Bruce J. Caldwell, Jr. v. Charles W. Gerum, acting in his capacity as Independent Executor of the Estate of John Wohman, Deceased, and Highway 59, L.L.C--Appeal from 359th District Court of Montgomery County

NUMBER 13-01-345-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTIBEDINBURG

BRUCE J. CALDWELL Appellant,

v.

JOHN J. WOHMAN, INDIVIDUALLY,

AND AS TRUSTEE AND HIGHWAY 59, L.L.C Appellee.

On appeal from the 359th District Court

of Montgomery County, Texas.

O P I N I O N

Before Justices Dorsey,Ya ez and Wittig[1]

Opinion by Justice Wittig

The appeal arises out of a real estate venture that went bad. Appellant, Bruce J. Caldwell, Jr., together with appellee, John J. Wohman, and another man bought an acreage tract on U.S. Highway 59 in Montgomery County in 1971. The tract was lost in a tax sale in 1991. Litigation ensued in 1998, initiated by Caldwell, who is an attorney. In a bench trial, District Judge James Keeshan ruled against Caldwell and in favor of both Wohman and an entity he formed in 1994 called Highway 59, L.L.C., also an appellee.

We will examine appellant=s four issues. He complains of an implicit finding against him under the applicable statute of limitations, another implicit finding by the trial court that the trust had terminated, and further implicit findings by the trial court that there was no breach of fiduciary duty or fraud by appellees. We will affirm.

Background

In 1971, appellant Caldwell, appellee Wohman and Bennett J. Robert, Jr.[2] entered into a so-called Atrust@ agreement for the joint ownership of 66.260 acres of land in Montgomery County. Attorney Caldwell drafted the contract, which nominated Wohman as Atrustee,@ to serve without compensation and without personal liability. All three owners had the right to use the property, to sell the property, make payments, pay costs and expenses. Aside from holding bare legal title, Wohman was given some management responsibility, but no other duties. Each owner was responsible for their proportional obligations to make payments and pay taxes. The group failed to pay real estate taxes in the amount of $52,928.29 accruing in 1988. A tax suit was brought in 1989 and resulted in a 1991 judgment against the group of owners. Caldwell acted as defense attorney for the owners. Judicial foreclosure was ordered and occurred August 6, 1991.

The evidence reveals it was Caldwell who could not pay his share of the taxes. He attempted to borrow funds to pay his part of the taxes. Partially because of a deed of trust lien he had placed upon the 66-acre tract (in breach of the agreement), Caldwell was not able to secure credit financing. TexasBanc refused to subordinate their lien created by Caldwell.

After the judicial foreclosure, the property was conveyed to third parties Eddy Reichmann and Lee Jurecka, by quitclaim deed on November 14, 1991. By this point the only real asset of the trust was lost, but a two year redemption right remained. See Tex. Tax Code Ann. ' 23.21 (Vernon 2001). The right of redemption was not exercised by the trust, nor was there a showing that the original three trust members were ever ready, willing and able to redeem the property. Approximately $140,000 would have been required to redeem the property. Wohman indicated there were several conversations with Caldwell and Robert about the possibility of redeeming the property. At some point, Caldwell demanded to be bought out. However, the three former owners were neither agreeable nor able to redeem the property. Then in August 1993, appellee Wohman entered into an earnest money contract with Reichmann and Jurecka, proposing to close on the tract after the redemption period ended. Appellee actually closed on the property, bought in the name of his new company, Highway 59, L.L.C., in March 1994. Appellant filed suit November 12, 1998. His action was to quiet title, for fraud, conspiracy to defraud, imposition of a constructive trust. and breach of a confidential or fiduciary duty.

Standard of Review

The record does not contain findings of fact and conclusions of law. In a nonjury trial, where findings of fact and conclusions of law are neither filed nor timely requested, it is implied that the trial court made all necessary findings to support its judgment. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83 (Tex.1992) (citing Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex.1989)). When, as in this case, a statement of facts is brought forward, these implied findings may be challenged by factual or legal sufficiency points, the same as jury findings or a trial court's findings of fact. Heine, 835 S.W.2d at 84; State v. One (1) Residence Located at 1204 North 12th Street, Alamo, Tex., 907 S.W.2d 644, 645 (Tex. App.BCorpus Christi 1995, no writ). If the evidence supports the implied findings, we must uphold the judgment of the trial court on any theory of law applicable to the case. In re W.E.R., 669 S.W.2d 716, 717 (Tex.1984); Lassiter v. Bliss, 559 S.W.2d 353, 358 (Tex.1977).

When a party attacks the legal sufficiency of an adverse finding on an issue on which he has the burden of proof, he must demonstrate on appeal that the evidence establishes, as a matter of law, all vital facts in support of the issue. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241-42 (Tex. 2001) (citations omitted). In reviewing a matter of law challenge, the reviewing court must first examine the record for evidence that supports the finding, while ignoring all evidence to the contrary. Id. If there is no evidence to support the finding, then the reviewing court will examine the entire record to determine if the contrary proposition is established as a matter of law. Id. And the issue should be sustained only if the contrary proposition is conclusively established. Id. Here, Caldwell had the burden of proof on his common law claims and once appellees showed those claims were outside the statute of limitations, appellant again had the burden of proof. Appellant did not attack the factual sufficiency of the court=s findings.

Analysis

Appellant first attacks the trial court=s implied finding that his fraud and breach of fiduciary duty claims were time barred. Appellees pled, and the trial court apparently found in favor of appellee, on the applicable four-year statute of limitations. See Tex. Civ. Prac. & Rem. Code Ann. ' 16.004 (Vernon Supp. 2002). This section provides in pertinent part:

(a) A person must bring suit on the following actions not later than four years after the day the cause of action accrues:

. . .

(4) fraud; or

(5) breach of fiduciary duty.

Id. Appellant initially argues that appellee Wohman never repudiated the trust, nor was the repudiation known to appellant,citing Langford v Hamburger, 417 S.W.2d 438, 445 (Tex. App.BFort Worth 1967, writ ref=d n.r.e.). However, Langford involved three written on-going family trusts providing for monthly and annual reporting. Id. at 441. The trust at issue in this case was not on-going, and as we explain below, terminated at least by 1993. Langford only cites to A.L.R.2d as the source of this particular repudiation rule. Id. at 445. Appellant also cites Pierce v. Gillespie, 761 S.W.2d 390, 396 (Tex. App.BCorpus Christi 1988, no writ). There, we held because of a fiduciary relationship, trustees could not adversely possess land without repudiating the trust and giving each beneficiary notice of the repudiation. Id. (citing Smith v. Dean, 240 S.W.2d 789, 791 (Tex. Civ. App.BWaco 1951, no writ)) (when there are tenants in common, it is well-settled that limitations do not begin to run against the beneficiary of a trust in favor of the trustee until the latter has repudiated the trust and the beneficiary has had notice of the repudiation). This principle was well-established in Texas jurisprudence, that one who holds title to the land as a trustee for the benefit of a partnership, would not become adverse to the heirs of the deceased member or his personal representative until he repudiated the trust. McLean v. Hargrove, 139 Tex. 236, 162 S.W.2d 954, 958 (1942). This principle of repudiation is inapplicable. Appellant was no longer a co-owner of the land and the trust had terminated.

Appellant fails to explain why his claims are not barred by limitations. He pled appellee wrongfully allowed the property to be foreclosed upon. This occurred in 1989 and appellant was the attorney on the matter. Appellant claimed appellees unlawfully possessed the land for seven years before suit was filed. In his pleadings appellant claimed appellees began to defraud him beginning about August 1, 1991. Appellant alleged by his pleadings, a constructive trust on the tract held by appellees equaling APlaintiff=s former interest in the Trust.@ This is a telling judicial admission, because indeed the res of the trust ended with judicial foreclosure in August 1991. Only an equitable right of redemption remained until November 1993. Suit on appellant=s claims were not brought until November 12, 1998. The only claim that could possibly survive the four-year statute of limitation was a 1993 alleged breach of confidential relationship and fiduciary duties, i.e., when appellee Wohman entered into an earnest money contract executed in August 1993 while the right of redemption remained. Unfortunately, appellant also alleged this was a continuation of older breaches. Appellant alleged Wohman breached his confidential relationship/fiduciary duties by allowing foreclosure (in 1991), AThereafter, Defendant continued to breach his confidential relationship and fiduciary duties. . . .@ by putting his individual interests ahead of appellant, failing to redeem, and conspiring with 59 L.L.C. to purchase the tract. By his pleadings, appellant places the inception of most, if not all, his claims, more than four years before he filed suit in 1998. Further, appellant does not cite to any authority that requires repudiation of a trust that no longer exists, nor do we find any such authority. Appellant judicially admitted he no longer had an interest in the trust, and as a matter of law, the last equitable right of redemption expired (as also admitted by appellant) no later than November 14, 1993.[3]

While appellant argues the Adiscovery rule@ on appeal, no pleadings support this theory. In response to a limitations defense, appellant was required to plead the discovery rule as an avoidance. Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 518 (Tex. 1988). This is true even in a case of fraud. Id. at 517. Appellant was required to plead, prove and secure a finding by the trial court on this matter of avoidance. Id. at 518. Because appellant failed to even meet the threshold requirement of pleading, his argument fails by waiver. Id. We overrule appellant=s issue on limitations and sustain the trial court=s implied finding barring all of appellant=s claims.

Even if appellant survived the limitations defense, his pleadings and proof below, and argument before us, principally rely upon the establishment of a constructive trust. Although appellant initially sought damages in addition to the imposition of a constructive trust, his appeal abandons this claim and seeks only a restoration of 31% ownership in the property or a constructive trust.[4] The application of a resulting trust is an equitable remedy, Richardson v. Laney, 911 S.W.2d 489, 493 (Tex. App.BTexarkana 1995, no writ) (citing Kostelnik v. Roberts, 680 S.W.2d 532 (Tex. App.BCorpus Christi 1984, writ ref'd n.r.e.)) (transfers of property to create eligibility for Medicaid benefits made the transferring party ineligible to exercise a constructive trust because of the lack of clean hands). Whether a party has come into court with clean hands is a matter for the sound discretion of the court. Jackson Law Office, P.C. v. Chappell, 37 S.W.3d 15, 27, (Tex. App.BTyler 2000, pet. denied). Appellant caused, in whole or in part, the underlying default. Appellant failed to pay his portion of taxes resulting in the judicial foreclosure. The foreclosure resulted from a trial in which appellant was the attorney. Appellant, solely for his own benefit, filed an intervening suit against Reichmann and Jurecka, (the tax sale purchasers) which apparently was unsuccessful. The evidence showed appellant failed or refused to participate in attempts at redemption. Appellant breached the trust agreement by placing an unauthorized lien upon the property. He who seeks equity must do equity and he who comes into equity must come with clean hands.[5] Bush v. Gaffney, 84 S.W.2d 759, 764 (Tex. Civ. App.BSan Antonio 1935, no writ). Thus, more than legally sufficient evidence supports the trial court=s implicit finding denying appellant=s only equitable remedy.

Appellant=s issues are overruled. The judgment of the trial court is affirmed.

Don Wittig

Justice

Do not Publish.

Tex. R. App. P. 47.3(b).

Opinion delivered and filed

this 27th day of June, 2002.

[1] Retired Justice Don Wittig assigned to this Court by the Chief Justice of the Supreme Court of Texas pursuant to Tex. Gov=t Code Ann. '74.003 (Vernon 1998)

[2] Robert is not a party to the case.

[3] Upon termination as to a specific property, a trustee is authorized only to "wind up the affairs of the trust and to make distribution of the assets to the appropriate beneficiaries." Tex. Prop. Code Ann. ' 112.052 (Vernon 1995); Nowlin v. Frost Na=tl Bank, 908 S.W.2d 283, 289 (Tex. App.BHouston [1st Dist.] 1995, no writ). Here, there was nothing left to wind up or distribute.

[4] See appellants brief page 18. Because appellant lost all legal claim to the property through the judicial foreclosure, the only theory pled that could restore the property would have been a constructive or resulting trust. In any event, damages incurred by virtue of breach of fiduciary duty are within the sound discretion of the trial court. See Burrow v. Arce, 997 S.W.2d 229, 246 (Tex. 1999) (the court must determine, based on the factors set out, whether the attorney's conduct was a clear and serious breach of duty to his client and whether any of the attorney's compensation should be forfeited, and if so, what amount). Given appellant=s own breach of trust, the trial court would be justified in awarding no damages, even if it had found some fiduciary violation by appellee. (In this appeal, we assume, but do not reach, the issues of whether there was in fact and law a trust, or whether there was the special relationship necessary to impose fiduciary responsibilities on appellee, who served, after all, without compensation and without personal liability.)

[5] The same equitable principles apply to appellant=s fraud claim. See Chappell, 37 S.W.3d at 27. (Normally, fraud vitiates all transactions; however, there are maxims of equity, which may apply to negate the application of equity.)