Sue A. Taylor v. Jack Ogg, the Law Offices of Jack Ogg, Harry Herzog & Wesley & Herzog

  Opinion issued February 5, 2004  

  In The  

Court of Appeals  

For The  

First District of Texas  

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  NO. 01-02-00557-CV

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SUE TAYLOR, Appellant  

V.

JACK OGG, THE LAW OFFICES OF JACK C. OGG,

HARRY HERZOG, AND WESLEY & HERZOG, Appellees  

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On Appeal from County Civil Court at Law No. 1

Harris County, Texas

Trial Court Cause No. 746261-001  

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MEMORANDUM OPINION  

          Appellant, Sue Taylor, appeals from a post-answer default rendered in favor of appellees, the Law Offices of Jack C. Ogg (Ogg) and Wesley & Herzog (Herzog) against Taylor for breaching her fiduciary duty as bankruptcy trustee. The trial court awarded $175,000 in actual and punitive damages.

          In nine points of error, Taylor contends that the bankruptcy plan, as a matter of law, (1) does not place the assets purchased by Taylor in the trust created under the plan, (2) created a debtor and creditor relationship between Herzog and Taylor regarding the assets purchased by Taylor in her individual capacity, and (3) did not place any fiduciary duties on Taylor regarding the assets she purchased in her individual capacity. She further argues that there is no evidence (4) to support any factual finding that Taylor breached her duties as trustee of the liquidating trust and/or disbursement agent under the plan and (5) to support the award of punitive damages. Finally, she contends that there is insufficient evidence to support (6) any factual finding that Taylor breached her duties as trustee of the liquidating trust and/or disbursement agent under the plan, (7) any factual finding that Taylor breached her duties as trustee of the liquidating trust and/or as disbursement agent, and (8) the award of punitive damages. We affirm.

Factual and Procedural Background

          Herzog and Ogg represented Gerald Monks in a five-week trial in district court. After the trial, Monks filed for chapter 11 bankruptcy, leaving substantial attorneys’ fees to Herzog and Ogg unpaid. On February 21, 1997, Herzog and Ogg were declared class 5 claimants in Monks’s third amended plan of reorganization (the Plan).

          The Plan reflected that, upon liquidation of various assets, a trust would be created for the class 5 creditors, with Taylor acting as trustee. From that trust, the class 5 creditors would receive a pro rata share of “$249,540.28 or $258,120.28 depending on whether the lawsuit against Harris County is settled or abandoned to debtors as provided herein.” Herzog, who was originally owed $59,373.44, was to receive13.65% (representing total payments between $34,062.25 and $35,233.42), while Ogg, who was originally owed $30,541.27, was to receive 7.03% (representing total payments between $17,542.68 and $18,145.86). The class 5 creditors were to receive between 57 and 59 cents on the dollar.  

          The Plan indicated that the terms would be implemented by the liquidation of the trust’s assets, which were valued between $49,540.28 and $58,120.28, with Taylor acting as trustee. The balance of the funds to be paid the class 5 creditors was derived from the sale of the estate’s then-remaining assets. “These are sold to Sue A. Taylor for $200,000 to be paid [monthly] in the form of deferred cash payments” of $455 to Herzog and $234.33 to Ogg “until such amount is paid in full.” The Plan estimated it would take approximately five years for consummation of the Plan with the disbursing agent for all payments made under the Plan being Taylor. Taylor was required to file with the court and serve on the United States trustee a monthly financial report for each month that the case remained open.

          In 2001, Herzog and Ogg sued Taylor and her husband, Sutton Taylor (Sutton) for breach of contract, sworn account, debt, fraud, breach of trust, and breach of fiduciary duty. Taylor filed an answer. Herzog and Ogg non-suited Sutton and all claims against Taylor except breach of fiduciary duty. Taylor did not appear for trial.

          After Taylor made a post-answer default, Ogg and Herzog produced documentary evidence and sworn testimony from Sutton, Jack Ogg, and Harry Herzog. Sutton testified that the Monks’ third amended plan of reorganization was approved and Taylor was the trustee for the classified creditors. She was the trustee over a liquidating trust of certain assets. Ogg and Herzog comprised two of the class 5 creditors. Sutton testified that, as trustee, Taylor was “just the trustee over a limited number of assets. She was not the trustee over the assets that were sold to her.” She had no trustee responsibility over those assets sold to her in her individual capacity. While the amount was in question, Sutton conceded that there was no question that Taylor, in her individual capacity, was responsible for the debt owed Ogg.

          Jack Ogg testified at trial that the Plan indicated that he was due $234.33 a month which was 7.03% of the total. Ogg testified that he received six out of 60 payments—reflecting 54 defaults. Ogg referred the trial court to a document filed in the bankruptcy court in which Taylor admitted that the debts were past due and in default.

          Harry Herzog testified that he was owed $57,821.64 and Ogg was owed $29,273.39. Herzog had received three of the 60 payments that he was due—creating 57 defaults. Herzog testified that Taylor, “the woman who’s trustee in a fiduciary capacity to” him, never attended a hearing in the bankruptcy court. She never wrote him a letter explaining why the Plan payments were in default. Herzog testified that he and Ogg garnished a certificate of deposit that was “about to be released, and that action was met with animosity, and that indicated . . . some malice on the part of Sue Taylor in an effort to hide money . . . and put it into her own pocket.”

          The trial court awarded Herzog $100,000 for actual and punitive damages combined and Ogg $75,000 for actual and punitive damages combined. Upon receiving notice of her default, Taylor requested findings of fact and conclusions of law. They are as follows:

Findings of Fact

1.       Wesley and Herzog is owed $57,821.64.

2.       Wesley and Herzog’s debt is supported by the following specific facts:

          A.      The testimony of Sutton Taylor,

          B.      The testimony of Harry Herzog,

          C.      The documentary evidence offered as plaintiff’s exhibit 4,

          D.      Sue Taylor’s admission that the amounts owed “are seriously past due”, as reflected at page four of exhibit 9.

3.       The Law Offices of Jack C. Ogg is owed $29,273.39.

4.       Wesley and Herzog’s debt is supported by the following specific facts:

          E.      The testimony of Sutton Taylor,

          F.       The testimony of Jack Ogg,

          G.      The documentary evidence offered as plaintiff’s exhibit 4,

          H.      Sue Taylor’s admission that the amounts owed “are seriously past due”, as reflected at page four of exhibit 9.

5.       As a result of garnishing some funds that Sue Taylor owed to the plaintiffs, in her duty as trustee, the plaintiffs were met with animosity by Mrs. Taylor.

6.       Although Mrs. Taylor admitted defaults, that her debts to the plaintiffs were seriously past due, and admitted owing a fiduciary duty to the plaintiffs, she opposed every effort made in the bankruptcy court to collect those funds and every effort made in this court to collect those funds.

7.       Sue Taylor never made a payment on time to either plaintiff. She defaulted in fifty-four out of sixty payments due to Mr. Ogg’s firm, and fifty-seven out of sixty payments due to Mr. Herzog’s firm.

8.       While owing a fiduciary duty to Mr. Herzog and Mr. Ogg, Sue Taylor never met them, spoke with them, corresponded with them, or appeared at any court hearing.

9.       Plaintiff Exhibit 8, paragraph 5, reflects that Sue Taylor took possession and control of the items specified in the bankruptcy plan, in her capacity as Trustee.

10.     Sutton Taylor testified that his wife, Sue Taylor, knew what she was doing and knew that she was responsible for payments to the plaintiffs.

11.     Although Mr. Taylor tried to draw distinctions between Sue Taylor’s defaults as a trustee and what he characterized as defaults in her individual capacity, Sue Taylor defaulted in her fiduciary obligations to place the interests of the plaintiffs above her own, to disclose her activities, to pay on time, and to pay at all.

Conclusions of Law

1.       Sue Taylor owed a fiduciary duty to the law offices of Jack C. Ogg.

2.       Sue Taylor owed a fiduciary duty to Wesley and Herzog.

3.       Sue Taylor produced no evidence that she complied with her fiduciary duties to either plaintiff.

4.       Each plaintiff conclusively proved that Sue Taylor failed to comply with her fiduciary duties that were owed to each plaintiff.

5.       This case involves a post answer default, since Sue Taylor failed to appear at trial.

6.       The plaintiffs’ pleadings, specifically the section with regard to factual history, the fifth cause of action with regard to breach of trust and breach of fiduciary duty, and the ninth section with regard to damages, together with the prayer, support the award of actual and punitive damages against defendant Sue Taylor.

7.       The order confirming the 3rd amended plan of reorganization in the Monks bankruptcy repeatedly refers to these plaintiffs as class five creditors, establishes Sue Taylor as a trustee over trust assets to be disbursed to the two plaintiffs, refers to a monthly payment of $455 to the Wesley Herzog plaintiff and $234.33 to the Jack C. Ogg and Associates plaintiff, and refers to moneys to fund payments to the class five creditors coming from a variety of assets that were “transferred to a trust in favor of the named creditors of class five with Sue A. Taylor as trustee.”

8.       Sue Taylor’s breach of fiduciary duty was malicious, intentional, and willful.

9.       Plaintiff Wesley and Herzog is entitled to recover actual damages of $57,821.64, together with punitive damages in the amount of $42,178.36 for a total of $100,000.

10.     The Law Offices of Jack C. Ogg and Associates is entitled to recover actual damages of $29,273.39, together with punitive damages of $45,726.61, for a total of $75,000.

11.     Plaintiffs are entitled to recover 10.0% prejudgment interest, as simple interest without compounding, on all actual damages awarded from the date of the filing of the Plaintiff’s Original Petition on January 9, 2001 through the date of judgment.

12.     Plaintiffs are entitled to post judgment interest at the rate of 10.0%, compounded annually, from the date of judgment through the date of payment on all sums awarded in this judgment, including punitive damages.

13.     Plaintiffs properly garnished a $10,000 certificate of deposit, plus accrued interest. That garnishment was not objected to in any way by Sue Taylor or Sutton Taylor. Hearings were held to approve the garnishment, to dissolve the garnishment, and to disperse funds. Neither Sue Taylor or Sutton Taylor participated in any way in those hearings. This court has concluded that the garnishment was proper, and that all funds were appropriately dispersed.

                                            Breach of Fiduciary Duty

          After her post-answer default, the trial court found that Taylor breached her fiduciary duty to Herzog and Ogg.

Standard of Review

          For Herzog and Ogg to recover for breach of fiduciary duty, the trial court was required to find the existence of a fiduciary duty, breach of the duty, causation, and damages. See Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 508 (Tex. App.—Houston [1st Dist.] 2003, no pet.). At a trial on the merits, whether a party has breached a fiduciary duty is not decided as a matter of law; it is, instead, a fact issue for the fact finder’s determination. Id. Thus, we analyze this issue under the standard of review appropriate to sufficiency of the evidence. In an appeal from a bench trial, findings of fact have the same weight as a jury’s verdict. Amador v. Berrospe, 961 S.W.2d 205, 207 (Tex. App.—Houston [1st Dist.] 1996, writ denied). When challenged, findings of fact are not conclusive if, as in the present case, there is a complete reporter’s record. See id. When there is a reporter’s record, the trial court’s findings of fact are binding only if supported by the evidence. Id. If the findings are challenged, the court of appeals will review the sufficiency of the evidence supporting the findings. See State Bar of Tex. v. Roberts, 723 S.W.2d 233, 235 (Tex. App.—Houston [1st Dist.] 1986, no writ). We review the legal and factual sufficiency of the evidence supporting a trial court’s findings of fact by the same standards that we apply to reviewing the legal or factual sufficiency of the evidence supporting jury findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994).  

          In points of error one, two, three, four, and seven, Taylor contends that (1) the Plan, as a matter of law, does not place the assets purchased by Taylor in the trust created under the Plan; (2) the Plan, as a matter of law, created a debtor and creditor relationship between Herzog/Ogg and Taylor regarding the assets purchased by Taylor in her individual capacity; (3) the Plan, as a matter of law, did not place any fiduciary duties on Taylor regarding the assets she purchased in her individual capacity; (4) there is no evidence to support any factual finding that Taylor breached her duties as trustee of the liquidating trust and/or disbursement agent under the Plan; and (7) there is no evidence to support the award of punitive damages.  

          When the appellant challenges the legal sufficiency of the evidence to support a finding on which it did not have the burden of proof at trial, the appellant must demonstrate on appeal that no evidence exists to support the adverse finding. Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983); Casino Magic Corp. v. King, 43 S.W.3d 14, 19 (Tex. App.—Dallas 2001, pet. denied); II Deerfield Ltd. P’ship v. Henry Bldg., Inc., 41 S.W.3d 259, 264 (Tex. App.—San Antonio 2001, pet. denied). In conducting a no-evidence review, an appellate court must “view the evidence in a light that tends to support the finding of the disputed fact and disregard all evidence and inferences to the contrary.” Bradford v. Vento, 48 S.W.3d 749, 754 (Tex. 2001). A no-evidence point may be sustained only when the record discloses one of the following: (1) there is a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence establishes conclusively the opposite of the vital fact. Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998).

          If there is more than a scintilla of evidence to support the finding, the claim is sufficient as a matter of law. Browning-Ferris, Inc. v. Reyna, 865 S.W.2d 925, 928 (Tex. 1993). But, if the evidence offered to prove a vital fact is so weak that it does nothing more than create a mere surmise or suspicion of its existence, the evidence is no more than a scintilla and, in legal effect, is no evidence. Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983); Seideneck v. Cal Bayreuther Assocs., 451 S.W.2d 752, 755 (Tex. 1970). “More than a scintilla of evidence exists where the evidence supporting the finding, as a whole, ‘rises to a level that would enable reasonable and fair-minded people to differ in their conclusions.’” Burroughs Wellcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex. 1995).

          In points of error five, six, eight, and nine, Taylor contends that (5) there is insufficient evidence to support any factual finding that she breached her duties as trustee of the liquidating trust and/or disbursement agent under the Plan, (6) any factual finding that Taylor breached her duties as trustee of the liquidating trust and/or as disbursement agent is against the great weight and preponderance of the evidence, (8) there is insufficient evidence to support the award of punitive damages, and (9) the award of punitive damages is against the great weight and preponderance of the evidence.  

          In reviewing a factual-sufficiency point, we consider all the evidence supporting and contradicting the finding. Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). We set aside the verdict only if the finding is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). In a bench trial, the trial court, as fact finder, is the sole judge of the credibility of the witnesses. Southwestern Bell Media, Inc. v. Lyles, 825 S.W.2d 488, 493 (Tex. App.—Houston [1st Dist.] 1992, writ denied). The judge may take into consideration all the facts and surrounding circumstances in connection with the testimony of each witness and accept or reject all or any part of that testimony. Munters Corp. v. Swissco Young Indus., Inc., 100 S.W.3d 292, 297 (Tex. App.—Houston [1st Dist.] 2002, pet. dism’d).

          Fiduciary Duty

          There are two types of fiduciary relationships. The first is a formal fiduciary relationship, which arises as a matter of law and includes the relationships between attorney and client, partners, and trustees. Ins. Co. of North Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). The second is an informal fiduciary relationship, which may arise from “a moral, social, domestic or purely personal relationship of trust and confidence, generally called a confidential relationship.” Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998). One who occupies a fiduciary relationship to another must measure her conduct by high equitable standards, and not by the standards required in dealings between ordinary parties. Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 514 (Tex. 1942). A fiduciary duty encompasses, at the very minimum, a duty of good faith and fair dealing, and it requires a party to place the interest of the other party before his own. See Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992).

          A trustee in bankruptcy owes a fiduciary duty to the parties, including creditors of the debtor. Bezanson v. Bayside Enter., Inc. (In re Medomak Canning), 922 F.2d 895, 901 (1st Cir. 1990); Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 462 n.8 (6th Cir. 1982) (“A trustee in bankruptcy or a debtor-in-possession, as a fiduciary, represents both the secured and unsecured creditors of the debtor.”). As with other fiduciaries, a bankruptcy trustee’s breach of fiduciary duties gives rise to liability for resulting damages. Prostok v. Browning, 112 S.W.3d 876, 912-13 (Tex. App.—Dallas 2003, no pet.). For example, a trustee in bankruptcy is personally liable for a breach of its fiduciary duties. See Mosser v. Darrow, 341 U.S. 267, 274, 71 S. Ct. 680, 683 (1951); see also Dodson v. Huff (In re Smyth), 207 F.3d 758, 761 (5th Cir. 2000) (adopting a gross negligence standard of care for the personal liability of a bankruptcy trustee). Federal courts have “uniformly held that bankruptcy trustees are subject to personal liability for the willful and deliberate violation of their fiduciary duties.” Conn. Gen. Life Ins. Co. v. Universal Ins. Co., 838 F.2d 612, 621 (1st Cir. 1988); see also Lopez-Stubbe v. Rodriguez-Estrada (In re San Juan Hotel Corp.), 847 F.2d 931, 937 (1st Cir. 1988). This liability may be enforced directly against the trustee by creditors who have been injured by the breach. See Lopez-Stubbe, 847 F.2d at 937; Conn. Gen., 838 F.2d at 621-22 (creditor has cause of action against trustee personally for harms caused to creditor by trustee’s intentional violation of fiduciary duty); In re Cochise Coll. Park, Inc., 703 F.2d 1339, 1357-58 (9th Cir. 1983) (trustee may be personally liable to creditor for negligent violations of duties imposed by law).

          The evidence is legally and factually sufficient to support the trial court’s finding that Taylor owed a fiduciary duty to Herzog and Ogg. See Arizpe, 113 S.W.3d at 508.

          Breach of Duty

          As their fiduciary, Taylor owed Herzog and Ogg a duty of good faith and fair dealing and was required to put their interests ahead of her own. See Crim Truck & Tractor Co., 823 S.W.2d at 594. Despite this duty, Taylor admitted that “there is debt still due and payable to Class 5 creditors which is past due.” She further admitted that “there is a default in the debt due the Class 5 Creditors,” and “the amounts to these creditors are seriously past due as well.”

          The evidence was legally and factually sufficient to support the trial court’s finding that Taylor had breached her fiduciary duty to Herzog and Ogg. Having held that the evidence was sufficient to support the elements of a breach of fiduciary duty, we need not address Taylor’s specific, immaterial complaints with the findings of fact and conclusions of law. We overrule points of error one through six.

          Punitive Damages 

          Taylor argues that the evidence was legally and factually insufficient to support the trial court’s award of punitive damages. There was no evidence presented at trial that contradicted Herzog’s testimony that Taylor expressed animosity toward him when he garnished the CD. Furthermore, on November 23, 2001, 11 months after Herzog and Ogg sued her, Taylor filed a document with the bankruptcy court in which she acknowledged that she was in default and the amounts due to Herzog and Ogg were “seriously past due.” There were findings of fact and conclusions of law supported by the record that reflected that Taylor failed to attend bankruptcy hearings.

          We hold that there was legally and factually sufficient evidence to support the trial court’s award of punitive damages. Accordingly, we overrule points of error seven, eight, and nine.

Conclusion

                    We affirm the judgment.

                                                                        George C. Hanks, Jr.

                                                                        Justice

Panel consists of Justices Nuchia, Alcala, and Hanks.