Sunday, November 11, 2007

Trust for Child - Parent's breach of fiduciary duty

Lisa Rodriguez v. Fred Rodriguez, No. 04-07-00252-CV (Tex.App.- San Antonio, Nov. 7, 2007)(Opinion by Justice Speedlin )(trust for child, breach of fiduciary duty)(Before Chief Justice López, Justices Marion and Speedlin)
Appeal from 407th District Court of Bexar County

From the 407th Judicial District Court, Bexar County, Texas
Trial Court No.
Joe Frazier Brown, Jr., Judge Presiding
Opinion by:
Phylis J. Speedlin, Justice
Alma L. López, Chief Justice
Sandee Bryan Marion, Justice
Phylis J. Speedlin, Justice
Delivered and Filed: November 7, 2007
Dispostion: Affirmed in part, reformed in part

Lisa Rodriguez appeals the trial court's judgment on a motion for contempt arguing that the evidence is factually insufficient to support the court's findings that she breached her fiduciary duty as constructive trustee for her minor child and must repay certain sums to the child's trust. She further asserts the trial court erred in denying her motion for new trial. We affirm the trial court's judgment, but reform that portion of the judgment extending the maturity date of the trust to provide that the trust shall terminate when the child reaches the age of eighteen years and one day.

Factual and Procedural Background

An agreed final divorce decree dissolving the marriage between Lisa and Fred Rodriguez was entered on May 4, 2004. (1) As part of the division of the marital estate, the decree contained a provision requiring Lisa to pay Fred $27,050 by cash, cashier's check, or money order on July 3, 2004. It was undisputed that Lisa tendered Fred a check for $22,263 in July 2004, leaving a balance of $4,787 for which Fred later obtained a judgment against Lisa. The divorce decree additionally provided that, with respect to the parties' duplex located at 354 and 356 East Craig, Lisa was to pay the mortgage and related expenses, refinance the mortgage within 60 days, releasing Fred from any liability, and "execute a trust instrument and any other documents necessary to transfer the ownership of the duplex . . . to LISA M. RODRIGUEZ as trustee for FRED RYAN RODRIGUEZ," the parties' minor child. The decree further provided that the trust would terminate when the child reached the age of 18 years and one day.

In November 2004, Fred filed a motion for enforcement of the decree alleging that Lisa had failed to establish the trust for their son, had failed to pay the mortgage payments and related expenses on the duplex, and had transferred a one-half interest in the duplex to her mother upon the refinancing of the duplex. On February 4, 2005, after a hearing, the trial court found the previous orders regarding the real property to be held in trust for the minor child were vague and unenforceable. The court entered a clarifying order requiring Lisa to establish a separate savings account for her minor son with her designated as trustee, to deposit all income from the duplex into the account, to pay all mortgage payments and expenses related to the duplex out of the account, and to provide Fred with an accounting of the income and expenses twice a year. (2) The order specifically stated that Lisa "is designated as constructive trustee for the minor child FRED RYAN RODRIGUEZ;" at the conclusion of the hearing, the court explained to Lisa that being a trustee "imposes on you a greater duty . . . to make sure that you care for it as a fiduciary; that is, make sure that you manage the property prudently and any other obligations at law."

In April 2006, Fred filed a motion for contempt alleging Lisa had violated the court's February 4, 2005 clarifying order by: (1) failing to set up a separate savings account in trust for their child; (2) depositing the monthly rental proceeds from the duplex into her personal checking account instead of a separate account for their child; (3) failing to provide an adequate accounting of the income and expenses related to the property; (4) obtaining a home equity loan on the duplex in excess of $22,000 which she used for her sole benefit; and (5) selling the duplex that was to be held in trust for their child. Fred requested that Lisa be held in contempt and fined, that a different trustee be appointed for their child, and that he be awarded $5,000 in attorney's fees. (3)

On November 28, 2006, the court held an evidentiary hearing on the motion for contempt; both Fred and Lisa testified. At the conclusion of the hearing, the court declined to hold Lisa in contempt, but found that she had breached her fiduciary duty as constructive trustee for her son because funds were removed from the trust to satisfy Lisa's personal debts with her knowledge. The court ordered Lisa to reimburse the child's trust for the actual damages caused by her breach, a total of $27,055, which was the aggregate amount deducted from the duplex sale proceeds to pay two personal debts owed by Lisa: $22,268 owed to her parents; and $4,787 owed to Fred. The court also ordered Lisa to transfer the additional $29,000 in sale proceeds, being held in a certificate of deposit and separate account, into the child's trust account. Finally, the court removed Lisa as trustee, ordered the child's trust to be set up at a bank, independent of both parents, and awarded Fred $4,500 in attorney's fees for enforcing the trust. A written "Final Judgment and Order on Motion for Contempt" reflecting the court's oral ruling was signed on January 12, 2007; it appointed the trust department of Randolph Brooks Federal Credit Union ("RBFCU") as interim constructive trustee and ordered the child's trust to be established there. In addition, the written judgment contains a provision extending the maturity date of the child's trust to his twenty-fifth birthday. Subsequently, a clarifying order was entered which removed RBFCU as trustee and appointed a third party individual as trustee for the child's trust; all other provisions of the January 12, 2007 judgment remained in effect. Lisa timely appealed.


In her first issue, Lisa contends the evidence is factually insufficient to support the trial court's finding that she breached her fiduciary duty as trustee and that she owes $27,055 to her son's trust. In her brief, Lisa makes a convoluted argument that the "missing" trust money was actually paid to Fred under her "misunderstanding of her obligations" and her "good faith effort to comply" with the terms of the "original" divorce decree, and asserts that the trust should recover the funds from Fred, instead of her. (4)

Fred responds on appeal that this argument was not raised in the trial court and is nevertheless contrary to all the evidence in the record; he asserts that Lisa's appeal is frivolous in view of her stipulations and the evidence, and requests that we impose sanctions. While we agree that Lisa's argument on appeal is illogical in view of the evidence presented at the hearing, as well as her own stipulation, we decline to sanction her for bringing a frivolous appeal because we find some merit in her challenge to the extended maturity date of the trust, and thus her appeal is not wholly frivolous. See Tex. R. App. P. 45 (replacing former Rule 84); see also Mid-Continent Cas. Co. v. Safe Tire Disposal Corp., 2 S.W.3d 393, 396-97 (Tex. App.--San Antonio 1999, no pet.).
At the beginning of the contempt hearing, Lisa's attorney stated on the record that Lisa agreed it was "right and fair" that she should pay back the trust for the $22,268 deducted from the sale proceeds to pay her parents' lien on the duplex, as well as the $4,787 deducted from the proceeds to pay Fred's judgment. Later, during her testimony Lisa stipulated that she owes her son's trust the $22,268 that was taken from the sale proceeds for payment of her parents' lien on the duplex; however, she refused to stipulate that she owed the $4,787 to the trust, arguing that Fred received that money and should pay it back to the trust. Given Lisa's stipulation on the record that she owes $22,268 to the trust, we will only address the sufficiency of the evidence to support the court's findings that Lisa breached her fiduciary duty and owes an additional $4,787 to the trust. (5)

At the hearing, Fred testified that several months after Lisa paid him $22,263, he obtained a judgment against Lisa for the $4,787 balance owed on the original $27,050 debt created by the divorce decree. He then filed an abstract of judgment, not intending it to encumber the duplex. Lisa conceded at the contempt hearing that she knew the $4,787 judgment was against her personally, not against her son's trust, and that she knew the title company was going to withhold $4,787 from the duplex sale proceeds thereby causing her son's trust to effectively pay her personal judgment, but she proceeded with the closing of the sale. Fred stated that he received, and retained, a check from the title company in payment of the $4,787 judgment when Lisa sold the duplex. Lisa testified that the duplex was deeded in her name, and that she signed "everything I've ever done with the duplex" in her name, not in her name as trustee for her son. She stated, however, that she made the title company and her real estate agent aware that the duplex was held in trust for her son. On the closing statement for the sale of the duplex, the "seller" is listed as Lisa, with no reference to a trust.

Further, Lisa admitted that after the February 2005 clarifying order was signed, she did not establish a separate savings account for her son with herself designated as trustee. She explained that she did not intend to disregard the court's order, but that her son already had two savings accounts available. Lisa testified that she understood she was the trustee for her son, Ryan, and agreed the judge told her she had a "fiduciary duty" at the time of the clarifying order. Lisa explained that she understood her duty was "to take care of the duplex and look after [her] son's property" and to "safeguard his money," and expressed her belief that she had done so "100%" and had "done nothing wrong." In addition, Lisa stated there was no income from the duplex to deposit in her son's accounts because the duplex was "in the negative." However, she later testified that she deposited "the income that was derived from the duplex" into her personal checking account. Finally, Lisa stated that when the duplex was sold, the title company deposited the proceeds into her checking account but then "that money went directly into an account for Ryan." Lisa stated she opened a savings account for her son at RBFCU after the duplex sale and she "explained to them about the trust;" she stated that she is not designated as a trustee on the RBFCU account, but is "on the account" and "looks over" the funds.

Based on the record before us, we hold that the trial court's finding that Lisa breached her fiduciary duty is not against the great weight and preponderance of the evidence. See Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (in reviewing a factual sufficiency challenge, appellate court considers and weighs all the evidence in support of and contrary to the judgment, and will set aside the judgment only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and manifestly unjust). It is clear from the record that the trial court based its finding that Lisa breached her duty on her prior knowledge that a portion of the duplex sale proceeds due to the trust would be deducted in order to satisfy two of Lisa's personal debts: a $22,268 debt to her parents; and a $4,787 debt to Fred. The evidence as to this finding of breach was undisputed. The record evidence is more than factually sufficient to support the court's finding of breach of duty and of the amount owed to the trust. (6) We overrule Lisa's first issue.

In her second issue, Lisa argues the court abused its discretion in denying her motion for new trial because (1) the trust funds were paid to Fred and he should be the person to reimburse the trust, and (2) neither breach of fiduciary duty nor a request for extension of the trust's maturity date were pled in Fred's motion for contempt. We review a trial court's denial of a motion for new trial for an abuse of discretion. Director, State Employees Workers'Comp. Div. v. Evans, 889 S.W.2d 266, 269 (Tex. 1994). We have already rejected Lisa's argument that the evidence shows that Fred, not her, should reimburse the trust. As to her argument that the court erred in denying her motion for new trial because Fred did not specifically plead breach of fiduciary duty in his contempt motion, that ground was not raised in Lisa's motion for new trial; therefore, the trial court could not have abused its discretion in denying her motion for new trial on a ground not raised. Further, Fred's contempt motion was based on allegations that Lisa had breached her duty as trustee in several ways; even though it was not phrased in terms of a "breach of fiduciary duty," the gist of the motion was a request for a finding of contempt and removal of Lisa as trustee of the child's trust based on her misdeeds as trustee. Lisa made no objection to the admission of evidence concerning her duties, actions and omissions as trustee, and never argued that the issue of breach of fiduciary duty was not before the court. Thus, the issue of breach of fiduciary duty was tried by consent. See Tex. R. Civ. P. 67; see also Frazier v. Havens, 102 S.W.3d 406, 411 (Tex. App.--Houston [14th Dist.] 2003, no pet.) (party's unpleaded issue may be deemed tried by consent when evidence on the issue is developed under circumstances indicating that both parties understood the issue was in the case, and other party fails to object).
Finally, Lisa complained in her motion for new trial that the court erred in changing the maturity date of the child's trust from eighteen to twenty-five years of age; the motion for new trial was denied by written order. The record shows that Fred did not request that the trust term be extended in his motion for contempt. Further, at the hearing there was no evidence or argument presented concerning extension of the trust's maturity date, and the court made no finding regarding extension of the trust; therefore, the issue was not tried by consent. See Frazier, 102 S.W.3d at 411. The extended maturity date first appeared in the written judgment signed by the court. It is well established that a judgment must conform to the pleadings, and a judgment rendered without pleadings to support it is fatally defective. Stoner v. Thompson, 578 S.W.2d 679, 682-83 (Tex. 1979); Bilderback v. Priestley, 709 S.W.2d 736, 743 (Tex App.--San Antonio 1986, writ ref'd n.r.e.). Because the record is devoid of any pleadings, evidence or findings to support the court's extension of the trust's maturity date, we reform that portion of the judgment to provide that the trust shall terminate when the child reaches the age of eighteen years and one day, as originally provided in the divorce decree.

Except as reformed, the trial court's judgment is affirmed.

Phylis J. Speedlin, Justice

1. In her appellant's brief, Lisa Rodriguez characterizes the May 4, 2004 final divorce decree as the "second" decree, repeatedly referencing the terms of an "original" or "first" divorce decree in November 2003; however, while a proposed divorce decree containing other terms may have been previously discussed and even agreed to by the parties at one time, the appellate record does not contain a prior divorce decree signed by the trial court. Lisa attached a copy of a divorce decree dated November 13, 2003 that does not contain the trial judge's signature as an appendix to her appellant's brief. We may not consider documents not contained in the appellate record which are attached to a party's brief or appendix. Tex. R. App. P. 34.1; Samara v. Samara, 52 S.W.3d 455, 456 (Tex. App.--Houston [1st Dist.] 2001, pet. denied). In resolving this appeal, therefore, we are only concerned with the final divorce decree signed on May 4, 2004 which appears in the clerk's record. We likewise may not consider the copy of a check attached to the appellant's brief because it is not included in the appellate record.
2. No appeal was taken from the February 4, 2006 order.
3. Fred also requested that the case be forwarded to the district attorney for prosecution for embezzlement of trust funds.
4. Lisa also asserts the divorce decree placed the duplex under a constructive trust for the benefit of her son, with her as trustee, "unbeknownst to her." The record establishes the opposite. The agreed decree reflects Lisa's signature, and Lisa admitted at the contempt hearing that she was familiar with the terms of the divorce decree, and understood that she held the duplex as trustee for her son.
5. We note, however, that the evidence presented at the hearing is more than sufficient to support the court's finding that Lisa owes $22,268 to the trust.
6. Lisa does not argue that she had no fiduciary duty, merely that she did not breach her duty. See S.V. v. R.V., 933 S.W.2d 1, 8 (Tex. 1996) (parents generally stand in the role of fiduciaries toward their minor children).

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