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Richard Nugent and Cao, Inc. v. Estate of Ellickson

Court of Appeals of Texas, Fourteenth District

November 30, 2017

RICHARD NUGENT AND CAO, INC., Appellants
v.
THE ESTATE OF JANIE BAKER ELLICKSON, Appellee

         On Appeal from the County Court at Law No. 2 & Probate Court Brazoria County, Texas Trial Court Cause No. PR30539-A

          Panel consists of Justices Boyce, Donovan, and Jewell.

          OPINION

          WILLIAM J. BOYCE JUSTICE

         The Estate of Janie Baker Ellickson sued Richard Nugent and CAO, Inc. asserting claims for breach of contract, breach of fiduciary duty, and promissory estoppel in connection with the sale of Ellickson's house. The trial court assessed liability for breach of fiduciary duty and awarded damages against Nugent and CAO, Inc. following a bench trial. We affirm the trial court's judgment in part, reverse in part, and remand for further proceedings consistent with this opinion.

         Overview

         Nugent and CAO, Inc., a company he owned and controlled, participated in real estate transactions involving 71-year-old Janie Ellickson and a house she owned in Galveston County, Texas. Central to this appeal is the fiduciary relationship created when Ellickson signed a power of attorney in favor of Nugent. The power of attorney permitted Nugent to sell the Galveston County house on Ellickson's behalf and execute documents related to the sale.

         Nugent sold the house to Michael Womack on January 21, 2008. Nugent negotiated for a trust he controlled to receive $137, 004.40 from the sale; Ellickson was to receive $115, 926.80. Ellickson died on June 9, 2008. Womack ceased to make the required payments within a year of the sale, and the house was sold for $20, 000 at a foreclosure sale on January 6, 2009.

         Ellickson's estate sued Nugent and CAO, Inc. on July 10, 2012. The estate asserted claims focusing on the fairness of the January 2008 sale terms; the failure to insure the house, which suffered damage when Hurricane Ike came ashore in September 2008; and Nugent's failure to notify Ellickson's estate of the 2009 foreclosure sale. The trial court conducted a bench trial and concluded that Nugent committed four breaches of fiduciary duty because he

• failed to direct all of Womack's payments to Ellickson;
• directed a disproportionate share of the 2008 sale proceeds to a trust controlled by Nugent;
• failed to make sure Womack maintained insurance on the house; and
• failed to notify Ellickson's estate of the 2009 foreclosure sale.

         The trial court concluded that CAO, Inc. was liable as Nugent's alter ego. It signed a final judgment awarding $163, 843.64 in damages against Nugent and CAO, Inc. based on Nugent's breaches of fiduciary duty.

         On appeal, Nugent and CAO, Inc. challenge the (1) legal viability of the fiduciary duty breaches identified by the trial court; (2) sufficiency of the evidence supporting fiduciary duty breaches arising from the failures to insure and give notice of the foreclosure sale; (3) sufficiency of the estate's pleadings addressing CAO, Inc.'s liability as Nugent's alter ego; (4) sufficiency of the evidence supporting the trial court's conclusion that CAO, Inc. is liable as Nugent's alter ego; and (5) trial court's damages award.

         Background

         I. Chronology

         A chronology of relevant events will set the stage.

• January 3, 2007 - Ellickson signed a real estate sales agreement with CAO, Inc. to sell her Galveston County house to CAO, Inc. for $115, 000. Nugent signed on behalf of CAO, Inc. as its president. This agreement expired because the sale to CAO, Inc. did not close by June 1, 2007. The trial court determined that the January 2007 contract "continued to be honored by modification or novation through act and limited documentation . . . ."
• April 27, 2007 - Ellickson signed a special durable power of attorney for real estate transactions to permit Nugent to sell the house. The power of attorney stated that, by accepting the appointment, Nugent agreed to "assume[] the fiduciary and other legal responsibilities of an agent."
• January 21, 2008 - Ellickson, acting through Nugent as her attorney-in-fact, signed a warranty deed conveying the house to Womack.
• Before the January 2008 sale, CAO, Inc. funded and completed repairs on the house to make it "marketable for sale." CAO, Inc. marketed the house and located the buyer.

• A real estate lien note listed Womack as the maker and the "Property Trust" as payee. At trial, Nugent testified that he is the trustee of the "Property Trust" and his individual retirement account is the trust's beneficiary. The note obligated Womack to pay monthly installments of $2, 107.76 over a ten-year period. The note established the following payment schedule: payments 1-4 to the Property Trust; payments 5-60 to Ellickson; and payments 61-120 to the Property Trust. Under this schedule, the Property Trust would receive 65 payments totaling $137, 004.40. Ellickson would receive 55 payments totaling $115, 926.80.

• The deed of trust listed Womack as the grantor, the Property Trust as the beneficiary, and Nugent as trustee. The deed of trust obligated Womack to maintain insurance on the house. The deed of trust provided that the Property Trust could direct the trustee to foreclose on the house if the grantor defaulted on the real estate lien note.
• June 9, 2008 - Ellickson died.
• July 24, 2008 - George Yeiter sent an email to Nugent informing him that Yeiter would be the executor of Ellickson's estate. Yeiter requested Nugent's assistance in compiling the estate's inventory.
• August 17, 2008 - Nugent sent an email to Yeiter with details of the January 2008 sale to Womack. Nugent stated that Womack "got laid off from his job, " had "scrambled to get another job, " and had missed one payment on the house. Nugent stated that he told Womack to "just catch it up as soon as he could."
• August 27, 2008 - Yeiter qualified as independent executor of Ellickson's estate. • September 2008 - Hurricane Ike damaged the house.
• October 5, 2008 - Nugent sent an email to Yeiter asking whether Womack had been sending payments to Yeiter's office.
• January 6, 2009 - The house was sold at a foreclosure sale to Entrust Retirement Services, Inc. for $20, 000. The sale proceeds were deposited in an account owned by CAO, Inc. Of these proceeds, $9, 440.84 was disbursed to the estate and $10, 489.16 was retained by the Property Trust controlled by Nugent. Entrust Retirement Services, Inc. sold the house for $93, 000 on March 26, 2009.
• January 30, 2009 - Estate attorney Albert Giddens mailed a letter to Nugent asking about the January 2008 sale to Womack and the house's current condition. Giddens also asked whether Nugent wanted help in foreclosing on the house. By this time, the house already had been sold in a foreclosure sale weeks earlier.

         II. Trial Court Proceedings

         The estate sued Nugent on July 10, 2012, and asserted claims for breach of contract, promissory estoppel, and breach of fiduciary duty.

         The estate named Nugent and CAO, Inc. as defendants in its first amended petition. The estate asserted that Nugent acted "as agent for his corporation, CAO, Inc."

         The parties proceeded to a bench trial in July 2016. At trial, the evidence and testimony primarily focused on (1) the structure of the real estate transactions at issue; (2) the responsibility to insure the house; and (3) whether Nugent failed to provide notice of the foreclosure sale to the estate. Estate attorney Giddens testified that Nugent never provided notice of the foreclosure sale to the estate. Nugent testified that he informed executor Yeiter of the foreclosure sale before it occurred. Challenging Nugent's credibility, the estate questioned Nugent regarding his 2004 criminal conviction for theft in an amount greater than $200, 000, which arose from Nugent's earlier involvement in separate real estate transactions.

         In its findings of fact and conclusions of law, the trial court determined that the estate failed to prove its breach of contract and promissory estoppel claims. Addressing the estate's only remaining claim, the trial court concluded that Nugent committed four breaches of fiduciary duty by (1) failing to have Womack's payments under the January 2008 real estate lien note made payable to Ellickson; (2) negotiating for the Property Trust controlled by Nugent to receive $137, 004.40 from the house sale while Ellickson was to receive only $115, 926.80; (3) failing to make sure the house was insured as required under the deed of trust; and (4) failing to notify the estate of the foreclosure sale, thereby chilling the sale and subjecting the estate to excessive losses.

         The trial court also found that Nugent and CAO, Inc. "acted together, their roles and entities being indistinguishable throughout the sale of the proceeds." The trial court concluded that the estate was entitled to recover from Nugent and CAO, Inc. It awarded $163, 843.64 in damages to the estate plus pre- and post-judgment interest. The trial court signed its final judgment on August 5, 2016. Nugent and CAO, Inc. timely appealed.

         Analysis

         Nugent and CAO, Inc. challenge the legal viability of the four fiduciary duty breaches. They assert that two breaches arising from the terms of the January 2008 sale to Womack - payments to a recipient other than Ellickson, and Nugent's negotiation for his trust to receive a disproportionate share of the sale proceeds - are barred by the applicable statute of limitations. They assert that Texas Property Code section 51.0074 bars the two remaining fiduciary duty breaches - failures to maintain insurance and to give notice of the foreclosure sale - because this statute forecloses a fiduciary relationship arising between a trustee and a mortgagee under a deed of trust. See Tex. Prop. Code Ann. § 51.0074(b)(2) (Vernon 2014).

         Appellants also challenge the legal sufficiency of the evidence underlying the trial court's findings that Nugent breached his fiduciary duty by failing to maintain insurance and failing to notify Ellickson's estate of the foreclosure sale. Relying on Nugent's testimony, Nugent and CAO, Inc. assert that Nugent gave notice of the foreclosure sale to estate executor Yeiter. Appellants contend that, to the extent the trial court discounted Nugent's testimony because of Nugent's prior criminal conviction, the trial court erred because the conviction is inadmissible under Texas Rule of Evidence 609.

         The trial court concluded that CAO, Inc. is liable as Nugent's alter ego. Nugent and CAO, Inc. challenge this conclusion and assert that (1) the estate's pleadings failed to give notice of its alter ego liability claim; and (2) the evidence is legally insufficient to support an alter ego finding.

         Finally, appellants contest the law and evidence underlying the trial court's damages award.

         We address these contentions in turn.

         I. Only One of the Fiduciary Duty Breaches Is Legally Viable

         Two of the four fiduciary breaches identified by the trial court arose from the terms of the January 2008 sale to Womack: failing to instruct Womack that payments be made payable to Ellickson, and negotiating for the Property Trust controlled by Nugent to receive a disproportionate share of the house sale proceeds. The two remaining breaches address circumstances that occurred after the January 2008 sale to Womack: failure to maintain insurance on the house and failure to notify the estate of the foreclosure sale.

         The statute of limitations forecloses breach of fiduciary duty liability based on (1) directing sales proceeds to a recipient other than Ellickson, and (2) orchestrating a disproportionate distribution of sales proceeds to the trust. The third breach based on the failure to insure the house is foreclosed because the fiduciary duties Nugent assumed under the power of attorney did not encompass procuring insurance. As discussed more fully below, only the fourth breach concerning notification of the foreclosure sale is legally viable based upon the power of attorney.

         A. The Statute of Limitations Bars Claims Arising from the Terms of the January 2008 Sale

         In its conclusions of law, the trial court stated that "all applicable statute [sic] of limitations were continued by [Ellickson's] death."

         The estate contends that Nugent and CAO, Inc. "failed to prove their limitations defense as a matter of law at trial" and "never presented any evidence to prove their defense." Nugent and CAO, Inc. present a multifaceted limitations argument asserting that (1) the estate's breach of fiduciary duty claims arising from the January 2008 sale to Womack are barred by the statute of limitations; (2) because the estate failed to plead or present evidence of tolling, the trial court erred when it concluded that the statute of limitations applicable to the estate's claims was tolled; and (3) the applicable tolling provision would not make the estate's claims timely in any event. We agree with the appellants' limitations arguments.

         1. Nugent and CAO, Inc. preserved the limitations issue for appeal

         Limitations is an affirmative defense that must be specifically pleaded and proved. Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex. 1988); Trelltex, Inc. v. Intecx, L.L.C., 494 S.W.3d 781, 785 (Tex. App.-Houston [14th Dist.] 2016, no pet.). When a party asserts the affirmative defense of limitations in a bench trial, the party must request findings in support of that defense in order to avoid waiving the issue ...


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