Date: 02-28-2002

Case Style: FCLT Loans, L.P. v. The Estate of Louise P. Bracher, et al.

Case Number: 14-00-00577-CV

Judge: Paul C. Murphy

Court: Fourteenth Texas Court of Appeals

Plaintiff's Attorney: Mynde S. Eisen

Defendant's Attorney: Rusty Hardin, Marcus E. Faubion and Cathleen C. Herasimchuk

Description: In 1980, Victor Bracher executed a note with First City Bank – Inwood Forest, N.A., secured by a Deed of Trust covering eight tracts of land in Harris County. Two years later, Victor and his wife, Louise, established three trusts, each named for one of the couple’s three children: the Antoinette Bracher Lawrence Trust, the Barbara K. Bracher Trust, and the David A. Bracher Family Trust. These trusts were each initially funded with several properties, although none of the properties used to secure Victor’s 1980 note were included. Each trust named Victor and Louise as both grantors and trustees, and each permitted them to direct the distribution of the income and principal of the trust. Each trust also contained a “spendthrift” clause, providing that before actual receipt by a beneficiary of any income or property from the trust, the property could not be attached by any of the beneficiary’s creditors.

Victor died in 1987, and Louise Bracher was appointed independent executor of his estate. In 1988, Louise signed a Modification, Renewal and Extension of Real Estate Note and Liens and Deed of Trust (“Renewal Note”) with First City, in the amount of $388,822.37. Louise signed the note both individually and in her capacity as independent executor of Victor’s estate. By its terms, the Renewal Note came due on February 18, 1991.

After a series of mergers and name changes, First City was placed into receivership. The Renewal Note was eventually assigned to FCLT in 1995. In 1997, FCLT sent Louise a notice of default and demand for payment on the Renewal Note.

Shortly after FCLT sent the default notice, however, Louise died. Louise’s daughters, Antoinette Bracher Lawrence and Barbara Olson,1 were appointed coindependent executors of her estate. By their terms, both the Antoinette Bracher Lawrence Trust and the Barbara K. Bracher Trust were distributed to Lawrence and Olson, respectively. The David A. Bracher Family Trust (“Family Trust”), however, remained intact, with two of Victor and Louise’s grandchildren—James Bracher and Victoria Bracher- Noyes—later appointed co-trustees.

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In February 1998, unaware that Louise Bracher had died, FCLT filed the present lawsuit against her, seeking the amount due under the Renewal Note plus attorney’s fees. A year later, FCLT amended its petition to name as defendants (1) the Estate of Louise Bracher; (2) Lawrence, both individually and as co-executor of Louise’s estate; (3) Olson, both individually and as co-executor of Louise’s estate; and (4) David Bracher. In addition to seeking payment under the Renewal Note, FCLT further alleged that the defendants “dissipated” the assets in Louise’s estate and that Lawrence and Olson breached their fiduciary duties by allowing this dissipation of estate assets. In June 1999, FCLT again amended its petition, adding three new defendants: (1) the Family Trust; (2) Bracher-Noyes, both individually and as co-trustee of the Family Trust; and (3) James Bracher, both individually and as co-trustee of the Family Trust. FCLT’s second amended petition also added a claim, under the heading “Fraud,” alleging the defendants acted knowingly and intentionally.

David Bracher filed a motion for summary judgment in December 1999. In February 2000, three of the other defendants—Bracher-Noyes and James Bracher (both individually and as co-trustees) and Lawrence (in her individual capacity only)—filed a separate summary judgment motion (the “First Joint Motion”).

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FCLT sought a judgment in the amount of the debt plus interest and attorney’s fees, a turnover order for all assets currently in or received from Louise’s estate or the trusts to pay FCLT’s debt, an accounting from the co-executors of Louise’s estate and the co-trustees of the Family Trust, and an injunction against further distributions from Louise’s estate or the Family Trust.

After FCLT amended its petition, David Bracher filed an amended motion for summary judgment, while the remaining defendants filed a new motion for summary judgment (the “Second Joint Motion”).4 FCLT also filed its own motion for summary judgment.

The trial court granted all defendants’ motions and ordered that FCLT take nothing.

In twelve points of error, FCLT complains the trial court erred by (1) granting summary judgment based on limitations; (2) granting summary judgment based on the statute of frauds; (3) granting defendants’ summary judgment motions based on “no evidence”; and (4) denying FCLT’s motion for summary judgment (a) against Louise’s estate on the debt; (b) against Lawrence and Olson individually for breach of fiduciary duty and for holding and dissipating assets subject to FCLT’s debt claim; (c) against James Bracher and Bracher- Noyes, as co-trustees, for holding assets in the Family Trust subject to FCLT’s debt claim; (d) against James Bracher and Bracher-Noyes individually for breach of fiduciary duties and for receiving and dissipating assets subject to FCLT’s debt claim; (e) against David Bracher for receiving assets subject to FCLT’s debt claim; (f) for an accounting; (g) for foreclosure and/or garnishment of assets subject to FCLT’s debt claim and for an injunction against further dissipation of such assets; and (h) for FCLT’s attorney’s fees.

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In their capacities as co-executors, however, Lawrence and Olson have not demonstrated their entitlement to summary judgment. Under the Probate Code, a person having a debt against an estate “may enforce the payment of the same by suit against the independent executor.” TEX. PROB. CODE ANN. § 147 (Vernon 1980). There is no dispute Louise Bracher signed the Renewal Note. Lawrence and Olson asserted no summary judgment ground on FCLT’s debt claim other than the statute of frauds. Accordingly, we find the trial court erred in granting summary judgment on this claim in favor of Lawrence and Olson, in their capacities as co-executors of Louise’s estate.

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Under the Uniform Fraudulent Transfer Act (“UFTA”), a cause of action for fraudulent transfer must be brought either (1) in most cases, “within four years after the transfer was made”; (2) in cases where the alleged transfer was made to an insider for an antecedent debt, “within one year after the transfer was made”; or (3) in cases where the plaintiff alleges actual intent to defraud, “within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.” TEX. BUS. & COM. CODE ANN. § 24.010 (Vernon Supp. 2002).

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Lawrence, Bracher-Noyes, and James Bracher first argue any property that was subject to FCLT’s Deed of Trust lien could not have been fraudulently transferred because such property was not an “asset” under the UFTA. See TEX. BUS. & COM. CODE ANN. § 24.002(2)(A) (Vernon Supp. 2002) (defining “asset” to exclude “property to the extent it is encumbered by a valid lien”); see also id. § 24.002(12) (defining “transfer” as any mode of disposing of or parting with “an asset or an interest in an asset”). It appears from the record, however, that FCLT’s fraudulent transfer claim does not include the specific properties named in the Deed of Trust accompanying Victor Bracher’s 1980 note. Accordingly, this portion of the First Joint Motion is moot.

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FCLT also alleges appellees received assets from Louise Bracher or her estate that were fraudulently transferred. FCLT has no cause of action against a party that accepts an allegedly fraudulent transfer. See Bado Equip. Co. v. Bethlehem Steel Corp., 814 S.W.2d 464, 474 (Tex. App.—Houston [14th Dist.] 1991, no writ). We note, however, that a person who allegedly receives a fraudulent transfer, as an adverse claimant to the transferred property, is both a proper and necessary party to the fraudulent transfer claim. Looney v. Simpson, 87 Tex. 109, 26 S.W. 1065, 1065 (1894).

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In the First Joint Motion, Lawrence, Bracher-Noyes, and James Bracher moved for summary judgment on the ground that there is no evidence by which FCLT established the existence of a fiduciary duty. Fiduciary duties arise either from certain formal relationships that are recognized as fiduciary as a matter of law, or from the existence of an informal, “confidential” relationship between the parties. Insurance Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). The existence of a confidential or fiduciary relationship is ordinarily a question of fact, and the issue only becomes a question of law when it is one of no evidence. Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992). A party asserting breach of a fiduciary duty must establish the existence of a confidential or similar relationship giving rise to a fiduciary duty. See Bado Equip., 814 S.W.2d at 475. FCLT has provided no proof of any relationship between FCLT and Bracher-Noyes or James Bracher that may give rise to a fiduciary duty. Accordingly, Bracher-Noyes and James Bracher are entitled to summary judgment on FCLT’s breach of fiduciary duty claim. With respect to Lawrence, however, FCLT asserts a fiduciary duty arose by virtue of fiduciary duty claim.With respect to Lawrence, however, FCLT asserts a fiduciary duty arose by virtue of Lawrence’s duties as an independent executor. The relationship between an executor and the estate’s beneficiaries is one that gives rise to a fiduciary duty as a matter of law. Huie v. DeShazo, 922 S.W.2d 920, 923 (Tex. 1996). However, no such formal recognition exists for the relationship between an independent executor and the estate’s creditors. An executor’s fiduciary duty to the estate’s beneficiaries arises from the executor’s status as trustee of the property of the estate. Humane Soc’y v. Austin Nat’l Bank, 531 S.W.2d 574, 577 (Tex. 1975). Under the Probate Code, a decedent’s estate immediately vests in the devisees, legatees, and heirs at law of the estate, subject to payment of the decedent’s debts. TEX. PROB. CODE ANN. § 37 (Vernon Supp. 2002). The executor thus holds the estate in trust for the benefit of those who have acquired a vested right to the decedent’s property under the will. See id. FCLT points to no provision in the Probate Code or elsewhere that an independent executor also holds the estate property in trust for those with claims against the estate. FCLT cites only section 146 of the Probate Code, which imposes certain duties on an independent executor, including a duty to approve and pay proper claims against the estate. TEX. PROB. CODE ANN. § 146(a) (Vernon Supp. 2002). This statutory duty does not support a claim that an independent executor holds estate assets in trust for the benefit of creditors, nor does it otherwise give rise to a fiduciary duty.Our research has revealed two cases in which Texas courts, with minimal analysis, have described the relationship between an independent executor and a creditor of the estate as “fiduciary.” In Ertel v. O’Brien, 852 S.W.2d 17 (Tex. App.—Waco 1993, writ denied), the appellate court held a bank acting as independent executor of an estate “breached its statutory and fiduciary duties” and was individually liable to a creditor for the bank’s failure to pay a valid claim against the estate. Id. at 21. The authorities cited in Ertel, however, provide support for two distinct propositions: (1) by statute, an executor is subject to individual liability for failing to pay a proper claim against the estate; and (2) the executor of an estate is held to the same fiduciary standards as a trustee. See id. at 20-21. The court provides no analysis or explanation why an independent executor’s fiduciary duty to the estate should be expanded to include a duty to the estate’s creditors.

In Ex parte Buller, 834 S.W.2d 622 (Tex. App.—Beaumont 1992, orig. proceeding), a habeas corpus proceeding, the court notes an independent executor “stands in a fiduciary relationship” with the estate’s creditors. Id. at 626. In support of this proposition, the court cites two Texas Supreme Court cases: Pearce v. Stokes, 155 Tex. 564, 291 S.W.2d 309 (1956), and Cochran’s Adm’rs v. Thompson, 18 Tex. 652 (1857). Both cases are distinguishable because each deals with court-appointed (as opposed to independent) administrations. In Pearce, the issue was whether an estate administrator could set aside the forced sale of the decedent’s property by one holding a mortgage on that property, where the sale occurred after the decedent’s death, but before administration of the estate began. The court held the administrator could set aside the sale, stating the administration of an estate “is for the benefit of all creditors, not just those who have secured claims or other claims of high priority.” 291 S.W.2d at 312. Thus, the court in Pearce was concerned not with the relationship between the executor and the estate’s creditors, but rather the relationship among the various creditors. We do not read Pearce to say the executor in that case owed a fiduciary duty to the estate’s creditors. In Thompson, the court notes the appointment of an administrator in that case was “merely a trust to pay the claims of creditors, and then to restore the remainder of the assets to the heirs.” 18 Tex. at 656. The appointment of an executor or administrator may, depending on the language in the court’s order, create a trust on behalf of the estate’s creditors and, therefore, a fiduciary duty to the creditors. Under the present statutory scheme, however, we cannot say an independent executor automatically holds the estate assets in trust for the benefit of estate creditors.

We conclude that the relationship between FCLT and Lawrence, as independent executor of Louise Bracher’s estate, does not give rise to a fiduciary duty as a matter of law. Furthermore, FCLT failed to provide any proof supporting the existence of a confidential or similar relationship between Lawrence and FCLT. Accordingly, summary judgment was properly granted in favor of Lawrence.

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Finally, FCLT alleges Lawrence and Olson engaged in fraudulent behavior by knowingly and intentionally engaging in the acts complained of elsewhere in the petition. Lawrence and Olson contend they are entitled to summary judgment on FCLT’s fraud claim because FCLT has presented no evidence to support the essential elements of common-law fraud. Specifically, FCLT failed to provide summary judgment proof showing the existence of (1) a false, material misrepresentation (2) that was knowingly or recklessly made (3) with the intent that the statement be relied upon by FCLT. See Sears, Roebuck & Co. v. Meadows, 877 S.W.2d 281, 282 (Tex. 1994) (per curiam). To the extent FCLT’s petition may be read as raising an independent cause of action for common-law fraud, summary judgment for Lawrence and Olson is proper.

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Click the case caption above for the full text of the Court's opinion.

Outcome: Based on the foregoing, we conclude as follows:

(1) Because the statute of frauds does not preclude FCLT’s debt claim against Antoinette Lawrence and Barbara Olson in their capacities as co-executors of Louise Bracher’s estate, and because FCLT has conclusively established its entitlement to judgment on this claim, we reverse the summary judgment granted in favor of Lawrence and Olson as co-executors and render judgment in favor of FCLT. We also render judgment against Lawrence and Olson, as co-executors of Louise’s estate, for $78,900.00 as reasonable attorney’s and collection fees, plus $5,000.00 in conditional fees for any petition for review to the Texas Supreme Court and $5,000.00 in conditional fees for any subsequent grant of review by the supreme court.

(2) FCLT’s fraudulent transfer claims are not barred by limitations; therefore, we reverse the summary judgments in favor of Lawrence and Olson as coexecutors of Louise’s estate and Olson individually and remand these claims to the trial court for further proceedings.

(3) Because limitations does not bar FCLT’s claim for breach of fiduciary duty against Olson, we reverse the grant of summary judgment in her favor on this claim and remand for further proceedings.

(4) We affirm the trial court’s judgment in all other respects.

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: None