Opinion
NO. 14-18-00214-CV
03-31-2020
PEGGY A. SKLAR, Appellant v. JOHN H. SKLAR AND PAMELA LYNNE SKLAR-DERBYSHIRE, Appellees
On Appeal from the Probate Court No. 4 Harris County, Texas
Trial Court Cause No. 447279-401
DISSENTING OPINION
The testatrix made specific bequests by will to her daughter, appellant Peggy Sklar. Two of the testatrix's other children, appellees John H. Sklar and Pamela Lynne Sklar-Derbyshire, served as independent co-executors of the estate (collectively, "Co-Executors"). After the testatrix died and the court below admitted her will to probate, the Co-Executors disposed of two items specifically bequeathed to Peggy — a car and a mutual fund — without Peggy's knowledge or input.
Peggy sued the Co-Executors alleging that in taking these actions, they had breached their fiduciary duties, violated the will's provisions, and acted in bad faith. Relying on these and other actions of the Co-Executors that allegedly violated the Texas Estates Code, Peggy sought their removal as executors of the estate. She also sought declaratory-judgment relief and attorney's fees. The trial court found that the Co-Executors neither breached their fiduciary duties nor violated the will and refused to remove either of them as executors. On appeal, Peggy challenges these rulings. She asserts that the Co-Executors twice disregarded the Texas Estates Code provisions prohibiting the conditioning of a release from a beneficiary before delivery of estate property. Peggy claims that this conduct, along with other statutory violations, necessitated their removal as executors of the estate. The majority, presuming without deciding that the Co-Executors breached their fiduciary duties, concludes Peggy suffered no damages and so could not prevail on the fiduciary-duty claims as a matter of law. The majority does not address Peggy's executor-removal and declaratory-judgment claims or undertake to determine if the trial court erred in denying this relief.
Unaddressed Appellate Arguments
In the trial court and on appeal, Peggy points to discrete instances of conduct that she claims warranted removal of the Co-Executors. First, Peggy argues that contrary to the testatrix's will, the Co-Executors disposed of items specifically bequeathed to her (the car and the mutual fund) without consulting her or giving her notice (hereinafter "Sales Without Notice"). Second, Peggy complains that after taking these actions, the Co-Executors twice demanded that Peggy sign a release of claims against them as a condition to giving her the proceeds from the Sales Without Notice (hereinafter "Release-for-Proceeds Demands"), which Peggy claims violates section 405.002(b) of the Texas Estates Code. This court should address each of these arguments to determine if the trial court erred in finding that these actions and omissions of the Co-Executors did not warrant their removal as executors of the estate or entitle Peggy to the requested declaratory relief.
Because proof of damages is not a prerequisite to removal of executors or to obtaining a declaratory judgment, Peggy's inability to prevail on her fiduciary-duty claims does not preclude these other forms of relief. So, in addressing these requests for relief, this court could not presume the Co-Executors breached their fiduciary duties, as the majority does in analyzing the fiduciary-duty claims, but instead would have to decide if the Co-Executors actually breached their duties or violated provisions of the Estates Code and, if so, whether those actions warranted their removal as executors of the estate or the requested declaratory relief.
See Tex. Estates Code Ann. § 404.003 (Removal of Independent Executor Without Notice); id. § 404.0035 (Removal of Independent Executor with Notice).
Sales Without Notice and Release-for-Proceeds Demands as Grounds for
Removal of the Co-Executors
Under the Estates Code, various forms of conduct and a range of circumstances could warrant removal of an executor, including a showing that the executor (1) has misapplied or is about to misapply all or part of the property committed to the independent executor's care, (2) has failed to make a legally required accounting, (3) has been proven guilty of gross misconduct or mismanagement, (4) has become incapacitated, or (5) has become incapable of properly performing the executor's fiduciary duties due to a material conflict of interest. Peggy points to the Sales Without Notice and the Release-for-Proceeds Demands as grounds warranting the removal of the Co-Executors.
In analyzing the Sales Without Notice, the parties dispute the meaning of the clause in the will's article 4.1 that gives broad powers to the Co-Executors and permits them to dispose of estate property "in any manner that may seem best for them" for the purpose of paying estate debts, partitioning assets, or other purposes, "giving due regard for the bequests [the testatrix] made [in the will]" (the "Due-Regard Clause"). In interpreting the Due-Regard Clause, the Co-Executors confuse power with process.
The clause, set forth in the majority opinion, reads in its entirety:
I authorize and empower my said Co-Executors to sell, dispose of, deliver and convey any portion of my Estate, real or personal, at public and private sale for any price, on any terms and in any manner that may seem best for them for the purpose of paying any of my debts, partitioning assets or any other purpose, giving due regard for the bequests that I have made herein.
Though the will clothed the Co-Executors with broad powers, it also shackled them with fiduciary duties — duties that required them to act with utmost good faith in dealing with estate property and in honoring the will's command that they give due regard for the testatrix's specific bequests to Peggy. The testatrix intended Peggy to receive a car and a mutual fund. The Co-Executors sold both without giving Peggy notice of either sale. Depending on circumstances, the will gave the Co-Executors the power to sell property but only insofar as they complied with the Due-Regard Clause, which set forth the process due Peggy, the testatrix's intended recipient of the property. The Due-Regard Clause left intact the Co-Executors' fiduciary duties to fully disclose to Peggy all material facts known to them that might affect Peggy's rights, such as the Co-Executors' decision to proceed with a sale of the car or the mutual fund. The Co-Executors exercised their power without process.
See Huie v. DeShazo, 922 S.W.2d 920, 923 (Tex. 1996); FCLT Loans, L.P. v. Estate of Bracher, 93 S.W.3d 469, 480 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
The record contains no evidence that the Co-Executors gave due regard for the specific bequests. Before selling the car, one of the Co-Executors (John) told Peggy that he would store it for her until the title could be changed to her name. Then, without consulting Peggy or telling her that the Co-Executors had decided to change course, he sold the car with no appraisal and for less than Blue Book value after soliciting an offer from a single prospective purchaser. John took this action knowing that (1) the will stated the testatrix's intention that Peggy get the car, (2) Peggy wanted the car, and (3) he had assured Peggy that she would get the car. Neither the trial court nor the Co-Executors nor the majority has explained why or how this conduct could amount to "due regard." The Due-Regard Clause — and Texas law — demand more from fiduciaries. Indeed, the Co-Executors' actions in disposing of the items bequeathed to Peggy might not even satisfy the lesser standard of commercial reasonableness.
See Huie, 922 S.W.2d at 923; FCLT Loans, L.P., 93 S.W.3d at 480.
Presuming for the sake of argument that the Co-Executors had the power and authority to sell the specifically-bequeathed items, the transactions lacked any semblance of process or due regard for the specific bequests. In disposing of the car, the Co-Executors solicited an offer from a single potential buyer and that offer fell below the Blue Book value of a car the buyer described as being in "good condition." The Co-Executors sold the car without calling Peggy to tell her their plans had changed or to see if she might be willing to pay more for the car than the below-Blue Book offer. They did not identify any urgency for the sale or tell Peggy the reason for it. They did not seek or get Peggy's input. And, they took these actions as fiduciaries of the estate, bound by high fiduciary standards, including the duty to fully disclose to Peggy all material facts known to them that might affect Peggy's rights.
See Huie, 922 S.W.2d at 923; FCLT Loans, L.P., 93 S.W.3d at 480.
Under the less-onerous commercial-reasonableness standard, sellers of collateral generally must give debtors reasonable notice that they intend to dispose of the property. The Co-Executors gave Peggy zero notice. Under commercial-reasonableness standards, secured-party sellers who fail to seek more than a single offer or fail to get an appraisal or sell without notice to interest-holders stand at risk of acting in bad faith. In the secured-transactions context, reasonableness is a fact-based inquiry. In considering the reasonableness of a sale of collateral, Texas courts consider such things as:
See Regal Fin. Co., Ltd. v. Tex Star Motors, Inc., 355 S.W.3d 595, 601-02 (Tex. 2010); Foley v. Capital One Bank, N.A., 383 S.W.3d 644, 649 (Tex. App.—Houston [14th Dist.] 2012, no pet.).
Regal Fin. Co., Ltd., 355 S.W.3d at 601-02.
• whether the secured-party seller tried to get the best price possible;The Co-Executors sold to the first and only bidder with no appraisal, no bidding process, and no notice to the beneficiary. If these actions would raise questions even under a commercial-reasonableness standard, then on what basis did the trial court find the Co-Executors' sale of the car passed muster under the higher, fiduciary-duty standard or the will's Due-Regard Clause? This question goes to the heart of the unaddressed arguments.
• whether the collateral was sold via private or public sale;
• whether potential buyers could inspect the collateral before the sale;
• whether the collateral was sold at a propitious time;
• whether the expenses incurred during the sale were reasonable and necessary;
• whether the sale was advertised; and
• whether multiple bids were received.
See id.
The executor-removal provision in section 404.0035 of the Texas Estates Code gives interested parties a means of challenging questionable actions so that the estate will not suffer at the hands of a self-dealing, incapacitated, or incompetent executor. To remove an executor, the law does not require a showing of damage, just improper action or compelling circumstances that would fall within the rubric of the statute.
Giving notice to Peggy would have been the work of a moment. No evidence suggests any circumstance necessitated a flash sale of the car with no notice to the beneficiary. Given evidence that Peggy found sentimental value in her mother's car, had a specific need and plan for the car, and believed it would cost her $20,000 to get one like it, Peggy might well have paid more for the car than the Co-Executors received from the one and only offer they solicited.
The Co-Executors had fiduciary duties to fully disclose to Peggy all material facts known to them that might affect Peggy's rights, such as the Co-Executors' decision to proceed with a sale of the car or the mutual fund. The Due-Regard Clause reinforces this duty by encouraging communication. Executors who communicate with beneficiaries about plans to dispose of specifically bequeathed items get the chance to gather important data for decision-making. With better information, they become better equipped to make decisions in compliance with their fiduciary duties and the will's provisions. Executors who do not seek relevant, readily-available information that would inform their decision-making and judgment should explain why they failed to do so.
See Huie, 922 S.W.2d at 923; FCLT Loans, L.P., 93 S.W.3d at 480.
In defending their failure to communicate with Peggy before the Sales Without Notice, the Co-Executors point out that Peggy was the only one of the testatrix's four children to receive specific bequests. Rather than lending support to what the Co-Executors did, this point raises questions about their decisions. The perceived unfairness of the testatrix's choices does not excuse non-compliance with the Due-Regard Clause. If anything, this factor should have spurred the Co-Executors to show a greater measure of consideration for Peggy's rights in the bequeathed items, not only to discharge their duties but also to avoid any litigation or other unpleasantness that might follow from these decisions. Had they provided the process the Due-Regard Clause contemplates and their fiduciary duties require, the Co-Executors would be standing in a stronger position to defend against Peggy's allegations that their actions warranted their removal as executors of the estate.
In the trial court, one of the Co-Executors also defended the actions by stating that the car was old and that the testatrix would not have wanted Peggy to have an "old car." The law looks to the testatrix's will to glean the testatrix's intentions, and the will says the testatrix wanted Peggy to have her car. An executor's role is to honor, not second-guess, the testator's wishes or to supplant the testator's choices under the aegis of disposing of specifically bequeathed estate assets.
Gutierrez v. Stewart Title Co., 550 S.W.3d 304, 313 (Tex. App.—Houston [14th Dist.] 2018, no pet.).
Article IV of the will, which contains the Due-Regard Clause, requires a balancing of two competing goals: (1) giving executors broad powers to minimize interference in their ability to administer the estate and (2) honoring the testatrix's intent by protecting beneficiaries of specifically bequeathed items against executor overreach. Focused on the first purpose, the Co-Executors and the trial court gave short shrift to the second.
The Due Regard Clause operates to protect beneficiaries' interests. The trial court found the Due-Regard Clause did not require notice to Peggy. Peggy argues that, at a minimum, the clause and the Co-Executors' fiduciary duties require notice, yet the majority does not address the Co-Executors' failure to give notice or any of the other alleged failures that formed the basis of Peggy's removal claim. The majority opts instead simply to conclude that Peggy suffered no injury from the sale of the car. But, if the Due-Regard Clause required notice, the Co-Executors' failure to give it might impact both the removal claims and the requested declaratory relief.
Neither the Co-Executors nor the trial court explain why the facts did not require notice to Peggy. Nor do they undertake to explain why the facts or the Co-Executors' duty of candor as fiduciaries did not require them to disclose the material change in their plan to dispose of the car. After the bench trial, the trial court concluded that the Co-Executors had given "ample consideration" to the specific bequest of the car because they believed it was prudent and in the best interest of the estate and Peggy to sell the car "[a]fter . . . weighing factors such as age, condition, repairs, storage, insurance and other costs." But had the Co-Executors honored the bequest, Peggy — not the estate — would have borne these expenses. The record contains no evidence that would explain why taking the first offer, for under Blue-Book value with no appraisal and no bidding process, would be a better option than letting Peggy take immediate title and possession of the car. Neither the trial court nor the Co-Executors explain why the Due Regard Clause or the law would permit fiduciaries to sell the car bequeathed to Peggy under these circumstances.
The testatrix gave the Co-Executors broad but not unlimited authority to dispose of specifically-bequeathed items. The Co-Executors argue that the will's Due-Regard Clause means "[c]onsideration in a degree appropriate to demands of the particular case," yet they do not explain how selling an unappraised car to the first bidder at below-Blue Book value without giving notice to the named beneficiary could be appropriate in this case. Though the trial court found that the Co-Executors gave "ample consideration" to the decision, the record contains no evidence of due regard for the testatrix's specific bequest of the car to Peggy.
If this court were to conclude that the Co-Executors acted unreasonably in selling the car and that the trial court erred in interpreting the Due-Regard Clause as permitting this behavior, then those actions, either alone or in conjunction with the other alleged wrongdoing of the Co-Executors, might warrant their removal as executors of the estate. Peggy has raised this issue on appeal and the court ought to address it.
The Co-Executors owed Peggy, a beneficiary, "a fiduciary duty of full disclosure of all material facts known to them that might affect [the beneficiary's] rights." That means they were duty-bound to give Peggy notice that, contrary to earlier assurances, they would not be giving her title and possession to the car but instead intended to sell it for below Blue-Book value, without an appraisal or bidding process. Though these actions would not support a recovery on a breach-of-fiduciary-duty claim absent proof of damages, as the majority concludes today, these actions (alone or coupled with other alleged violations) might support removal of the Co-Executors as executors of the estate, an issue the majority does not address.
Montgomery v. Kennedy, 669 S.W.2d 309, 313 (Tex. 1984); see Huie, 922 S.W.2d at 923; FCLT Loans, L.P., 93 S.W.3d at 480.
In her appellate briefing, as in the trial court, Peggy points not only to the Sales Without Notice but also to the Release-for-Proceeds Demands as grounds for removing the Co-Executors as executors of the estate. This court should address whether the trial court erred in failing to remove the Co-Executors on these grounds. To that end, this court should determine if the evidence suffices to support the trial court's findings that the Co-Executors did not breach their fiduciary duties. Likewise, the court should determine whether the evidence conclusively proves the Co-Executors breached their fiduciary duties and, if so, whether those breaches support their removal as executors of the estate. The majority presumes that the evidence conclusively proved that the Co-Executors breached the duties they owed, and then concludes that Peggy has not shown that the evidence conclusively proved that she suffered damages as a result. But Peggy need not show she suffered damages to prevail on her claims to remove the Co-Executors or to be entitled to declaratory relief.
These are not required elements under either statutory removal sections. See Tex. Estate Code 404.003, 404.0035.
Sufficiency of Briefing
The majority concludes that Peggy waived her challenge to the trial court's denial of her request that the Co-Executors be removed because Peggy did not sufficiently brief this point in her opening brief. Appellate briefs are meant to acquaint the appellate court with the issues in the case and to present argument that will enable the court to decide the case. Appellate courts must construe briefs liberally, but reasonably, so that the right to appeal is not lost by waiver. Substantial compliance with the briefing rules suffices, except that for substantive defects and flagrant formal defects, the rules authorize appellate courts to require supplemental or corrected filings. The discretionary language of Texas Rule of Appellate Procedure 38.9 is tempered by the mandate in rule 44.3 that "[a] court of appeals must not affirm or reverse a judgment or dismiss an appeal for formal defects or irregularities in appellate procedure without allowing a reasonable time to correct or amend the defects or irregularities." Nevertheless, under "settled" law, an appellate court holds discretion to choose between deeming a point waived based on insufficient briefing and allowing amendment or rebriefing. Whether a court of appeals has exercised that discretion properly depends on the circumstances of the case.
See ante at 25, n.10.
See Tex. R. App. P. 38.9; Horton v. Stovall, 591 S.W.3d 567, 569 (Tex. 2019) (per curiam).
See Horton, 591 S.W.3d at 569.
See Tex. R. App. P. 38.9; Horton, 591 S.W.3d at 569.
Tex. R. App. P. 44.3; see Tex. R. App. P. 38.9; Horton, 591 S.W.3d at 569.
See Horton, 591 S.W.3d at 569-70.
See id. at 570.
In this case, Peggy preserved error in the trial court on her request that the Co-Executors be removed as executors based on their alleged breaches of fiduciary duty. On appeal Peggy asserts that the Co-Executors twice disregarded the Texas Estates Code provisions prohibiting the conditioning of a release from a beneficiary before delivery of estate property. Peggy claims that this conduct, along with other alleged statutory violations, necessitated the removal of the Co-Executors as executors of the estate. Her briefing is flawed but her points are clear and warrant review on the merits. This court should exercise its discretion to deem the briefing sufficient under a liberal construction and reach the merits.
See id. at 569-70.
Conclusion
The trial court found that the Co-Executors were not required to inform Peggy before selling the car, and that they did not breach their fiduciary duties or the Due-Regard Clause in selling it without giving her notice. The trial court also held that there were no grounds supporting the removal of the Co-Executors and that Peggy was not entitled to declaratory relief or an award of attorney's fees or costs. In the final judgment, the trial court ordered that Peggy take nothing on her claims. Peggy has challenged these rulings on appeal, and she deserves answers. This court should address the Sales Without Notice and the Release-for-Proceeds Demands that formed the basis of Peggy's declaratory-judgment and removal claims. Because the majority fails to do so, I respectfully dissent.
/s/ Kem Thompson Frost
Chief Justice Panel consists of Chief Justice Frost and Justices Jewell and Bourliot (Bourliot, J., majority).