Lee v Lee

• Decision Date: 17 May 2001
• Docket Number: No. 14-97-00162-CV,14-97-00162-CV
• Citation: 47 S.W.3d 767
• Parties: <!--47 S.W.3d 767 (Tex.App.-Houston 2001) SUSAN CAMILLE LEE, INDIVIDUALLY, AND AS TRUSTEE OF THE ARTICLE V TRUST FOR THE BENEFIT OF SUSAN C. GIBSON, AND DERIVATIVELY ON BEHALF OF THE ARTICLE IV TRUST AND THE ESTATE OF KATHERINE PILLOT LEE BARNHART, AND SUSAN C. GIBSON, INDIVIDUALLY, AND DERIVATIVELY ON BEHALF OF THE ARTICLE IV TRUST AND THE ESTATE OF KATHERINE PILLOT LEE BARNHART, Appellants v. RONALD E. LEE, JR., INDIVIDUALLY, AS TRUSTEE OF THE ARTICLE IV TRUST, AND THE ARTICLE V TRUST FOR THE BENEFIT OF KATHERINE LEE, AND AS EXECUTOR OF THE ESTATE OF KATHERINE PILLOT LEE BARNHART, Appellee Court of Appeals of Texas, Houston (14th Dist.)
• Court: Texas Court of Appeals

Page 767

47 S.W.3d 767 (Tex.App.-Houston [14th Dist.] 2001)

SUSAN CAMILLE LEE, INDIVIDUALLY, AND AS TRUSTEE OF THE ARTICLE V TRUST FOR THE BENEFIT OF SUSAN C. GIBSON, AND DERIVATIVELY ON BEHALF OF THE ARTICLE IV TRUST AND THE ESTATE OF KATHERINE PILLOT LEE BARNHART, AND SUSAN C. GIBSON, INDIVIDUALLY, AND DERIVATIVELY ON BEHALF OF THE ARTICLE IV TRUST AND THE ESTATE OF KATHERINE PILLOT LEE BARNHART , Appellants v RONALD E. LEE, JR., INDIVIDUALLY, AS TRUSTEE OF THE ARTICLE IV TRUST, AND THE ARTICLE V TRUST FOR THE BENEFIT OF KATHERINE LEE, AND AS EXECUTOR OF THE ESTATE OF KATHERINE PILLOT LEE BARNHART, Appellee

No. 14-97-00162-CV

Court of Appeals of Texas, Houston (14th Dist.)

May 17, 2001.

Rehearing Overruled May 17, 2001.

On Appeal from the Probate Court No. 2 Harris County, Texas Trial Court Cause No. 137,506-402

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[Copyrighted Material Omitted] Panel consists of Justices Anderson, Hudson, and Senior Chief Justice Murphy.^*

CORRECTED OPINION

Hudson, Justice

This is an appeal from a judgment in a probate case in which appellants sought removal of the executor/trustee and sought damages for breaches of fiduciary duty and for excessive executor fees. After granting appellee's motion for judgment notwithstanding the verdict and disregarding several jury findings, the trial court rendered judgment: (1) refusing to remove appellee as executor and trustee, and (2)awarding $2.8 million in damages and prejudgment interest to the Article IV trust. Appellants raise eight issues and appellee brings three cross-points. In our corrected opinion of February 8, 2001, this court affirmed in part and reversed and rendered in part.

Appellants have filed a third motion for rehearing. We now withdraw our corrected opinion of February 8, 2001, and issue this corrected opinion, affirming in part and reversing and rendering in part.

Background

When Katherine Barnhart died in 1975, her will provided that the bulk of her estate was to pass to a trust (the "Article IV Trust"). Barnhart's two children, appellant Susan Lee, and her brother, appellee Ronald Lee, were each entitled to one-sixth of the income from the Article IV Trust, and so much of the remaining two-thirds as necessary for their health, support and maintenance, considering the "availability of funds from other sources." The remaining income was to go into separate trusts for each of the grandchildren (the "Article V Trusts"). The Article V Trusts were to distribute income to the grandchildren to the extent necessary to provide for their health, support and maintenance, also considering the "availability of funds from other sources."

As provided in the will, appellee was appointed executor of the will (and trustee of the trusts) and began administration in 1976. Appellee filed the estate's inventory reflecting a date of death value of $12.8 million. After negotiations that continued until 1992, appellee and the IRS agreed upon a taxable value of the estate assets of $12 million. By this time, federal and state inheritance taxes totaled approximately $7 million. Because the majority of the estate's assets were raw land, the estate was unable to pay the taxes it owed and the trusts could not be funded.

In February 1980, appellee reached an agreement with the IRS regarding the estate taxes due. The total amount due was $2.8 million, and the interest on that amount as of February 1980 was approximately $475,000 (for a total debt to the IRS of approximately $3.5 million). The estate also owed the State of Texas approximately $800,000 in inheritance taxes. Because the estate had little available cash, appellee continued to request extensions on these debts. Other debts continued to amass, including ad valorem taxes on the various parcels of real estate.

In December 1980, appellee accepted an unsolicited offer to purchase 61 acres of a large tract on Westheimer Road for $19.5 million. The contract provided for payment in four annual installments. Appellee funded the Article IV Trust in 1982 with a deposit of $4 million. Appellant, Susan Lee, received her first distribution from the Article IV Trust in January 1983 in the amount of $15,784.

Appellee testified that, by the time he funded the Article IV Trust, he had taken more than $1 million in executor fees. By December of 1983, appellee had taken a total of $2,836,000 in fees. Although the IRS initially disputed the amount of this fee, they ultimately allowed the deduction of $1.5 million of appellee's fee.

In December 1985, appellee received a letter from Susan Lee's attorney stating that she had never received an accounting and demanding one at the earliest possible date. This letter also asked about appellee's plans and expected distributions. Appellee did not produce an accounting in response to this request. In 1988, Susan Lee's attorney sent appellee a certified letter requesting an accounting from November 1975 to the present under section 149A of the Probate Code. This letter demanded receipt of the accounting by December 17, 1988, and requested copies of all income tax returns filed for the estate and any trusts. Appellee did not produce the accounting on the deadline and appellants filed suit several days later.

Appellee did not list the remaining Westheimer property or the Pasadena property for sale. Although he received an unsolicited offer to sell the remaining Westheimer tract, appellee did not respond to this offer because he found it to be a bad proposal in that the offeror required high-density sewer capacity and would not pay for the portion of the property within the flood plain. In 1984, appellee had received another unsolicited offer to buy the Pasadena property for $2.3 million, which he did not accept because it was not a cash deal. Appellee did not make counteroffers to either of these offerors. In 1984, appellee had also received a contract offering $12,500 per acre for the Pasadena property. This was not a cash offer and appellee did not make a counteroffer.

Two family ranches were also in the estate: Cap Rock Ranch and River Bend Ranch. These ranches increased the estate's debts because they incurred taxes and were unprofitable. In 1990, River Bend Farm was leased for $20,000 per year. Appellee did not believe he could sell the family ranch because he and Susan Lee owned it jointly. Appellee discussed the possibility of partitioning with Susan Lee's attorney, but this never occurred.

During 1990-91, appellee considered developing the remaining Westheimer property into a residential subdivision to be called "Knollwood Trails." The development never received a loan and was ultimately abandoned. By 1991, appellee had spent more than $700,000 on Knollwood.

In April 1994, K-Mart bought a 21 acre parcel of the Westheimer tract for $8 million. The trial court ordered that these sale proceeds along with other estate assets be transferred to the Article IV trust. A year later, appellee funded the Article V trust.

Susan Lee brought suit individually and as trustee of the Article V Trust for the benefit of her daughter, Susan Gibson, and derivatively on behalf of the Article IV Trust and the Estate. Her daughter, Susan Gibson, was also a named plaintiff. Although the original suit was for an accounting and for removal of appellee as executor and trustee, additional claims included breaches of fiduciary duty, conversion, fraudulent concealment, constructive fraud and/or fraud, negligence, and gross negligence.

The case was tried to a jury and the jury found that appellee had breached fiduciary duties, that he charged unreasonable fees and expenses to the estate, that his fees and expenses were unreasonable by approximately $2.2 million, that the breaches of fiduciary duty resulted in damages, and that appellee defended against removal in bad faith. The jury also found that the breaches of fiduciary duty were not committed with gross negligence. Appellee filed a motion for judgment notwithstanding the verdict and to disregard jury findings. The trial court granted this motion in part, disregarding the jury's findings of breach of duty and damages for the failure to sell the Westheimer and Pasadena property, the bad faith defense finding, and found the following:

(1) the Article IV trust was entitled to judgment against appellee in the amount of $840,000 (amount found by jury) for breach of fiduciary duty relating to the Knollwood development;

(2) the Article IV Trust was entitled to judgment against appellee in the amount of $1.00 (amount found by jury) for the breach of fiduciary duty relating to River Bend Farm;

(3) the Article IV Trust was entitled to judgment against appellee in the amount of $1.00 (amount found by jury) for the breach of fiduciary duty relating to Cap Rock Ranch;

(4) the Article IV trust was entitled to judgment against appellee in the amount of $659,506.50 (consisting of the $2.2 million of unreasonable executor fees less the tax savings realized by the Estate from the deduction of such fees on the Estate's estate tax return) plus prejudgment interest of 10% per annum, computed as simple interest; and

(5) the Article IV trust was entitled to judgment against appellee in the amount of $163,550 for unreasonable office expenses.

The judge also awarded appellants' attorneys reasonable and necessary attorney's fees of $1.5 million and awarded appellee's attorneys fees of $1.5 million, all reimbursable from the Estate (plus additional amounts for appeal).

Excessive Executor Fee

Appellants first challenge the trial court's reduction of the excessive executor fee finding. The jury found that the $2.8 million executor fee taken by appellee was unreasonable and excessive by approximately $2.2 million. The trial court reduced the jury's finding by $1.5 million, stating in the judgment that he was awarding appellee $659,506.50, which represented the jury finding of $2.2 million ...