Qwest Microwave, Inc. v. Bedard

• Decision Date: 11 August 1988
• Docket Number: No. 05-88-00634-CV,No. 3,3,05-88-00634-CV
• Citation: 756 S.W.2d 426
• Parties: QWEST MICROWAVE, INC., et al., Relators, v. Honorable Bill BEDARD, Judge Probate Courtof Dallas County, Texas, et al., Respondents.
• Court: Texas Court of Appeals

Page 426

756 S.W.2d 426

QWEST MICROWAVE, INC., et al., Relators, v. Honorable Bill BEDARD, Judge Probate Court No. 3 of Dallas County, Texas, et al., Respondents.

No. 05-88-00634-CV.

Court of Appeals of Texas Dallas.

Aug. 11, 1988.

Rehearing Denied Sept. 19, 1988.

Frank Finn, Timothy R. McCormick, John E. Sullivan, Dallas, Debora Beck McWilliams, Austin, for Qwest Microwave.

Michael Byrd, Kenneth T. Horton, Dallas, for General Elec. Credit.

Walter Workman, S. Stacy Eastland, Robert M. Weylandt, Houston, for River Oaks Trust Co., Co-Administrators.

William H. Pool, Dallas, for respondent Judge Bedard.

Mike Driscoll, David H. Miller, Billy E. Lee, Houston, for respondent Judge Gregory.

James J. Hartnett, Dallas, for Co-Administrator R. Clay Underwood.

Before WHITHAM, STEWART and LAGARDE, JJ.

WHITHAM, Justice.

Relators Qwest Microwave, Inc., and Qwest Microwave II, Inc. (collectively "the two Qwest corporations"), seek a writ of mandamus to compel the presiding judge of Probate Court No. 3 of Dallas County, Texas, to dismiss certain litigation for want of subject-matter jurisdiction; alternatively, they seek a writ of mandamus to compel the Honorable Kenneth Pat Gregory, the presiding judge of the statutory probate courts of Texas, to vacate an order assigning himself as a visiting judge to preside over that litigation. For the reasons given below, we conclude that the probate court lacks subject-matter jurisdiction over the causes of action in the underlying litigation asserted against the two Qwest corporations and General Electric Credit Corporation ("General Electric"), a real party in interest that has joined in the petition for writ of mandamus of the two Qwest corporations and has aligned itself with them. We expressly do not concern ourselves here with the general administration of the estate of Dorothy J. Warren, deceased, or with any other litigation incident to the estate, or with any cause of action asserted against any party other than the two Qwest corporations and General Electric. Consequently, we conditionally grant the two Qwest corporations' petition for writ of mandamus and command that the Honorable Bill Bedard, the duly elected judge of the Probate Court No. 3 of Dallas County, Texas, and Judge Gregory each sign an order of dismissal for want of jurisdiction as to the two Qwest corporations and General Electric and cause that order to be entered in the minutes of the Probate Court No. 3 of Dallas County, Texas. For the reasons that follow, we further conclude that we need not reach the merits of the grounds of any challenges to the assignment of Judge Gregory as a visiting judge of the Probate Court No. 3 of Dallas County, Texas. Accordingly, we deny the remaining relief requested in the two Qwest corporations' petition.

I Background: Posture of this Case

On May 27, 1983, Dorothy J. Warren died, leaving an estate with several million dollars' worth of assets and claims against it. Warren, her brother DeVere E. Galland, and her alleged confidante and financial advisor, Harold J. Erbs, had organized the two Qwest corporations to develop a microwave telecommunications network. The three agreed that they would, among themselves, retain the majority of the shares of the two Qwest corporations, although some shares were publicly sold. Warren all by herself was a minority shareholder. There were plans, which Warren allegedly approved before her death, to develop additional corporations to expand the telecommunications network. On Warren's death, Erbs, who was named in her will as independent executor of her estate, was appointed a temporary administrator of the estate. In December 1983, ¹ Erbs was removed as an administrator of the estate and its administration was converted into a dependent administration. R. Clay Underwood and River Oaks Trust Company, the real parties in interest in this proceeding, were named as dependent co-administrators (collectively "the administrators").

Meanwhile, Erbs and Galland continued with the plan to set up yet more corporations to expand the telecommunications network. At least five new corporations, Qwest Microwave III, Inc., Qwest Microwave IV, Inc., Qwest Microwave V, Inc., Qwest Microwave VI, Inc., and Qwest Microwave VII, Inc. (collectively "the five new Qwest corporations"), were formed; the directors of all seven Qwest corporations were the same individuals. Allegedly, Warren's estate was given no opportunity to invest in shares of the five new Qwest corporations. The administrators contend, however, that certain assets of the two Qwest corporations in which Warren was a shareholder were pledged as collateral to General Electric to secure a loan exceeding eighty million dollars. The administrators concluded that the shares of the two Qwest corporations in Warren's estate had their value diluted as a result of the financial transactions implemented to establish the five new Qwest corporations. As a result, they sued the five new Qwest corporations, the individual directors, including Erbs, and General Electric. The suit was docketed under cause number 83-2091-P3(I), styled R. Clay Underwood, et al., v. Qwest Microwave, Inc., et al., in the Probate Court No. 3 of Dallas County, Texas.

On July 18, 1986, the administrators filed their second amended original petition. That petition was filed expressly "for the benefit of QWEST MICROWAVE, INC.... and QWEST MICROWAVE II," who were also named as nominal defendants. The petition asserted three causes of action, the first of which contained two subparts: (1) a claim: (a) that the individual directors and General Electric worked together to breach the fiduciary duties owed by the individual directors to the two Qwest corporations and to misappropriate the assets of the two Qwest corporations; and (b) that the individual directors deprived the minority shareholders of their cumulative voting and preemptive rights in an effort to gain unlawful control over the two Qwest corporations; (2) a claim for punitive damages because of the alleged breach of those fiduciary duties; and (3) a claim based upon misappropriated assets of the two Qwest corporations, money value for the use of those assets, unjust enrichment, and lost business opportunities that allegedly should have belonged to the two Qwest corporations, along with a prayer for an accounting.

All the defendants answered the second amended original petition with a general denial, subject to a plea to the jurisdiction of the probate court and a motion to dismiss for want of subject-matter jurisdiction. They argued that the administrators' causes of action were actually shareholders' derivative actions on behalf of the two Qwest corporations and that, while Warren's estate might have had an indirect interest in the actions, the actions were not "incident" to the estate so as to confer jurisdiction upon the probate court. After a hearing, the probate court denied the motions to dismiss by an order dated January 13, 1987. At that time, the judge presiding over the case was Judge Bedard. The order expressly found that the causes of action asserted by the administrators were "not matters incident to or appertaining to an estate," but concluded that, because they were causes of action brought by the administrators as representatives of the estate, the Texas Probate Code conferred jurisdiction upon the probate court to hear the matter. Accordingly, the motions to dismiss were denied.

On September 23, 1987, after the motions to dismiss were denied, the administrators filed their third amended original petition. That petition, which remains the "live" pleading in the probate court, asserted five causes of action. The last four were again brought on behalf of the two Qwest corporations and made substantially the same allegations that were contained in the three causes of action asserted in the second amended original petition; what had been the first cause of action in the second amended original petition was split into the second and third causes of action in the third amended original petition. The second amended original petition's second and third causes of action became the fourth and fifth causes of action, respectively, in the third amended original petition.

The first cause of action was brought in the name of Warren's estate itself. It asserted that Erbs was personally liable to the estate and that the five new Qwest corporations (but not the two Qwest corporations that are relators here) and the individual directors were also liable to the estate because of their acquiescence in, imputed knowledge of, and unjust enrichments and benefits from, Erbs's actions. The paragraph from that cause of action asserting Erbs's liability will be quoted in full:

F. Harold J. Erbs is liable to the Estate (a) for dilution of the Estate's interests in Qwest I and Qwest II as a result of (i) issuing additional shares to get financing for his new Qwest companies, (ii) clouding preemptive rights, (iii) clouding cumulative voting rights, (iv) setting limits on dividends, and (v) wasting corporate assets in appropriating their credit, know-how, goodwill, personnel and facilities for the benefit of Erbs' self-dealing corporations, (b) for the value of the investment opportunities he took away from estate assets and appropriated for his self-interest, (c) for exposing Qwest I and Qwest II to being liable for 80 million dollars debt to [General Electric] which primarily benefits the self-dealing of Erbs, (d) for exemplary, or punitive, damages because of his reckless disregard of his fiduciary capacity to the Estate and his flagrant breaches of trust, and (e) for an accounting of the interest he acquired, and profits he received at the expense of the Estate, including those from Qwest III, Qwest IV, Qwest V, Qwest VI, Qwest VII, Qwest Properties and Qwest Management [two additional affiliated corporations, whose relationship to the others is not entirely clear], by...