Ditta v. Conte

• Decision Date: 05 June 2009
• Docket Number: No. 07-1026.,07-1026.
• Parties: Louis M. DITTA, Guardian of the Estate of Doris L. Conte, an incapacitated Person, Petitioner, v. Susan C. CONTE and Joseph P. Conte, Jr., Respondents.
• Court: Texas Supreme Court

298 S.W.3d 187

Louis M. DITTA, Guardian of the Estate of Doris L. Conte, an incapacitated Person, Petitioner, v. Susan C. CONTE and Joseph P. Conte, Jr., Respondents.

No. 07-1026.

Supreme Court of Texas.

Argued January 13, 2009.

Decided June 5, 2009.

Louis M. Ditta, Michael J. Cenatiempo, Caroline Stephenson Marciano, Cenatiempo & Ditta, L.L.P., Thomas C. Wright, Bradley Wayne Snead, Wright Brown & Close, LLP, Houston TX, for Petitioner.

Karen L. Watkins, McGinnis Lochridge & Kilgore, L.L.P., Austin TX, Steven J. Watkins, McGinnis Lochridge & Kilgore, L.L.P., Houston TX, for Respondent.

Joseph P. Conte Jr., Houston TX, pro se.

Justice WILLETT delivered the opinion of the Court.

The court of appeals held that this trustee-removal suit was barred by the four-year statute of limitations applicable to breach-of-fiduciary-duty suits. We disagree and hold that no statutory limitations period restricts a court's discretion to remove a trustee. A limitations period, while applicable to suits seeking damages for breach of fiduciary duty, has no place in suits that seek removal rather than recovery. Accordingly, we reverse the court of appeals' judgment that the case was time-barred and remand to that court for further proceedings.

I. Background

In 1987, Joseph and Doris Conte created the Joseph P. Conte Family Trust, an inter vivos trust. The Trust agreement named Joseph the original trustee. Upon Joseph's death in 1993, Doris began serving as co-trustee along with her two children, Susan and Joseph Jr. The co-trustees were obliged to create and fund three separate trusts for the primary benefit of Doris. The co-trustees were to distribute quarterly income from a management trust to Doris, as well as principal amounts requested by Doris for "her comfort, health, support and maintenance, in order to maintain" the equivalent lifestyle to which Doris was accustomed at the time of Joseph's death.

Initially, Joseph Jr. managed the Trust's day-to-day affairs. About two years later, Susan and Doris discovered that Joseph Jr. was not administering the Trust in accordance with its terms. This discovery heralded a proliferation of litigation, including eight separate lawsuits between Susan and Joseph Jr. In the course of one of these suits, Doris was declared mentally incapacitated. Susan was made guardian of Doris' person, and Louis Ditta, the petitioner in this case and an attorney, was eventually made guardian of Doris' estate. Due to the declaration of incapacity, Doris was removed as a trustee of the Trust.

In August 1998, Ditta sought appointment of a receiver to take over the Trust, claiming that the discord between Joseph Jr. and Susan was materially injuring the Trust assets. Instead of appointing a receiver, the probate court appointed a temporary successor trustee, Paula Miller. At that time, the trustee powers of both Susan and Joseph Jr. were temporarily suspended. In June 2000, Miller filed an accounting for the Trust with the court that covered March 8, 1993 (the date of Joseph's death) to December 31, 1999. The accounting revealed that both Susan and Joseph Jr. had become significantly indebted to the Trust by using Trust assets for personal expenses.

Susan contested the accounting, but eventually the parties entered into an agreed judgment in January 2001. The agreed judgment approved Miller's accounting of more than $400,000 that Susan owed to the Trust and a similar debt owed by Joseph Jr. The agreed judgment provided that collection of the amounts owed by Susan and Joseph Jr. would be deferred during Doris' lifetime, unless the probate court later found that Doris' "financial needs" required earlier repayment.

In January 2003, Ditta persuaded the probate court to remove Joseph Jr. as trustee based on his violations of the Trust agreement. Thereafter, only Susan (whose trustee powers were suspended) and Miller (the temporary successor trustee) remained as trustees. On April 5, 2004, Ditta filed this suit, seeking Susan's removal as trustee. On both April 27 and November 3 of that same year, Susan and Joseph Jr., in their capacity as beneficiaries of the Trust, signed documents, pursuant to the terms of the Trust,¹ to reappoint Susan as trustee if she were removed by the court in the removal proceeding initiated by Ditta.

Following a bench trial, the probate court removed Susan as trustee, modified the terms of the Trust regarding trustee succession, and appointed Frost Bank as successor trustee. Susan appealed and the court of appeals reversed, holding that Ditta's removal action was barred by the four-year statute of limitations governing breach-of-fiduciary-duty claims.² The court of appeals reasoned that because "Susan's alleged breach of fiduciary duty formed the underlying basis for Ditta's removal action," and "both parties ... briefed the instant appeal as one to which a four-year statute of limitations applies," Ditta was required to bring his removal action no later than four years after the cause of action for removal accrued.³ The court of appeals also held that the probate court erred in modifying the terms of the Trust and appointing a successor trustee because it took those actions based on a time-barred petition.⁴

II. Preservation of Error

In a post-submission brief, Susan asserts that Ditta has waived the argument that no limitations period should apply to the removal action. While Ditta did not make that precise argument, his entire brief to this Court assiduously detailed numerous reasons why the statute of limitations should not apply to his action.⁵ We have held that "[w]hen ... the only issue is the law question of which statute of limitations applies, the court of appeals should apply the correct limitations statute even if the appellee does not file any brief."⁶ Further, a question is properly before this Court if it is subsidiary to, and fairly included within, an issue raised in a litigant's petition for review.⁷ This requirement is to be applied "reasonably, yet liberally," so that an appellate court can reach the merits of an appeal whenever it is "reasonably possible" to do so.⁸ In order to see that "a just, fair[,] and equitable adjudication of the rights of the litigants"⁹ is obtained, we broadly construe Ditta's issues to encompass the core question of whether a statute of limitations should be applied at all.

III. Timeliness of Trustee-Removal Claim

Ditta sought removal of Susan as trustee and reformation of the Trust to appoint a successor trustee. He asserted no cause of action giving rise to a claim for monetary damages such as breach of fiduciary duty. Therefore, we limit our analysis to the question of what, if any, statute of limitations should apply to a claim solely for removal of a trustee.

Neither the Texas limitations statutes¹⁰ nor Texas caselaw (save for the court of appeals' decision in this case) address what, if any, limitations period applies to a trustee-removal cause of action.¹¹ Scant caselaw exists elsewhere on the issue.¹²

The court of appeals applied the four-year statute of limitations applicable to suits for breach of fiduciary duty.¹³ Susan's removal as trustee, however, was not based solely on discrete breaches of fiduciary duty that occurred in the past. The probate court gave three reasons for removing Susan: (1) her indebtedness to the Trust and concurrent responsibility to collect on that debt if Doris needed the funds created an inherent and continuing conflict of interest; (2) Susan's prior use of Trust funds to pay off personal debts materially violated the terms of the Trust; and (3) Susan's tenuous relationship with Joseph Jr. impaired the performance of her trustee duties. Susan does not persuade us that any of these three reasons could not be considered by the probate court as grounds for her removal as trustee.¹⁴ The Trust Code provides courts wide latitude in deciding whether to remove a trustee:

A trustee may be removed in accordance with the terms of the trust instrument, or, on the petition of an interested person and after hearing, a court may, in its discretion, remove a trustee ... if: (1) the trustee materially violated or attempted to violate the terms of the trust and the violation or attempted violation results in a material financial loss to the trust; (2) the trustee becomes incapacitated or insolvent; (3) the trustee fails to make [a required] accounting ...; or (4) the court finds other cause for removal.¹⁵

More fundamentally, even if the probate court's removal of Susan had been based solely on a conclusion that she committed a discrete breach of fiduciary duty, we conclude that the court's discretion to remove a trustee for such a breach is not subject to a statutory limitations period running from a specified period after the breach. Instead, the removal decision turns on the special status of the trustee as a fiduciary and the ongoing relationship between trustee and beneficiary, not on any particular or discrete act of the trustee.

A trust is not a legal entity;¹⁶ rather it is a "fiduciary relationship with respect to property."¹⁷ High fiduciary standards are imposed upon trustees,¹⁸ who must handle trust property solely for the beneficiaries' benefit.¹⁹ A fiduciary "occupies a position of peculiar confidence towards another."²⁰ Accordingly, a trustee's association with the trust is that of a relationship or a status. Because a trustee's fiduciary role is a status, courts acting within their explicit statutory discretion should be authorized to terminate the trustee's relationship with the trust at any time, without the application of a limitations period.

By analogy, the marital relationship between spouses is a fiduciary relationship.²¹ That special relationship is of course more than the sum of discrete actions taken by one spouse toward another. If, for example, cruelty and adultery are recognized grounds for divorce,²² a spouse suing for divorce on those grounds should not be tasked to sue...