in the Estate of Betty Lou Hughes ( 2013 )

NUMBER 13-12-00288-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
IN THE ESTATE OF BETTY LOU HUGHES
On appeal from the County Court
of Jefferson County, Texas.
MEMORANDUM OPINION
Before Justices Rodriguez, Perkes and Wittig1
Memorandum Opinion by Justice Wittig
This appeal2 is from the trial court judgment removing appellant Michael Alton
Hughes as independent executor of the Betty Lou Hughes Estate and the order
appointing his brother David Lee Hughes in his stead. Appellant contends the trial court
erred because it failed to comply with Probate Code requirements, the evidence was
1
Retired Fourteenth Court of Appeals Justice Don Wittig assigned to this Court by the Chief
Justice of the Supreme Court of Texas pursuant to the government code. See TEX. GOV’T CODE ANN §
74.003 (West 2005).
2
This case is before the court on transfer from the Ninth Court of Appeals in Beaumont, Texas,
pursuant to a docket equalization order the Texas Supreme Court issued. See TEX. GOVT. CODE ANN. §
73.001 (West 2013).
legally and factually insufficient, multiple findings of fact were not supported by the
evidence, and David Hughes was not qualified to be executor because of a conflict of
interest. Appellees David Hughes, Mark Hughes and Chris Hughes are the other
beneficiaries of the estate. We will affirm the trial court’s removal judgment and
appointment order.
I. BACKGROUND
Betty Lou Hughes died February 7, 2008, leaving a valid will dated February 16,
1983. Appellant received letters testamentary on March 12, 2008. Appellant and
appellees are the beneficiaries of the estate and are to share and share alike. An initial
inventory and list of claims was filed on January 27, 2009 and was amended January 27,
2010. Appellees filed a petition for removal of the executor and appointment of a
successor on April 13, 2011. Appellees subsequently filed an amended petition for
removal, a demand for accounting, and in the alternative, a demand for distribution on
December 14, 2011. On January 25, 2012, the trial court ordered appellant to prepare
an updated accounting, which was completed on February 15, 2012, and which did not
indicate a need for the estate to stay open and not be distributed. After a hearing on
March 7, 2012, the trial court removed appellant as executor and subsequently appointed
David Hughes as independent executor.
The court made multiple findings regarding the removal of appellant as executor.
It found that appellant misapplied estate funds of $2,774 to retain an attorney for personal
business. Appellant as executor also used estate funds of $2,075.95 to buy an airline
ticket for personal use. He accepted an unreported finder’s fee on the sale of estate
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property on two occasions. Appellant “misapplied [e]state funds” by receiving $4,900
from the IRA account while not disclosing the transaction, not making a similar distribution
to the other heirs, and not reimbursing the estate for this amount. In July 2011, appellant
filed estate returns late for 2008 through 2010.
In its conclusions of law, the trial court found appellant showed neither sufficient
cause supported by oath why a final settlement of the estate was not made within three
years as required nor just cause to warrant the estate remaining open more than three
years as required by section 222 of the Texas Probate Code. See TEX. PROB. CODE ANN.
§ 222(b)(6) (West Supp. 2011). Also in its conclusions of law, the court found that
appellant improperly deducted life insurance proceeds payable independently to David
Hughes from an estate distribution to him. The court concluded appellant was guilty of
mismanagement and misapplication of the estate and should be removed pursuant to
section 222 of the probate code. The court entered a judgment removing appellant as
executor and subsequently appointed David Hughes as executor.
II. STANDARD OF REVIEW
An appellate court reviews a trial court's order removing an independent executor
for an abuse of discretion. In the Estate of Hoelzer, 310 S.W.3d 899, 905 (Tex.
App.—Beaumont 2010, pet. denied) (citing Lee v. Lee, 47 S.W.3d 767, 789 (Tex.
App.—Houston [14th Dist.] 2001, pet. denied); Spies v. Milner, 928 S.W.2d 317, 319
(Tex. App.—Fort Worth 1996, no writ)). An appellate court will not overturn the trial
court's decision merely because the appellate court might have reached the opposite
conclusion, but will do so when the trial court's decision is arbitrary, unreasonable, and
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without reference to any guiding rules and principles. Lee, 47 S.W.3d at 786 (citing
Goode v. Shoukfeh, 943 S.W.2d 441, 446 (Tex. 1997)). Under an abuse of discretion
standard of review, we must make an independent inquiry of the entire record to
determine if the trial court abused its discretion and we are not limited to reviewing the
sufficiency of the evidence to support the findings of fact made. See Chrysler Corp. v.
Blackmon, 841 S.W.2d 844, 853 (Tex. 1992) (orig. proceeding). We will not analyze the
trial court's fact findings separately from our analysis of whether the trial court abused its
discretion in removing someone as administrator. In re Estate of Clark, 198 S.W.3d 273,
275 (Tex. App.—Dallas 2006, writ denied).
III. ANALYSIS
Appellant argues against the trial court’s findings regarding the misapplication of
estate funds in the amounts of $2,774 and $4,900 because the funds were in fact
accounted for as distributions to him. Appellant needed to pay his personal attorney so
he took the $2,774 from the estate checking account and either paid the money directly to
his attorney, or paid himself and then the attorney. There is evidence on the November
2010 disbursement sheet that appellant showed a $2,774 distribution to himself, but both
the testimony and disbursement sheet showed no contemporaneous or corresponding
disbursements to the other beneficiaries. There is no entry of the $4,900 also claimed to
be a disbursement. Rather, the record reflects appellant received a $4,900 check
payable to him personally from the estate’s IRA account and it was deposited to his
personal account. Appellant testified he planned on making a distribution to others but
did not get to it. “I received that $4,900 from UBS right before the first of the year. I just
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held on to it. It was made out to me, so I didn't want to get that confused with trying to
deposit it into the estate funds.” Appellant also paid personal income tax on the
distribution. His justification was that he expected a $55,000 rent check right after the
first of the year when he planned to make more distributions.
The trial court also found a $2,075.95 misapplication of funds. Appellant testified
he needed to purchase an airline ticket but his personal credit card lacked a sufficient
available balance so he used the estate’s credit card. He claims to have deposited
$2,380 into the estate the same day, but the trial court found it could not determine if a
reimbursement was made because there is no such reference in the accounting filed on
February 15, 2012. Appellant admitted he had no documentation of the reimbursement
and no like distribution was made to the other beneficiaries.
The trial court found that appellant, as independent executor, received a finder’s
fee or commission for the sale of estate properties in Nederland and Center, Texas.
Receipt of the fees was not disclosed, and the real estate settlement documents did not
reflect the payments, which represented a referral fee of twenty-five percent of the selling
side commission. Appellant admitted receiving the funds but claimed he did not receive
the fee from the estate although the twenty-five percent fee was based upon a
percentage of the real estate commissions in the property sales and came from the
broker. No disclosures were made in the estate filings. We note that appellant is a
licensed realtor.
Appellees cite In the Interest of Roy for the well established principle that a
fiduciary relationship creates a duty to disclose. See 249 S.W.3d 592, 597 (Tex.
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App.—Waco 2008, no pet.) (citing Tempo Tamers, Inc. v. Crow-Houston Four, Ltd., 715
S.W.2d 658, 669 (Tex. App.—Dallas 1986, writ ref'd n.r.e.)). There, the executor took a
fee for the sale of the residence without disclosing this in the accounting and also reduced
the rent. Id. The executor argued that the estate had no money to pay his
administrative fees and that the $5,000 was the only money he had ever received for his
work for the estate. Id. “These arguments cannot justify Clark's failure to disclose.
Therefore, the trial court acted within its discretion to remove Clark as independent
executor.”3 Id.
Appellant disputes the court’s finding that he failed to make a final settlement of the
estate within three years after the grant of letters as required by subsection (6) of section
222 of the probate code. See TEX. PROB. CODE ANN. § 222. The trial court’s conclusion
of law stated that appellant as independent executor had not shown sufficient cause,
supported by oath, as to why a final settlement of the estate had not been timely made
and there was not sufficient cause supported by oath to justify the estate remaining open
for more than three years after letters testamentary were granted. Appellant argues he
had sufficient cause for his failure to settle the estate because he was denied information
from Chris Hughes regarding the valuation of Delta Security, a family owned company.
The will provided that total distributions were to be of equal value but there was no
requirement for equal in kind distribution. The executor had discretion to make
distributions in kind, partly in kind, partly in money, and by undivided interests. The will
3
Clark’s failure to disclose his fee was exacerbated by the fact he lowered the rent to a related
entity by almost half. In the Interest of Roy, 249 S.W.3d 592, 597 (Tex. App.—Waco 2008, no pet.).
Here, it was also alleged that appellant significantly lowered the price on the Netherland property from
$239,000 to $170,000 without consultation or explanation. The trial court, however, made no finding in this
particular regard.
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also provided that distributions in kind should be valued at fair market value as of the date
or dates of distribution.
Appellees counter that the new shares of stock were already issued by Delta
Security, pursuant to appellant’s request. Each beneficiary received his respective
shares of 600 each. Furthermore, the value of the stock in the estate was determined by
an accounting firm hired by the estate to be $250,000 as of the day of Betty Lou Hughes’s
death. In appellant’s sworn inventory filed on January 22, 2009, he stated the company
stock was worth $250,000. In his answers to interrogatories, appellant stated: “[U]nder
Texas law ownership of the decedent's stock automatically became vested in the
beneficiaries once the [w]ill was admitted to probate. A formal assignment of the
decedent's shares of stock is not required. The corporation's board of directors . . . may
authorize the issuance of new stock certificates."4
The trial court also found that the accounting filed on February 15, 2012 did not
indicate a need for the estate to stay open and not be distributed. Further, in its
conclusions of law the court found appellant’s inquiries concerning Delta Security were
not relevant to the estate and were not necessary to the administration or distribution of
the estate.5 In any event, appellant clearly did not make a final settlement within three
years and the time was not extended by the trial court based upon a showing of sufficient
cause supported by oath. See id. § 222 (b)(6) (requiring executor as personal
representative to make a final settlement within three years after the grant of letter unless
4
None of the parties briefed this declaration by appellant. See TEX. PROB. CODE ANN. § 37 (West
Supp. 2011).
5
Appellant does not address this conclusion of law.
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extended by the court upon showing of sufficient cause supported by oath) (emphasis
added).6 In light of the fact that the new certificates had already been equally issued by
the corporation, the fact that appellant took the position that the new stock ownership in
the company vested upon the death of Betty Lou Hughes, and the appellant’s failure to
obtain an extension, we cannot disagree with the trial court’s findings and conclusions
based upon the record.
Appellant disputes the trial court’s finding that he failed to timely pay property taxes
which resulted in the payment of penalties. To the contrary, appellant’s deposition
testimony filed with the trial court on January 23, 2012 in response to appellant’s motion
to abate, indicated at least one occasion when the taxes were not timely paid. 7
A number of other lesser disputes were brought to the trial court’s attention and
included in its findings and conclusions. These included late filing of the estate tax
returns, misapplying estate funds to purchase other securities such as Frontera Reserves
and Canargo Energy, failing to place “For Sale” signs on several estate properties
purportedly for sale, failing to deal with mineral interests, and failing to provide the
physical location and status of seventeen firearms. In light of our conclusions below, we
deem it unnecessary to write on each of these matters. See TEX. R. APP. P. 47.1.
Appellant argues the trial court erred by entering its March 9, 2012 order removing
him as executor because the court failed to state a reason as required by section 222(b).
6
Section six is the only provision of section 222 applicable here that specifically addresses
executors. The gravamen of both appellant and appellees’ arguments are directed principally to section
222 and fail to address section 149c even though this section specifically addresses the removal of an
independent executor and was pled by appellees. See TEX. PROB. CODE ANN. §§ 222,149c.
7
As stated previously, we review the contents of the entire record in determining whether the trial
court abused its discretion in removing the independent executor. See Chrysler Corp. v. Blackmon, 841
S.W.2d 844, 853 (Tex. 1992) (orig. proceeding).
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See TEX. PROB. CODE ANN. § 222. The order states that the executor was removed
because of noncompliance with the terms of the will. Appellees point out that several of
the specified reasons for removal under section 222 are found in the trial court’s findings
of fact and conclusions of law. We agree with appellant that section 222 requires
denominating the grounds for removal within the order. However, in light of the fact the
trial court specified a number of violations of sections 222 and 149c in its findings and
legal conclusions, the error probably did not cause the rendition of an improper judgment
and did not prevent appellant from properly presenting his case to the appellate court.
TEX. R. APP. P. 44.1; see Eastland v. Eastland, 273 S.W.3d 815, 827 (Tex.
App.—Houston [14th Dist.] 2008, no pet.) (discussing harmless error with regard to
appointment of successor independent executor).
Appellant also argues that the will states he should not be liable for “mistakes or
errors in judgment” but shall be liable only for “bad faith or dishonesty.” Appellant seems
to argue that this exculpatory language trumps provisions of the Texas Probate Code.
He argues there are no allegations or evidence under items (2), (3), (5) or (7) of this
section. See TEX. PROB. CODE ANN. § 222. We agree in part. However, both section
(6), failure to make a final settlement within three years unless extended by the court, and
wrongful misapplication of estate property under 149C support the trial court’s actions in
removing appellant as executor. See id. §§ 222(b)(6), 149c(a)(2). Appellant cites no
authority that the exculpatory provision of the will abrogates statutory authority or the
inherent power of the trial court to remove an executor under the particular circumstances
of this case. We find no such authority and accordingly overrule this issue.
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Finally, appellant argues the trial court erred when it determined David Hughes
was qualified to act as successor independent executor because he had a conflict of
interest with the estate. The alleged conflict, the argument goes, arises from David
Hughes’s testimony regarding a letter written by his mother, the testatrix. The letter,
which is barely decipherable, seems to state she wanted all her assets to be distributed
equally between her four sons to include insurance policies, IRAs, CDs, etc. David
testified, “I choose not to give it any meaning.”
Appellees counter that the letter has not been qualified as a will or codicil because
it has not been admitted to probate by a court of competent jurisdiction, citing Teague v.
Wylie, 110 S.W.2d 941, 944 (Tex. Civ. App.—Fort Worth,1937, no writ). Appellant has
not shown that the letter has been admitted into probate. We overrule this issue.
IV. CONCLUSION
Section 222(b)(6) of the Probate Code provides for the removal of a executor if he
fails to make a final settlement within three years, unless the time is extended by the court
upon showing of sufficient cause supported by oath. There is no extension of time in this
case. We hold that the trial court's findings and conclusions concerning appellant’s
alleged violations are supported by ample evidence. See Carmichael v. Carmichael,
432 S.W.2d 129, 130 (Tex. Civ. App.—Waco 1968, writ ref’d. n.r.e.). Accordingly, the
trial court did not abuse its discretion in removing appellant as executor.
We also note that probate code section 149C(a)(2) authorizes removal if sufficient
grounds appear to support the belief that the independent executor has misapplied or
embezzled, or that the independent executor is about to misapply or embezzle, all or any
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part of the property committed to his care. See Ali Akbar Mohseni v. Hartman, 363
S.W.3d 652, 659 (Tex. App.—Houston [1st Dist.] 2011, no pet.); In the Estate of Hoelzer,
310 S.W.3d 899, 907 (Tex. App.—Beaumont 2010, pet. denied) (holding court need not
decide whether section 149C precludes removal based on an executor's
"post-appointment" disqualification under section 78, because sufficient grounds support
removal under the provisions of section 149C); see also Kappus v. Kappus, 284 S.W.3d
831, 835–36 (Tex. 2009). We hold that the wrongful misapplication of estate funds found
by the trial court supports the statutory grounds for removal under section 149C(a)(2).
Stated otherwise, sufficient grounds appear to support the belief that appellant had
misapplied or was about to misapply all or any part of the property committed to his care.
TEX. PROB. CODE ANN. §149C(a)(2).
Appellant has not shown that David Hughes is disqualified from serving as
independent executor. Indeed, David Hughes is named as alternate independent
executor in Betty Lou Hughes’s will. Appellant’s issues are overruled.
The judgment of removal and the appointment order of the trial court are affirmed.
Don Wittig
Justice
Delivered and filed the
24th day of October, 2013.
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