Texas Commerce Bank, N.A. v. Grizzle, 01-0211.

Citation96 S.W.3d 240
Decision Date31 December 2002
Docket NumberNo. 01-0211.,01-0211.
PartiesTEXAS COMMERCE BANK, N.A., and Texas Commerce Equity Holdings, Inc., Petitioners, v. Linda GRIZZLE, as next friend of Brentley G. Grizzle, a minor, et al., Respondents.
CourtSupreme Court of Texas

Robert B. Gilbreath, Charles A. Gall, Timothy J. Goodwin, Jenkins & Gilchrist, Barbara M.G. Lynn, Brett David Kutnick, Jeffrey S. Levinger, Carrington Coleman Sloman & Blumenthal, Leslie Mariam El-Hakam, George M. Kryder, III, Vinson & Elkins, Dallas, for Petitioner.

Christina Gratke Nason, Arlington, R. Michael Northrup, Julia F. Pendery, Shawn Malcolm, Godwin Gruber, P.C., Andrea M. Kuntzman, John Mathias Sjovall, Cowles & Thompson, Dallas, B. Michael Bennett, Bentonville, AR, Charles M. Hunt, Martha J. Hardwick, Christopher H. Rentzel, Bracewell & Patterson, Dallas, for Respondent.

Justice ENOCH delivered the opinion of the Court.

In this putative class action, The Frost National Bank ("Frost"), Texas Commerce Bank, N.A. ("TCB"), and their respective parent corporations, defendants in the trial court, challenge that part of the court of appeals' judgment reversing the trial court's summary judgment rendered in their favor. The court of appeals held that a trust instrument's exculpatory clause cannot, as a matter of public policy, exonerate Frost and TCB, as trustees of various trusts invested in each bank's respective stock, from Grizzle's claim that the banks engaged in self-dealing by merging and liquidating trust funds which caused the trusts to suffer losses.1 The court of appeals also held that the trial court abused its discretion by striking the second through fourth amended petitions filed In the underlying action that contained purported interventions of new putative class representatives, and by rendering final judgment.2 We disagree with the court of appeals on these points. Accordingly, we reverse in part that court's judgment and render judgment that Grizzle take nothing against the TCB and Frost defendants. The portion of the court of appeals' judgment that affirmed in part the trial court's summary judgment in favor of the Frost defendants has not been challenged.3

I. Background
A. The Brentley G. Grizzle Trust

On October 30, 1992, a Dallas County district court rendered a decree designating Frost as trustee for the Brentley G. Grizzle Trust (the "Grizzle Trust"). The Grizzle Trust was established under Texas Property Code chapter 142 to receive and administer settlement proceeds received by Brentley, a minor, from a wrongful death claim asserted when her father died. The Grizzle Trust was created with $200,000 in cash settlement proceeds. Frost, as trustee, invested that money in its own common stock and taxable fixed income funds, as permitted by federal law,4 state law,5 and the Grizzle Trust.6

The Grizzle Trust states that "[t]he broad powers herein conferred upon the Trustee shall always be exercised only in a fiduciary capacity, and nothing herein shall be construed to limit the fiduciary obligation of the Trustee."7 The Grizzle Trust also contains an exculpatory clause which states:

This instrument shall always be construed in favor of the validity of any act or omission of any Trustee, and a Trustee shall not be liable for any act or omission except in the case of gross negligence, bad faith, or fraud.8

In addition, the Grizzle Trust permits a successor corporate trustee through the purchase of, or merger or consolidation with, the original trustee, Frost.9 The successor trustee succeeds to all "the rights, duties, and powers" of the original trustee.10

B. Frost And TCB Exchange Banks

On April 14, 1994, TCB and its parent corporation, Texas Commerce Equity Holdings, Inc., and Frost and its parent corporation, the New Galveston Company, entered into what the parties call a merger or a bank swap. We will refer to the transaction as a merger. The merger consisted of Frost transferring its Dallas bank to TCB, and TCB transferring its Corpus Christi bank to Frost. By this transfer, the two banks exchanged all assets including their trusts. TCB accordingly became trustee of the Grizzle Trust.

The day after the merger, Richard W. Phillips, TCB's Senior Vice-President and Trust Officer, sent a letter apprizing TCB's new trust customers, including Grizzle, of the merger and TCB's new role as trustee. The letter states, in part:

As we previously announced, Texas Commerce Bank and Cullen/Frost Bank of Dallas, N.A., have merged and we are pleased to welcome you to Texas Commerce.

Texas Commerce and Cullen/Frost share the same customer-oriented culture, and we look forward to working together to ensure that your relationship with Texas Commerce is a very positive one. Here is a brief summary of what you can expect:

No changes are required to administer your trust account(s). You can count on receiving the same high quality service and attention from your trust administrator/relationship manager.

It will not be necessary to make any adjustments to your trust documents or agreements defining your account....

As service enhancements or other developments are planned, you will be notified well in advance.

Soon after this letter was sent, TCB liquidated the Frost stock and income funds it had acquired from the merger into cash on April 30, 1994. Frost did the same thing with the TCB stock and income funds it had acquired from the merger. TCB and Frost assert that they did this because federal law and regulations prohibit banks, acting as trustees, from investing in common trust funds managed by another bank.

On May 6, 1994, TCB placed the liquidated funds into a short-term investment earning interest. A few weeks later, TCB reinvested those funds in fixed income and common stock funds managed by TCB. Because market forces had caused the Grizzle Trust funds' value to decrease when the merger occurred, liquidating the Frost funds resulted in the Grizzle Trust realizing a long-term capital tax loss of $5,508.70.

C. Linda Grizzle Files Suit

On April 11, 1996, Linda Grizzle, as next friend of her daughter Brentley, brought suit individually and on behalf of a putative class of trust beneficiaries against the TCB and Frost defendants. The suit was based on alleged damages sustained by the trusts, including the Grizzle Trust, as a result of the merger. Grizzle asserted numerous claims including breach of fiduciary duty, deceptive trade practices, negligence, gross negligence, fraud, conspiracy, and breach of contract.

On December 27, 1996, the Frost defendants moved for summary judgment, asserting among other grounds, that the Grizzle Trust's exculpatory clause precluded liability. On January 13, 1997, the TCB defendants filed a similar motion for summary judgment. Grizzle opposed the summary judgment motions and filed her own affidavit, which she subsequently amended. In her amended affidavit, she stated that her daughter's loss included audit fees and other charges allegedly netted against the liquidation proceeds allocable to the Grizzle Trust. Grizzle further stated that she was never provided the option of allowing another bank in the Frost banking system to continue administering the Grizzle Trust.

On February 10, 1997, the trial court heard the summary judgment motions. On February 17, 1997, Grizzle filed a first amended petition that sought to add, among other things, claims that the TCB and Frost defendants had engaged in selfdealing. Three days later, Grizzle filed a second amended petition that sought to add Marian Frances Anne Rucker as an additional plaintiff.

D. The Trial Court's Ruling

On March 4, 1997, the trial court noted on the docket sheet that it was granting the TCB and Frost defendants' motions for summary judgment. The docket sheet further indicates that, on March 6, 1997, the trial court notified all counsel of its ruling. The trial court did not, however, sign a written order at that time.

While awaiting the trial court's signing of the summary judgment order, Frost attempted to depose Rucker, named in the second amended petition. Grizzle's counsel stated, however, that "[i]n light of Mrs. Rucker's health problems, we have decided to drop her as a Plaintiff in this matter." On the same day, March 21, 1997, Grizzle filed a third amended petition. This time Grizzle purported to add Nesbit Wehde as an additional plaintiff and to make other substantive changes in the petition, including dropping certain claims. Neither Rucker's name nor her individual claims appeared in the third amended petition.

On March 25, 1997, the trial court signed and rendered summary judgment against Grizzle based on her original and first amended petitions. The next day, the trial court received a motion for class certification that Grizzle had filed. Grizzle and Wehde also filed a motion for leave to file the third amended petition and moved for a new trial on Grizzle's claims. The TCB and Frost defendants opposed the filing of the third amended petition as untimely. In addition, because the trial court had sua sponte questioned whether Wehde's attempt to join the lawsuit in the third amended petition was a misnamed "plea in intervention," the TCB and Frost defendants alternatively moved to strike Wehde's purported intervention.

On May 20, 1997, the trial court signed orders denying the motion for reconsideration and/or for new trial and striking the third amended petition or, alternatively, Wehde's purported intervention. The trial court did not consider the motion for class certification.

E. Grizzle's First Appeal

Grizzle appealed the trial court's orders. But the court of appeals, in an unpublished opinion and order, dismissed the appeal for lack of jurisdiction. Although Grizzle had indicated that Rucker was being dropped as a party due to poor health, there was no trial court order disposing of Rucker's claims in the second amended petition. The...

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