Interfirst Bank-Houston, N.A. v. Quintana Petroleum Corp.

• Decision Date: 11 July 1985
• Docket Number: No. 01-84-0626-CV,N,BANK-HOUSTO,01-84-0626-CV
• Citation: 699 S.W.2d 864
• Parties: INTERFIRSTA., Guardian of the Estate of Ugo DiPortanova, N.C.M., et al., Appellants, v. QUINTANA PETROLEUM CORPORATION, et al., Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 864

699 S.W.2d 864

INTERFIRST BANK-HOUSTON, N.A., Guardian of the Estate of Ugo DiPortanova, N.C.M., et al., Appellants, v. QUINTANA PETROLEUM CORPORATION, et al., Appellees.

No. 01-84-0626-CV.

Court of Appeals of Texas Houston (1st Dist.).

July 11, 1985.

Rehearing Denied Oct. 10, 1985.

Michael S. Wilk, Joseph S. Cohen, Hirsch & Westheimer, P.C., Houston, for RepublicBank Houston, Nat. Ass'n, Trustee.

W. Bryant Russell, James Wyckoff, James David Pittman, Sandra L. Perkins, Wyckoff, Russell, Frazier & Centiempo, Houston, for Interfirst Bank Houston, N.A., Guardian of the Estate of Ugo di Portanova, N.C.M.

Paul E. Harris, Childs, Fortenbach, Beck & Guyton, Berry D. Bowen, Andrews & Kurth, Houston, for Tex. American Bank-Houston.

Joe M. Kirkham, Kirkham & Roberts, Houston, Stephen M. Sacks, Peter T. Grossi, Jr., David S. Steuer, Arnold & Porter, Washington, D.C., for Enrico di Portanova & Gregory Hovas, Trustee.

William E. Matthews, Harvey G. Brown, Jr., Sewell & Riggs, Houston, for Gregory Hovas, Co-Trustee of the Estate & La. Trusts for the benefit of Ugo DiPortanova.

J. Eugene Clements, James L. Cornell, Porter & Clements, Houston, for John Neale & H.R. "Babe" Schwartz.

Joseph D. Jamail, Jamail & Kolius, Houston (Stanley M. Johanson, Austin, of counsel), Ewing Werlein, Jr., John L. Carter, D. Gibson Walton, C. Boone Schwartzel, Allan Van Fleet, J. Thomas Scott, Elaine Drodge Koch, Vinson & Elkins, Houston, for Quintana Petroleum Co.; Isaac Arnold, Jr. & Roy H. Cullen, Individually & as Independent Before WARREN and JACK SMITH, JJ., and TOM F. COLEMAN, Retired Justice.

Executors of the Estate of Agnes Cullen Arnold, Deceased; Margaret Cullen Marshall & Wilhelmina Cullen Robertson, Individually & as two of those who served as Co-Executrices of the Estate of H.R. Cullen & Lillie C. Cullen, Deceased, Harry H. Cullen, Douglas B. Marshall, Sr. and Corbin J. Robertson, Sr.

OPINION

TOM F. COLEMAN, Retired Justice.

This is an appeal from a summary judgment. Enrico diPortanova, InterFirst Bank-Houston, N.A., guardian of the estate of Ugo diPortanova, N.C.M., and the trustees of various testamentary trusts set up by the wills of H.R. Cullen and Lillie C. Cullen, his wife, have sued to set aside the transfer of certain shares of stock from the testators' estates to certain family members other than the diPortanovas, and for damages. The principal contention of the plaintiffs is that the executrices of the Cullen estates, all daughters of Mr. and Mrs. Cullen, violated section 352 of the Texas Probate Code when they sold the shares of Quintana Petroleum Corporation stock owned by their parents to their husbands and nephews. The defendants have urged that the self-dealing on the part of the executrices was authorized by the wills of Mr. and Mrs. Cullen, does not violate section 352 of the Texas Probate Code, and that the causes of action are barred by the statute of limitations.

After extensive discovery, the trial court granted a summary judgment. One of the principal bases for the court's action was its finding that as a matter of law the causes of action asserted by the various plaintiffs were barred by the statute of limitations. We find this action on the part of the trial court was correct, and we affirm the judgment.

Prior to 1939, the Cullen oil and gas properties were owned and operated by Quintana Petroleum Company. This corporation had issued 500 shares of common stock, 200 of which Mr. Cullen owned individually, and another 250 of which he controlled as trustee of a trust for the benefit of his children. Roy G. Cullen, his son, owned the other 50 shares.

In 1932, Mr. Cullen discovered the Tom O'Connor Oil Field, which continues to produce today and has been the foundation of the Cullen fortune. Mr. and Mrs. Cullen had five children: a son, Roy G., and four daughters, Lillie, Agnes, Margaret and Wilhelmina. Roy G. worked with his father until 1936, when he died in a drilling accident, leaving a wife, a daughter, and two sons, Roy H. Cullen and Harry H. Cullen.

Agnes had married Isaac Arnold, Sr., Mr. Cullen's chief engineer, who continued to work with the Cullen enterprises for the rest of his life. Margaret and Wilhelmina married men who also worked for Mr. Cullen and continued to work with the Cullen enterprises.

The Cullen's oldest daughter, Lillie, moved to Los Angeles and married Paolo diPortanova. Paolo diPortanova worked for Mr. Cullen for a time but then quit and returned to Los Angeles. Two children, Enrico and Ugo, were born to that marriage. Paolo divorced Lillie in 1937, but neither Lillie nor her sons thereafter lived in Texas during the lifetime of Mr. and Mrs. Cullen.

On December 31, 1938, Mr. Cullen dissolved Quintana Petroleum Company and distributed its assets. At the same time, he formed Quintana Petroleum Corporation to operate his properties. Quintana Petroleum Corporation does not invest in oil and gas properties, but rather operates such properties and provides accounting, tax advice, and other services to the Cullen family and others for a fee.

The initial shareholders of Quintana Petroleum Corporation were Mr. Cullen, Isaac Arnold, Sr., Mr. Cullen's lawyer Harry Holmes, and Harry's brother, John Holmes. In 1943, Mr. Cullen increased the number of shareholders by transferring some of his stock to Mrs. Cullen, Margaret, Wilhelmina and six non-family corporation employees. He did not give any stock to his daughter Agnes, whose husband, Isaac Arnold, Sr., was among the initial stockholders, nor did he give any stock to Lillie or Paolo diPortanova. The diPortanovas were never active in the business of Quintana Petroleum Corporation, and no stock was ever issued to any of them. After this stock was issued, the shareholders signed an agreement, reciting as its purpose, to "guard against the introduction, as stockholders in said Quintana Petroleum Corporation, of strangers or outsiders in said business." The agreement provided that if any stockholder (1) desired to sell his or her Quintana Petroleum Corporation stock and retire from the business, or (2) for whatever reason, no longer was an active worker in the business, or (3) died, then the remaining stockholders "shall have the option to purchase and acquire the whole of the stock interest of such parties so dying at the book value thereof, which value shall be ascertained by the board of directors by majority vote...."

In 1945, Margaret married Douglas B. Marshall, and Wilhelmina married Corbin J. Robertson. Mr. Marshall and Mr. Robertson went to work for the Quintana Petroleum Corporation, and in 1946, Mr. Cullen made them stockholders of the corporation and had them execute an acknowledgment of the stockholders' agreement. In 1950, Roy H. Cullen, Roy G. Cullen's oldest son, began working with his grandfather at Quintana, and in 1951, he received shares of the corporation stock and signed an acknowledgment of the stockholders' agreement.

In 1953, Mr. and Mrs. Cullen executed their last wills. Mr. Cullen's will, after a few specific bequests, divided the rest of his estate into four equal shares, each share allocated to an "estate trust" for the benefit of each of the children of his four daughters. Mr. Cullen's will did not mention his Quintana stock, but it did provide that the distributions to the trusts were subject to any liability or indebtedness of the estate and subject to all instruments evincing such.

Mrs. Cullen's will was the same as Mr. Cullen's, except that she specifically bequeathed her one share of Quintana stock to him if he survived her. This was permitted by the stockholders' agreement.

Mr. Cullen died on July 4, 1957. His will was probated in Harris County, with Mrs. Cullen serving as executrix. Mrs. Cullen died November 15, 1959, and her will was probated in Harris County, Texas. The executrices of Mrs. Cullen's estate and trustees of the trusts created by her will were the Cullens' daughters, Agnes, Margaret, and Wilhelmina. These daughters also succeeded Mrs. Cullen as executrices and trustees under Mr. Cullen's will.

Since the primary issue in this case relates to the question of whether the executrices acted correctly under the terms of the will and the laws of this state when they sold 127 shares of the stock of Quintana Petroleum Corporation to their husbands and their two nephews, certain provisions common to both wills must be noticed. Each executrix was given, in addition to all of the powers of independent executors under the laws of the State of Texas, all the powers given to the trustees under the will. Prior to final disposition of the estate, partial distributions at the discretion of the executrices were authorized, and it was specifically recognized that the executrixship and the trust created in the will could exist contemporaneously until the executrixship should end.

There is a provision that no executrix shall be responsible or liable for any loss or depreciation in value of the assets of the estate, unless such loss was due to such executrix's gross neglect, bad faith, or fraud.

All of the property belonging to Mr. Cullen (or in the case of Mrs. Cullen's will, Mrs. Cullen), with the exception of household goods, automobiles, furniture, china, jewelry, and certain other things of that character, were devised to the various trusts.

In addition to the rights, privileges, and powers conferred by law at the time of death or thereafter, the trustees of the trust were granted certain specific rights, privileges, and powers, including the following:

a) To manage and control the trust estate in accordance with the trust instrument, including the power to hold property unproductive of income and the power to buy, sell, exchange, and/or retain stock of any trustee that is a bank.

b) To sell, exchange, or otherwise dispose of, all or any part of the trust estate, publicly or privately.

c) To invest, pay, expend, or otherwise apply the trust estate for any purpose,...