Alpert v. Riley
| Decision Date | 11 February 2011 |
| Docket Number | CIVIL ACTION NO. H-04-3774 |
| Parties | ROBERT ALPERT, et al., Plaintiffs, v. MARK R. RILEY, et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
This opinion addresses the following motions:
(1) the plaintiffs' motion for partial summary judgment on issues related to the Robert Alpert Trust (RAT), Daniel Alpert Trust (DAT), and Robert Alpert 1996 Children's Trust (the "Children's Trust") (collectively, the "Three Trusts"), (Docket Entry No. 366); and
(2) the defendants' motion to dismiss for lack of subject-matter jurisdiction, (Docket Entry No. 440).
Based on the motion and response, (Docket Entry No. 408); the record, and the applicable law, Alpert's motion for partial summary is granted in part and denied in part. It is granted as to the plaintiffs' claim that after June 8, 2005, Riley lacked authority to withdraw funds from the Three Trusts as compensation or to pay for litigation expenses incurred prosecuting claims against Alpert on after April 21, 2006. The motion is also granted as to the plaintiffs' claim that Riley did not properly reappoint himself trustee of the Three Trusts on January 10, 2010. The motion is denied as to the plaintiffs' claims that Riley lacked authority to act as trustee of the DAT and RAT after June 8, 2005. This claim was remanded to the state probate court. The motion is also denied as to the plaintiffs' claim that Riley breached fiduciary duties to the Three Trusts after June 8, 2005. That claim will be tried in this case. The reasons for these rulings are set out in detail below.
This case arises out of disputes between Robert Alpert and Mark Riley that have played out for more than a decade Texas state courts and this court. Riley is a lawyer and an accountant. Riley worked for Alpert and entities that he owned or controlled from June 1994 to October 1998. Riley served as trustee for trusts Alpert established primarily for his sons, Roman Alpert and Daniel Alpert. Alpert and his sons sued Riley and his former legal assistant, Dixie G. Meynier, in this court, based on actions relating to Alpert's finances and businesses, four trusts Alpert created, and Riley's involvement in providing confidential information about Alpert to the IRS for compensation.
The parties have been litigating, and continue to litigate, claims related to the Three Trusts in state probate court. Their litigation began in 1998 in Probate Court Number Two of Harris, County Texas, in In re: Roman Alpert Trust, Daniel James Alpert Trust, and the Robert Alpert 1996 Children's Trust; Mark Riley, Trustee vs. Robert Alpert, et al. After a number of rulings and a jury trial, the probate court entered a final judgment on June 8, 2005. Alpert appealed. The First Court of Appeals reversed and rendered on a number of issues and reversed and remanded on other issues. Alpert v. Riley, 274 S.W.3d 277 (Tex. App. — Houston [1st Dist.] 2008, pet. refd). The Texas Supreme Court declined to review the case.
Alpert's claims related to the Three Trusts in this court are limited to acts after June 8, 2005, the date the probate court issued its final judgment. In their third amended complaint in this court, the plaintiffs asserted claims against Riley for negligence and gross negligence, negligent misrepresentation, breaches of fiduciary duties and aiding abetting breaches of fiduciary duties, civil conspiracy, and violations of §§ 6103 and 7431 of the Internal Revenue Code ().1
Litigation between the parties began in 1998, when Riley, claiming to be the trustee of the RAT and DAT, filed suit in the state probate court against Alpert based on allegations that he had sold stocks to trigger a tax loss and then caused the RAT and DAT to buy those stocks, allegedly resulting in the overpayment of taxes by the trusts. Riley alleged that Alpert breached fiduciary duties he owed to the trust beneficiaries.
The beneficiaries intervened in the suit and sought a declaration that Riley was not the trustee of the RAT or DAT, or alternatively, an order removing Riley as trustee because of his breaches of fiduciary duties. After Riley allegedly intercepted a tax-refund check issued to the Children's Trust, the putative trustee of that trust initiated a separate suit, seeking a declaratory judgment that Riley was not the trustee. The probate court consolidated that suit with the previously filed suit involving the RAT and DAT.
Cross-motions for summary judgment were filed on whether Riley was the properly appointed trustee of the Three Trusts. The probate court granted Riley's motion as to the RAT and DAT and found that he was properly appointed as the trustee. The probate court initially denied Riley's motion as to the Children's Trust but ruled at a pretrial hearing that Riley was the properly appointed trustee of that trust as well. The probate court also granted Riley's motion for summary judgment on Alpert's liability for breaches of fiduciary duties and the amount of damages suffered by the Three Trusts. The probate court found that Alpert's actions caused $2,000, 000 in tax losses to the trusts. Following a jury trial, on June 8, 2005 the jury found that Riley breached his fiduciaryduties to the trust but awarded no damages. The jury also found that Alpert had breached fiduciary duties with respect to additional transactions but awarded no damages. The jury awarded Riley's attorneys $1,517, 348 in fees for their work on behalf of the RAT and DAT and $57,038 for their work on behalf of the Children's Trust.
On March 28, 2006, following a post-trial hearing, the probate court entered judgment on the jury's findings against Alpert, effective as of the date of the verdict. The probate 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; and additional attorney's fees of $208,688.03 for each trust and for appellate fees in connection with the summary judgment findings against Alpert on the stock transactions. The probate court disregarded the jury's breach finding against Riley and its award of attorney's fees to the beneficiaries. The final judgment also terminated Riley's trusteeship for all three trusts, but then reappointed Riley to serve as trustee of the Three Trusts pending the appeal. After the probate court's final judgment, Alpert and the beneficiaries asked to post security to suspend Riley's reappointment as trustee pending appeal, which the probate court denied.
Alpert appealed. On July 3, 2006, the appellate court stayed the probate judgment. That stay remained in effect throughout the appeal and was reaffirmed by the appellate court on June 29, 2007, and again on February 1, 2008.
On October 9, 2008, the appellate court reversed the probate court's judgment. The appellate court:
• reversed the probate court's ruling that Riley was properly appointed trustee of the RAT and DAT and remanded the issue to the probate court;
• reversed the probate court's ruling that Riley was properly appointed trustee of the Children's Trust and rendered judgment that Riley was not, as a matter of law, properly appointed trustee of that trust;• reversed the probate court's judgment that Alpert breached fiduciary duties to the trusts and dismissed the claims for lack of subject-matter jurisdiction;
• reversed the probate court's judgment disregarding the jury's finding that Riley breached fiduciary duties, and rendered based on the jury's verdict;
• reversed the probate court's judgment setting aside the attorney's fees the jury awarded the beneficiaries and remanded for further proceedings;
• reversed the probate court's award of attorneys' fees to Riley and remanded for further proceedings as to whether Riley was ever properly appointed trustee of the RAT and DAT;
• reversed the probate court's judgment approving trustee compensation for Riley and rendered judgment that Riley could recover no compensation for any acts as trustee;
• affirmed the probate court's recognition that Riley was released as trustee of any trusteeship that may later be found to be valid but reversed the appointment of Riley as successor trustee and rendered judgment "that any successor trustees for the RAT, DAT, and [Children's] trust are to be selected in accordance with the terms of the applicable trust instrument, after identification of the valid trustee for each trust"; and
• affirmed the probate court's denial of Alpert's request that he be permitted to post security to suspend Riley's reappointment as trustee pending appeal.
The appellate court also rendered judgment that Riley was not entitled to reimbursement for any attorneys' fees or expenses incurred after April 21, 2006 in connection with his prosecution of claims against Alpert. The court made this ruling based on § 113.028 of the Texas Property Code, which provides:
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 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.
The beneficiaries had provided notice of their opposition to Riley's lawsuit on April 21, 2006, after § 113.028's June 17, 2005 effective date.2
Based on the appellate court's rulings, the plaintiffs have moved for summary judgment on the following:
1. No matter what the outcome of the issues remanded to probate court, Riley has never had authority to act for the [Children's] Trust and any benefits received from actions taken claiming such authority should be restored to the [ ] Trust, together with interest from the date of each unauthorized transaction.
2. No matter what the outcome of the issues remanded to probate court, Riley had no authority after June 8, 2005 to act for the [RAT] and any benefits received from actions taken...
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