in the Estate of Doris Rose Preston ( 2011 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00095-CV
NO. 02-09-00233-CV
IN THE ESTATE OF DORIS
ROSE PRESTON, DECEASED
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FROM THE PROBATE COURT OF DENTON COUNTY
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OPINION
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I. INTRODUCTION
Doris Rose Preston died intestate in Denton County on August 27, 2005.
After Appellant Scherry J. Levi filed an application for letters of administration in
December 2005 seeking to be appointed administratrix of Doris‘s estate, three
and a half years of what the trial court described as ―extensive,‖ ―miserable,‖ and
―tortured‖ litigation followed. These appeals stem from a large part of that
litigation, in which the trial court ultimately entered death penalty sanctions
against both Scherry and Appellant Michael B. Preston.
In cause number 02-09-00095-CV, Scherry and Michael raise nine issues,
challenging an amended final default judgment in favor of Appellee Deartis
Preston. In cause number 02-09-00233-CV, Scherry and Michael raise eight
issues, challenging a final judgment in favor of Stephen E. Dubner, successor
administrator of the estate of Doris Rose Preston, and Western Surety
Company.1 We will modify the judgments in both causes and affirm the
judgments as modified.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. People
Doris, Scherry, Michael, and Gwendolyn are siblings. Deartis is
Gwendolyn‘s biological son, but Doris adopted Deartis sometime around 1985.2
Deartis is the sole heir to Doris‘s estate. Gwendolyn has another child, Eva,
Deartis‘s sister. Doris, Deartis, Eva, and Gwendolyn lived together in Denton
County until Doris died in August 2005.3
B. 2006 Pleadings and Proceedings
1. Ad Litem Appointed
The trial court appointed Gretchen Benolken attorney ad litem and
guardian ad litem of Deartis in January 2006. The estate matter was designated
cause number PR-2005-00802.
1
The portion of the final judgment in cause 02-09-00233-CV in favor of
Doris‘s estate was assigned to Deartis. Deartis did not file a brief in either cause.
2
Gwendolyn was ―born retarded,‖ and Deartis has a ―retardation.‖
2
Gwendolyn was ―born retarded,‖ and Deartis has a ―retardation.‖
3
According to Michael, Doris ―took care of‖ Deartis, Gwendolyn, and Eva.
2
2. March 13, 2006 Prove-up Hearing
On March 13, 2006, at the prove-up hearing on Scherry‘s December 2005
application for letters of administration, Scherry testified that at the time of Doris‘s
death, she owned a house in Bay City, Texas (the Austin Street house); a 2004
vehicle; several bank accounts containing approximately $20,000; and a teacher
retirement account. According to Scherry, Doris also owned two certificate of
deposit accounts—one worth approximately $79,000 and another worth
approximately $49,000—that she had ―entrusted‖ to Scherry and Michael ―[t]o
take care of Deartis . . . , to make sure that all of his medical things are taken
care of, anything that he might need, you know, so that he‘ll be happy and
comfortable the rest of his life.‖ When asked whether the accounts were ―joint
with right of survivorship or payable on death,‖ Scherry responded, ―All I know is
that . . . the one that was in my name was placed in my name and the one that
Michael‘s name was on was placed in his name because his name was on that
one and my name was on the other one.‖ Scherry explained that her family had
decided to relocate Deartis, Gwendolyn, and Eva to Bay City, where Scherry
lived; that Eva had been acting as the primary caregiver for Deartis since Doris
died and would continue in that role on a day-to-day basis; and that the funds in
the accounts that Doris had allegedly entrusted to Scherry and Michael would be
used for Deartis‘s benefit. Michael, who lives in Los Angeles, testified that ―[t]he
moneys that were entrusted to me are entrusted to take care of our family. That
would be Eva, Gwen, Deartis . . . .‖
3
At the conclusion of the hearing, the trial court expressed that it had
questions about the status of the two accounts that Doris had allegedly entrusted
to Scherry and Michael and that were now in their names. The trial court said,
I‘m trying to determine in my mind and I‘m not so sure that it‘s
clear in anybody‘s mind if these accounts were convenient accounts,
were they beneficiary accounts, were they accounts like trust
accounts for the use and benefit of Deartis or were they moneys
given to her sister and brother?
I believe the family is going to do what the family says, but I‘m
trying to determine: If that‘s part of the estate, I‘ve got to bond it; if
it‘s not part of the estate, then I‘m not concerned about it.
Scherry‘s counsel responded that ―if the bank transfers it into another person‘s
name, it‘s probably based on a -- some kind of beneficiary or joint tenant with
right of survivorship designation and we don‘t -- and that that would not be a
probate asset.‖ Benolken, however, stated that this was the first time that she
had heard that those accounts existed and that she shared the trial court‘s
concern about their status. The trial court signed an order authorizing letters of
dependent administration that appointed Scherry administratrix of Doris‘s estate
and set a bond at $100,000.
3. Amended Ad Litem Order
On March 22, 2006, the trial court signed an amended order appointing
Benolken guardian ad litem and attorney ad litem of Deartis. The order provided
that Benolken was ―to be given access to all of DEARTIS PRESTON‘s financial,
medical, psychological, and intellectual testing records.‖
4
4. April 12, 2006 Hearing—Motion to Reduce Bond
On April 12, 2006, the trial court held a hearing on Scherry‘s motion to
reduce the bond. Scherry testified that she knew she was supposed to obtain a
$100,000 bond but that she had not yet done so, that the two accounts that Doris
had allegedly entrusted to her and Michael had each been held by Doris at First
Bank, and that neither she nor Michael had withdrawn those funds from their
respective accounts. Scherry specifically acknowledged that as the
administratrix for the dependent administration of Doris‘s estate, all of her actions
must be taken with court approval. In her closing argument, Benolken addressed
the still-unanswered question about whether the funds in the two First Bank
accounts were part of Doris‘s estate or whether they were properly paid to
Scherry and Michael as non-probate assets, stating that ―[t]here is no evidence
that anyone has converted a penny. However, if the legal arguments that I have
identified are correct . . . , just the fact that they‘ve been paid over . . . could be a
basis of a conversion claim.‖ The trial court declined to reduce or increase the
bond from $100,000. Western Surety Company later issued Scherry a bond in
the amount of $100,000.
5. Amended Order Clarifying Benolken’s Appointment
In July 2006, the trial court signed an agreed amended order clarifying
Benolken‘s appointment and duties as the attorney and guardian ad litems of
Deartis. Among other things, the order provided that Benolken had the power to
5
prosecute ancillary proceedings ―to effectuate the protection of Deartis Preston
and his rights, claims and assets‖ and that Benolken
is to be given access to and shall review all records of Doris
Preston‘s assets and/or liabilities and/or those of her Estate,
including, but not limited to copies of signature cards, controlling
agreements, and all records regarding Doris Preston‘s banking and
investment accounts of any nature, and that any and all relatives of
Doris Preston and any [] and all financial institutions in which she
maintained any such assets hereby are ORDERED to produce such
records to [Benolken] at her request.
6. Inventory and Appraisement
Scherry filed an inventory, appraisement, and list of claims on November
1, 2006, almost a year after she filed her application for letters of administration.
The filing listed the total value of Deartis‘s property at the time of her death at
$67,242.86. It did not, however, include values for the two First Bank accounts
that Doris had allegedly entrusted to Scherry and Michael.
7. New Guardian Ad Litem and Power of Attorney
In November 2006, the trial court appointed Angela Miller guardian
ad litem for Deartis. Benolken remained Deartis‘s attorney ad litem through the
pendency of the litigation. At a hearing on a motion for instructions, Scherry
disclosed for the first time that she had obtained a power of attorney for Deartis
with the help of an attorney who was located in Bay City and who had no other
connection to this case.4
4
Scherry testified that she obtained the power of attorney so that she could
receive funds from Doris‘s teacher retirement account.
6
8. Complaint Regarding Production of Documents
On November 13, 2006, Benolken filed a ―Complaint Requesting Additional
Inventory and Imposition of Constructive Trust‖ on behalf of Deartis. The
complaint stated that Scherry had not turned over financial information regarding
the assets of Doris‘s estate and that there was concern about the inventory and
appraisement that Scherry had filed because it omitted the two First Bank
certificate of deposit accounts that were paid to Scherry and Michael.5 Further,
because ―there have surfaced certain legal issues evidencing a bona fide
dispute‖ regarding whether the First Bank ―[a]ccounts were properly assets of the
Estate as opposed to being disposed of by Decedent through non-testamentary
dispositions to her brother and sister via joint accounts with right of survivorship
and/or payable on death accounts,‖ the complaint requested that the trial court
impose a constructive trust on ―any and all monies that were distributed‖ from the
First Bank accounts ―until such time as the Court can make a determination as to
whether the monies in the [a]ccounts should be brought into the Estate because
the account agreements do not contain the necessary elements required by Tex.
Prob. Code §§439 and 439A.‖
9. Motion to Compel
On December 8, 2006, Benolken filed a motion to compel on behalf of
Deartis, stating that she had requested in writing financial information of Doris
5
Benolken identified the accounts as ending in 0612 and 0433.
7
and Deartis but that she had ―received absolutely nothing in response.‖ 6
Benolken prayed that the trial court order Scherry to respond to Benolken‘s
requests for documents.
C. 2007 Pleadings and Proceedings
1. Deartis’s Original Petition
On January 19, 2007, Benolken filed an original petition (cause PR-2005-
00802-01) on behalf of Deartis against Scherry and Michael, averring that
Scherry and Michael had improperly received the funds from the First Bank
accounts.7 Deartis alleged claims for declaratory relief, constructive trust, and
money had and received related to the funds.8
2. January 19, 2007 Hearing—Motion to Compel
On January 19, 2007, the trial court conducted a hearing on Deartis‘s
motion to compel regarding Scherry‘s failure to produce documents. At the
6
The requested information included ―account information from January 1,
2005 through the present . . . regarding all checking, savings, money market,
certificates of deposit, brokerage, stocks, bond, annuity or other accounts that
Deartis Preston and/or Doris Preston has and/or had an ownership interest in
and/or was a named owner.‖
7
Deartis later filed several amended petitions.
8
Benolken alleged in part that ―the agreements, contracts, accounts,
certificates of deposit, and signature cards do not comply with the requirements
of Tex. Prob. Code §§439 and 439A‖; ―that the Accounts are not accounts with a
valid right of survivorship and/or do not constitute valid payable on death
accounts‖; and ―that the entirety of said Accounts are assets of the Estate of
Doris Rose Preston.‖
8
outset of the hearing, the trial court questioned why Benolken‘s requests for
documents had gone largely unanswered by Scherry,
[T]he Court‘s duty is to see to it that that incapacitated heir receives
whatever the incapacitated heir is supposed to receive, and usually
that‘s through the efforts of -- of these ad litems. . . .
....
. . . I‘m at a point of some confusion, I admit. I‘m at a point of
some misunderstanding or -- or at least inability to understand why
this process of reviewing the status of this estate and being certain
that Deartis Preston, the incapacitated heir, is receiving what he‘s
supposed to in a structure that‘s legally cognizable has turned into
such a fight. I don‘t understand that.
Michael testified that he had a signature card and several financial
documents regarding the disputed First Bank account that had been paid to him
and that he would turn the documents over to his attorney. He said that of the
approximately $72,000 that First Bank had transferred to him, about $30,000 had
already been used for a down payment on a house that was purchased in Bay
City (the Sailfish house) for Deartis, Gwendolyn, and Eva.9 Michael said that the
Sailfish house was titled in both Scherry‘s and Deartis‘s names. Further, of the
$72,000, another $5,000 each was paid to Scherry and Artis (another Preston
sibling) to pay for attorneys‘ fees. Michael opined that about $52,000 had been
spent from the First Bank account. In terms of handling Doris‘s estate matters,
caring for Deartis, and turning over documents, Michael agreed with the trial
9
Deartis, Gwendolyn, and Eva moved into the house.
9
court that his family had ―informal or extralegal kind[s] of arrangements and these
are based on -- on a moral obligation between family members.‖
Scherry testified that title to the Sailfish house was partly in her name
because Deartis had no credit in his name, and she agreed to turn over certain
bank statements, financial documents, and closing documents that were in her
possession. Scherry testified that she had not spent any of the funds that Doris
had left her in the First Bank account.
At the conclusion of the hearing, the trial court stated that the issue of
whether the funds in the First Bank accounts were nonprobate assets belonging
to Scherry and Michael ―must be resolved.‖ Regarding how Scherry and Michael
were handling matters related to Doris‘s estate, including responding to discovery
requests and turning over documents, the trial court stated the following:
And I realize that [Michael] and [Scherry] have both made it
clear to the Court that these long-standing, tradition-based family
obligations that they have undertaken are very serious to them and
that they believe they should live up to those obligations and live
under those obligations and follow them in the interest of Deartis,
and I respect that. I respect that. However, it lacks legal
cognizability and structure, and the Court‘s duty -- no matter what
the family‘s legal and ethical and moral undertakings are, it is the
Court‘s duty to see that the incapacitated heir is protected not just
morally and ethically, as I believe is certainly happening with this
family, but also legally.
3. January 25, 2007 Hearing—Motion to Compel
On January 25, 2007, the trial court continued the hearing on Deartis‘s
motion to compel but granted Scherry‘s motion for a continuance on the matter.
Scherry‘s attorney stated that neither Scherry nor Michael had given him any of
10
the documents referenced in the January 19, 2007 hearing, and he agreed with
the trial court‘s assessment that Scherry had ―different ideas about the need for a
structured arrangement in the handling of this matter for the incapacitated heir‖
and that, in her opinion, ―the informal family arrangements based on moral and
ethical obligations‖ should ―be unfettered by the . . . unnecessary intrusions of the
law.‖ The trial court stated that Scherry‘s and Michael‘s familial arrangements to
address Doris‘s estate and to ―take care of Deartis‖ were ―foreign arrangements
to the legal system. While they may very well be based on bona fide moral,
ethical family ties and connections, they have no enforceability associated with
them, and the Court has to require the administration of an estate in accordance
with the law.‖ The trial court opined that in light of Benolken‘s continuing difficulty
in obtaining documents, ―by the time these ad litems get through protecting
Deartis, Deartis won‘t have anything to protect, . . . so this is a difficult and
untenable situation.‖
4. Original Answer and Third Party Claim
In early February 2007, Scherry and Michael filed their original answer and
a third party claim against First Bank in the action filed by Deartis. They alleged
that they were entitled to be indemnified by First Bank if the funds in the disputed
accounts did not belong to them.
11
5. Order Granting Motion to Compel
On February 23, 2007, the trial court signed an order granting Deartis‘s
motion to compel. The order stated that Scherry had ―wholly failed to respond to
[Benolken‘s] requests for documents as ordered to be made available to
[Benolken] by Order of this Court dated July 17, 2006,‖ and it required both
Scherry and Michael to ―produce all documents responsive to Ad Litem‘s request
for documents.‖ The order also required Scherry and Michael to ―preserve the
status quo as to all assets‖ that are part of Doris‘s estate and that are the subject
of the ancillary lawsuit filed by Deartis against Scherry and Michael.
6. March 1, 2007 Hearing
At a hearing on March 1, 2007, Benolken acknowledged that Scherry‘s
attorney had given her a ―stack of documents‖ that Scherry and Michael had
produced but that Scherry and Michael had still not turned over the documents
detailed by the July 17, 2006 order. Scherry testified briefly that she had given
―what [she] had‖ to Benolken. The trial court mentioned that Miller had filed an
application for guardianship for Deartis.
7. Second Order Granting Motion to Compel
On March 14, 2007, the trial court signed a second order granting Deartis‘s
motion to compel. The trial court found that Scherry had failed to respond to
Benolken‘s requests for documents as ordered by the trial court on July 17, 2006,
and on February 23, 2007, and it required Scherry and Michael to produce all
12
originals and copies of documents pertinent to Doris‘s estate case and Deartis‘s
suit against Scherry and Michael. The order set a hearing for April 19, 2007, to
show cause whether Scherry had complied with the order and, if she had not, to
determine whether she should be held in contempt of court.
8. April 19, 2007 Hearing—Show Cause
Benolken called Miller to testify about the noncompliance with the trial
court‘s orders. Miller testified that although certain documents had been turned
over, Scherry had not complied with the July 2006 agreed amended order
clarifying Benolken‘s appointment; the February 23, 2007 order on motion to
compel; and the March 14, 2007 second order on motion to compel. Regarding
the Sailfish house, Miller testified that Scherry had turned over only the front
page of the warranty deed, had not turned over the entire ―closing packet‖ from
the title company, and had not turned over the note or any of the financing
documents. As for Doris‘s bank statements, Scherry had turned over some
handwritten ―summaries‖ instead of the actual statements or copies thereof.
Miller opined that Scherry had not turned over ―sufficient detail‖ of Doris‘s teacher
retirement account and had not produced ―information concerning disability
benefits.‖ Miller also opined that it was not possible to determine what monies of
Doris‘s estate had been spent or to analyze Deartis‘s personal money based on
the documents that had been turned over. Miller testified that Scherry was the
person with control over all of the records that were in Doris‘s house. On
13
rebuttal, Miller recalled that Scherry did not want to permit Benolken to review all
of the requested documents at Scherry‘s attorney‘s office because it would ―cost
thousands of dollars.‖
Scherry testified that she had produced the documents that were in her
possession, that she had ―sent the documents that [she] thought [Benolken]
wanted,‖ and that no records regarding Doris‘s teacher retirement account had
been given to her, but she admitted that she had not produced all relevant bank
statements and banking records for Deartis, that only part of the documents
regarding the Sailfish house had been produced, that she had not produced an
Atlanta Life Insurance policy, that she had not turned over documents relating to
Deartis‘s Social Security benefits, and that she had not permitted Benolken to
see any original documents. Scherry also testified that she had used estate
funds to pay for a storage space and that she had spent $13,000 of the funds
from the First Bank account to pay off Doris‘s car. There was no evidence that
Scherry had obtained the trial court‘s permission to spend estate money.
At one point during the hearing, the trial court acknowledged that Michael
had ―no personal duty or obligation to be before‖ the trial court because he was
not the administrator and was not an applicant for guardianship. The trial court
then stated,
I only need to concern myself, as far as [Michael] is
concerned, with whether or not he is agreeable to submit himself to
the jurisdiction of the court for the purpose of the Court‘s asking him
to provide documents and checkbooks and other matters that he
14
may have, if he has any, that relate in any way to the Doris Rose
Preston or Deartis Preston business. That‘s all I need to know.
Michael testified that he understood that he was a defendant in the ancillary suit
filed by Deartis against him and Scherry but that he was only a witness in Doris‘s
estate case. He submitted to the jurisdiction of the trial court, stated that
Scherry‘s attorney also represented him, and, to the extent that he had not
already done so, agreed to turn over documents in his possession that were
responsive to Benolken‘s requests. Michael confirmed that much of the money
that was transferred to him from the disputed First Bank account had been spent
on attorney‘s fees and on the Sailfish house.
Before recessing the hearing, the trial court stated that it was concerned
about the ―ongoing track that the case is on‖ due to the ―continuing, almost
incredibly frustrating, maddening document situation that‘s going on at this time.‖
According to the trial court, ―because [Scherry] indicated she fails to understand
the scope of the discovery orders or the orders to compel or she reaches her
own conclusions about what she‘s supposed to produce, . . . the ad litems don‘t
have enough information and nobody can go forward.‖
9. April 23, 2007 Hearing—Show Cause
At the outset of the hearing, the trial court once again explained its
frustration with the case after mentioning that it disagreed with Scherry‘s prior
testimony that she could not take any action in regard to Doris‘s teacher
retirement account until the probate matter had closed,
15
And as I stated in my rendition on Thursday, this is a particularly
frustrating case to the Court because much, much expense has
been incurred, and much delay has . . . occurred in this case.
Largely, it appears there[] still, today, even this late in the case,
remains a fundamental either recalcitrance and refusal or complete
lack of understanding as to the scope of the obligation of the
administratrix and/or applicants in the guardianship case to produce
documents and records, regardless of what the position is of the
party or what the party believes about the legal status of those
documents and whether the party believes something is relevant or
not. This is very frustrating for the Court . . . .
Benolken testified in the narrative that estate funds were being improperly
spent without court approval, that ―items that are normally handled through the
estate process [were] being handled in a totally different fashion out of other
accounts,‖ and that Doris‘s estate funds were being ―dissipated as the sole and
proximate result of [Scherry‘s] continued refusal‖ to fully comply with the trial
court‘s orders. In addressing the Sailfish house documents, Benolken said that it
looked like Scherry had signed Deartis‘s name—without any authority—on one of
two versions of the sales contract for the Sailfish house that were in evidence.10
Benolken thoroughly reviewed the various shortcomings of Scherry‘s and
Michael‘s compliance with the trial court‘s orders,11 explained how she thought
10
Benolken also opined that Deartis would be ―on the hook under the deed
of trust‖ if Scherry did ―not comply with the terms of the note,‖ which only she
signed.
11
Benolken testified in part that Michael had charged the estate $2,000 for
travel expenses without the trial court‘s approval.
16
Scherry had violated her fiduciary duty as administratrix of Doris‘s estate,12 and
urged that Scherry be removed as administratrix as a sanction.
The trial court made the following findings at the conclusion of the show
cause hearing:
I concur with the position of the attorney ad litem that [Scherry] has
been given multiple opportunities by this court to simply comply with
document discovery. She has repeatedly made her own decisions
about what she thinks is relevant. She has continually reiterated
untenable positions regarding document production. And while she
continues to insist that she‘s given Ms. Benolken everything,
sometimes more than once, her performance of the document
production has been highly selective, extremely inadequate.
. . . [T]he Court determines from that evidence, [that Scherry]
has not even cooperated with her own counsel in connection with
that matter and has made her own decisions about what documents
to make available to him, based on erroneous and irrelevant
consideration, such as whether or not it would, in her judgment,
increase expenses in the case to provide the documents to her
counsel which have been previously ordered.
The Court has been very, very patient. The Court has
executed more than one order. The Court has allowed a lot of time.
The Court has tried the method of placing the administratrix in a
noncourt record environment with the ad litem counsel and her own
counsel in an attempt to secure simple, straightforward document
production requests.
....
It‘s clear that the administratrix has no notion that she needs
to secure court approval for anything, despite repeated instructions
by the Court and, actually, in open court by ad litem counsel and
others. It is clear that she is not informing her own counsel of
12
Benolken noted Scherry‘s (1) placing the Sailfish house in both her name
and Deartis‘s name, (2) accepting money from Michael out of one of the disputed
accounts, and (3) obtaining a power of attorney from Deartis.
17
actions that she‘s taking. The purchase of the house was without
court approval. Whether it was deemed by her to be in the best
interest of the ward, Deartis Preston, or not, she is simply thumbing
her nose at the jurisdiction of the court.
....
[Scherry] has withheld documents, made her own
determinations about documents, [and] offered very irrelevant and,
in fact, almost insulting excuses, such as the copy machine didn‘t
work correctly or some other avoidance technique . . . .
The trial court then found Scherry in ―constructive contempt‖ of court and gave
her an opportunity to ―cure‖ this by producing the requested documents in their
original form. The court suspended Scherry‘s power of attorney and stated that it
―will have under advisement the possibility of the following sanctions: Removal
of [Scherry] as . . . dependent administratrix . . . and [the] striking of her
pleadings.‖
10. May 7, 2007 Order on Show Cause
On May 7, 2007, the trial court signed its order on show cause, detailing
the findings set out orally at the April 23, 2007 hearing and numerous additional
findings and conclusions, including the following findings regarding Michael:
11. To the extent there was a deficiency in any notice on any
matters heard by the Court, [Michael] waived notice by his
appearance and participation without objection and voluntarily
subjected himself to the jurisdiction of the Court.
12. Despite being placed on adequate notice of the contested
nature of the accounts on which [Michael‘s] name appears in
addition to [Doris‘s], as well as this Court‘s previous order regarding
preserving the status quo of such account, [Michael] has testified
that he has unilaterally expended large portions of the $70,000 that
was contained in such alleged survivorship account, under his own
18
belief and idea that it was his money . . . . [Michael] has failed to
abide by this Court‘s directives as to him.
The trial court adjudged both Scherry and Michael in constructive contempt of
court and gave them the opportunity to ―purge‖ their contempt by producing all of
the requested documents to Benolken by May 18, 2007. The trial court also
decreed the following regarding sanctions:
[T]he Court hereby takes under advisement imposing the harshest
available sanctions, including but not limited to[,] striking the
pleadings of [Scherry] and/or [Michael] in cause number PR-2005-
00802, GS-2007-00162, and all ancillary proceedings that were or
could have been filed in connection therewith, including, but not
limited to, PR-2005-00802-01 and all other matters ancillary to the
core proceeding, and impos[ing] all other available death penalty
sanctions . . . .
11. May 7, 2007 Order on Status Conference
On May 7, 2007, the trial court signed an order on status conference
decreeing, among other things, ―that [Michael] has submitted to the jurisdiction of
this Court and is a party to this and all related proceedings.‖
12. May 9, 2007 Order Granting Application for Temporary
Injunction
On May 9, 2007, the trial court granted an injunction prohibiting Scherry
and Michael from using any of Deartis‘s property, including the funds in the
disputed First Bank accounts.
13. June 13, 2007 Hearing
On June 13, 2007, the trial court held the first of a number of hearings in
which it considered whether Scherry and Michael had successfully purged their
19
constructive contempt set out in the May 7, 2007 order on show cause.
Additional documents were not turned over until June 4, 2007—after the May 18,
2007 deadline—but the trial court excused the tardiness and limited its inquiry to
whether Scherry and Michael had complied with the May 7, 2007 order on show
cause by producing all of the requested documents.13
Scherry testified that she had received a copy of the show cause order,
that she had read the order, and that she had received a copy of the transcript of
the April 23, 2007 hearing. Nonetheless, she testified that she had not produced
documents relating to Doris‘s car, which the estate owned and which Scherry
had paid off without obtaining the trial court‘s permission to do so; that she had
allowed Eva to drive Doris‘s car without paying for its use even though Deartis
paid for its insurance; that she had used money from Deartis‘s representative
payee account to pay taxes on the Austin Street house; that she had used estate
money to pay filing fees in Deartis‘s guardianship case; that she had deposited a
royalty check into an account that she held with Doris and that was also in
Doris‘s name when she died; that she had used money from Deartis‘s
representative payee account to pay taxes on land owned by the family in
Cherokee County; that she had produced certain banking records regarding
Doris‘s bank accounts but had not requested the rest of the records from the
banks; that she had never deposited a royalty payment for Doris into the estate
13
The record shows that a number of deposits were made into the trial
court‘s registry around this time.
20
account; that she had never produced any of Doris‘s bills from Atmos Energy or
Sears; that she had accepted a check from Michael‘s disputed First Bank
account in the amount of $11,000 as payment for her services as administratrix;
that she had not listed Doris‘s royalty interest in the inventory and appraisement
that she filed; and that she had deposited Doris‘s tax refund in Deartis‘s
representative payee account instead of Doris‘s estate account. Scherry
admitted that there were more documents relating to Doris‘s estate that she had
not produced. The trial court recessed the hearing.
14. June 14, 2007 Hearing
The trial court held a hearing on June 14, 2007, primarily to address
scheduling matters. At the conclusion of the hearing, it sua sponte removed
Scherry as administratrix of Doris‘s estate and appointed Dubner successor
dependent administrator. The trial court reasoned,
It is apparent to me that [Scherry], although repetitively
admonished, held in contempt, placed in an opportunity to purge the
contempt, still does not take seriously or understand or -- either that
or refuses to accept, I don‘t know which, the obligations of a court-
appointed fiduciary.
....
I cannot in good conscience -- in fact, it would be, I think,
bordering on neglect to do so, to leave [Scherry] in the position of
court-appointed administratrix, given the uncontroverted evidence
before the Court at this time, which is the method by which the
house and the parties live in was acquired, the title that it‘s held in,
the complete lack of understanding, as demonstrated by the closing,
the action to have a local attorney provide a power of attorney and
have Deartis Preston execute documents, when it was clear and
should have -- either was known or should have been known to all
21
parties that he‘s an incapacitated person and should never have
been put in that position.
The failure to account for funds, the commingling of funds, and
the use of funds for the multiple benefit of other parties is all
uncontroverted before the Court. The failure to account for income,
such as oil and gas royalty, the failure to produce or place money in
the registry of the court until ordered to do so or until extreme
actions were taken, all dictate to this Court that the level of -- lack of
performance, the level of violation, the level of disregard or
misunderstanding -- it doesn‘t really matter which, because it has the
same effect -- expressed or -- I‘m sorry not expressed --
demonstrated by [Scherry], necessitates her immediate removal.
15. Dubner’s Original Petition in Intervention
Dubner, as successor dependent administrator of Doris‘s estate, filed an
original petition on July 20, 2007, intervening in the lawsuit filed by Deartis
against Scherry and Michael. He alleged a claim for breach of fiduciary duty
against Scherry only and claims for conversion and for recovery of the funds in
the disputed First Bank accounts pursuant to probate code section 442 against
both Scherry and Michael. Dubner later sued Western Surety, the surety on the
bond filed by Scherry, alleging that it was liable for the wrongful conduct of
Scherry.14
16. July 30, 2007 Hearing
On July 30, 2007, the trial court continued the hearing regarding whether
Scherry and Michael had purged their constructive contempt. Scherry testified
that she had not produced Doris‘s tax returns, all of Doris‘s banking records and
14
Western Surety later settled Dubner‘s claims against it for $85,000.
22
statements, an Atlanta Life policy, various invoices from creditors (such as Sears
and Foley‘s), and the signature cards for Doris‘s undisputed bank accounts.
Scherry testified that she had canceled the insurance on the Austin Street house;
that she had used estate funds to purchase a replacement refrigerator for the
Austin Street house; and that she had never collected rent from her son, who
was living at the Austin Street house when Doris died.15 Scherry also admitted
that even though she had testified in the past that the certificates of deposit left
by Doris were to be used for Deartis‘s benefit, she had designated her children
beneficiaries of a certificate of deposit that was created using funds from a
certificate of deposit account that Doris owned when she died and that was left in
Scherry‘s or Michael‘s name. The trial court recessed the hearing.
17. July 31, 2007 Hearing
At the July 31, 2007 hearing, Scherry testified that Doris had received
royalty payments after Doris died and that the payments were deposited into a
―house‖ account in Scherry‘s and Doris‘s name but that Scherry had never repaid
the royalty payments back to the estate. Scherry stated that the 2006 taxes on
the Austin Street house had not been paid even though she could have paid
them in her capacity as administratrix. She also admitted that she had received
payments from Michael from one of the disputed First Bank accounts after
15
The trial court had granted Scherry‘s application to authorize the
demolition of the Austin Street house back in July 2006, but Scherry never had
the house demolished.
23
February 23, 2007, (the date the trial court signed the order on Deartis‘s motion
to compel) and that there were still documents in her possession pertaining to
Doris‘s estate that she had not produced. The trial court recessed the hearing.
18. August 1, 2007 Hearing
At an August 1, 2007 hearing, attorneys questioned Scherry more about
the Sailfish house, bank accounts, and her failure to produce documents. She
gave the following explanation for her failure to timely produce documents
relevant to Benolken‘s requests:
More than one time I‘ve been asked for different things, but let
me start at the very front. As I‘ve said before, I was not actually
aware of some of the things that I have that I should have sent. I did
not think that she would need an accident policy. Doris did not die of
an accident, and there was no money to be collected on that policy.
She didn‘t have any life policies other than the one, and I‘m not sure
that I sent it or I didn‘t.
....
She had different banks, and she had the insurances. She
had the CDs and she had all of this stuff that has to be arranged to
keep up with. So I tried to make sure that those things were made
available because I knew they were important, you know, the
things -- the bank situations. I don‘t know how I forgot the Hibernia
account. Perhaps we were not really using that account, and she
had so many up here that -- that it just did not cross my mind to send
it.
I had no reason to hide it. I just didn‘t think to send it. We
weren‘t spending anything out of it. . . .
Then when they [presumably Deartis, Gwendolyn, and Eva]
moved down there, I had three houses to be -- contend with. I had
many reports to be sent in. I -- sometimes the timing was not long
enough. . . .
24
I did not really understand accounting, and I was trying to get
myself organized so that when we sent it -- because I did not realize
it was long past due. . . .
The trial court recessed the hearing.
19. September 18, 2007 Hearing
At a hearing on September 18, 2007, Scherry testified that she had
received checks from Michael that were drawn on a disputed First Bank account
even though she knew the trial court had ordered that no more funds were to be
expended from the disputed accounts. And as in a previous hearing, Scherry
agreed that when she renewed the disputed certificate of deposit account that
Doris had allegedly entrusted to her, she did not designate Deartis as its
beneficiary.
Michael testified that he had been ―integrally‖ involved in the litigation since
it began; that he understood that the order on show cause required him to
produce documents; that he wrote checks using funds from a disputed First Bank
account after the trial court ordered him and Scherry to preserve the status quo
as to ―all assets‖; and that he had agreed at an earlier hearing that he was
making an appearance before the trial court in all matters and submitting to the
trial court‘s jurisdiction. Michael further testified that he thought compliance with
the order on show cause was voluntary, that the funds spent from the disputed
First Bank account were used for family, and that the Sailfish house was
purchased because Deartis, Gwendolyn, and Eva needed a home. The trial
court recessed the hearing.
25
20. Deartis’s Motion for Sanctions
On October 19, 2007, Deartis filed a motion for sanctions against Scherry
and Michael in the PR-2005-00802-01 cause (Deartis‘s suit against Scherry and
Michael). The motion stated that it was ―filed out of an abundance of caution[]
and not in lieu of any other relief requested in this case. . . . Ad Litems request
the Court to take affirmative action and implement the proposed sanctions which
this Court previously has taken under advisement in this case.‖ Deartis outlined
Scherry‘s and Michael‘s alleged sanctionable conduct—the refusal to provide
discovery, to render an accounting, and to obey the trial court‘s orders—and
requested, among other things, that the trial court enter death penalty sanctions
against Scherry and Michael, including, but not limited to, striking their pleadings
in the PR-2005-00802-01 cause and entering a default judgment against them.
Dubner adopted the position asserted by Benolken in Deartis‘s motion for
sanctions.
21. October 26, 2007 Hearing and December 3, 2007 Closing
Arguments
On October 26, 2007, the trial court convened the final evidentiary hearing
regarding whether Scherry and Michael had successfully purged their
constructive contempt. The trial court granted Benolken a ―trial amendment‖ to
clarify that Deartis‘s motion for sanctions applied retroactively,16 and Michael
16
Benolken, Miller, Dubner, and counsel for Scherry and Michael signed
the following stipulation:
26
confirmed that the order on show cause applied to him. The parties rested and
closed at the conclusion of the hearing, and the trial court heard closing
arguments at a hearing on December 3, 2007.
D. 2008 Pleadings and Proceedings
1. Consolidated Order on Motions to Compel and For
Sanctions and Show Cause
On March 4, 2008, the trial court signed a consolidated order on motions to
compel and for sanctions and show cause, granting Deartis‘s motion to compel
and Deartis‘s and Dubner‘s motions for sanctions, holding Scherry and Michael
in constructive contempt of court for failing to comply with numerous orders,
setting out in detail Scherry‘s and Michael‘s acts and omissions underlying the
order, and imposing death penalty sanctions against both of them. The order
stated in part,
[T]he Court hereby strikes all of the pleadings of [Scherry] and
[Michael] in cause number PR-2005-00802, GS-2007-00162, and all
ancillary proceedings that were or could have been filed in
connection therewith, including, but not limited to, PR-2005-00802-
01 and all other matters ancillary to the core proceeding, and
imposes all other available death penalty sanctions, including, but
[A]ll prior testimony and documentary evidence obtained and
admitted in all prior hearings in this cause (PR-2005-00802-01), in
Estate Case No. PR-2005-00802, and in Guardianship Case No.
GS-2007-00162, together with all orders entered in each of the
foregoing causes, are admitted conclusively as evidence to be
considered and used for all purposes with regard to all matters which
have been noticed and/or set for hearing in this cause, whether as a
continuation of any prior hearing(s) or as an initial hearing, on
October 26, 2007, and any continued or related hearing or trial
thereafter.
27
not limited to, precluding [Scherry] and/or [Michael] (i) from acting as
Dependent Administrator/rix, (ii) from being appointed as Guardian
of the Person and/or the Estate of Deartis Preston, (iii) from acting
as agent-in-fact for Deartis Preston, (iv) from pursuing claims that
have been brought or could have been brought in any of the Related
Cases and/or any further ancillary matters thereto, (v) from
defending claims that have been brought or could have been
brought in the Related Cases and/or any further ancillary matter
thereto, (vi) from offering or eliciting any evidence or defenses
relating to the causes of action that were or could have been
asserted against him or her by Attorney Ad Litem or Guardian
Ad Litem or Successor Dependent Administrator in any of the
Related Cases and/or any further ancillary matters thereto; (vii) from
opposing or interposing any objections concerning any and all
evidence of damages against them, (viii) from being entitled to
obtain responses to any pending discovery requests from Deartis
Preston, Ad Litems and/or Successor Dependent Administrator, and
(ix) hereby awarding judgment by default on liability in favor of
Deartis Preston and the Estate of Doris Rose Preston as against
[Scherry] and [Michael] . . . .
2. Post-Death Penalty Sanctions Hearings
The trial court convened hearings on June 19, 2008; August 21, 2008; and
August 22, 2008, on Benolken‘s, Miller‘s, and Dubner‘s then-pending applications
for attorneys‘ fees. After ruling on the applications, the trial court convened
hearings on August 22, 2008; September 12, 2008; and December 11, 2008, to
allow Benolken and Dubner to prove up damages, including exemplary damages,
in their suits on behalf of Deartis and the estate against Scherry and Michael
(cause PR-2005-00802-01).
28
3. Order of Severance
On December 11, 2008, the trial court signed an order severing the default
judgment and all claims and issues of Deartis against Scherry and Michael from
cause PR-2005-00802-01. The trial court assigned cause PR-2005-00802-02 to
Deartis‘s case.
E. 2009 Proceedings
1. Amended Final Default Judgment—PR-2005-00802-02
On January 8, 2009, the trial court signed an amended final default
judgment in favor of Deartis against Scherry and Michael.17 The order
(1) awarded the Sailfish house to Deartis free and clear of any and all liens,
claims, and encumbrances (except for claims of ―governmental taxing authorities‖
and an equitable lien granted by the separate judgment in favor of Doris‘s
estate); (2) enjoined any and all persons and entities from ―[u]ndertaking any
actions which would endanger the Sailfish [h]ouse in any way‖; (3) declared the
Sailfish house Deartis‘s sole and separate property; (4) awarded Deartis ―actual
damages‖ in the amount of $127,000; (5) awarded Deartis exemplary damages
in the amount of $414,000; and (6) awarded Deartis prejudgment and
postjudgment interest. The trial court signed its findings of fact and conclusions
of law on January 28, 2009.
17
This is the judgment that Scherry and Michael appeal from in appellate
cause 02-09-00095-CV.
29
2. Final Judgment—PR-2005-00802-01
On April 13, 2009, the trial court signed a final judgment in favor of Dubner,
as successor administrator of Doris‘s estate, and Western Surety against Scherry
and Michael.18 Regarding Dubner‘s claims against Scherry under probate code
section 442, the trial court awarded Doris‘s estate $13,023.70.19 On Dubner‘s
claims against both Michael and Scherry under probate code section 442, the
trial court awarded Doris‘s estate $83,635.10.20 The trial court additionally
awarded Doris‘s estate exemplary damages in the amount of $180,716.94; an
equitable lien on the Sailfish house in the amount of $25,070.34 ―to secure
payment of the funds from account referenced above ending in 612‖; and
―attorney‘s fees and expenses‖ against Scherry in the amounts of (1) $29,125.45
―for attorney‘s fees and expenses of [Dubner] that would not have otherwise
been incurred except for the actions and/or inactions of‖ Scherry, (2) $53,186.62
―for fees and expenses incurred by [Miller] that would not have otherwise been
incurred except for the actions and/or inactions of‖ Scherry, and (3) $174,067.00
―for fees and expenses incurred by [Benolken] that would not have otherwise
been incurred except for the actions and/or inactions of‖ Scherry. Of the
18
This is the judgment that Scherry and Michael appeal from in appellate
cause 02-09-00233-CV.
19
This figure consists of damages in the amount of $92,213.73 less a credit
of $80,383.93 plus prejudgment interest of $848.90.
20
This figure consists of damages in the amount of $78,368.14 less a credit
of $184.47 plus prejudgment interest of $5,451.42.
30
judgment awarded to Doris‘s estate against Michael, $85,000 was assigned to
Western Surety. On May 11, 2009, the trial court signed an order that assigned
the portion of the final judgment in favor of Doris‘s estate to Deartis.
The judgment awarded Western Surety $85,000 on its indemnity claim
against Scherry plus attorneys‘ fees and expenses in the amount of
$38,408.63.21 The trial court adopted Dubner‘s and Western Surety‘s joint
proposed findings of fact and conclusions of law.
3. Account for Final Settlement
On October 22, 2009, the trial court signed an order approving the account
for final settlement filed by Dubner, ordering that no property remains in Doris‘s
estate, discharging Dubner of his duties, and closing the estate. The account
provided in part that ―[t]he total value of the estate at the beginning of this
accounting period [June 26, 2008, to June 12, 2009] was $128,029.26‖ but that
after considering total receipts, total cash disbursements and expenses paid
(which included attorneys‘ fees), and total non-cash disbursements, the total
value of the estate on hand was $0.00.
F. Attorneys’ Fees
The trial court conducted hearings on Benolken‘s, Miller‘s, and Dubner‘s
applications for attorneys‘ fees throughout the litigation. The trial court awarded
21
The trial court had granted a summary judgment in favor of Western
Surety on March 25, 2009, based on an indemnity agreement executed by
Scherry.
31
Benolken $11,200 in attorneys‘ fees and costs on March 14, 2007, and
$104,780.19 in attorneys‘ fees pursuant to the order approving the account for
final settlement. The trial court awarded Miller and Dubner attorneys‘ fees in the
amounts of $25,237.06 and $22,971.85, respectively, pursuant to the order
approving the account for final settlement. Scherry and Michael appeal.
III. SANCTIONS
In their first issues in both cause 02-09-00095-CV and cause 02-09-00233-
CV, Scherry and Michael argue that the trial court abused its discretion and
committed reversible error by imposing death penalty sanctions. They contend
that there was no direct nexus between the offensive conduct and the sanctions
imposed, that the sanctions were excessive, and that the sanctions violated their
due process and due course of law guarantees.
A. Standard of Review and Applicable Law
Trial courts have broad discretion to impose discovery sanctions to secure
compliance with discovery rules, to deter other litigants from similar misconduct,
and to punish violators. See Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 849
(Tex. 1992). We therefore review a trial court‘s imposition of discovery sanctions
for an abuse of discretion. Cire v. Cummings, 134 S.W.3d 835, 838 (Tex. 2004).
A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner,
or if it acts without reference to any guiding rules or principles. Downer v.
Aquamarine Operators, Inc., 701 S.W.2d 238, 241B42 (Tex. 1985), cert. denied,
32
476 U.S. 1159 (1986)). In reviewing sanctions orders, we are not bound by a
trial court‘s findings of fact and conclusions of law; rather, we must independently
review the entire record to determine whether the trial court abused its discretion.
Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006).
Texas rule of civil procedure 215.2(b) allows a trial court to sanction a
party for failure to comply with a discovery order or request. Tex. R. Civ.
P. 215.2(b). Sanctions that a trial court may impose include an order refusing to
allow the disobedient party to support or oppose designated claims or defenses
and an order striking out pleadings or rendering a judgment by default against
the disobedient party. Tex. R. Civ. P. 215.2(b)(4), (5). When a motion for
sanctions asserts that a respondent to a discovery request has failed to produce
a document within its possession, custody, or control, the movant has the burden
to prove the assertion. GTE Commc’ns Sys. Corp. v. Tanner, 856 S.W.2d 725,
729 (Tex. 1993).
In discovery-sanction cases, a trial court‘s discretion is limited by the
requirement of rule of civil procedure 215.2(b) that the sanctions be ―just‖ and by
the parties‘ constitutional right to due process. TransAmerican Natural Gas
Corp. v. Powell, 811 S.W.2d 913, 917–19 (Tex. 1991). A sanction is just if a
direct relationship exists between the offensive conduct and the sanctions
imposed. Id. at 917; see Chrysler Corp., 841 S.W.2d at 849. A direct nexus
exists when the sanction is directed against the true offender and is tailored to
33
remedy any prejudice the discovery abuse caused. TransAmerican, 811 S.W.2d
at 917. To be just, a sanction must also not be excessive. Id. A sanction
imposed for discovery abuse should be no more severe than necessary to satisfy
its legitimate purposes. Cire, 134 S.W.3d at 839. Striking a party‘s pleadings for
discovery abuse is ―the most devastating‖ sanction a trial court may impose and
may only be imposed in ―exceptional cases‖ where they are ―clearly justified.‖
GTE, 856 S.W.2d at 729–30; TransAmerican, 811 S.W.2d at 917–18. In Cire,
the supreme court clarified that
striking pleadings is a harsh sanction that must be used as a last
resort after the trial court has considered lesser sanctions, and that
in all but the most egregious and exceptional cases, the trial court
must test lesser sanctions before resorting to death penalty
sanctions. However, in cases of exceptional misconduct . . . , the
trial court is not required to test lesser sanctions before striking
pleadings under our previous holdings in TransAmerican, Chrysler,
and GTE, so long as the record reflects that the trial court
considered lesser sanctions before striking pleadings and the party‘s
conduct justifies the presumption that its claims lack merit. This
means that a trial court must analyze the available sanctions and
offer a reasoned explanation as to the appropriateness of the
sanction imposed.
134 S.W.3d at 842.
B. Direct Nexus
The record demonstrates that there is a direct nexus between the offensive
conduct, the offenders, and the sanctions imposed. The offensive conduct was
the repeated and admitted failures by Scherry and Michael to comply with the
trial court‘s orders requiring them to produce documents responsive to
34
Benolken‘s discovery requests and to ―preserve the status quo as to all assets‖
that were part of Doris‘s estate and that were the subject of the ancillary lawsuit
filed by Deartis against Scherry and Michael. The offensive conduct was
attributable to Scherry‘s and Michael‘s actions and inactions regarding their
failures to comply with the trial court‘s orders, not the actions or inactions of their
attorney or some third party.22 It is undisputed that the trial court imposed the
case-determinative sanctions because of Scherry‘s and Michael‘s conduct, which
was examined at length over numerous hearings.
Scherry and Michael argue that there was no direct nexus between the
offensive conduct and the sanctions imposed because the March 14, 2007
―Sanctions Order‖ was based upon conduct that allegedly occurred prior to the
filing of Deartis‘s suit on January 19, 2007, and that was part of a different case.
But the order that the trial court signed on March 14, 2007, was the second order
granting Deartis‘s motion to compel; the trial court did not enter an order
sanctioning Scherry and Michael until March 4, 2008, one year later. Moreover,
Benolken, Miller, Dubner, and counsel for Scherry and Michael stipulated that ―all
22
The trial court made the following finding in the March 4, 2008
consolidated order on motions to compel and for sanctions and show cause:
45. The Court has every confidence in . . . counsel for [Scherry]
and [Michael] . . . . Based on the evidence presented over the
course of these hearings, the Court believes that [counsel]
made every effort to gain [Scherry‘s] and [Michael‘s]
compliance with this Court‘s orders that were entered in these
Related Cases.
35
prior testimony and documentary evidence obtained and admitted in all prior
hearings . . . are admitted conclusively as evidence to be considered and used
for all purposes with regard to all matters.‖
Michael argues that there was no direct nexus between the offensive
conduct and the sanctions imposed because he ―was not a party to the action
other than as a P.O.D. beneficiary of the multi-party accounts brought back into
the estate of Doris Preston‖ and because he was not served. However, in the
May 7, 2007 order on show cause, the trial court found that, ―[t]o the extent there
was a deficiency in any notice on any matters heard by the Court, [Michael]
waived notice by his appearance and participation without objection and
voluntarily subjected himself to the jurisdiction of the Court.‖ The record supports
this finding.
Accordingly, we overrule the part of Scherry‘s and Michael‘s first issues
challenging the propriety of the sanctions order under the first prong of the
TransAmerican test.
C. Excessiveness
Turning to Scherry‘s and Michael‘s arguments that the sanctions were
excessive, under the standards articulated above, we must (1) decide whether
death penalty sanctions were warranted and (2) determine whether the record
reflects that the trial court (a) considered lesser sanctions before striking
36
Scherry‘s and Michael‘s pleadings and (b) actually tested the lesser sanctions
before striking the pleadings unless this is a case involving ―exceptional
misconduct.‖ See Cire, 134 S.W.3d at 842.
The factual and procedural background above sets out in painstaking
detail the years of litigation that dragged on due in large part to Scherry‘s and
Michael‘s refusal to comply with the trial court‘s orders. As early as January
2007, the trial court expressly recognized that Scherry and Michael had chosen
to handle Doris‘s probate matters through their own informal, intra-family
procedures. Scherry‘s and Michael‘s attorney even acknowledged that Scherry
had ―different ideas about the need for a structured arrangement‖; in Scherry‘s
opinion, the ―informal family arrangements‖ were to ―be unfettered by the . . .
unnecessary intrusions of the law.‖ But the trial court exclaimed that it had a duty
to require that the administration of Doris‘s estate be conducted in accordance
with the law—although that meant spending time and estate money litigating the
case, which included permitting the ad litems to fulfill their duties in representing
Deartis‘s interests. As the trial court identified, without Scherry‘s and Michael‘s
compliance with its orders, the ad litems ―don‘t have enough information and
nobody can go forward.‖
But after the trial court signed two orders granting motions to compel and
conducted several hearings, it made the following findings in the May 7, 2007
37
order on show cause relevant to its various attempts to obtain compliance with its
orders:
―The Court has been very, very patient.‖
―The Court has attempted to forebear on the imposition of sanctions[,]
which this Court considers a progression of lesser sanctions . . . .‖
―The Court has executed more than one order.‖
―The Court has allowed a great deal of time for compliance.‖
―The Court has even tried the method of placing [Scherry] in a non-court-
record environment . . . in an attempt to secure her proper responses to
simple, straightforward document production requests.‖
―The Court has attempted to make orders that would maintain the status
quo . . . .‖
―The Court has not imposed sanctions on [Scherry] in the past in an effort
to recognize the possibility that there might have been a misunderstanding
on the part of [Scherry] with respect to her court-imposed obligations . . . .‖
―The Court has exercised every leniency toward [Scherry] to allow her
every possible latitude.‖
Notwithstanding all of this, based on Scherry‘s failure and refusal to abide by the
trial court‘s orders, it concluded that she
―will not modify her behavior‖;
―will not comply‖;
―will not produce documents‖;
―will continue to impose her own decisions and judgment on the relevancy
and materiality of documents‖;
―will continue to withhold documents and offer irrelevant excuses and
reasons for failure to tender documents‖; and
38
―will continue to take positions which are not defensible.‖
After making these findings and conclusions, instead of imposing
sanctions, the trial court gave Scherry and Michael yet another opportunity to
―purge‖ their constructive contempt. But Scherry and Michael ultimately failed to
do so, as the hearings on June 13, 2007; July 30, 2007; July 31, 2007; August 1,
2007; September 18, 2007; and October 26, 2007, reflect.23 Among other things,
Scherry admitted that there were more documents relating to Doris‘s estate that
she had not produced, and Michael admitted that he had written checks using
funds from a disputed First Bank account after the trial court had ordered him
and Scherry to preserve the status quo as to ―all assets.‖ In the March 4, 2008
order on motion to compel and for sanctions and show cause, the trial court
consequently made the following findings regarding Scherry:
1. Instead of complying with the Court‘s orders and heeding this
Court‘s repeated warnings, Scherry Levi engaged in an
unremorseful pattern and practice of her own choosing, with
only a patchy and self-determined production of relevant
documents in the face of clear and unambiguous instructions
to the contrary from this Court. The Court finds that Scherry
Levi has possession, custody, and control of documents which
are clearly responsive to [Ad Litems‘] discovery requests and
this Court‘s orders compelling production which she has not
produced.
2. The Court finds that [Scherry] wholly failed to produce either a
fiduciary accounting or the associated records, both of which
were required by previous orders. . . .
23
The trial court even excused Scherry‘s and Michael‘s failure to comply
with the May 18, 2007 deadline that it had set earlier.
39
....
5. The Court finds that [Scherry] did not provide any valid or
justifiable excuse or reason for the absence of the documents,
the records[,] and the accounting, and that she did not show
any cause whatsoever as to why this Court should not impose
the sanctions against her . . . .
....
7. Despite being placed on adequate notice of the contested
nature of the accounts on which [Michael‘s] name appears in
addition to [Doris‘s], as well as this Court‘s previous order
regarding preserving the status quo of such account, [Scherry]
conspired and participated in [Michael‘s] dissipation of large
portions of the $70,000 that was contained in such alleged
survivorship account. . . .
....
12. The Court finds that despite clear direction from this Court . . .
that [Scherry] could not commingle funds and assets . . .
belonging to [Deartis] and/or the Estate . . . , she continued
obstinately to handle Deartis‘s property and Estate property in
her own way. . . .
13. [Scherry], in her capacity as Dependent Administratrix,
breached her fiduciary duties and trust that she owed to the
Estate in numerous respects . . . .
....
15. [Scherry] breached her fiduciary duties and trust that she
owed to [Deartis] in numerous respects . . . .
The trial court made the following findings regarding Michael:
20. [Michael] was placed on adequate notice that the joint account
he held with [Doris], which he alleged had a valid right of
survivorship designation, was claimed to be the property of
[Deartis] and/or the Estate. Despite being placed on adequate
40
notice of the contested nature of the accounts on which
[Michael‘s] name appears in addition to [Doris‘s], as well as
this Court‘s previous order regarding preserving the status quo
of such account, [Michael] has testified that he has unilaterally
expended large portions of the $70,000 that was contained in
such alleged survivorship account, under his own belief and
idea that it was his money . . . .
....
22. The evidence further showed that [Michael] not only joined in
with [Scherry‘s] actions in this matter, including her actions
with respect to her refusal to comply with this Court‘s
discovery orders and the Ad Litems‘ discovery requests, but
also intentionally and actively directed [Scherry] to act as she
did, including, but not limited to, her actions with respect to her
refusal to comply with this Court‘s discovery orders and the
Ad Litems‘ discovery requests.
....
24. The Court finds that [Michael] was in possession of
documents relevant to this case, and which he specifically was
ordered to produce, and was able to produce but refused to do
so. . . .
The trial court made the following ―General Findings‖:
44. It is an accurate statement that the Court ―has bent over
backwards‖ over the course of many months to provide
[Scherry] and [Michael] every chance to comply with their
duties and obligations to [Deartis], this Court, and the parties
in each of these Related Cases, including, but not limited to,
extending deadlines, excusing nonperformance between May
7, 2007 and June 4, 2007, offering conferences to explain
duties, holding lengthy hearings, answering questions posed
by [Scherry] from the witness stand, explaining their duties in
open court, and entering orders which allowed for the
opportunity to purge contempt and their repeated failure and
refusal to comply with valid Court orders and Ad Litems‘
discovery requests, all to no avail. . . . The Court has
extended every forbearance, every delay, every second
41
chance that is possible in these Related Cases in its attempt
to avoid the very result that now has occurred in these cases,
i.e., extremely high costs, including court-appointed
fiduciaries‘ and attorneys‘ fees and expenses, in complex and
growing litigation because of the inactions and actions of
[Scherry] and [Michael].
....
47. Throughout these proceedings in each of the Related Cases,
[Scherry] and [Michael] have flaunted their disrespect for this
Court and the system it is obliged to orchestrate and
implement. Their own testimony shows that [Scherry] and
[Michael] operated on their own alternate system. . . .
....
55. Although the remedy contemplated herein associated with a
failure to comply might be harsh, the Court finds and
concludes that the enforcement of [Scherry‘s] and [Michael‘s]
duties and obligations in the circumstances present here are
of paramount importance. The Court is recalcitrant, reluctant,
and unwilling to dispose of a case on procedural grounds and,
therefore, favors progressive sanctions. The Court has been
reluctant to assess what are referred to as ―death penalty‖
sanctions, but because of the conduct of the parties, the
evidence presented, and the reasons detailed in this order, will
now implement said sanctions.
....
60. Based upon [Scherry’s] and [Michael’s] persistent and
obstructive behavior in this case, including, but not limited to,
their repeated failure and refusal to engage in good faith
discovery and obey lawful Court orders compelling discovery,
there now has arisen the presumption that they have engaged
[in] such a pernicious course of conduct because their claims
and defenses have no merit.
....
42
62. The Court finds there are no lesser sanctions which
could be implemented to gain [Scherry’s] and [Michael’s]
cooperation and compliance in this case. The Court is mindful
of Ad Litems’ strenuous argument that monetary sanctions
likely may constitute an empty remedy against either or both
[Scherry] and [Michael] because it is doubtful they are
collectible. The Court finds that there is no reasonable
alternative to the granting of the most severe death penalty
sanctions in each of the Related Cases as to both [Scherry]
and [Michael]. [Emphasis added.]
The record thus shows that the trial court afforded Scherry and Michael
numerous opportunities to comply with its orders, but they proceeded to
administer Doris‘s estate using their own informal procedures and admitted that
they had failed to comply with the trial court‘s orders, even after being given
numerous opportunities to comply. On the totality of this record, we conclude
that death penalty sanctions were warranted in this exceptional case.
The March 4, 2008 consolidated order on motions to compel and for
sanctions and show cause contains a lengthy, reasoned explanation as to why
death penalty sanctions were appropriate. The order also clearly shows that the
trial court considered, but ultimately rejected, lesser monetary sanctions. The
trial court indicated that it was ―reluctant‖ to assess death penalty sanctions but,
nonetheless, concluded that there was ―no reasonable alternative to the granting
of the most severe death penalty sanctions‖ because of the likelihood that the
lesser monetary sanctions would be an ―empty remedy.‖ The March 4, 2008
order further shows that the trial court reasonably found that Scherry‘s and
Michael‘s persistent and obstructive behavior justified the presumption that their
43
defenses to Deartis‘s and Dubner‘s claims lacked merit. ―Ordinarily, a trial court
would also be required to test the effectiveness of lesser sanctions by actually
implementing and ordering each sanction that would be appropriate to promote
compliance with the trial court‘s orders in this case.‖ Cire, 134 S.W.3d at 842.
But because of Scherry‘s and Michael‘s blatant disregard for the discovery
process in this exceptional case involving protracted misconduct, death penalty
sanctions were clearly justified, and the trial court was not required to first test
lesser sanctions before imposing case determinative sanctions.24 See id.
Scherry‘s and Michael‘s arguments that their constitutional rights were
violated because the trial court‘s orders lacked specificity and because Michael
was not a party to the estate action are unpersuasive. The May 7, 2007 order on
show cause set out in detail, again, the discovery that Scherry and Michael were
ordered to produce, and Michael submitted to the jurisdiction of the trial court on
several occasions throughout the record. Scherry and Michael do not argue that
they did not understand the trial court‘s orders; Scherry testified that she ―just
didn‘t think to send‖ responsive documents.
Accordingly, we conclude and hold that the trial court did not abuse its
discretion by imposing death penalty sanctions, and we overrule the remainder of
24
Nonetheless, the trial court stated at the conclusion of the April 23, 2007
show cause hearing that it ―will have under advisement the possibility of the
following sanctions: Removal of [Scherry] as . . . dependent administratrix . . . .‖
The trial court followed through and imposed this lesser sanction, removing
Scherry as dependent administratrix on June 14, 2007, and appointing Dubner
successor dependent administrator. The trial court therefore tested lesser
sanctions.
44
Scherry‘s and Michael‘s first issues, including their arguments challenging the
sanctions order under the second prong of the TransAmerican test.25
IV. DISPUTED FIRST BANK ACCOUNTS
Scherry and Michael assert arguments relevant to the disputed First Bank
accounts in their second, seventh, and eighth issues in cause 02-09-00095-CV
and their second, sixth, and seventh issues in cause 02-09-00233-CV.
A. Second Issue—Cause 02-09-00095-CV
Citing Chandler v. Welborn, 156 Tex. 312, 294 S.W.2d 801 (1956),
Scherry and Michael argue that ―any and all causes of action founded upon the
survivorship accounts . . . belonged to the estate of [Doris] and not [Deartis]‖
because ―[t]he Texas Supreme Court has held that an heir does not have [a] right
to bring a suit during the pendency probate of the estate except for the benefit of
the estate.‖ Indeed, the executor or administrator of a decedent‘s estate
generally has the exclusive right to bring suit for the recovery of real and
personal property belonging to the estate. See Tex. Prob. Code Ann. § 233A
(West 2003); Frazier v. Wynn, 472 S.W.2d 750, 752 (Tex. 1971) (―It is settled in
Texas that the personal representative of the estate of a decedent is ordinarily
the only person entitled to sue for the recovery of property belonging to the
estate.‖); Chandler, 156 Tex. at 318, 294 S.W.2d at 806 (―When administration is
25
To the extent that Scherry and Michael raise any other arguments within
their first issues that are not addressed by our analysis, those arguments are
waived as inadequately briefed. See Tex. R. App. P. 38.1(i).
45
pending, the heirs are generally not entitled to maintain a suit for the recovery of
property belonging to the estate . . . .‖). However, the supreme court in Chandler
also recognized an exception to the general rule when ―it appears that the
administrator will not or cannot act, or that his interest is antagonistic to that of
the heirs desiring to sue.‖ 156 Tex. at 318, 294 S.W.2d at 806. Under this
exception, an heir may maintain a suit to recover property belonging to the estate
while the administration is pending. See id.; In re Guardianship of Archer, 203
S.W.3d 16, 22 (Tex. App.—San Antonio 2006, pet. denied).
Assuming that Scherry and Michael may even assert this argument, 26 on
this record, Deartis had standing to sue to recover property belonging to Doris‘s
estate because Scherry‘s interest in the disputed First Bank accounts was
indisputably antagonistic to Deartis‘s interest. See Chandler, 156 Tex. at 318,
294 S.W.2d at 806. To the extent Deartis sued Scherry and Michael to recover
the funds from the disputed First Bank accounts under the theory that the funds
belonged to him, Chandler is inapposite. Accordingly, we overrule Scherry‘s and
Michael‘s second issue in cause 02-09-00095-CV.
B. Second Issue—Cause 02-09-00233-CV
26
See Paradigm Oil, Inc. v. Retamco Operating, Inc., 242 S.W.3d 67, 71–
72 (Tex. App.—San Antonio 2007, pet. denied) (holding that when all allegations
in petition, including those that established standing, were deemed admitted as a
result of a default judgment, defaulting party was estopped from denying the
plaintiff‘s standing).
46
Scherry and Michael argue that section 442 of the probate code ―limits the
liability of any payee to an amount not greater ‗than the amount that the party,
P.O.D. payee, or beneficiary received from the multiple-party account‘‖; that ―as a
matter of law there could not have been a breach of fiduciary duty, fraud,
conversion, or any other cause of action against Appellants by Appellee related
to the accounts‖; and that ―[a]ny potential liability was limited to the amount of the
accounts for the benefit of the estate of Doris Preston.‖
Probate code section 442 authorizes the use of multi-party account funds
to pay debts, taxes, and expense of administration under certain circumstances.
Tex. Prob. Code Ann. § 442 (West Supp. 2010). Neither Scherry nor Michael
argue that the disputed First Bank accounts were not needed to pay for the
significant expenses of administration. Further, the damages expressly awarded
to the estate pursuant to the section 442 claims are consistent with the amounts
that First Bank turned over to Scherry and Michael after Doris‘s death. At the
March 13, 2006 prove-up hearing, Scherry disclosed for the first time that Doris
had entrusted two certificate of deposit accounts to Scherry and Michael—one
worth approximately $79,000 and another worth approximately $49,000. The
trial court found in favor of Dubner on his section 442 claims against Michael and
Scherry in the amount of $78,368.14 and against Scherry in the amount of
$49,206.40. Scherry and Michael did not preserve for appellate review their
argument challenging the award of prejudgment interest, nor do they direct us to
47
any relevant authority. See Allright, Inc. v. Pearson, 735 S.W.2d 240, 240 (Tex.
1987) (holding that error regarding award of prejudgment interest must be
preserved); see also Tex. R. App. P. 38.1(i). We overrule Scherry‘s and
Michael‘s second issue in cause 02-09-00233-CV.
C. Seventh and Eighth Issues—Cause 02-09-00095-CV and Sixth
and Seventh Issues—Cause 02-09-00233-CV
In their seventh and eighth issues in cause 02-09-00095-CV27 and sixth
and seventh issues in cause 02-09-00233-CV,28 Scherry and Michael argue that
the funds in the disputed First Bank accounts belonged to them. It is well
established that once a default judgment is taken on an unliquidated claim, all
allegations of fact set forth in the petition are deemed admitted, except the
amount of damages. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83
(Tex. 1992); Stoner v. Thompson, 578 S.W.2d 679, 684 (Tex. 1979). ―[I]f the
facts set out in the petition allege a cause of action, a default judgment
conclusively establishes the defendant‘s liability.‖ Morgan v. Compugraphic
Corp., 675 S.W.2d 729, 731 (Tex. 1984).
27
Scherry and Michael argue in the seventh issue that Deartis‘s pleadings
establish as a matter of law that the disputed First Bank accounts were joint
accounts with rights of survivorship. In the eighth issue, Scherry and Michael
argue that the record does not support Deartis‘s claim that the funds in the
disputed accounts did not belong to them.
28
Scherry and Michael argue in the sixth issue that the disputed accounts‘
signature cards and incorporated documents created a joint tenancy with rights
of survivorship. In the seventh issue, Scherry and Michael argue that there is no
evidence in the record to support the trial court‘s judgment.
48
Deartis alleged the following in his third amended petition:
Doris Rose Preston (―Decedent‖) died on August 27, 2005
leaving only one heir, the Plaintiff, Deartis Preston. Prior to
Decedent‘s death, she established certain accounts on which her
sister, [Scherry], and her brother, [Michael], were signatories or had
access. Two of these bank accounts were held at First Bank, initially
bearing Account Numbers xxxxxxxx0612 (the ―0612 Account‖) and
xxxxxxxx0433 (the ―0433 Account‖) (collectively the ―Accounts‖), and
were certificates of deposit which were opened April 27, 2004 and
October 8, 2003, respectively. There were signature cards executed
on the Accounts, which checked boxes titled ―Joint – With
Survivorship,‖ which Plaintiff contends are not sufficient to establish
the Accounts as valid survivorship accounts. Moreover, the 0612
Account had a six month maturity, and matured on October 27,
2004. The 0433 Account had a three month maturity, and matured
on January 8, 2004. No new signature cards were executed when
new certificates of deposit were opened, either upon the maturity of
the Accounts, or any downstream maturity of different accounts (the
―New COD Accounts‖). Plaintiff alleges that the funds in the
Accounts and/or New COD Accounts constitute his sole and
separate property . . . .
Dubner alleged the following against Scherry and Michael:
No multiple-party account will be effective against an estate of a
deceased party to transfer to a survivor sums needed to pay debts,
taxes, and expenses of administration if other assets of the estate
are insufficient. In this case, the expenses of administration
outweigh the assets of the estate. Both [Scherry] and [Michael]
have claimed the funds held by First Bank in accounts *****0612 and
******0433 are survivorship accounts. If these accounts are
survivorship accounts, then the funds needed to pay administration
expenses, taxes, and debts belong to the Estate of [Doris].
The trial court concluded that ―[t]he facts pleaded in [Deartis‘s] Third
Amended Original Petition in Cause No. PR-2005-00802-01 are established by
the default liability judgment granted by order of this Court dated March 4,
49
2008.‖29 The trial court also concluded that ―[t]he facts pleaded in Dubner‘s
Petition are established by the default liability judgment granted in the 3-4-08
Order.‖ Accordingly, in light of the default judgment, Scherry and Michael were
deemed to have admitted all of Deartis‘s and Dubner‘s factual allegations, except
damages, establishing their default judgment liability, and they may not complain
of those admissions now. See Holt Atherton, 835 S.W.2d at 83; Morgan, 675
S.W.2d at 731. We overrule the seventh and eighth issues in cause 02-09-
00095-CV and the sixth and seventh issues in cause 02-09-00233-CV.30
V. SAILFISH HOUSE
A. Fourth Issue—Cause 02-09-00095-CV
In the fourth issue in cause 02-09-00095-CV, Scherry and Michael
challenge the portion of the amended final default judgment that ―divest[s]
[Scherry] of title [to the Sailfish house] through finding a constructive trust on the
property.‖ They argue that ―[t]he constructive trust imposed on the ‗Sailfish‘
property was a remedy not available to the Probate Court.‖
A constructive trust is a relationship with respect to property, subjecting the
person by whom the title to the property is held to an equitable duty to convey it
to another on the ground that his acquisition or retention of the property is
29
We have already reasoned above that Deartis had standing to assert
claims against both Scherry and Michael.
30
To the extent that Scherry and Michael raise any other arguments within
these six issues that are not addressed by our analysis, those arguments are
waived as inadequately briefed. See Tex. R. App. P. 38.1(i).
50
wrongful and that he would be unjustly enriched if he were permitted to retain the
property. Talley v. Howsley, 142 Tex. 81, 86, 176 S.W.2d 158, 160 (Tex. 1943).
Thus, a constructive trust is a device equity uses to remedy a wrong. Lesikar v.
Rappeport, 33 S.W.3d 282, 303 (Tex. App.—Texarkana 2000, pets. denied); see
Meadows v. Bierschwale, 516 S.W.2d 125, 131 (Tex. 1974). A constructive trust
may be imposed when one acquires legal title to property in violation of a
fiduciary relationship. Lesikar, 33 S.W.3d at 303. While the form of a
constructive trust is practically without limit, its existence depends upon the
circumstances. Troxel v. Bishop, 201 S.W.3d 290, 297 (Tex. App.—Dallas 2006,
no pet.). Because imposition of a constructive trust constitutes an equitable
remedy, we review the trial court‘s decision to impose a constructive trust under
an abuse of discretion standard. Baker Botts, L.L.P. v. Cailloux, 224 S.W.3d
723, 736 (Tex. App.—San Antonio 2007, pet. denied).
Deartis alleged that Scherry and Michael breached fiduciary duties that
they owed to him by using funds from the disputed First Bank accounts—funds
that Deartis averred belonged to him—to purchase the Sailfish house. See
Punts v. Wilson, 137 S.W.3d 889, 891 (Tex. App.—Texarkana 2004, no pet.)
(stating that the relationship between an executor and the estate‘s beneficiaries
is one that gives rise to a fiduciary duty as a matter of law). When one‘s funds or
other assets are used by a fiduciary to acquire property for himself, the aggrieved
party may seek the property itself or its value. Lesikar, 33 S.W.3d at 304. In this
51
case, the trial court ordered a conveyance of the Sailfish house to Deartis. See
Carr v. Weiss, 984 S.W.2d 753, 756 (Tex. App.—Amarillo 1999, pet denied)
(affirming judgment in which trial court imposed constructive trust upon property
and ordered conveyance of that property). To the extent that Scherry and
Michael challenge the award by attempting to raise a fact issue that money from
the disputed First Bank accounts was not used to purchase the Sailfish house,
we have already explained that when the trial court granted a default judgment in
favor of Deartis, all allegations of fact set forth in Deartis‘s petition were deemed
admitted, and neither Scherry nor Michael may challenge those admissions now.
See Holt Atherton, 835 S.W.2d at 83. We overrule the fourth issue in cause 02-
09-00095-CV.
B. Third Issue—Cause 02-09-00095-CV
In the third issue in cause 02-09-00095-CV, Scherry argues that the trial
court erred by ordering her to make payments on the Sailfish house after
imposing a constructive trust. The only part of the amended final default
judgment that appears to order Scherry to continue making payments on the
Sailfish house is the permanent injunction, which enjoins Scherry and all others
from undertaking any actions that would ―endanger‖ the Sailfish house in any
way, including the ―failure to make payments on the promissory note secured by
the Sailfish [h]ouse and lot.‖ Scherry had no interest in the Sailfish house after
the trial court ordered a conveyance of her interest to Deartis. Aside from
52
characterizing payments as support, an obligation to make installment payments
on a home mortgage is not enforceable by contempt because it constitutes
imprisonment for debt. Whitt v. Whitt, 684 S.W.2d 731, 734–35 (Tex. App.—
Houston [14th Dist.] 1984, no writ); see Ex parte Duncan, 462 S.W.2d 336, 338
(Tex. Civ. App.—Houston [1st Dist.] 1970, no writ). A trial court has no ability to
enforce a void judgment, which is entirely null within itself. Easterline v. Bean,
121 Tex. 327, 334, 49 S.W.2d 427, 429 (Tex. 1932). We sustain Scherry‘s and
Michael‘s third issue in cause 02-09-00095-CV to the extent that they complain
about the part of the permanent injunction ordering Scherry to continue making
payments on the Sailfish house.
VI. EQUITABLE LIEN
In the third issue in cause 02-09-00233-CV, Scherry and Michael
challenge the portion of the final judgment that establishes an equitable lien on
the Sailfish house in the amount of $25,070.34 and in favor of Doris‘s estate to
secure payment for funds from the 0612 account that were used for the purchase
of the Sailfish house. Scherry and Michael contend that this part of the judgment
is void because ―the Court previously divested [Scherry] of any interest in the
Sailfish house in the companion case.‖ They set forth no further argument and
no citations to any relevant authorities to support this single sentence contention.
The argument is inadequately briefed and, therefore, waived. See Tex. R. App.
P. 38.1(i); Fredonia State Bank v. Gen. Am. Life Ins. Co., 881 S.W.2d 279, 284
53
(Tex. 1994) (discussing ―long standing rule‖ that issue may be waived due to
inadequate briefing). We overrule the third issue in cause 02-09-00233-CV.
VII. ATTORNEYS’ FEES AS DAMAGES
In the fourth issue in cause 02-09-00233-CV, Scherry and Michael
challenge the awards to Doris‘s estate of (1) $29,125.45 ―for attorney‘s fees and
expenses of [Dubner] that would not have otherwise been incurred except for the
actions and/or inactions of‖ Scherry; (2) $53,186.62 ―for fees and expenses
incurred by [Miller] that would not have otherwise been incurred except for the
actions and/or inactions of‖ Scherry; and (3) $174,067.00 ―for fees and expenses
incurred by [Benolken] that would not have otherwise been incurred except for
the actions and/or inactions of‖ Scherry. In the fifth issue in cause 02-09-00095-
CV, Scherry and Michael challenge the award to Deartis of ―actual damages‖ in
the amount $127,000. Scherry and Michael do not challenge the award of
attorneys‘ fees to Benolken, Miller, and Dubner pursuant to the order approving
the account for final settlement.
The trial court awarded these damages based on attorneys‘ fees incurred
as a result of Scherry‘s and Michael‘s misconduct.31 See Oscar M. Telfair, III,
P.C. v. Bridges, 161 S.W.3d 167, 170 (Tex. App.—Eastland 2005, no pet.)
(recognizing recovery of attorneys‘ fees based upon equitable grounds when
31
It is less clear that the judgment in cause 02-09-00095-CV awarded
damages based on attorneys‘ fees incurred, but the record supports this
conclusion.
54
claimant was required to prosecute or defend litigation involving third party as
consequence of wrongful act of defendant). The First Court of Appeals recently
addressed this exception to the general rule for the recovery of attorneys‘ fees,
reasoning as follows:
[Appellee] acknowledges that the general rule in Texas is that
―attorney‘s fees may not be recovered from an opposing party unless
such recovery is provided for by statute or by contract between the
parties.‖ However, in Turner, the supreme court recognized, without
adopting, an exception to the general rule provided for in the
Restatement of the Law: Torts, Vol. 4 § 914. The exception
provides that ―where a plaintiff has been involved in litigation with a
third party as a result of the tortious act of another, the plaintiff may
recover in a separate suit for his reasonable and necessary
expenses of the prior litigation.‖ Certain prerequisites must,
however, be met. These include: (1) the plaintiff must have incurred
attorney‘s fees in the prosecution or defense of a prior action, and
(2) the litigation must have involved a third party and must not have
been brought against the defendant in the same action in which the
fees are sought.
Subsequent to Turner, this Court and other Texas courts of
appeals have held that ―equitable principles may allow the recovery
of attorney‘s fees and other litigation expenses ‗where a party was
required to prosecute or defend the previous suit as a consequence
of the ―wrongful act‖ of the defendant.‘‖
Brown & Brown of Tex., Inc. v. Omni Metals, Inc., 317 S.W.3d 361, 399–400
(Tex. App.—Houston [1st Dist.] 2010, pet. denied) (citations omitted); see also
G.R.A.V.I.T.Y. Enters., Inc. v. Reece Supply Co., 177 S.W.3d 537, 546–47 (Tex.
App.—Dallas 2005, no pet.).
Although we are not directed to any case in which this court has
recognized this exception, the exception is nonetheless inapplicable regarding
55
cause 02-09-00233-CV because the fees were not incurred in a prior litigation
involving a third party; the fees were incurred in the same action for which they
were awarded and for conduct caused by the same defendant. See Brown &
Brown, 317 S.W.3d at 400; see also MRO Sw., Inc. v. Target Corp., No. 04-07-
00078-CV, 2007 WL 4403912, at *2 (Tex. App.—San Antonio Dec. 19, 2007, pet.
denied) (mem. op.). Accordingly, we hold that the trial court erred by awarding
Doris‘s estate attorneys‘ fees as damages. We sustain Scherry‘s and Michael‘s
fourth issue in cause 02-09-00233-CV.
Similarly, in cause 02-09-00095-CV, the award of ―actual damages‖ was
based on attorneys‘ fees incurred by Benolken and Miller in the same case and
involving the same defendants. We therefore hold that the trial court erred by
awarding Deartis attorney‘s fees as actual damages, and we sustain Scherry‘s
and Michael‘s fifth issue in cause 02-09-00095-CV. See Brown & Brown, 317
S.W.3d at 400; MRO Sw., 2007 WL 4403912, at *2.
VIII. SEVERING OF CAUSES
In the sixth issue in cause 02-09-00095-CV and the fifth issue in cause 02-
09-00233-CV, Scherry and Michael argue that the trial court committed reversible
error by severing Deartis‘s suit against them from Dubner‘s action on behalf of
Doris‘s estate.
The trial court has broad discretion to sever causes. Guar. Fed. Savs.
Bank v. Horseshoe Operating Co., 793 S.W.2d 652, 658 (Tex. 1990) (op. on
56
reh‘g). A claim is severable if (1) the controversy involves more than one cause
of action, (2) the severed claim is one that would be the proper subject of a
lawsuit if independently asserted, and (3) the severed claim is not so interwoven
with the remaining action that they involve the same facts and issues. Id.; see
State Dep’t of Highways & Pub. Transp. v. Cotner, 845 S.W.2d 818, 819 (Tex.
1993). The controlling reasons for a severance are to do justice, avoid prejudice,
and further convenience. Horseshoe, 793 S.W.2d at 658.
We have reviewed the entire record, and we hold that the trial court acted
within its broad discretion by severing Deartis‘s suit from Dubner‘s suit on behalf
of Doris‘s estate. See id. Further, Scherry and Michael have demonstrated no
harm, considering that the trial court did not enter conflicting judgments in regard
to the disputed First Bank accounts. Accordingly, we overrule Scherry‘s and
Michael‘s sixth issue in cause 02-09-00095-CV and fifth issue in cause 02-09-
00233-CV.
IX. EXEMPLARY DAMAGES
In the eighth issue in cause 02-09-00233-CV and the ninth issue in cause
02-09-00095-CV, Scherry and Michael challenge the awards of exemplary
damages. We construe their arguments as challenges to the legal sufficiency of
the evidence to support the awards.
Unliquidated damages include exemplary damages; therefore, evidence
must be presented of exemplary damages to sustain an award thereof in a
57
default judgment. Herbert v. Greater Gulf Coast Enters., Inc., 915 S.W.2d 866,
872 (Tex. App.—Houston [1st Dist.] 1995, no writ). Exemplary damages may be
awarded only if the claimant proves by clear and convincing evidence that the
harm with respect to which it seeks recovery of exemplary damages results from
fraud, malice, or gross negligence. Tex. Civ. Prac. & Rem. Code Ann.
§ 41.003(a) (West Supp. 2010). If the claimant relies on a statute establishing a
cause of action and authorizing exemplary damages in specified circumstances
or in conjunction with a specified culpable mental state, exemplary damages may
be awarded only if the claimant proves by clear and convincing evidence that the
damages resulted from the specified circumstances or culpable mental state. Id.
§ 41.003(c). Clear and convincing evidence is that measure or degree of proof
that will produce in the mind of the trier of fact a firm belief or conviction as to the
truth of the allegations sought to be established. Id. § 41.001(2) (West 2008);
Tex. Fam. Code Ann. § 101.007 (West 2008); State v. K.E.W., 315 S.W.3d 16,
20 (Tex. 2010); Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 31 (Tex. 1994). This
intermediate standard falls between the preponderance standard of civil
proceedings and the reasonable doubt standard of criminal proceedings. In re
G.M., 596 S.W.2d 846, 847 (Tex. 1980); State v. Addington, 588 S.W.2d 569,
570 (Tex. 1979). While the proof must be of a heavier weight than merely the
greater weight of the credible evidence, there is no requirement that the evidence
be unequivocal or undisputed. Addington, 588 S.W.2d at 570.
58
When a specific attack is made upon the legal or factual sufficiency of the
evidence to support the trial court‘s determination of damages in a default
judgment, the appellant is entitled to a review of the evidence produced. Dawson
v. Briggs, 107 S.W.3d 739, 748 (Tex. App.—Fort Worth 2003, no pet.). In
evaluating the evidence for legal sufficiency, we must determine whether the
evidence is such that a factfinder could reasonably form a firm belief or
conviction that its finding was true. K.E.W., 315 S.W.3d at 20; Columbia Med.
Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 248 (Tex. 2008). We review
all the evidence in the light most favorable to the finding. Hogue, 271 S.W.3d at
248. We resolve any disputed facts in favor of the finding if a reasonable
factfinder could have done so. K.E.W., 315 S.W.3d at 20; Hogue, 271 S.W.3d at
248. We disregard evidence contrary to the finding unless a reasonable
factfinder could not. K.E.W., 315 S.W.3d at 20; Hogue, 271 S.W.3d at 248. That
is, we consider undisputed evidence even if it is contrary to the finding. Hogue,
271 S.W.3d at 248; City of Keller v. Wilson, 168 S.W.3d 802, 817 (Tex. 2005).
Evidence that merely exceeds a scintilla is not legally sufficient. K.E.W., 315
S.W.2d at 20. If we determine that no reasonable factfinder could form a firm
belief or conviction that its finding was true, then we must conclude that the
evidence is legally insufficient. Diamond Shamrock Ref. Co. v. Hall, 168 S.W.3d
164, 170 (Tex. 2005); Sw. Bell Tel. Co. v. Garza, 164 S.W.3d 607, 627 (Tex.
2004). Generally, if we determine that evidence is legally insufficient, we must
59
then reverse and render judgment. In re J.F.C., 96 S.W.3d 256, 266 (Tex. 2002);
see Tex. R. App. P. 43.3; Garza, 164 S.W.3d at 626 & n.58.
A. Ninth Issue—Cause 02-09-00095-CV
The trial court awarded Deartis exemplary damages in the amount of
$414,000. The trial court made the following findings of fact, among others:
7. By her breach of fiduciary duty, [Scherry] intended to gain an
additional unwarranted benefit and engaged in self dealing.
8. By his breach of fiduciary duty, [Michael] intended to gain an
additional unwarranted benefit and engaged in self dealing.
We have already held above that the trial court erred by awarding Deartis
―actual damages‖ in the amount of $127,000 based on attorneys‘ fees.
Notwithstanding interest, the only other relief that the trial court awarded
Deartis—upon his claims for breach of fiduciary duty or conspiracy to breach
fiduciary duties—related to the Sailfish house, including (1) title to the Sailfish
house, (2) an injunction enjoining ―any actions which would endanger the Sailfish
[h]ouse in any way,‖ and (3) a declaration that the Sailfish house was Deartis‘s
sole and separate property. Exemplary damages are not available unless a
plaintiff establishes that it sustained actual loss or injury as the result of an
underlying tort. See Tex. Civ. Prac. & Rem. Code Ann. § 41.004(a) (West 2008);
Fed. Express Corp. v. Dutschmann, 846 S.W.2d 282, 284 (Tex. 1993). While the
mere grant of injunctive relief will not support an award of punitive damages, the
supreme court has recognized a ―recovery of property‖ exception to the rule
60
requiring the recovery of actual damages, noting that ―where equity requires the
return of property, this ‗recovery of the consideration paid as a result of fraud
constitutes actual damages and will serve as a basis for the recovery of
exemplary damages.‘‖ Nabours v. Longview Sav. & Loan Ass’n, 700 S.W.2d
901, 904–05 (Tex. 1985) (reasoning that its holding that the mere grant of
injunctive relief will not support an award of punitive damages ―should not be
confused with an absolute refusal to allow punitive damages in a case where
equitable relief is had‖); Lesikar, 33 S.W.3d at 310. Deartis‘s award of complete
title to the Sailfish house is an award that appears to fit within the requirement
that he recover actual damages to sustain an award of exemplary damages.
The trial court found that ―[t]here is factually sufficient evidence to justify
the exemplary damages award for breach of fiduciary duty . . . .‖ A defendant‘s
intentional breach of fiduciary duty is a tort for which a plaintiff may recover
exemplary damages. Lesikar, 33 S.W.3d at 311. The court in Lesikar stated,
While it is a general rule that Texas courts allow the recovery of
punitive damages where the defendant, in committing a tort, acted
willfully, maliciously, or fraudulently, where punitive damages are
awarded for breach of fiduciary duty the actual motives of the
defendant and whether the defendant acted with malice are
immaterial. But something more than a simple breach is required for
the recovery of punitive damages; the acts constituting the breach
must have been fraudulent, or at least intentional. An intentional
breach may be found where the fiduciary intends to gain an
additional benefit for himself. [T]he Supreme Court [has] suggested
that willful and fraudulent acts are presumed when the fiduciary . . .
gains an additional benefit for himself as a result of his breach.
61
Id. (emphasis added) (citations omitted). We therefore examine the sufficiency
of the evidence to support the award of exemplary damages for Scherry‘s or
Michael‘s breach of fiduciary duty in regard to the Sailfish house.
At the prove-up hearing on Deartis‘s damages, Miller testified that Scherry
paid $24,520.38 towards the closing on the Sailfish house and that those funds
came from a check that Michael had drawn on one of the disputed First Bank
accounts. Miller stated that Scherry did not contribute any of her own money
towards the purchase of the Sailfish house; that Scherry placed both her name
and Deartis‘s name on the title to the Sailfish house; that such action constituted
a breach of both Scherry‘s and Michael‘s fiduciary duties to Deartis; and that
Scherry ―obtain[ed] a benefit‖ by having her name on the title to the Sailfish
house. Miller did not explain or elaborate in any way on her testimony that
Scherry ―obtain[ed] a benefit.‖ Although Scherry may have intended to have her
name on the title and, according to Miller, ―obtained a benefit‖ by doing so, there
is no evidence that Scherry or Michael breached a fiduciary duty to Deartis by
putting Scherry‘s name on the title with the intent to gain some additional benefit,
nor do the surrounding circumstances or circumstantial evidence support that
inference.32 In other words, there is no evidence that Scherry or Michael
breached any fiduciary duty to Deartis for the purpose of obtaining a benefit for
32
At the January 19, 2007 hearing on Deartis‘s motion to compel, Scherry
testified that title to the Sailfish house was partly in her name because Deartis
had no credit in his name.
62
themselves. Even if Miller‘s testimony amounted to more than a scintilla of
evidence of that fact and did more than raise a mere surmise and suspicion of
that fact, her testimony, without more, was not capable of producing a firm belief
or conviction that Scherry or Michael breached a fiduciary duty with the intent to
gain some benefit therefrom. To the extent that the trial court awarded
exemplary damages based on some other theory, there is no evidence that any
harm resulted from fraud, malice, or gross negligence. See Tex. Civ. Prac. &
Rem. Code Ann. § 41.003(a). We hold that the evidence is legally insufficient to
support the award of exemplary damages, and we sustain Scherry‘s and
Michael‘s ninth issue in cause 02-09-00095-CV.
B. Eighth Issue—Cause 02-09-00233-CV
The trial court awarded Doris‘s estate exemplary damages in the amount
of $180,716.94. The trial court adopted the following findings regarding
exemplary damages:
31. The clear and convincing evidence reflects that the conduct of
[Scherry] and [Michael] has been outrageous and that both [Scherry]
and [Michael] have at all times exhibited a flagrant disregard of the
orders of this Court.
32. [Michael] at all times was fully aware that [Scherry] was acting
in contravention of her fiduciary duties as administratrix of the Estate
and conspired with [Scherry] in connection with such breach.
33. Based on the conduct of [Michael] and [Scherry], it would be
appropriate to award the Estate judgment . . . for exemplary
damages in the amount of $180,716.94.
63
At the prove-up hearing on the damages to Doris‘s estate, Dubner testified
in the narrative, ―I‘m asking the Court to give -- award exemplary damages,
based on clear and convincing evidence, of two times the amount of actual
damages, not including attorney‘s fees, strictly on the damages themselves for
the funds . . . .‖ On cross-examination, Dubner agreed that Scherry‘s conduct
during the case was ―egregious,‖ and he testified that Scherry and Michael had
―obfuscated the legal process‖ and that ―this case is the type of case that does
warrant exemplary damages, based on [Scherry‘s] behavior and the fact that she
failed continuously, time after time, to follow court orders, to do things that she
was asked to do, and basically thumbed her nose at the entire process.‖
To the extent that the trial court awarded exemplary damages based on
Dubner‘s breach of fiduciary duty claims, there is no evidence that Scherry or
Michael breached a fiduciary duty to Doris‘s estate with the intent to gain some
additional benefit. See Lesikar, 33 S.W.3d at 311. To the extent the trial court
awarded exemplary damages based on some other theory, there is no evidence
that any harm resulted from fraud, malice, or gross negligence. See Tex. Civ.
Prac. & Rem. Code Ann. § 41.003(a). We hold that the evidence is legally
insufficient to support the award of exemplary damages, and we sustain
Scherry‘s and Michael‘s eighth issue in cause 02-09-00233-CV.
64
X. CONCLUSION
Having sustained Scherry‘s and Michael‘s third, fifth, and ninth issues in
cause 02-09-00095-CV, we modify the amended final default judgment in that
cause to delete (1) the award of actual damages in the amount $127,000.00,
(2) the award of exemplary damages in the amount of $414,000.00, and (3) the
portion of the permanent injunction requiring Scherry to continue making
payments on the Sailfish house. Having sustained Scherry‘s and Michael‘s
fourth and eighth issues in cause 02-09-00233-CV, we modify the final judgment
in that cause to delete (1) the awards for fees and expenses in the amounts of
$29,125.45, $53,186.62, and $174,067.00 and (2) the award of exemplary
damages in the amount of $180,716.94. Having overruled the remainder of their
issues in both causes, we affirm the judgments in cause 02-09-00095-CV and
cause 02-09-00233-CV as modified.
BILL MEIER
JUSTICE
PANEL: LIVINGSTON, C.J.; MCCOY and MEIER, JJ.
LIVINGSTON, C.J. filed a concurring and dissenting opinion.
DELIVERED: July 14, 2011
65
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00095-CV
NO. 02-09-00233-CV
IN THE ESTATE OF DORIS
ROSE PRESTON, DECEASED
------------
FROM THE PROBATE COURT OF DENTON COUNTY
------------
CONCURRING AND DISSENTING OPINION
------------
I join the majority opinion and judgments in all respects except for the
failure to affirm the award of exemplary damages.
The trial court‘s amended final default judgment awarded Deartis Preston
$414,000 and the final judgment awarded Doris‘s estate $180,716.94 in
exemplary damages based on its finding of sufficient clear and convincing
evidence. In the trial court‘s findings of fact and conclusions of law, it found that
appellants had breached their fiduciary duties to appellees; that such breaches
were committed with an intent to gain benefits and consisted of self-dealing; that
appellants conspired with each other in these breaches; that the torts of civil
conspiracy and breach of fiduciary duty supported the awards; and that the
awards were justified. Furthermore, the trial court found that there was sufficient
evidence under the Kraus factors to support the awards by looking to the nature
of the wrongful character of the conduct involved, the degree of culpability of the
wrongdoers, the situation and sensibilities of the parties concerned, and the
extent to which such conduct offends the public‘s sense of justice and propriety.
See Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex. 1981). Additionally,
the trial court found such awards were not unconstitutionally excessive and
comported with the Texas Civil Practice & Remedies Code. See id.; Tex. Civ.
Prac. & Rem. Code Ann. § 41.008 (West Supp. 2010); Kraus, 616 S.W.2d at
910. And in its conclusions of law, the trial court concluded that it, as the
factfinder, could reasonably form a firm belief or conviction that its findings were
true.
Furthermore, because the trial court specifically found that both appellants
not only committed a breach of their fiduciary duties but also were in a
conspiracy to commit these breaches, I believe there is sufficient evidence of
their intent to gain unwarranted benefits and engage in self-dealing. See, e.g.,
Paradigm Oil, Inc. v. Retamco Operating, Inc., 330 S.W.3d 342, 358 (Tex. App.—
San Antonio 2010, pet. filed).
2
For all of these reasons, I would affirm the part of the trial court‘s
judgments awarding exemplary damages.
TERRIE LIVINGSTON
CHIEF JUSTICE
DELIVERED: July 14, 2011
3