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Valdez v. Hollenbeck

Court of Appeals of Texas, Fourth District, San Antonio

April 24, 2013

Robert VALDEZ, individually and as administrator of the Estate of Pierre V. Bernard, deceased, and Fidelity and Casualty Company of New York, Appellants,
v.
David HOLLENBECK, individually and as the successor administrator of the Estate of Pierre V. Bernard, deceased, Will Francis Baron, John Bernard Baron, Bernard Rae Bernard Box, Daryl Bernard, Marcus Bernard, Barbara Streff Grachek, Pam Streff Myers, Steve Streff, Scott Streff, Yvonne Barrone Fischer, Elizabeth Lamar, Kelly Lamar Loeffelholz, Jeanne Mary Lamar, John Lamar, David Lamar, Greg Lamar, Chris Lamar, Eric Lamar, Robert Rogers, Dana Rogers, John Rogers, individually, and Dana Rogers and Sherrie Ann Grogan, in their capacity as joint independent executrix of the Estate of Charles Rogers, deceased, Appellees.

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John D. Wennermark, Law Offices of John D. Wennermark, San Antonio, TX, Nancy Hesse Hamren, Coats, Rose, Yale, Holm, Ryman & Lee, P.C., Houston, TX, for Appellant.

Vick Putman, Putman & Putman, Inc., San Antonio, TX, for Appellee.

Sitting: CATHERINE STONE, Chief Justice, KAREN ANGELINI and MARIALYN BARNARD, Justices.

OPINION

KAREN ANGELINI, Justice.

This appeal arises from a statutory and equitable bill of review proceeding to set aside orders signed by the probate court in 1996 that approved the account for final settlement and discharged Robert Valdez as administrator of the Estate of Pierre V. Bernard, deceased. In the underlying proceeding, after discovering that Melvyn Spillman, a former clerk with the Bexar County Clerk's Office, had stolen funds from bank accounts owned by the decedent, which had not been accounted for by Valdez in the estate's final settlement, the heirs to the estate filed a bill of review seeking to set aside the 1996 Orders. After the probate court conducted a bench trial in the bill of review proceeding, the court granted an equitable bill of review and set aside the 1996 Orders. The probate court then appointed David Hollenbeck to serve as successor independent administrator of the estate, and in an amended petition, Hollenbeck substituted in for the heirs. After a bench trial on the merits, the probate court signed a final judgment in favor of the estate, determining that actual damages to the estate were in the amount of $465,956.79. Robert Valdez, individually and as administrator of the Estate of Pierre V. Bernard, and the surety, Fidelity and Casualty Company of New York (" Fidelity" ), appeal from the probate court's final judgment. On appeal, both Fidelity and Valdez argue that the probate court erred in granting the equitable bill of review. Fidelity also argues that at the trial on the merits, there was no evidence of proximate causation and that the probate court erred in awarding judgment to Hollenbeck against Fidelity for an additional sum of $78,035.62 in pre-judgment interest because it was error for the probate court to award judgment against Fidelity for any amount in excess of the amount of its bond. In addition, Valdez argues that (1) the probate court should not have admitted in evidence the

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estate's 1993 IRS tax return, and (2) there is no evidence of a meritorious claim or defense. We affirm the judgment.

BACKGROUND

Pierre V. Bernard died on January 25, 1994. Shortly after Bernard's death, Melvyn Spillman, who at the time was an employee of the Bexar County Clerk's Office, called Robert A. Valdez, a local attorney, and told Valdez that an attorney needed to be appointed as administrator of Bernard's estate. On January 27, 1994, Valdez applied to be the administrator of Bernard's estate, and on February 23, 1994, the probate court appointed Valdez as administrator. Fidelity, as surety, issued an administrator's bond on behalf of Valdez, as principal, in the amount of $260,000. Valdez then went to Bernard's home for the purpose of looking for records or other items that might reflect what assets Bernard owned at the time of his death. Based on records Valdez found, he prepared an inventory and appraisement of the estate and filed it with the probate court on March 3, 1994. The inventory and appraisement indicated that the gross value of the estate was $411,000, including $150,000 in real property and $261,000 in personal property.

The inventory identified the following bank accounts owned by Bernard at the time of his death:

(1) Bank of the West in the amount of $100,000;
(2) NationsBank in the amount of $85,000;
(3) Eisenhower National Bank in the amount of $25,000;
(4) Guaranty Savings in the amount of $25,000; and
(5) Jefferson Bank in the amount of $25,000.

On March 10, 1994, the probate court approved the inventory. On May 2, 1994, a 1993 Federal Income Tax Return was filed on behalf of Bernard's estate. The 1993 Tax Return identifies the following institutions at which Bernard maintained accounts that earned taxable interest during tax year 1993:

(1) Bank of the West;
(2) Broadway Bank;
(3) Eisenhower Bank;
(4) Guaranty Federal Savings;
(5) IBC;
(6) Jefferson State Bank;
(7) NationsBank;
(8) Security National; and
(9) Eisenhower National.

Thus, the 1993 Tax Return listed institutions not included on the inventory filed with the court: Broadway Bank; IBC; and Security National. It also listed a second account at Eisenhower National.

On April 3, 1996, Valdez filed his Application for Payment of Attorney's Fees. On this application, Valdez billed 2.15 hours on April 12, 1994, for " gather[ing] tax info for CPA" and 1.30 hours on April 20, 1994, for " telephone conversation with CPA, pay bills." On May 8, 1996, Valdez filed his account for final settlement, which did not include several of the bank accounts listed on the 1993 Tax Return. On June 14, 1996, the probate court signed an Order Approving Account for Final Settlement and Authorizing Distribution of the Estate. On October 4, 1996, the probate court signed an Order Closing Estate and Discharging Personal Representative, in which the court released and discharged Fidelity from any further liability on the bond.

Spillman, the former employee of the Bexar County Clerk's Office who had informed Valdez of the need for an administrator of Bernard's estate, was later

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charged with criminal acts stemming from fraud in various probate cases. On April 12, 2002, Edward L. Rishebarger, CPA, was appointed to serve as a receiver of the assets seized from Spillman and to assist the Bexar County District Attorney's Office in its investigation of Spillman. Rishebarger identified 127 estates against which Spillman had committed criminal acts. The Bernard Estate was one of these estates. Rishebarger was charged with the responsibility of ascertaining the value of the Bernard Estate at the time of Bernard's death and the amount stolen by Spillman. Rishebarger calculated the amount of personal property assets belonging to Bernard at the time of his death to be $698,319.08. He determined that Bernard owned the following bank accounts at the time of his death: (1) NationsBank in the amount of $83,390.70; (2) NationsBank in the amount of $3,697.78; (3) IBC in the amount of $100,000; (4) Security National in the amount of $5,050.00; (5) Jefferson Bank in the amount of $100,092.93; (6) Eisenhower Bank in the amount of $100,052.75; (7) Broadway Bank in the amount of $100,860.64; (8) Guaranty Federal (three accounts) in the amount of $105,174.28; and (9) Bank of the West in the amount of $100,000. Rishebarger concluded that Spillman stole $522,834.79 from the Bernard Estate.

In March and April 2003, Bernard Baron and other heirs of the Bernard Estate received a letter from Rishebarger, which informed them of a problem with the Bernard Estate involving Spillman. The heirs of the Bernard Estate met and decided to elect Bernard Baron, a cousin to Pierre V. Bernard, to be their leader with respect to matters relating to the estate. On September 2, 2003, Rishebarger sent the heirs a copy of his Report of Receiver and Motion for Court Authority to Approve Plan of Distribution and Payment of Fees and Expenses. Rishebarger's report listed $522,834.79 as the amount Spillman stole from the Bernard Estate.

In early 2004, Bernard Baron retained Don Stecker, an attorney. On March 8, 2005, Bernard Baron filed an application to re-open administration of the Bernard Estate and for Appointment as Successor Administrator. On May 9, 2005, pursuant to a distribution plan approved by a court, Rishebarger mailed a check in the amount of $56,878.00 to Stecker as counsel for the heirs. On May 31, 2005, the heirs sued Valdez for breach of fiduciary duties and Fidelity as surety on the bond issued to Valdez. During the pendency of this lawsuit, the probate court determined that it lacked jurisdiction to appoint Baron as Successor Administrator and/or reopen the Estate without first setting aside the prior court orders in the 1994 probate case. Thus, on December 11, 2006, the heirs filed a petition for bill of review.

The petition sought both a statutory and equitable bill of review to set aside the 1996 Order Approving Account for Final Settlement and Order Discharging Valdez. The petition asked for a statutory bill of review pursuant to section 31 of the Texas Probate Code. Section 31 provides that

[a]ny person interested may, by a bill of review filed in the court in which the probate proceedings were had, have any decision, order, or judgment rendered by the court, or the judge thereof, revised and corrected on showing of error therein; but no process of action under such decision, order or judgment shall be stayed except by writ of injunction, and no bill of review shall be filed after two years have elapsed from the date of such decision, order or judgment.

TEX. PROB.CODE ANN. ยง 31 (West 2003). In the alternative, the petition alleged an equitable bill of review.

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On December 14, 2007, a bench trial was conducted in the bill of review proceeding. The probate court denied the heirs' request for a statutory bill of review, but granted the heirs' request for an equitable bill of review. On February 9, 2009, the probate court signed an interlocutory, non-appealable Judgment Granting Equitable Bill of Review. The judgment states that the 1996 Orders were " entered as the result of fraud, accident or wrongful acts of" Valdez, that the 1996 Orders were rendered " without any negligence on the part of the petitioners" ; and that the petitioners had presented " sufficient evidence to constitute a meritorious claim or defense." The judgment further states that the 1996 Orders " were not rendered as the result of any fraud, accident, or wrongful acts on the part of" Fidelity and that " nothing that Fidelity did nor failed to do prevented petitioners from pursuing this bill of review prior to December 13, 2006." The judgment further states that petitioners " had no legal remedy available to avoid the effect" of the 1996 Orders. The judgment then set aside the 1996 Orders.

On April 15, 2009, David Hollenbeck was appointed to serve as successor independent administrator of the Estate. In the third amended original petition, Hollenbeck substituted in for the heirs as plaintiff, and on August 18, 2010, a bench trial was conducted on the merits. A final judgment was signed by the probate court on July 14, 2011. The probate court found that the difference between the amount that Spillman stole ($522,834.79), and the amount that Rishebarger was able to distribute from the seized funds ($56,878.00) was $465,956.79. The probate court thus concluded that actual damages that the Bernard Estate incurred were in the amount of $465,956.79. The final judgment awarded Hollenbeck, in his capacity as Successor Independent Administrator of the Estate, actual damages in the amount of $465,956.00, apportioned against the Defendants as follows:

(1) Valdez, individually, and as former administrator of the Estate, and Fidelity are jointly and severally liable for $260,000.00; and
(2) Valdez, individually, and as former administrator of the Estate, is " further liable for the additional sum of" $205,956.00.

The final judgment also awarded Fidelity the sum of $260,000.00 against Valdez and Spillman, who were found to be jointly and severally liable. And, the final judgment awarded Valdez the sum of $465,956.00 against Spillman. The judgment noted that " notwithstanding the separate nature of the judgments awarded to Fidelity and Valdez against Spillman, it is the intent of the court that Spillman's liability to Fidelity and Valdez for actual damages be in the total amount of" $465,956.00. Valdez and Fidelity then filed separate notices of appeal.

EQUITABLE BILL OF REVIEW

A bill of review is an equitable action brought by a party to a prior action who seeks to set aside a judgment that is no longer appealable or subject to a motion for new trial. Temple v. Archambo, 161 S.W.3d 217, 222-23 (Tex.App.-Corpus Christi 2005, no pet.). And, although a bill of review is an equitable proceeding, the fact that an injustice may have occurred is not sufficient to justify relief by bill of review. Id. at 224. A bill of review requires " something more than injustice." Crouch v. McGaw, 134 Tex. 633, 138 S.W.2d 94, 96 (1940). Thus, the grounds upon which a bill of review can be obtained are narrow because the procedure conflicts with the fundamental policy that judgments must become final at some point. King Ranch v. Chapman, 118 S.W.3d 742, 751 (Tex.2003). And, the burden on a bill

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of review petitioner is heavy. Temple, 161 S.W.3d at 223. Before a litigant can successfully invoke the equitable powers of a court and secure a bill of review to set aside a final judgment, he must allege and prove: (1) a meritorious claim or defense to the underlying judgment sought to be set aside, (2) which he was prevented from making by fraud, accident, or wrongful act by the opposing party, (3) unmixed with any fault of his own. King Ranch, 118 S.W.3d at 751-52; Hernandez v. KochMach. Co., 16 S.W.3d 48, 57 (Tex.App.-Houston [1st Dist.] 2000, pet. denied). The petitioner must further allege, with particularity, sworn facts sufficient to constitute a meritorious defense and, as a pretrial matter, present prima facie proof to support the contention. Temple, 161 S.W.3d at 223. The bill of review defendant may respond with like proof showing that the defense is barred as a matter of law, but factual questions arising out of factual disputes are resolved in favor of the complainant for the purposes of this pretrial, legal determination. Id. If the court determines that a prima facie meritorious defense has not been made out, the proceeding terminates and the trial court shall dismiss the case. Id. On the other hand, if a prima facie meritorious defense has been shown, the court will conduct a trial. Id. At trial, the petitioner must prove the elements of the bill of review by a preponderance of the evidence. Martin v. Martin, 840 S.W.2d 586, 592 (Tex.App.-Tyler 1992, writ denied). If the petitioner is successful, then the court will permit the parties to revert to their original status as plaintiff and defendant with the burden on the original plaintiff to prove the underlying cause of action. Caldwell v. Barnes, 154 S.W.3d 93, 97-98 (Tex.2004)( Caldwell II ). Once the trial is completed, the court will render a new final judgment. See id.

Additionally, the petitioner must show that he exercised due diligence in prosecuting all adequate legal remedies with respect to the underlying judgment or order. King Ranch, 118 S.W.3d at 751. Thus, a " bill of review is proper where a party has exercised due diligence to prosecute all adequate legal remedies against a former judgment, and at the time the bill of review is filed, there remains no such adequate legal remedy still available because, through no fault of the bill's proponent, fraud, accident or mistake precludes presentation of a meritorious claim or defense." Id. We review the granting or denial of a bill of review under an abuse of discretion standard. Temple, 161 S.W.3d at 224. When the inquiry on the bill of review concerns a question of law, we review the trial court's decision de novo. Id.

On appeal, Fidelity argues that the probate court erred in granting the bill of review against it for the following reasons:

1. The bill of review was barred by limitations because the petition was filed more than ten years after the 1996 Probate Orders were signed;
2. The probate court specifically found and stated in the Judgment Granting Equitable Bill of Review that the 1996 Probate Orders were not rendered as the result of any fraud, accident, or wrongful act on the part of Fidelity and that nothing Fidelity did or failed to do prevented the heirs from pursuing the bill of review prior to December 13, 1996. And, Fidelity argues that any act committed by Valdez cannot be imputed to it in the context of a bill of review proceeding because in such a proceeding, the heirs are required to prove the elements of a bill of review separately as to each defendant;

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3. The heirs failed to timely pursue their legal remedies by filing a statutory bill of review, even after they learned that Spillman had stolen assets from ...

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