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Robert York Pettit, Jeffrey York Pettit, Individually and as Trustee of the Big Horn Phalanx Trust, Joseph Austin Pettit and Emily Anne Pettit Covey v. Marilyn Eileen Pettit Tabor
Citation: Not availableDocket: 06-19-00002-CV
Court: Court of Appeals of Texas; January 14, 2020; Texas; State Appellate Court
Original Court Document: View Document
Marilyn Eileen Pettit Tabor (Lyn) transferred her undivided half interest in a family farm and a joint bank account to her brother, Robert York Pettit (Bob), based on his promise to safeguard the property and reconvey it to her. When Bob failed to return the property and instead transferred it to his children, who subsequently conveyed it to The Big Horn Phalanx Trust, Lyn initiated legal action against Bob, his children, and the Trust's trustee for the property's return. The trial court ruled that Bob had breached an informal fiduciary relationship and committed fraud, thereby nullifying all related conveyances, establishing a constructive trust, ordering the reconveyance of the property to Lyn, and awarding her damages, exemplary damages, and attorney fees. In their appeal, the Appellants contended that the trial court's imposition of a constructive trust was erroneous due to claims of illegality barring Lyn's recovery, insufficient evidence supporting the finding of an informal fiduciary relationship, lack of clear evidence for exemplary damages, and Lyn's ineligibility for attorney fees. They also challenged the trial court's conclusion that the transfers to Bob were not gifts. The appellate court concluded that: (1) no illegality prevents the establishment of a constructive trust, (2) Bob's actual fraud justified the constructive trust, (3) the evidence sufficiently supported exemplary damages, (4) attorney fees were warranted, and (5) the challenge regarding the no-gift determination was forfeited. Consequently, the appellate court affirmed the trial court's judgment. Background details reveal that Lyn and Bob's family had owned the Hunt Tracts since 1903, with Lyn moving back to Waco in 2001, leading to a closer familial relationship. Both families began utilizing the Family Farm for gatherings and maintenance activities. Margaret conveyed the Family Farm to Lyn and Bob in 2006, reserving a life estate for herself. Bob, drawing on his extensive experience in property transfers, drafted the warranty deeds for the family. Following Margaret's death in 2009, Lyn inherited $60,000 to $80,000 from a pay-on-death account, which she used for rehabilitating Margaret’s residence and for other expenses related to the Farm, with Bob, the estate executor, assuring her of reimbursement. Lyn and Bob established a joint bank account for managing Farm-related expenses, with both serving as authorized signatories. They expressed mutual trust and commitment to preserving the Farm for their families. In March 2013, Lyn sought Bob's assistance in transferring her interest in the Farm to her children, Darrin and Casey, due to health concerns and an urgent lawsuit notice she received. Lyn had no current creditors and approximately $150,000 in liquid assets. During their conversation, Bob shared his own litigation experiences, cautioning Lyn that her children might struggle with a lawsuit. He persuaded her to transfer her interest to him instead, promising it would be temporary and that he would return it once the lawsuit was resolved. Lyn felt pressured by Bob's arguments, which shifted her intentions from transferring the property to her children to transferring it to him. Lyn, testifying about her relationship with her brother Bob, expressed that she had always trusted his judgment and felt intimidated by his claims regarding a legal issue in New Mexico, which he suggested was more serious than she realized. She stated that she never intended to gift her interest in the Family Farm to Bob and would not have conveyed it outright. Bob claimed Lyn informed him that her attorney advised her to remove her assets from her name due to a judgment against her and that she planned to convey her interest in the Farm to her children. He asserted that he educated her about an alternative option, cautioning her that lawsuits could be detrimental to her children and suggesting that transferring the property to him would be a safer choice. Bob maintained he had the capability to defend her interests and that Lyn understood the risks posed by a New Mexico judgment. Bob denied promising to reconvey the property to Lyn and claimed she never suggested the transfer would be temporary. He admitted, however, that he left her with the impression that her children would eventually own her interest, despite his lack of intent to do so. At trial, Bob downplayed the reasonableness of Lyn's trust in him but affirmed in a deposition that she should have had a high level of confidence in him during the transaction. Shortly after their conversation, Bob prepared warranty deeds for Lyn to sign, with an initial discussion about backdating the deeds. Lyn recalled wanting to backdate them to October 2012, prior to a court hearing. After executing the deeds, Bob filed them and later sent Lyn correction deeds that stated she was conveying the property without restrictions. While Bob claimed he explained this addition to Lyn, she testified that he framed it as a measure for tax reasons to make the transfer appear permanent. In May or June 2013, Lyn settled the lawsuit against her company for $6,000, opting for the settlement over litigation, and paid the costs from her liquid assets. There was no court hearing or judgment against her or her company. On the day the settlement was signed, Lyn contacted Bob to initiate the process of reconveying her interest in the Farm. Bob advised her to wait for a signed dismissal order to ensure finality. He acknowledged requesting the dismissal but denied any conversation about reconveying Lyn's interest. A dismissal order for Pettit Mortgage, Inc. was filed on July 24, 2013. After receiving the dismissal order on September 10, 2013, Lyn emailed Bob to request the preparation of deeds to transfer her interest back, but he did not respond and avoided her calls for about a month. When Bob eventually spoke to her, he assured her that he would handle everything but later stated he would not reconvey the property, claiming Lyn had threatened him during a November 2012 conversation about access to the Family Farm. Bob maintained that he had never agreed to reconvey the property, although he did not formally deny such an agreement until September 22, 2015. Between October 2013 and May 2016, Lyn made multiple attempts to resolve the issue, all of which were ignored or rebuffed by Bob. Testimony from Jimmy Caradine, a neighbor, revealed Bob had previously indicated he would return Lyn's interest once her issues were resolved, leading to Caradine's surprise at Bob's refusal to do so later. Unbeknownst to Lyn, after receiving her email, Bob transferred the minerals of the Farm to Pettit International and subsequently to his son Joseph, establishing a trust. He also conveyed the Family Farm to his children while retaining a life estate for himself. Shortly before Lyn's lawsuit, the Farm and its minerals were transferred to Jeffrey, as trustee of the Big Horn Phalanx Trust, with Joseph stating the conveyance was to protect against Lyn's claims. Lyn filed a lawsuit against Bob, his children, and Jeffrey, seeking remedies for actual or constructive fraud, a constructive trust, a declaratory judgment to void the conveyances of her interest, a resulting trust, damages, and attorney fees. All Appellants filed a general denial and asserted affirmative defenses, including illegality. Following a bench trial, the trial court ruled in favor of Lyn, declaring the transfers of her fifty percent interest in the Family Farm to Bob and subsequent transfers void due to Bob's fraud. The court imposed a constructive trust on Lyn's interest, mandated that the Appellants take necessary actions to reconvey this interest, and awarded Lyn $20,000 for her share in the joint Family Farm account. Additionally, Lyn received $50,000 in exemplary damages for Bob's intentional and malicious fraud, along with $43,084.39 in attorney fees and $5,924.37 in costs, pursuant to Texas Business and Commerce Code Sections 37.001 et seq. and 27.01. The court issued findings of fact and conclusions of law at Lyn's request, with no Appellant seeking amendments. The Appellants contended that the trial court abused its discretion in imposing a constructive trust due to alleged misapplication of law and insufficient evidence. However, it was concluded that no illegality barred the imposition of a constructive trust, supported by the finding that Downey was not Lyn’s creditor and that the illegality defense was not available. The constructive trust, an equitable remedy, is subject to an abuse of discretion standard. A trial court's ruling is deemed an abuse of discretion if it is arbitrary or unreasonable, lacks adherence to legal principles, or fails to analyze applicable law properly. A constructive trust is designed to prevent a wrongdoer from profiting from wrongful acts, obligating the title holder to convey property to another to avoid unjust enrichment. To establish a constructive trust, the proponent must demonstrate a breach of trust, unjust enrichment of the wrongdoer, and traceability to a specific property. Appellants assert that the trial court misapplied the law despite their established affirmative defense of illegality regarding the conveyance of Lyn's interest in the Family Farm to Bob. They argue that Lyn's intent was to defraud or hinder her creditor in a New Mexico lawsuit, citing a legal principle that prevents enforcement of agreements made to shield property from creditors if the grantor retains beneficial interest. Public policy dictates that courts should not provide equitable relief in such cases. The court must first evaluate if sufficient evidence supports the trial court’s findings on this affirmative defense, placing the burden of proof on the party asserting illegality. Texas courts require that to prevail on this defense, it must be demonstrated that the plaintiff intended to defraud a present or future creditor who would be harmed by the conveyance. Historical cases illustrate that the enforceability of a reconveyance agreement hinges on the existence of a creditor and the intent to defraud; if no creditor is present, the agreement is enforceable regardless of intent. The Texas Supreme Court clarifies that the fraudulent transfer statute allows for conveyances by those not indebted, emphasizing that mere motive cannot harm creditors if no injury occurs. The relevant statute indicates a transfer is fraudulent if made with intent to hinder, delay, or defraud any creditor, and defines a creditor as someone with a claim, encompassing a broad range of rights to payment or property. The trial court found that Lyn lacked the intent to defraud the plaintiff in the New Mexico case and that no creditor of Lyn was established. The appellants contested the sufficiency of the evidence supporting these findings. To challenge the legal sufficiency of evidence regarding an adverse finding, an appellant must show that no evidence supports it, meeting one of several criteria: (1) a complete lack of evidence for a vital fact, (2) legal bars preventing weight to the evidence, (3) evidence being merely a scintilla, or (4) evidence conclusively proving the opposite. If evidence allows for reasonable differing conclusions, then more than a scintilla exists. For factual sufficiency, the party with the burden of proof must demonstrate that the adverse finding is against the great weight and preponderance of evidence. The review involves considering all evidence and can only set aside a verdict if the evidence is notably weak or the finding is unjust. In cases where the appellant does not bear the burden of proof, they must demonstrate insufficient evidence supporting the adverse finding. Evidence supports an adverse finding if it allows for reasonable interpretations regarding its meaning or the inferences drawn. A challenge to factual sufficiency is upheld if the evidence is weak or the verdict contradicts the overwhelming evidence, making it clearly wrong. In reviewing, evidence favorable to the finding is credited, while contrary evidence is disregarded unless a reasonable fact-finder could not do so. In bench trials, the trial court determines witness credibility and testimony weight, having the discretion to accept all, part, or none of a witness's testimony. The trial court's findings are presumed to be supported by evidence, and the burden of proof lies with the appellants challenging adverse findings. The appellants must demonstrate that no evidence supports the trial court's finding and that the evidence definitively establishes their urged finding. During the trial, the only potential creditor identified was Amy Walker Downey, linked to a lawsuit involving Pettit Mortgage, Inc. However, neither the cross-claim nor the dismissal order indicated Lyn was a party to the lawsuit, and all claims arose from a loan involving Pettit Mortgage, Inc., without any connection to Lyn. Under Texas law, a shareholder is not liable to a corporation's creditor unless it is shown that the shareholder used the corporation to commit fraud for personal gain. There was no evidence presented to suggest Lyn engaged in any fraudulent actions concerning Pettit Mortgage, Inc., or that she derived any personal benefit from it. Lyn is not liable to Downey for any obligations of Pettit Mortgage, Inc., nor is there evidence indicating that Downey has any personal claim against her. Under Texas Business and Commerce Code § 24.002(3) and (4), there is no indication that Downey is or could reasonably become a creditor of Lyn. The trial court's determination that no creditor of Lyn exists is supported by legally sufficient evidence. Appellants argue against this finding, citing Lyn's statements in her pleadings and testimony suggesting Downey's status as a creditor due to a pending lawsuit from a former mortgage brokerage business in New Mexico. They reference Lyn's Sixth Amended Original Petition, where she mentioned ongoing litigation, and emails where she discussed the lawsuit and its resolution. However, statements in superseded pleadings are not definitive admissions, and the Appellants do not claim that Lyn's live pleadings constitute judicial admissions. Additionally, the trial court's ruling was bolstered by the introduction of Downey’s cross-petition, which explicitly identifies Pettit Mortgage, Inc. as the party sued, supporting the inference that Downey's claims were against the corporation rather than Lyn. The conflicting statements regarding the New Mexico lawsuit's defendant suggest a lack of clarity supporting Downey's creditor status. Lyn's testimony about her belief in the seriousness of the lawsuit also does not clearly establish that she thought Downey could claim her interest in the Family Farm prior to her discussion with Bob. Lyn's testimony indicated that she felt threatened by Bob during a conversation, which likely influenced her subsequent emails in March and May 2014. The evidence from the New Mexico lawsuit identified Pettit Mortgage, Inc. as the defendant, leading to the conclusion that there was no evidence of a creditor for Lyn. Consequently, the trial court’s finding that no creditor existed was upheld, making Lyn's intentions during her property conveyance to Bob irrelevant. Appellants contended that the trial court erred by barring them from asserting an illegality defense due to Bob's fraud and breach of fiduciary duty. However, the court concluded that even if there was an error in the trial court's legal reasoning, it did not necessitate reversal since the illegality defense was not applicable to the case. The court emphasized that a trial court's conclusions of law cannot be challenged based on factual insufficiency, and that an incorrect conclusion does not mandate a reversal if the overall judgment is correct. The Appellants' defense was based on the belief that Lyn intended to defraud her creditor in the New Mexico lawsuit, but the court had already established that no creditor had been demonstrated. The trial court also concluded that the Appellants were barred from invoking the Statute of Frauds, a conclusion they did not contest. Citing Texas law, the court noted that without evidence of a creditor, the rule against enforcing agreements for reconveyance does not apply, referencing a precedent where a similar situation involving fraudulent intent to defraud a spouse was resolved against the party making the fraudulent conveyance. The court emphasized that the policy against enforcing fraudulent transfer agreements aims to prevent debtors from hiding assets from creditors. However, it clarified that the statute prohibiting fraudulent transfers does not apply to individuals who are not indebted. In this case, since Rivera's ex-wife was not entitled to alimony under Illinois law and no creditors were identified, the court found no reason to prevent the enforcement of the agreement to reconvey property. Furthermore, the plaintiff, Downey, lacked a valid claim against Lyn, which meant she was not Lyn’s creditor. Even if Lyn had intended to defraud Downey by transferring her interest in the Family Farm to Bob, her motive was irrelevant due to the absence of a creditor. Consequently, the rule preventing the enforcement of agreements to reconvey based on fraudulent intent was deemed inapplicable. The court rejected the Appellants' illegality defense, reinforcing that any potential error in the trial court's ruling would not warrant reversal. Additionally, to establish a constructive trust, the proponent must demonstrate a breach of trust or fiduciary relationship, unjust enrichment, and traceability to a specific asset. The imposition of a constructive trust could arise from either an actual fraud or a breach of a special trust. The Appellants' arguments regarding Lyn's intent to defraud were deemed insufficient in light of the legal standards. In Poe v. Hamlin National Bank, the court referenced several cases where a present or future creditor with a viable claim existed at the time of property conveyance, such as alimony claims, outstanding judgments, tax liabilities, and foreclosure threats. Specifically mentioned cases include Lott (alimony claim), Skelley (judgment against the U.S.), Parker (IRS tax liability), Cerda (hiding property), and De La Pena (bank foreclosure threats). Poe's case involved a $1,000,000 demand from Citicorp. In contrast, the Lubojacky case lacked clarity regarding an existing creditor. The text also discusses constructive trust imposition due to actual fraud when a property is conveyed based on false promises. Evidence showed Bob convinced Lyn to transfer property temporarily with assurances of reconveyance, which he later denied. The trial court found that Bob committed fraud to induce Lyn to transfer her property, and this finding was not challenged. The court's conclusions also indicated that Bob's fraud barred the Appellants from asserting an illegality defense. Common-law fraud was defined as a material misrepresentation that caused injury, with supporting case law cited. Fraud in the inducement is defined as a promise of future performance made without the intention of fulfilling it at the time of the promise. Essential to proving this fraud is the existence of a contract. Evidence presented included Lyn's testimony that she relied on Bob's assurances regarding the temporary nature of a property transfer and his promise to reconvey her interest. This testimony indicated that a contract existed, which Lyn fulfilled by transferring her interest to Bob. Bob's consistent denials of any agreement and his acknowledgment that he left Lyn with the impression of reconveyances, despite not intending to do so, supported the conclusion that he acted fraudulently. The court found that Lyn's conveyance was made without consideration and that Bob's refusal to reconvey resulted in her losing her interest in both the Family Farm and a checking account. The trial court's findings, which were unchallenged, indicated that Bob induced Lyn's transfer based on false promises, leading to a legal conclusion of actual fraud. As a result, the court imposed a constructive trust on Bob's holdings, rejecting the Appellants' illegality defense and affirming that the imposition of the trust was appropriate. Additionally, the court awarded Lyn $50,000 in exemplary damages for Bob's intentional and malicious fraudulent conduct. The trial court awarded exemplary damages based on its findings that Bob acted with intentional, outrageous, and malicious conduct in defrauding Lyn, leading to her mental anguish. Bob contests the sufficiency of evidence for Lyn's mental anguish, citing the Texas Supreme Court's ruling in Saenz v. Fidelity and Guaranty Insurance Underwriters, which mandates direct evidence of significant mental distress for such damages to be awarded. He claims the trial court's findings were insufficient under the clear and convincing standard necessary for exemplary damages and also challenges the amount of damages awarded, which is deemed without merit as no damages were awarded for mental anguish. This challenge was waived due to inadequate briefing. Lyn argues that evidence supports her claim of compensable mental anguish and asserts that the findings of fraud and malice justify the exemplary damages. The court notes that Bob did not contest the fraud and malice findings, which are sufficient under Texas law to support the award of exemplary damages, provided that the claimant proves the harm resulted from fraud or malice by clear and convincing evidence. The definition of "clear and convincing" is specified, emphasizing the need for a strong conviction regarding the truth of the claims. Lastly, the rules of appellate procedure require clear arguments and proper citations, and mere assertions of error without substantial support are considered waived. Bob's brief lacks any argument or citations to authority or record, resulting in the waiver of his complaint. Under Texas law, a defendant must cause substantial injury or harm to the claimant. When reviewing unchallenged findings supported by some evidence, the standard of review differs based on whether clear and convincing evidence or a preponderance of evidence is applied. A legal sufficiency review requires the court to view evidence favorably toward the finding and to assume that disputed facts were resolved in favor of the fact-finder's conclusions. Evidence that a reasonable fact-finder could disbelieve may be disregarded, but undisputed facts that do not support the finding should not be entirely dismissed as they could distort the analysis of clear and convincing evidence. If no reasonable fact-finder could form a firm belief regarding the truth of the matter, the evidence is deemed legally insufficient. Evidence previously supported findings of fraud in the inducement and common-law fraud under a preponderance standard. Testimony indicated that Lyn trusted Bob to fulfill any promises he made. Bob's actions included traveling to obtain and file executed deeds while simultaneously conveying the mineral estate, which included Lyn's interest, to his sole proprietorship. Despite Lyn's requests for reconveyance, Bob did not respond for about a month and later claimed it would be illegal to do so, even as he transferred the mineral estate to a trust for his son. Over a year later, after Lyn sought legal assistance, Bob denied having promised to reconvey her interest. Before the lawsuit was initiated, Bob transferred all interests in the surface and minerals to his son, Jeffrey, as trustee of the Big Horn Phalanx Trust, reportedly to shield these interests from Lyn. Joseph testified that this action was taken to protect against Lyn's claims. The court found sufficient evidence indicating potential fraud, whether in the form of fraud in the inducement or common-law fraud, allowing a reasonable fact-finder to believe in the fraud claim. As a result, the trial court's finding of fraud justified the imposition of exemplary damages. The trial court also awarded attorney fees based on Sections 27.01 of the Texas Business and Commerce Code and relevant provisions from the Texas Civil Practice and Remedies Code. The court determined that it was essential to void subsequent transactions made by Bob and concluded that Lyn was entitled to recover attorney fees. Under Section 27.01, an individual committing fraud in a real estate transaction is liable for reasonable attorney fees, expert witness fees, and court costs. Appellants argued that Lyn did not plead the existence of a contract for reconveyance of her property interests, claiming the Statute of Frauds would prevent enforcement of any oral contract and related fraud claims. However, Lyn's fraud claim was based not on a contract to reconvey her interests but on her original conveyance to Bob, which she alleged was induced by his false promise. Lyn sought to void that original transaction rather than enforce or recover benefits from a reconveyance contract. In Haaze v. Glazner, the Texas Supreme Court ruled that the Statute of Frauds prevents a plaintiff from claiming damages for a benefit of a bargain that cannot be enforced due to non-compliance with the statute. However, a fraud claim is permissible if it seeks out-of-pocket damages incurred from reliance on the defendant's misrepresentations. In this case, Lyn sought rescission of a property conveyance and a constructive trust rather than enforcing a contract. The court recognized that strict proof of a prior confidential relationship and the wrongdoer's unfair conduct can be exceptions to the Statute of Frauds. The appellants argued that Section 27.01 only applies to valid contracts and misrepresentations made to induce a plaintiff into such contracts. They contended that without a written contract obligating Bob to reconvey Lyn's interest in the property, no enforceable contract existed. Lyn claimed rescission based on fraudulent representations made by Bob, which is allowed under Section 27.01. The trial court's order to rescind property conveyances was deemed a valid remedy. Despite the appellants' complaints about Lyn's failure to plead a false promise meant to induce her into a contract, Lyn's trial pleadings indicated that Bob had encouraged her to temporarily convey the properties to him, promising to reconvey them once litigation was resolved. Lyn relied on Bob's representations, which he ultimately did not fulfill, leading to her detrimental reliance. The trial court's findings on fraudulent inducement confirmed the necessary elements of a contract—promise, reliance, and agreement—validating the judgment and attorney fees awarded for statutory fraud. The Appellants' cited cases are deemed irrelevant to their arguments. In *In re Okedokun*, the focus was on misrepresentation rather than contract enforceability. In *Braley v. BAC Homes Loans Servicing, LP*, the contract pertained to non-foreclosure and mortgage modification, excluding it from Section 27.01. Similarly, *Burleson State Bank v. Plunkett* involved a construction loan not subject to Section 27.01. Although the trial court ruled that Appellants could not invoke the Statute of Frauds, this ruling was not contested on appeal. Lyn's claim of suffering economic and emotional damages due to a failure to reconvey constituted statutory fraud under Section 27.01, alongside common law fraud. The elements of fraud in real estate closely mirror those of common law fraud, with the stipulation that the false representation must relate to a real estate contract. Section 27.01(a) applies only after property conveyance occurs, supported by case law. The court found sufficient evidence to uphold the trial court’s award of attorney fees under Section 27.01(e) and dismissed Appellants’ challenge regarding the trial court's finding that the conveyances were not gifts, as Appellants failed to provide a solid argument or legal citations. Ultimately, the appellate court affirmed the trial court's judgment, clarifying that the trial court's finding was more accurately a conclusion of law rather than a finding of fact, which Appellants could not challenge for factual sufficiency.