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Pettit v. Pettit Tabor

Court of Appeals of Texas, Sixth District, Texarkana

January 15, 2020

ROBERT YORK PETTIT, JEFFREY YORK PETTIT, INDIVIDUALLY AND AS TRUSTEE OF THE BIG HORN PHALANX TRUST, JOSEPH AUSTIN PETTIT AND EMILY ANNE PETTIT COVEY, Appellants
v.
MARILYN EILEEN PETTIT TABOR, Appellee

          Submitted: November 13, 2019

          On Appeal from the 8th District Court Delta County, Texas Trial Court No. 10985

          Before Morriss, C.J., Burgess and Stevens, JJ.

          MEMORANDUM OPINION

          Josh R. Morriss III Chief Justice

         Marilyn Eileen Pettit Tabor (Lyn) conveyed her undivided one-half interest in a family farm and a joint bank account to her brother, Robert York Pettit (Bob), based on his promise to protect the property and to reconvey it to her. When Bob refused to reconvey the property and instead conveyed it to his children, who later conveyed it to The Big Horn Phalanx Trust (the Trust), Lyn sued Bob, his children, and the trustee of the Trust (collectively Appellants) for a return of the property. The trial court found that Bob had breached an informal fiduciary relationship and had committed common law and statutory fraud, voided all of the conveyances of Lyn's one-half interest, imposed a constructive trust on the property, ordered Appellants to reconvey the property to Lyn, and awarded Lyn damages, exemplary damages, and attorney fees.

         In this appeal, Appellants assert that the trial court erred in imposing a constructive trust because any recovery by Lyn was barred by the affirmative defense of illegality and because the evidence was legally and factually insufficient to support the trial court's finding of an informal fiduciary relationship, that the award of exemplary damages was not supported by clear and convincing evidence, that Lyn was not entitled to attorney fees, and that the evidence was legally and factually insufficient to support the trial court's findings that the conveyances to Bob were not gifts. Because (1) no illegality bars a constructive trust, (2) Bob's actual fraud supports a constructive trust, (3) exemplary damages are supported by the evidence, (4) attorney fees are supported by the evidence, and (5) Appellants' challenge to the no-gift conclusion was forfeited, we affirm the judgment of the trial court.

         (1) Background

         A. The Family Farm and the Pettit Siblings

         The family of Margaret Eileen Pettit (Margaret), Lyn and Bob's mother, had owned a 280-acre tract and a 34.5-acre tract of land in Hunt County (the Hunt Tracts) since 1903. Margaret had owned them since 1947. At some point, Margaret also acquired a 70-acre tract in Delta County (the Delta Tract).[1] In 1951, Margaret and her husband built a house on the Hunt Tracts, where the family lived for some time. Around 1960, the family moved to Waco, where Lyn and Bob graduated high school. A few years later, Lyn got married to her first husband and moved to New Mexico, where she eventually began a mortgage brokerage business, Pettit Mortgage. Bob became an ordained minister, but has worked as a petroleum landman for the last forty years

         In 2001, Lyn moved back to Waco. There, her relationship with both Margaret and Bob became closer, their families began spending holidays together, and Bob performed the wedding of Lyn and her current husband, Johnny. She also started going to the Family Farm with Margaret and began spending weekends there. Eventually, Bob and his family also began using the Family Farm. In 2003, the house on the Family Farm was in disrepair, and Lyn's husband, Johnny, did some repairs to get it in shape for family functions. Sometime later, they began having family functions with Bob's family on holidays and extended weekends. Bob and his sons helped Johnny with the maintenance and improvements on the Family Farm. Both families engaged in hunts for deer and hogs and other outdoor activities at the Farm.

         As Margaret aged, Lyn and Bob worked closely together to deal with her and the issues that arose. In 2006, Margaret conveyed the Family Farm to Lyn and Bob by warranty deeds and reserved a life estate to herself. Because of his forty years of experience and knowledge regarding the transfer of property interests, Bob drafted those warranty deeds, as well as other deeds for the family. When they became owners of the property, if something needed to be done, either Lyn or Bob would take care of it.

         Lyn testified that she loved Bob, that she had trusted him implicitly, and that there was nothing she could not trust him with. When Margaret died in 2009 and her life estate terminated, she left Lyn $60, 000.00 to $80, 000.00 in a pay-on-death account. Lyn used some of that money to rehabilitate Margaret's residence, and Bob, the executor of Margaret's estate, told her she would be reimbursed from the estate. Bob wanted to put a stock pond on the Farm, so another $25, 000.00 of that money was spent to do so. Lyn also agreed to put the rest of the money in a joint bank account to be used for the management of the Farm, taxes, utilities, and repairs. Bob and Lyn were both authorized signatories on the account.

         Bob acknowledged that Lyn trusted him enough to make him a signatory on the account and that they worked together to do the things that needed to be done at the Family Farm. He also agreed that the Family Farm was important to him, Lyn, and their families and that he and Lyn had talked about wanting to pass it down to their respective heirs. Bob acknowledged that he knew that this was important to Lyn.

         Bob's wife, Sharon, testified that, based on Bob and Lyn's relationship, Lyn trusted Bob implicitly. She believed that, based on their relationship and Bob's dealings with Lyn, Lyn believed as truth anything Bob told her and trusted him to do what he promised. She also agreed that Bob took the lead in the management and running of the Farm, but also testified that it was "kind of" mutual.

         B. Lyn's Transfer to Bob

         In late March 2013, Lyn called Bob to ask for his help in conveying her interest in the Family Farm to her children, Darrin and Casey. The substance of that conversation was disputed at trial. According to Lyn, she had had two heart surgeries, including one in January 2013 to replace her pacemaker. This made her consider her mortality and accelerated her timeline for transferring the Farm to her children. In early 2013, she received notice that a hearing was scheduled in a New Mexico lawsuit against Pettit Mortgage, although she thought it had been settled several years before. This prompted her to hire an attorney to help resolve the lawsuit and to feel more urgency in conveying the Farm to her children. Lyn testified that she was a little concerned about the lawsuit because she was not familiar with legal matters but that she did not think she had any liability.[2] She also testified that, at the time, she did not have any creditors or any outstanding judgments and that she had about $150, 000.00 in liquid assets.

         When she called Bob to let him know she wanted to transfer her interest to her children, she also mentioned the lawsuit and the upcoming hearing. Bob proceeded to tell her about a lawsuit he was in at the time, about how horrible the depositions and discovery were and about the attorney fees, the time, the stress, and all the things involved in a lawsuit. He told her that he did not think her children could handle a lawsuit and that she should transfer her interest to him instead. Bob also promised her that he would transfer the property back as soon as the lawsuit in New Mexico was settled, and he told her, "[R]ight now we have to protect the farm and circle the wagons." Lyn testified that, though she had originally intended to transfer her interest to her children, Bob convinced her that that would trouble her children, unless she transferred it to Bob instead. He also made it clear that it would only be temporary and that he would transfer it back.

         Lyn also testified that, since Bob was her big brother and she had always trusted his judgment, he scared her with the possibility that the New Mexico legal issue might be bigger than she had thought. Based on their relationship, she felt she could trust him at his word, and she became convinced that his way was a better way to go. She testified that she never intended to make a gift of her interest to Bob and that she would never have conveyed it to him outright.

         According to Bob, Lyn told him that her attorney had recommended that she get all her assets out of her name and that there had been a judgment against her. She told him that she was going to convey her interest in the Family Farm to her children, but that he "educated" her about a different option. He told her that he had been in lawsuits, that lawsuits were terrible, and that her children did not need this property. He also told her that the lawsuit in New Mexico might end up being a big deal, that it would drag her children into it, and that they would not be able to handle it. He then told her that she would be much better off transferring it to him because he would be able to handle it better. Bob testified to telling Lyn that he was far more capable of mounting a robust defense, that he already had a legal team in mind, and that Lyn agreed. He also testified that he told Lyn that a New Mexico judgment could jeopardize the Farm and that Lyn understood the threat. He maintained that Lyn told him that she had a judgment against her[3] and that she was afraid the property interest would be seized.

         Bob denied that he told her he would convey the property back to her; in fact, he affirmed that, at the time of this transaction, he had no intent to convey it back to her. He also denied that Lyn had ever proposed that it would be a temporary conveyance. Rather, he maintained that he had made it very clear that he would not be returning her interest. Nevertheless, tellingly, Bob admitted that, by the end of their conversation, he had left Lyn with the impression and understanding that her children would end up owning her interest, even though he never intended for that to be the case.

         At trial, Bob limited the extent to which it was reasonable for Lyn to have a very high degree of trust and confidence in him at the time of this transaction. In his deposition, however, when pressed on whether Lyn should have had a high level of trust and confidence in him and his dealing with her at the time of this transaction, Bob answered unequivocally in the affirmative.

         Within a few days of their conversation, Bob prepared and delivered to Lyn proposed warranty deeds that would transfer Lyn's interest in the Family Farm to him. On April 1, he drove from his home in San Antonio to Waco and accompanied Lyn to execute the deeds and have them notarized. Bob left the effective date of the deeds blank and discussed backdating the deeds with Lyn. According to Bob, he suggested backdating the deeds a week or two, but Lyn wanted to backdate them to October 24. Lyn testified that Bob suggested backdating them to a date before the court hearing, but she did not know how they picked October 2012. After the deeds were executed, Bob drove that same day to file them in Hunt and Delta Counties.

         Within two or three days, Bob prepared and sent Lyn correction deeds that added language that Lyn was conveying the property to Bob "without any restrictions, limitations, reservations or conditions whatsoever." Bob explained that he added this language so that nobody could argue it was a fraudulent transfer. Although Bob testified that he explained this to Lyn, Lyn testified that he told her that he added only language about "love and affection" because of tax ramifications and to make it look permanent.

         C. Bob Refuses to Reconvey

         In May or June 2013, Lyn went to New Mexico with her attorney and settled the lawsuit against her company for $6, 000.00. She explained that this was a business decision, reasoning that settling cost less than litigating the case. There was no court hearing and no judgment entered against her or her company. Lyn testified that she paid the settlement and her attorney fees of $4, 000.00 out of her liquid assets. The same day the settlement was signed, Lyn called Bob to tell him of the settlement and asked him to get the paperwork started to get her interest in the Farm back in her name. Bob suggested that they needed to wait on reconveyance until she had a signed dismissal order and knew it was final. Bob confirmed that he had requested a signed dismissal order, but denied that Lyn said anything about getting her interest back. An order dismissing Pettit Mortgage, Inc., was filed in the New Mexico case July 24, 2013.

         When Lyn received a copy of the dismissal order from her attorney, she sent an email to Bob on September 10, 2013, advised him that the case had been formally dismissed, and asked him to prepare the deeds to convey her interest in the Farm back to her. Bob did not respond to that email, and he avoided her telephone calls for about a month. When Bob finally answered one of her calls, she told him it was time to have the property put back in her name. Bob responded that she should not worry about that, that he would take care of everything, and that she should go out and enjoy the Farm. Lyn continued to press him, and eventually he told her he was not going to convey the property back to her. When she insisted that he tell her why, he told her that it was because she had threatened him. He told her that, in a November 2012 telephone call, she had told him that she did not have to agree with everything that dealt with the Farm.[4] He also told her that he had talked to some attorneys who said he should not reconvey the property so close in time. Lyn testified that Bob never denied having agreed to convey the property back to her in that conversation.

         Bob maintained that he told Lyn in that conversation that he was not going to reconvey the property and that he had never agreed to do so. But he affirmed that his first written denial of any agreement to reconvey did not come until two years later, September 22, 2015. Between October 2013 and filing this suit in May 2016, Lyn made several written, telephonic, and in-person efforts to resolve this matter and to get her interest in the property conveyed to either her or her children. Bob either failed to respond to those efforts or rebuffed her overtures.

         Jimmy Caradine, an owner of property close to the Hunt Tracts, testified that he had been friends with Bob. At some point, Bob told him that Lyn had conveyed her interest in the Farm to him to protect it from a problem she had but that, when the problem got cleared, Bob would give it back. Caradine was surprised when he found out later that Bob was not going to give the property back to Lyn.

         Lyn did not initially know that, shortly after she conveyed her interest to Bob, Bob conveyed all of the minerals in and under the Family Farm to Pettit International, a sole proprietorship owned by Bob. About two weeks after receiving Lyn's September 2013 email, Bob conveyed all of the minerals in and under the Family Farm to his son, Joseph, as trustee of the Minerals Management Trust, a trust newly created by Bob. In that same time period, Bob conveyed the Family Farm to his children, Jeffrey, Joseph, and Emily, reserving a life estate to himself. Shortly before Lyn filed this lawsuit, the Family Farm and all its minerals were conveyed to Jeffrey, as trustee of the Big Horn Phalanx Trust. Joseph testified that they conveyed the Family Farm and its minerals to the Big Horn Phalanx Trust to protect it from external threats, specifically from Lyn.

         D. Procedural Background

         Lyn filed suit against Bob, his children, and Jeffrey, as trustee of the Big Horn Phalanx Trust, and sought a judgment for actual or constructive fraud, the imposition of a constructive trust, a declaratory judgment that the conveyances of her fifty percent undivided interest in the Family Farm were void, the imposition of a resulting trust, damages, and attorney fees. All of the Appellants entered a general denial and pled affirmative defenses, including illegality. After a bench trial, the trial court entered judgment for Lyn in which it:

1. Declared the transfers of Lyn's fifty percent undivided interest in the Family Farm to Bob, and all subsequent transfers of that interest void because of the fraud of Bob;
2. Imposed a constructive trust for Lyn's fifty percent undivided interest in the Family Farm;
3. Ordered Appellants to do all that is necessary to reestablish and/or reconvey Lyn's fifty percent undivided interest in the Family Farm;
4. Entered judgment for Lyn against Bob in the amount of $20, 000.00 for her fifty percent interest in the joint Family Farm account;
5. Awarded Lyn $50, 000.00 in exemplary damages because Bob intentionally and maliciously committed common law and statutory fraud; and,
6. Awarded Lyn $43, 084.39 reasonable and necessary attorney fees and $5, 924.37 for reasonable and necessary costs, pursuant to Sections 37.001, et seq., and 27.01 of the Texas Business and Commerce Code.

         The trial court also entered findings of fact and conclusions of law at Lyn's request. No Appellant requested additional or amended findings of fact and conclusions of law.

         (2) No Illegality Bars a Constructive Trust

         As we construe the Appellant's brief, they asserts that the trial court abused its discretion in imposing a constructive trust because the trial court failed to correctly apply the law and because the imposition of a constructive trust was not supported by factually and legally sufficient evidence. We conclude that no illegality bars a constructive trust because (A) sufficient evidence supports the finding that Downey[5] was not Lyn's creditor and (B) the trial court's conclusion that the illegality defense was not available is not reversible error.

         The trial court's imposition of a constructive trust, as an equitable remedy, is reviewed for an abuse of discretion. Baker Botts, L.L.P. v. Cailloux, 224 S.W.3d 723, 736 (Tex. App.- San Antonio 2007, pet. denied); see Wilz v. Flournoy, 228 S.W.3d 674, 677 (Tex. 2007) (reviewing imposition of constructive trust for abuse of discretion). A trial court abuses its discretion when its "ruling is arbitrary and unreasonable, made without regard for guiding legal principles or supporting evidence," or "when it fails to analyze or apply the law correctly." In re Nationwide Ins. Co. of N. Am., 494 S.W.3d 708, 712 (Tex. 2016) (orig. proceeding) (citing Ford Motor Co. v. Garcia, 363 S.W.3d 573, 578 (Tex. 2012); In re Sw. Bell Tel. Co., 226 S.W.3d 400, 403 (Tex. 2007) (orig. proceeding)).

         A constructive trust is "a creation of equity to prevent a wrongdoer from profiting from her wrongful acts." Gray v. Sangrey, 428 S.W.3d 311, 315 (Tex. App.-Texarkana 2014, pet. denied) (citing Procom Energy, L.L.A. v. Roach, 16 S.W.3d 377, 381 (Tex. App.-Tyler 2000, pet. denied)). A constructive trust subjects the person who holds title to property "to an equitable duty to convey it to another, on the ground that his acquisition or retention of the property is wrongful and that he would be unjustly enriched if he were permitted to retain the property." Cailloux, 224 S.W.3d at 736 (quoting Talley v. Howsley, 176 S.W.2d 158, 160 (Tex. 1943)). "To obtain a constructive trust, the proponent must prove (1) the breach of a special trust, fiduciary relationship, or actual fraud, (2) unjust enrichment of the wrongdoer, and (3) tracing to an identifiable res." Gray, 428 S.W.3d at 315 (citing Troxel v. Bishop, 201 S.W.3d 290, 297 (Tex. App.-Dallas 2006, no pet.)).

         The Appellants complain that the trial court incorrectly applied the law, even though they had established their affirmative defense of illegality. They contend that the conveyance of Lyn's interest in the Family Farm to Bob was made by Lyn with the intent to defraud or hinder her creditor in the New Mexico lawsuit. They rely on the rule that bars enforcement of an agreement to reconvey.

A grantor who conveys his property for the purpose of shielding the property from liability to future creditors, when the purpose of such a conveyance is not to divest the grantor of beneficial interest, should not receive the aid of the courts against his grantee. Public policy considerations demand that we refuse equitable relief and leave the parties where they have placed themselves.

In re Marriage of Parker, 997 S.W.2d 833, 838 (Tex. App.-Texarkana 1999, pet. Denied) (citations omitted).

         Since whether the trial court correctly applied the law is dependent on what facts were adduced at trial, we will first address whether there was sufficient evidence supporting the trial court's findings on the Appellants' affirmative defense. Because it is an affirmative defense, the party asserting illegality has the burden "to present sufficient evidence to establish the defense and obtain the requisite . . . findings." Philadelphia Indem. Ins. Co. v. White, 490 S.W.3d 468, 486 (Tex. 2016) (quoting Zorrilla v. Aypco Constr. II, LLC, 469 S.W.3d 143, 156-57 (Tex. 2015)).

         When there is an assertion by a defendant that an agreement to reconvey property should not be enforced because the original conveyance was made with the intent to defraud present or future creditors, Texas courts have long held that to prevail on this defense, it must be shown both that the plaintiff intended to defraud or hinder her creditor and that there was a present or future creditor who would be injured by the conveyance. See Rivera v. White, 63 S.W. 125, 126 (Tex. 1901) (agreement to reconvey enforceable when no potential creditor shown); Cordova v. Lee, 14 S.W. 208, 209 (Tex. 1890) (agreement to reconvey enforced when no proof of a creditor at the time of the conveyance); Harmon v. Schmitz, 39 S.W.2d 587, 590 (Tex. Comm'n App. 1931) (intent to defraud unimportant when there is no creditor to defraud); Wells v. Jamison, 252 S.W. 1023, 1025 (Tex. Comm'n App. 1923, judgm't adopted) (policy barring enforcement of agreement to reconvey not applicable where there are in fact no creditors); Stout v. Clayton, 674 S.W.2d 821, 826-27 (Tex. App.-San Antonio 1984, writ ref'd n.r.e.) (agreement to reconvey enforced when no showing of intent to defraud and no ...


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