in the Estate of Betty Lou Hughes

• Court: Court of Appeals of Texas
• Decided: October 24, 2013
• Docket: 13-12-00288-CV
• Status: Published

Opinion

NUMBER 13-12-00288-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

IN THE ESTATE OF BETTY LOU HUGHES

On appeal from the County Court of Jefferson County, Texas.

MEMORANDUM OPINION Before Justices Rodriguez, Perkes and Wittig1 Memorandum Opinion by Justice Wittig This appeal2 is from the trial court judgment removing appellant Michael Alton

Hughes as independent executor of the Betty Lou Hughes Estate and the order

appointing his brother David Lee Hughes in his stead. Appellant contends the trial court

erred because it failed to comply with Probate Code requirements, the evidence was 1 Retired Fourteenth Court of Appeals Justice Don Wittig assigned to this Court by the Chief Justice of the Supreme Court of Texas pursuant to the government code. See TEX. GOV’T CODE ANN § 74.003 (West 2005). 2 This case is before the court on transfer from the Ninth Court of Appeals in Beaumont, Texas, pursuant to a docket equalization order the Texas Supreme Court issued. See TEX. GOVT. CODE ANN. § 73.001 (West 2013). legally and factually insufficient, multiple findings of fact were not supported by the

evidence, and David Hughes was not qualified to be executor because of a conflict of

interest. Appellees David Hughes, Mark Hughes and Chris Hughes are the other

beneficiaries of the estate. We will affirm the trial court’s removal judgment and

appointment order.

I. BACKGROUND

Betty Lou Hughes died February 7, 2008, leaving a valid will dated February 16,

1983. Appellant received letters testamentary on March 12, 2008. Appellant and

appellees are the beneficiaries of the estate and are to share and share alike. An initial

inventory and list of claims was filed on January 27, 2009 and was amended January 27,

2010. Appellees filed a petition for removal of the executor and appointment of a

successor on April 13, 2011. Appellees subsequently filed an amended petition for

removal, a demand for accounting, and in the alternative, a demand for distribution on

December 14, 2011. On January 25, 2012, the trial court ordered appellant to prepare

an updated accounting, which was completed on February 15, 2012, and which did not

indicate a need for the estate to stay open and not be distributed. After a hearing on

March 7, 2012, the trial court removed appellant as executor and subsequently appointed

David Hughes as independent executor.

The court made multiple findings regarding the removal of appellant as executor.

It found that appellant misapplied estate funds of $2,774 to retain an attorney for personal

business. Appellant as executor also used estate funds of $2,075.95 to buy an airline

ticket for personal use. He accepted an unreported finder’s fee on the sale of estate

2 property on two occasions. Appellant “misapplied [e]state funds” by receiving $4,900

from the IRA account while not disclosing the transaction, not making a similar distribution

to the other heirs, and not reimbursing the estate for this amount. In July 2011, appellant

filed estate returns late for 2008 through 2010.

In its conclusions of law, the trial court found appellant showed neither sufficient

cause supported by oath why a final settlement of the estate was not made within three

years as required nor just cause to warrant the estate remaining open more than three

years as required by section 222 of the Texas Probate Code. See TEX. PROB. CODE ANN.

§ 222(b)(6) (West Supp. 2011). Also in its conclusions of law, the court found that

appellant improperly deducted life insurance proceeds payable independently to David

Hughes from an estate distribution to him. The court concluded appellant was guilty of

mismanagement and misapplication of the estate and should be removed pursuant to

section 222 of the probate code. The court entered a judgment removing appellant as

executor and subsequently appointed David Hughes as executor.

II. STANDARD OF REVIEW

An appellate court reviews a trial court's order removing an independent executor

for an abuse of discretion. In the Estate of Hoelzer, 310 S.W.3d 899, 905 (Tex.

App.—Beaumont 2010, pet. denied) (citing Lee v. Lee, 47 S.W.3d 767, 789 (Tex.

App.—Houston [14th Dist.] 2001, pet. denied); Spies v. Milner, 928 S.W.2d 317, 319

(Tex. App.—Fort Worth 1996, no writ)). An appellate court will not overturn the trial

court's decision merely because the appellate court might have reached the opposite

conclusion, but will do so when the trial court's decision is arbitrary, unreasonable, and

3 without reference to any guiding rules and principles. Lee, 47 S.W.3d at 786 (citing

Goode v. Shoukfeh, 943 S.W.2d 441, 446 (Tex. 1997)). Under an abuse of discretion

standard of review, we must make an independent inquiry of the entire record to

determine if the trial court abused its discretion and we are not limited to reviewing the

sufficiency of the evidence to support the findings of fact made. See Chrysler Corp. v.

Blackmon, 841 S.W.2d 844, 853 (Tex. 1992) (orig. proceeding). We will not analyze the

trial court's fact findings separately from our analysis of whether the trial court abused its

discretion in removing someone as administrator. In re Estate of Clark, 198 S.W.3d 273,

275 (Tex. App.—Dallas 2006, writ denied).

III. ANALYSIS

Appellant argues against the trial court’s findings regarding the misapplication of

estate funds in the amounts of $2,774 and $4,900 because the funds were in fact

accounted for as distributions to him. Appellant needed to pay his personal attorney so

he took the $2,774 from the estate checking account and either paid the money directly to

his attorney, or paid himself and then the attorney. There is evidence on the November

2010 disbursement sheet that appellant showed a $2,774 distribution to himself, but both

the testimony and disbursement sheet showed no contemporaneous or corresponding

disbursements to the other beneficiaries. There is no entry of the $4,900 also claimed to

be a disbursement. Rather, the record reflects appellant received a $4,900 check

payable to him personally from the estate’s IRA account and it was deposited to his

personal account. Appellant testified he planned on making a distribution to others but

did not get to it. “I received that $4,900 from UBS right before the first of the year. I just

4 held on to it. It was made out to me, so I didn't want to get that confused with trying to

deposit it into the estate funds.” Appellant also paid personal income tax on the

distribution. His justification was that he expected a $55,000 rent check right after the

first of the year when he planned to make more distributions.

The trial court also found a $2,075.95 misapplication of funds. Appellant testified

he needed to purchase an airline ticket but his personal credit card lacked a sufficient

available balance so he used the estate’s credit card. He claims to have deposited

$2,380 into the estate the same day, but the trial court found it could not determine if a

reimbursement was made because there is no such reference in the accounting filed on

February 15, 2012. Appellant admitted he had no documentation of the reimbursement

and no like distribution was made to the other beneficiaries.

The trial court found that appellant, as independent executor, received a finder’s

fee or commission for the sale of estate properties in Nederland and Center, Texas.

Receipt of the fees was not disclosed, and the real estate settlement documents did not

reflect the payments, which represented a referral fee of twenty-five percent of the selling

side commission. Appellant admitted receiving the funds but claimed he did not receive

the fee from the estate although the twenty-five percent fee was based upon a

percentage of the real estate commissions in the property sales and came from the

broker. No disclosures were made in the estate filings. We note that appellant is a

licensed realtor.

Appellees cite In the Interest of Roy for the well established principle that a

fiduciary relationship creates a duty to disclose. See 249 S.W.3d 592, 597 (Tex.

5 App.—Waco 2008, no pet.) (citing Tempo Tamers, Inc. v. Crow-Houston Four, Ltd., 715

S.W.2d 658, 669 (Tex. App.—Dallas 1986, writ ref'd n.r.e.)). There, the executor took a

fee for the sale of the residence without disclosing this in the accounting and also reduced

the rent. Id. The executor argued that the estate had no money to pay his

administrative fees and that the $5,000 was the only money he had ever received for his

work for the estate. Id. “These arguments cannot justify Clark's failure to disclose.

Therefore, the trial court acted within its discretion to remove Clark as independent

executor.”3 Id.

Appellant disputes the court’s finding that he failed to make a final settlement of the

estate within three years after the grant of letters as required by subsection (6) of section

222 of the probate code. See TEX. PROB. CODE ANN. § 222. The trial court’s conclusion

of law stated that appellant as independent executor had not shown sufficient cause,

supported by oath, as to why a final settlement of the estate had not been timely made

and there was not sufficient cause supported by oath to justify the estate remaining open

for more than three years after letters testamentary were granted. Appellant argues he

had sufficient cause for his failure to settle the estate because he was denied information

from Chris Hughes regarding the valuation of Delta Security, a family owned company.

The will provided that total distributions were to be of equal value but there was no

requirement for equal in kind distribution. The executor had discretion to make

distributions in kind, partly in kind, partly in money, and by undivided interests. The will

3 Clark’s failure to disclose his fee was exacerbated by the fact he lowered the rent to a related entity by almost half. In the Interest of Roy, 249 S.W.3d 592, 597 (Tex. App.—Waco 2008, no pet.). Here, it was also alleged that appellant significantly lowered the price on the Netherland property from $239,000 to $170,000 without consultation or explanation. The trial court, however, made no finding in this particular regard. 6 also provided that distributions in kind should be valued at fair market value as of the date

or dates of distribution.

Appellees counter that the new shares of stock were already issued by Delta

Security, pursuant to appellant’s request. Each beneficiary received his respective

shares of 600 each. Furthermore, the value of the stock in the estate was determined by

an accounting firm hired by the estate to be $250,000 as of the day of Betty Lou Hughes’s

death. In appellant’s sworn inventory filed on January 22, 2009, he stated the company

stock was worth $250,000. In his answers to interrogatories, appellant stated: “[U]nder

Texas law ownership of the decedent's stock automatically became vested in the

beneficiaries once the [w]ill was admitted to probate. A formal assignment of the

decedent's shares of stock is not required. The corporation's board of directors . . . may

authorize the issuance of new stock certificates."4

The trial court also found that the accounting filed on February 15, 2012 did not

indicate a need for the estate to stay open and not be distributed. Further, in its

conclusions of law the court found appellant’s inquiries concerning Delta Security were

not relevant to the estate and were not necessary to the administration or distribution of

the estate.5 In any event, appellant clearly did not make a final settlement within three

years and the time was not extended by the trial court based upon a showing of sufficient

cause supported by oath. See id. § 222 (b)(6) (requiring executor as personal

representative to make a final settlement within three years after the grant of letter unless

4 None of the parties briefed this declaration by appellant. See TEX. PROB. CODE ANN. § 37 (West Supp. 2011). 5 Appellant does not address this conclusion of law.

7 extended by the court upon showing of sufficient cause supported by oath) (emphasis

added).6 In light of the fact that the new certificates had already been equally issued by

the corporation, the fact that appellant took the position that the new stock ownership in

the company vested upon the death of Betty Lou Hughes, and the appellant’s failure to

obtain an extension, we cannot disagree with the trial court’s findings and conclusions

based upon the record.

Appellant disputes the trial court’s finding that he failed to timely pay property taxes

which resulted in the payment of penalties. To the contrary, appellant’s deposition

testimony filed with the trial court on January 23, 2012 in response to appellant’s motion

to abate, indicated at least one occasion when the taxes were not timely paid. 7

A number of other lesser disputes were brought to the trial court’s attention and

included in its findings and conclusions. These included late filing of the estate tax

returns, misapplying estate funds to purchase other securities such as Frontera Reserves

and Canargo Energy, failing to place “For Sale” signs on several estate properties

purportedly for sale, failing to deal with mineral interests, and failing to provide the

physical location and status of seventeen firearms. In light of our conclusions below, we

deem it unnecessary to write on each of these matters. See TEX. R. APP. P. 47.1.

Appellant argues the trial court erred by entering its March 9, 2012 order removing

him as executor because the court failed to state a reason as required by section 222(b).

6 Section six is the only provision of section 222 applicable here that specifically addresses executors. The gravamen of both appellant and appellees’ arguments are directed principally to section 222 and fail to address section 149c even though this section specifically addresses the removal of an independent executor and was pled by appellees. See TEX. PROB. CODE ANN. §§ 222,149c. 7 As stated previously, we review the contents of the entire record in determining whether the trial court abused its discretion in removing the independent executor. See Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 853 (Tex. 1992) (orig. proceeding). 8 See TEX. PROB. CODE ANN. § 222. The order states that the executor was removed

because of noncompliance with the terms of the will. Appellees point out that several of

the specified reasons for removal under section 222 are found in the trial court’s findings

of fact and conclusions of law. We agree with appellant that section 222 requires

denominating the grounds for removal within the order. However, in light of the fact the

trial court specified a number of violations of sections 222 and 149c in its findings and

legal conclusions, the error probably did not cause the rendition of an improper judgment

and did not prevent appellant from properly presenting his case to the appellate court.

TEX. R. APP. P. 44.1; see Eastland v. Eastland, 273 S.W.3d 815, 827 (Tex.

App.—Houston [14th Dist.] 2008, no pet.) (discussing harmless error with regard to

appointment of successor independent executor).

Appellant also argues that the will states he should not be liable for “mistakes or

errors in judgment” but shall be liable only for “bad faith or dishonesty.” Appellant seems

to argue that this exculpatory language trumps provisions of the Texas Probate Code.

He argues there are no allegations or evidence under items (2), (3), (5) or (7) of this

section. See TEX. PROB. CODE ANN. § 222. We agree in part. However, both section

(6), failure to make a final settlement within three years unless extended by the court, and

wrongful misapplication of estate property under 149C support the trial court’s actions in

removing appellant as executor. See id. §§ 222(b)(6), 149c(a)(2). Appellant cites no

authority that the exculpatory provision of the will abrogates statutory authority or the

inherent power of the trial court to remove an executor under the particular circumstances

of this case. We find no such authority and accordingly overrule this issue.

9 Finally, appellant argues the trial court erred when it determined David Hughes

was qualified to act as successor independent executor because he had a conflict of

interest with the estate. The alleged conflict, the argument goes, arises from David

Hughes’s testimony regarding a letter written by his mother, the testatrix. The letter,

which is barely decipherable, seems to state she wanted all her assets to be distributed

equally between her four sons to include insurance policies, IRAs, CDs, etc. David

testified, “I choose not to give it any meaning.”

Appellees counter that the letter has not been qualified as a will or codicil because

it has not been admitted to probate by a court of competent jurisdiction, citing Teague v.

Wylie, 110 S.W.2d 941, 944 (Tex. Civ. App.—Fort Worth,1937, no writ). Appellant has

not shown that the letter has been admitted into probate. We overrule this issue.

IV. CONCLUSION

Section 222(b)(6) of the Probate Code provides for the removal of a executor if he

fails to make a final settlement within three years, unless the time is extended by the court

upon showing of sufficient cause supported by oath. There is no extension of time in this

case. We hold that the trial court's findings and conclusions concerning appellant’s

alleged violations are supported by ample evidence. See Carmichael v. Carmichael,

432 S.W.2d 129, 130 (Tex. Civ. App.—Waco 1968, writ ref’d. n.r.e.). Accordingly, the

trial court did not abuse its discretion in removing appellant as executor.

We also note that probate code section 149C(a)(2) authorizes removal if sufficient

grounds appear to support the belief that the independent executor has misapplied or

embezzled, or that the independent executor is about to misapply or embezzle, all or any

10 part of the property committed to his care. See Ali Akbar Mohseni v. Hartman, 363

S.W.3d 652, 659 (Tex. App.—Houston [1st Dist.] 2011, no pet.); In the Estate of Hoelzer,

310 S.W.3d 899, 907 (Tex. App.—Beaumont 2010, pet. denied) (holding court need not

decide whether section 149C precludes removal based on an executor's

"post-appointment" disqualification under section 78, because sufficient grounds support

removal under the provisions of section 149C); see also Kappus v. Kappus, 284 S.W.3d

831, 835–36 (Tex. 2009). We hold that the wrongful misapplication of estate funds found

by the trial court supports the statutory grounds for removal under section 149C(a)(2).

Stated otherwise, sufficient grounds appear to support the belief that appellant had

misapplied or was about to misapply all or any part of the property committed to his care.

TEX. PROB. CODE ANN. §149C(a)(2).

Appellant has not shown that David Hughes is disqualified from serving as

independent executor. Indeed, David Hughes is named as alternate independent

executor in Betty Lou Hughes’s will. Appellant’s issues are overruled.

The judgment of removal and the appointment order of the trial court are affirmed.

Don Wittig Justice

Delivered and filed the 24th day of October, 2013.