. CIV. PRAC. & REM. CODE ANN.
§ 15.003 (Vernon 2002 & Supp. 2007), § 51.012 (Vernon 1997), § 51.014
(Vernon Supp. 2007). The appellants cannot appeal the trial court’s denial
of security bond because that decision does not constitute a final judgment.
See Lehmann, 39 S.W.3d at 195 (“A judgment is final for purposes of appeal
if it disposes of all pending parties and claims in the record, except as
necessary to carry out the decree.”). The proper avenue for seeking the
requested relief is to challenge that decision in the cause in which the appeal
is pending pursuant to Texas Rule of Appellate Procedure 24. TEX. R. APP.
P. 24.4(a). We therefore dismiss appellate cause number 01-06-00505-CV
for want of jurisdiction. See New York Underwriters Ins. Co. v. Sanchez,
799 S.W.2d 677, 679 (Tex. 1990) (holding that appellate court’s assumption
of jurisdiction over interlocutory order when not expressly authorized by
statute is fundamental jurisdictional error).
41
We consider the substance of appellants’ request for relief as a motion
ancillary to their appeal on the merits. See Tex. Dep’t of Parks & Wildlife v.
Miranda, 133 S.W.3d 217, 242 (Tex. 2004) (“It has long been our practice
to consider the substance of motions rather than their form.”); Doctor v.
Pardue, 186 S.W.3d 4, 16 (Tex. App.—Houston [1st Dist.] 2005, pet.
denied) (“[W]e look to an instrument’s substance rather than its form.”).
Alpert and the beneficiaries’ request arises out of the trial court’s
denial of their motion pursuant to Texas Rule of Appellate Procedure
24.2(a)(3) that the trial court set an amount of security to supersede Riley’s
appointment pending this appeal after the trial court reappointed Riley as
trustee of the three trusts. Alpert and the beneficiaries contend that the trial
court erroneously disregarded the mandatory language of the rule in failing
to set an amount of security sufficient to supersede Riley’s reappointment.
Rule 24.2(a)(3) provides
When the judgment is for something other than money or an
interest in property, the trial court must set the amount and type
of security that the debtor must post.
TEX. R. APP. P. 24.2(a)(3). We agree that this language is mandatory, but
disagree that it applies to the reappointment of Riley as trustee.
The
provision refers to the security that the judgment debtor must post. The
record demonstrates that Riley urged the court to reappoint him as trustee
42
pending this appeal, and that the reappointment is adverse to the appellants’
position, not his. Further, as the appellants acknowledge, the judgment
awards Riley, as trustee, a money judgment. Riley is the judgment creditor,
not a judgment debtor. Thus, Rule 24.2(a)(3) does not apply. We conclude
that the trial court did not err in denying the appellants’ request to set
security and likewise decline to do so.
Conclusion
Based on the holdings set forth in this opinion, we rule as follows:
(1) We reverse part I of the judgment in which the trial court
disregarded the jury’s answer to Juror Question No. 8, i.e., the affirmative
answer to whether Riley breached his fiduciary duty to the trusts or the
beneficiaries, but render judgment that the beneficiaries take nothing on this
claim because the jury awarded nothing in damages, and our other rulings
obviate the claim for equitable disgorgement of trustee compensation. We
remand the beneficiaries’ claim for attorney’s fees to the trial court for
further proceedings.
(2) We reverse part II of the judgment ratifying and confirming the
trial court’s June 21, 2004, September 30, 2004, December 14, 2004,
December 21, 2004, January 31, 2004, and April 4, 2005 orders authorizing
payments of expenses to Riley and fees to his counsel, and remand for
43
further proceedings consistent with this opinion. We reverse and render
judgment that Riley take nothing on his claims for trustee compensation.
(3) We reverse parts III and IV of the judgment, in which the trial
court orders that Riley, as trustee of the RAT and DAT, and on behalf of the
RAT and DAT, have judgment against Alpert and awards him attorney’s
fees and interest relating to those claims, and render judgment that Riley on
behalf of the trusts take nothing on the claims against Alpert.
(4) We reverse part VI of the judgment, in which the trial court ratifies
and confirms prior payments of attorney’s fees and expenses to Riley, and
remand for further proceedings consistent with this opinion.
(5) We affirm parts VII, VIII, and IX of the judgment. 8
(6) We reverse part X of the judgment, in which the trial court ratifies
its prior declarations that Riley was properly appointed Trustee of the RAT,
the DAT, and the 1996 trust, and that Riley is the trustee of those trusts and
has all the powers conferred by the Texas Trust Code and the trust
instruments, and (a) with respect to the findings relating to the RAT and
DAT, remand for further proceedings consistent with this opinion, and (b)
with respect to the findings relating to the 1996 trust, render a declaration
that Riley was not properly appointed trustee of the 1996 trust, is not and has
8
These parts concern issues not raised on appeal.
44
not been trustee of the 1996 trust, and does not hold any of the powers
conferred on trustees by the 1996 trust instrument and applicable statute.
(7) We reverse the portion of part XI of the judgment that approves
any award of trustee compensation for Riley and render judgment on Riley’s
requests for trustee compensation that Riley take nothing. We affirm the
remainder of part XI.
(8)
We reverse part XII of the judgment concerning attorney’s fees
and remand for further proceedings consistent with this opinion.
(9)
We affirm part XIII of the judgment only to the extent it
recognizes the release of Riley as trustee and termination of his trusteeship
as pertains to any trusteeship that may later be found to be valid. We reverse
the remainder of part XIII and render judgment that any successor trustees
for the RAT, DAT, and 1996 trust are to be selected in accordance with the
terms of the applicable trust instrument, after identification of the valid
trustee for each trust.
(10) We deny the appellants’ request that Riley post a security bond
pending appeal.
We dismiss the security bond appeal filed under number 0106-00505-CV for lack of jurisdiction. We grant appellants’ agreed motion
to substitute counsel and to designate lead counsel.
45
All other pending
motions are dismissed as moot.
All stays granted are lifted upon the
issuance of this opinion and judgment.
Jane Bland
Justice
Panel consists of Chief Justice Radack and Justices Jennings and Bland.
46
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