Lynda Risinger-Hersey and Reginald S.Y. Lee v. Cynthia Hersey, Trustee of the Frank J. Hersey Family Trust, Justin Hersey and Travis J. Hersey

Citation: Not availableDocket: 07-03-00219-CV

Court: Court of Appeals of Texas; February 22, 2006; Texas; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

In the case Reginald S.Y. Lee v. Justin Hersey, Travis J. Hersey, and the Frank J. Hersey Family Trust, the Texas Court of Appeals reviewed a judgment in favor of the appellees entered non obstante veredicto. The court reversed and rendered in part, affirmed in part, and issued a take-nothing judgment for appellant Reginald S.Y. Lee. 

The underlying facts include the death of Frank Hersey in an automobile accident on April 8, 1998. Hersey’s will established a testamentary trust for his estate, with his ex-wife, Cynthia Hersey, as trustee, benefiting their sons, Justin and Travis, and his daughter, Amy, from a subsequent marriage. Lee, a friend of Hersey and named alternate independent executor, was appointed executor following probate on May 12, 1998. The primary asset was Hersey’s 61% stake in GeoCenter Exploration, Inc., which he founded.

Post-death actions involved Lee becoming acting president of GeoCenter and appointing Risinger-Hersey and accountant Cleve Gazaway as directors. Risinger-Hersey's position evolved from a bookkeeper role to general manager, with her salary adjustments discussed at board meetings. Lee requested a loan from GeoCenter to cover estate expenses, which was approved and ultimately extended to $200,000, secured by the estate's stock. The estate did not repay the loan, which was later addressed through stock redemption under IRS regulations. Additionally, discussions on legal action against former director Art Gray for trade secret misuse occurred during board meetings.

The company sued Gray, leading to a settlement in July 1999 where Gray sold his shares of GeoCenter for $235,000 and received a software license. Post-settlement, the Hersey estate held all GeoCenter shares, which would be managed by a testamentary trust. In January 1999, the board discussed GeoCenter's potential corporate tax liability and approved a $10,000 bonus to Risinger-Hersey. Gazaway suggested including the estate in the bonuses, but attorneys advised against cash distributions to the estate. Ultimately, the board approved a total bonus distribution of $475,000 to the estate, though this distribution did not occur. GeoCenter later paid $239,881 in taxes for that fiscal year.

In May 2000, Cynthia Hersey and others filed a lawsuit against Lee, claiming they were denied benefits from the will and alleging breach of fiduciary duty and unlawful conspiracy involving Risinger-Hersey. The venue was moved from Harris County to Montgomery County, where the trial lasted three weeks. The trial court accepted Lee's resignation as independent executor and appointed James Ullrich as dependent administrator, who represented the estate at trial. The jury found Lee breached his fiduciary duty, causing the trustee financial losses: $240,000 from a decrease in GeoCenter stock value, $180,000 from a loan issue, and $500,000 from other damages. The jury also determined that Lee and Risinger-Hersey conspired to damage the trustee, awarding punitive damages of $300,000 to Lee and $300,001 to Risinger-Hersey. However, the trial court disregarded the jury's finding regarding the $500,000 in other damages, entering a judgment non obstante veredicto in favor of the appellees.

Lee appealed on six grounds, including claims of lack of subject matter jurisdiction, improper participation of parties without standing, insufficient evidence for damage awards, improper jury charge, excessive punitive damages, and the inapplicability of punitive damages without affirmable actual damages. Conversely, the appellees raised the issue of whether there was legally sufficient evidence to support the jury's finding of $500,000 in other damages, which the trial court disregarded.

Subject matter jurisdiction is essential for a trial court's authority to act, as established by Texas case law. It exists inherently and cannot be granted through consent or waiver, with a lack of jurisdiction making a judgment void. The case involves the jurisdiction of the Montgomery County Court at Law No. 1, which Lee argues lacks jurisdiction due to the amount in controversy exceeding $100,000. However, the court's jurisdiction is upheld based on Texas Government Code sections that grant statutory county courts concurrent probate jurisdiction with county courts in counties without statutory probate courts. As Montgomery County lacks such a court, the County Court at Law No. 1 is vested with original probate jurisdiction and can hear matters related to estates. 

Texas Probate Code defines matters 'incident to an estate' broadly, including actions related to the settlement, partition, and distribution of estates. Relevant case law indicates that issues directly affecting estate administration fall within this jurisdiction. In this case, the pleadings reveal that a significant concern was Lee's authority over estate assets, specifically regarding his obligation to fund a trust with the estate's assets, including shares of GeoCenter. Thus, the court maintains jurisdiction over the matters associated with the Hersey estate.

The litigation was determined to be incident to Hersey’s estate, particularly evident from Lee's pleadings, which included counterclaims against Cynthia Hersey to recover assets for the estate while he was still the independent executor. These counterclaims reinforced the trial court's conclusion that the suit involved estate-related matters, as defined by TEX. PROB. CODE 5A(a) to encompass claims by or against an estate. By trial, Lee had resigned as executor, and the estate’s shares of GeoCenter were under a dependent administrator. The appellees shifted their focus from seeking an injunction to pursuing damages, which the trustee, as the sole devisee under Hersey's will, claimed were suffered by the estate.

The jury was tasked with determining damages related to the estate’s assets, including the value of GeoCenter stock and a $150,000 loan from GeoCenter to the estate. The jury found damages totaling $240,000, $180,000, and $500,000, attributed to specific dates. However, the trial court disregarded the jury's response regarding one of the damage questions. The appellate court's review of the sufficiency of evidence must favor the jury's finding, with a challenge failing if any evidence supports it, defined as more than a scintilla that allows reasonable differences in conclusions.

Evidence presented to establish a vital fact must be more than merely speculative; if it only creates a suspicion, it is considered no evidence. In reviewing the $240,000 damage award related to the decrease in value of GeoCenter Exploration, Inc. stock held by the Estate, the court found insufficient legal evidence to support the claim. Appellees argued that the stock value diminished due to an excessive salary paid to Risinger-Hersey, supported by expert testimony from Ron Tribolet, who indicated that such salaries detract from shareholder value. Additionally, they claimed stock value decreased when Lee countermanded a decision to pay $475,000 to the Hersey estate, resulting in the company incurring tax liabilities on retained funds instead of distributing them. A tax payment of $239,881 was cited as evidence of the financial impact on the stock's value. However, the jury charge lacked a clear definition of "value" regarding GeoCenter stock, and no testimony established the market value of the estate's interest after Hersey's death. Although an appraisal valued the shares at $500,840 at the time of death, there was no subsequent valuation evidence or expert testimony regarding later dates. The financial records offered were deemed inadequate for determining market value, as past cases suggest that book value alone is insufficient for stock valuation assessments.

Calculating damages for an injured party with an ownership interest in a corporation requires evidence of the corporation's value at the time of the alleged injury. Specifically, evidence of the GeoCenter stock’s value on January 22, 1999, was necessary to substantiate claims of diminished value; without it, appellees could not prove damages. The jury’s finding of $240,000 in damages based on a decrease in stock value was deemed speculative. Additionally, the jury found $180,000 in damages related to a $150,000 loan made by GeoCenter to the estate, asserting that the loan's proceeds were used to conceal a conspiracy affecting the estate. However, despite claims of the loan's impact, the evidence did not demonstrate any specific injury to the trustee. The interest accrued on the loan was repaid through the redemption of estate shares, and there was no indication that the trustee suffered damages from this interest. Consequently, the court found no evidence supporting the jury's findings regarding the loan’s damages. Lastly, appellees' cross-appeal regarding a $500,000 award for other damages to the estate's assets was disregarded by the trial court, which rendered a judgment contrary to the jury's decision.

A judgment notwithstanding the verdict (JNOV) is appropriate when a directed verdict would have been justified, specifically when the plaintiff fails to present essential evidence for recovery or the evidence conclusively establishes a defense. The review standard for a JNOV is "no evidence," meaning the evidence is considered in favor of the jury's findings, disregarding contrary evidence. If there is more than a scintilla of evidence supporting the jury's findings, those findings must be upheld, and the JNOV reversed.

In this case, the appellees argued that evidence of canceled bonuses and taxes paid to the IRS supported their claim that the estate suffered damages. However, it was concluded that the corporate tax liability and the decision not to distribute $475,000 did not demonstrate any damages to the estate’s assets. There was no evidence presented showing that the estate would have been better off had the funds been distributed or that the tax treatment would have been more favorable with distribution.

The court also found no substantial evidence of damages related to excessive salaries and the estate’s ability to repay a loan. Consequently, the jury's $500,000 damage award for other damages to the estate's assets was unsupported. The trial court did not err in disregarding the jury’s finding on this matter.

Regarding exemplary damages, the appeal by Lee challenged the jury's award of punitive damages, which require a prior award of actual damages. Since the court sustained Lee’s issues about actual damages, this also affected the punitive damages claim. Ultimately, the court reversed the trial court's judgment on jury questions 4(1) and 4(2), affirmed the judgment on question 4(3), and reversed the award of punitive damages, rendering a judgment that the appellees take nothing.

Lynda Risinger-Hersey's motion to dismiss her appeal has been granted, leaving Lee as the sole appellant. Risinger-Hersey claimed a common-law marriage with Frank Hersey, which the court recognized as existing from June 1995 until his death on April 8, 1998. Despite not being ceremonially married, she pursued this declaration posthumously. Lee, who lived near Denver and served as the estate's executor, waived his commission during the estate administration, which remains incomplete. There were discrepancies in testimonies regarding Hersey’s annual salary, estimated between $150,000 and $175,000, but it is agreed that Risinger-Hersey assumed control of his salary after his death. 

The probate court approved the redemption under 26 U.S.C. 303, but concerns arose regarding potential adverse tax implications, Risinger-Hersey's claim of community property, and the possibility of the payment being classified as a corporate dividend. The original defendants in the case included Lee, Risinger-Hersey, and others, with some claims dismissed before trial. The dependent administrator, Ullrich, was not allowed to examine witnesses, and no rationale for this exclusion was provided. The court did not address the appellees' argument regarding Lee's judicial estoppel concerning the trial court’s jurisdiction.

Testimony indicated that an excessive salary could devalue GeoCenter's stock, as it could be replaced by a more reasonably compensated individual. However, Lee's motion to exclude testimony on the company’s valuation was upheld without challenge on appeal. Evidence pointed to a loan made in October 1998, and appellees claimed the Trustee incurred about $100,000 in defending the common-law marriage suit, alleging Lee's breach of fiduciary duty, although the record does not substantiate this claim.