Michael Schaefer, Trustee, Michael R. Schaefer and Derek Schaefer v. Bellfort Chateau L.P.--Appeal from 281st District Court of Harris County

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Affirmed and Memorandum Opinion filed August 18, 2005

Affirmed and Memorandum Opinion filed August 18, 2005.

In The

Fourteenth Court of Appeals

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NO. 14-04-00254-CV

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MICHAEL SCHAEFER, TRUSTEE, MICHAEL R. SCHAEFER, AND

DEREK SCHAEFER, Appellants

V.

BELLFORT CHATEAU L.P., Appellee

_____________________________________________________________________

On Appeal from the 281st District Court

Harris County, Texas

Trial Court Cause No. 00-05873

_____________________________________________________________________

M E M O R A N D U M O P I N I O N


This is an appeal by a father, acting as trustee, and his two sons, the beneficiaries of two testamentary trusts, from a jury verdict against them under the Texas Uniform Fraudulent Transfer Act. The trustee transferred the assets of these trusts to the beneficiaries to avoid paying a judgment. In three issues, appellants assert: (1) the trial court erred in denying their motion for directed verdict; (2) the evidence is factually insufficient to support the jury=s answer to question one in the jury charge; and (3) under California law, the evidence is factually and legally insufficient to support the jury=s answer to question two in the jury charge. We affirm the trial court=s judgment.

I. Factual and Procedural Background

J. Michael Schaefer (AMichael@) has two sons, Michael R. Schaefer (AMike@), born July 23, 1973, and Derek Schaefer (ADerek@), born November 12, 1971. Michael is an attorney. He prepared estate planning documents for both his mother, Mary Schaefer, and his aunt, Winfred DePiller.

Mary Schaefer died January 1, 1988, and Michael probated her estate. Her will provided, Ahalf[1] to her grandsons [Derek] and [Mike], share and share alike, or the survivor of same, with her son [Michael] to serve as Trustee of said estate until the youngest grandson attains the age of majority.@ The decree of distribution, issued on June 21, 1988, by the Superior Court of San Diego County, California, No. 145346, states in relevant part, ADistribution . . . with income and gains thereon to accumulate and not be withdrawn or disbursed until youngest of said beneficiaries attains age of majority, and [at] that time each beneficiary to be entitled to his pro rata share of corpus of said Trust . . . .@

Winfred DePiller died on June 23, 1987, and Michael probated her estate as well. Her will provided in relevant part:

50% of her estate to her great nephews [Derek] and [Mike], in trust, her nephew [Michael] to serve as Trustee thereof, and to himself receive such amounts from said funds as he may find necessary for his support during his lifetime in his normal manner, utilizing income and any necessary amount of principal.


The decree of distribution, filed on June 21, 1988, by the Superior Court of San Diego County, California, No. 143932, states in relevant part, AEstate for benefit of minor children [Derek] and [Mike] . . . to be available to said beneficiaries, as to their shares, upon attaining respective ages of majority.@

Michael executed and filed a declaration and waiver on June 6, 1988, stating in relevant part, regarding these two testamentary trusts that he will Aturnover said corpus to said minor children, upon demand after they attain the age of majority and can competently (as adults) administer their respective 50% of the Trust corpus.@ On December 15, 1988, the judge signed an amended order correcting the June 21, 1988 decree of distribution regarding the DePillar will. It reflected the language of the declaration and waiver. The amended order added a paragraph declaring the portion of the DePiller will giving Michael Afunds as he may find necessary for his support during his lifetime . . .@void. Michael, acting as Trustee of the two testamentary trusts, purchased real property and securities with the trust assets. The evidence at trial shows that Michael operated the trusts as a single trust.

Both beneficiaries reached the age of majority by July 23, 1991; the eldest, Derek, reached the age of majority in 1989. Derek knew he had a right to the trust assets after he reached the age of majority, but decided to let his father, Michael, continue as trustee. After both beneficiaries reached the age of majority, Michael Schaefer, Trustee continued to manage the trust and wrote monthly disbursement checks to his sons as well as a check to himself. Both Derek and Mike testified that Michael kept them informed of all transactions and the status of the trust.


On July 7, 1995, Chandrakant Shah, on behalf of the National Motel Corporation, signed a note promising to pay Michael Schaefer, Trustee a designated sum for the purchase of a motel. On July 1, 1997, Shahrokh Ajudani and his wife signed two notes promising to pay Michael Schaefer, Trustee a designated sum for the purchase of an office building in Houston, Texas. Michael accepted payment on the notes as trustee, endorsed the checks as trustee, and deposited them in the trust account. Although Michael testified at trial that these promissory notes were a part of the trust and that he acted as trustee until the trial court announced a judgment against him as the trustee, he also testified that upon his sons=attaining the age of majority, he merely acted as their manager or agent because the trusts had terminated.

Bellfort Chateau Limited Partnership sued Michael Schaefer, Trustee. The trial court signed a judgment against Michael Schaefer, Trustee on January 14, 1999. However, on January 11, 1999, just after the trial court announced its judgment against Michael Schaefer, Trustee in open court following a bench trial, Michael executed an assignment of the trusts= assets to the beneficiaries, leaving the trust virtually without any assets. Neither beneficiary had ever demanded disbursement of the trust assets. In fact, Michael stated that he put everything in his sons= names because he decided to get out of the Atrustee business.@ He further explained that the judgment against him as trustee was a motivating factor for him leaving the Atrustee business.@ Following the disbursement of the trust assets, Michael continued to manage his sons= assets and collect a monthly management fee.

Bellfort Chateau then filed suit in the trial court below, alleging that Michael Schaefer, Trustee and his two sons violated the Texas Uniform Fraudulent Transfer Act. Michael, Mike, and Derek (collectively, Athe Schaefers@), however, assert that the trusts automatically terminated when the beneficiaries turned eighteen, and, thus, the transfers were merely ministerial.

After the close of the evidence in a jury trial, the Schaefers moved for a directed verdict, claiming for the first time that California law governs. Bellfort Chateau objected, but the trial court proceeded to hear the Schaefers= argument. The Schaefers handed copies of two California Codes and a few California cases to the trial court during their argument. Thereafter, the trial court denied the motion for a directed verdict. The jury found that the transfers were fraudulent. The trial court rendered a judgment and turnover order in favor of Bellfort Chateau.


The Schaefers appeal, asking this court to reverse and render judgment. In three issues, they argue that (1) the trial court erred in denying their motion for directed verdict; (2) the evidence is factually insufficient to support the first question in the jury charge; and (3) under California law, the evidence is factually and legally insufficient to support the jury=s answer to the second question in the jury charge.

II. Issues and Analysis

 A. Did the trial court err in denying the Schaefers= motion for directed verdict?

In their first issue, the Schaefers assert that the trial court erred in denying their motion for directed verdict. Specifically, they assert that California law applies and that, under California law, the trusts automatically terminated when both beneficiaries reached the age of majority, eighteen years of age.

We review a trial court=s conflict-of-laws determination de novo. Pittsburgh Corning Corp. v. Walters, 1 S.W.3d 759, 769 (Tex. App.CCorpus Christi 1999, pet. denied). Judicial notice of the laws of another jurisdiction may be made at any stage of the proceeding. Tex. R. Evid. 202. However, a conflict-of-laws issue is distinct from the trial court=s power to take judicial notice of a foreign state=s law. Pittsburgh Corning Corp., 1 S.W.3d at 769. We presume California law is the same as Texas law unless the Schaefers prove otherwise. See Weatherly v. Deloitte & Touche, 905 S.W.2d 642, 650 (Tex. App.CHouston [14th Dist.] 1995, writ dism=d w.o.j.), leave granted, mand. denied, 951 S.W.2d 394 (Tex. 1997).


At the conclusion of the trial, the Schaefers made an oral motion for a directed verdict, arguing that, under California law, the trusts in question terminated as a matter of law on July 23, 1991, when Mike reached the age of majority. The Schaefers asked the trial court to take judicial notice of California law. The trial court noted that it had not considered California law previously because this was the first time this issue was raised. After Bellfort Chateau objected to this request for judicial notice, the Schaefers provided the trial court with copies of a couple of California codes as well as a few California cases. The Schaefers did not move for directed verdict under Texas law. Furthermore, they did not make any argument as to how California law differs from Texas law with regard to these issues or as to why California law should be applied under a conflict-of-laws analysis. Without stating whether it was applying California law or Texas law, the trial court simply denied the Schaefers= motion for directed verdict; however, on this record, the trial court would not have erred in applying Texas law rather than California law. See Weatherly, 905 S.W.2d at 650.


Under Texas law, A[a] trust terminates if by its terms the trust is to continue only until the expiration of a certain period or until the happening of a certain event and the period of time has elapsed or the event has occurred.@ Tex. Prop. Code ' 112.052 (Vernon 1995). Regardless of what motion a party uses to preserve a no-evidence challenge to fact findings, the same standard of review applies. City of Keller v. Wilson, __ S.W.3d __, __, No. 02-1012, 2005 WL 1366509, at *11 (Tex. June 10, 2005). In determining whether the trial court erred in denying the Schaefers= motion for directed verdict, we must consider evidence in the light most favorable to the challenged finding and indulge every reasonable inference that would support it. See id., __ S.W.3d at __, 2005 WL 1366509, at *10. We must credit favorable evidence if a reasonable factfinder could and disregard contrary evidence unless a reasonable factfinder could not. See id., __ S.W.3d at __, 2005 WL 1366509, at *14. We must determine whether the evidence at trial would enable reasonable and fair-minded people to find the facts at issue. See id. The factfinder is the sole judge of the credibility of the witnesses and the weight to be given their testimony. See id., __ S.W.3d at __, 2005 WL 1366509, at *8. This court must sustain a no-evidence challenge if the record shows one of the following: (1) a complete absence of a vital fact, (2) rules of law or evidence bar the court from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact. See id. __ S.W.3d at __, 2005 WL 1366509, at *2.

In their motion for directed verdict, the Schaefers asserted that, as a matter of law, the two trusts in question terminated on July 23, 1991, when Mike turned eighteen. However, the applicable trust documents show that these trusts do not, by their terms, continue only until the expiration of a certain period or until the happening of a certain event. See Tex. Prop. Code '112.052. None of the trust documents state that the trusts are to continue only until all the beneficiaries have reached the age of majority. Rather, these documents permit the beneficiaries, if they wish, to obtain their share of the trust corpus upon reaching the age of majority. Allowing for such a possibility is not the same as stating that the trusts shall terminate when all beneficiaries have reached the age of majority. Under the applicable standard of review, the trial court did not err in implicitly determining that the trusts in question do not, by their terms, continue only until the expiration of a certain period or until the happening of a certain event. See Tex. Prop. Code '112.052. Accordingly, we overrule the first issue.

In part of their third issue, the Schaefers assert that there is legally insufficient evidence to support the jury=s answer to question two, in which the jury found that Michael made fraudulent transfers to Mike and Derek. The Schaefers assert legal insufficiency based on the alleged termination of the trusts as a matter of law on July 23, 1991, when Mike turned eighteen. For the same reasons stated above, we reject this legal sufficiency challenge and overrule the part of the third issue relating to legal sufficiency.

 B. Is the evidence factually sufficient to support the jury=s answer to the first and second questions in the jury charge?

In their motion for new trial, the Schaefers objected to the factual sufficiency of the evidence in support of the jury=s answer to question one in the jury charge. In its response to this question, the jury answered as follows:


Was J. Michael Schaefer acting in the capacity of trustee of the Winfred DePillar and/or the Mary Schaefer Trust and any subsequent trust created with assets or proceeds of those trusts at the time he transferred the assets listed below?

A person acts in his capacity as trustee if he is authorized to act as trustee, and acts within the course and scope of his duties as trustee in furtherance of the business of the trust.

Answer AYes@ or ANo@ for each of the assets listed below:

a. The Ajudani Notes and any lien rights securing those notes:

Answer: Yes

b. The National Motel Corporation Note and any lien rights securing that note:

Answer: Yes

When reviewing a jury verdict to determine the factual sufficiency of the evidence, we examine the entire record, considering both the evidence in favor of, and contrary to, the challenged finding. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). After considering and weighing all the evidence, we set aside the jury=s finding only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986). The jury is the sole judge of the credibility of the witnesses and the weight to be given to their testimony. GTE Mobilnet of S. Tex. v. Pascouet, 61 S.W.3d 599, 615B16 (Tex. App.CHouston [14th Dist.] 2001, pet. denied). We may not substitute our own judgment for that of the jury, even if we would reach a different answer on the evidence. Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 407 (Tex. 1998). The amount of evidence necessary to affirm a judgment is far less than that necessary to reverse a judgment. Pascouet, 61 S.W.3d at 616.


Neither the wills nor the decrees of distribution state unambiguously that the trusts will terminate after all the beneficiaries have reached the age of majority. Rather, they permit the beneficiaries to obtain their share of the trust corpus if they wish, upon reaching the age of majority. Allowing this option does not trigger termination of the trusts upon Mike=s reaching the age of majority. Furthermore, the evidence at trial is factually sufficient to support a finding that neither of the beneficiaries asked for the trusts corpus to be disbursed to them or that the trusts be terminated on or after reaching eighteen years of age. In addition, both of the beneficiaries desired their father Michael to continue operating the trusts. The evidence at trial showed that, although Derek knew he had a right to the trust assets at age eighteen, he decided to let his father continue to operate the trusts. Derek never asked for the trust property to be distributed to him, and he allowed his father operate as trustee even after the lawsuit was filed. Mike testified that his sons appointed him as trustee when they both reached the age of majority in 1991, and that there is a written agreement memorializing this appointment.[2]

Although Michael gave some testimony that upon his sons=attaining the age of majority he merely acted as a manager or agent for his sons, the vast majority of his testimony and actions support the jury=s answers to question one. Michael testified he was the trustee and performed acts as trustee after his sons reached the age of majority. Michael=s declaration and waiver stated in relevant part that he would turn over the corpus of the Schaefer and DePiller trusts to the beneficiaries Aupon demand@ after they attain the age of majority and can competently (as adults) administer their respective 50% of the trust corpus. Michael testified that neither of his sons ever demanded the trust corpus.


Michael consistently acted as trustee, held himself out as trustee, and conducted transactions as trustee up until the time he transferred the trusts= assets on January 11, 1999. He bought and sold real property in both Houston, Texas and Tulsa, Oklahoma, as trustee, through 1997. Michael entered into promissory notes as trustee and accepted payments on these notes as trustee from 1995 through 1999. He also represented to courts in Texas and California, from 1994 through 2000, that he was the trustee. In the prior lawsuit against Bellfort Chateau, he identified himself in a sworn counterclaim and in answers to interrogatories as Michael Schaefer, Trustee. The January 14, 1999 judgment in the underlying lawsuit is against Michael Schaefer, Trustee. Michael also signed a letter on October 12, 1997 regarding the trusts. In this letter, he states that the trust is his responsibility. Furthermore, throughout 1998 and 1999, Ajudani made payments on the promissory notes to Michael Schaefer, Trustee and they were endorsed by Michael Schaefer, Trustee and deposited in the trust account. Michael even testified that the notes were a part of the trust and that he had acted as a trustee throughout the litigation until the trial court announced its judgment in open court.

There is factually sufficient evidence to show that Michael was acting in the capacity of trustee of the DePillar and Schaefer Trusts at the time he transferred the Ajudani and National Motel Corporation notes and any lien rights securing those notes. Under the applicable standard of review, we conclude the evidence at trial is factually sufficient to support the jury=s answer to question one in the charge. Accordingly, we overrule the Schaefers= second issue.

In part of their third issue, the Schaefers assert the evidence is factually insufficient to support the jury=s answers to question two because the trusts terminated on July 23, 1991, when Mike turned eighteen, thus depriving Michael of any ability to act as trustee regarding the trust assets. Under the applicable standard of review and for the reasons stated above, we likewise conclude that there is factually sufficient evidence to support the jury=s answer to question two. Accordingly, we overrule the remaining part of the third issue.

Having overruled all of the Schaefers= issues, we affirm the trial court=s judgment.

/s/ Kem Thompson Frost

Justice

Judgment rendered and Memorandum Opinion filed August 18, 2005.

Panel consists of Justices Anderson, Hudson, and Frost.


[1] Mary Schaefer=s will left half of 95% of her estate to her grandsons Derek and Mike.

[2] The evidence at trial did not include a copy of any such written agreement.

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