Paul v. Merrill Lynch Trust Company of Texas

Because this case does not involve any claims under Chapter 37, there was no legal basis to award the appellee attorney's fees, and the probate court erred in awarding the appellee attorney's fees under Chapter 37.

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Click here for the full text of this decision FACTS:At the time of his death on Aug. 25, 2002, Jose Eduardo Martinez (Ed) was married to appellee Toni Wasson Martinez (Toni). Two documents govern the disposition of Ed’s property. Ed and Toni had entered into a premarital agreement in 1996 (reaffirmed as a marital agreement soon after their marriage) providing that the undefined “contents of the home” became the property of the survivor of the parties (Toni, in this case) in the event of death. On Nov. 29, 2000, Ed executed a will that was later amended by a codicil executed on Aug. 21, 2001. The residuary of Ed’s property � the property other than the “contents of the home” � passes under the will and, after several specific bequests to his children are deducted, “pours over” in a family trust. The will does not otherwise refer to Ed’s tangible personal property. Toni is the primary beneficiary of the trust, having only an income interest. Appellants � Ed’s adult children from a previous marriage � receive the remainder of the trust when it terminates because Toni dies or remarries or cohabits with a man. In his will, Ed appointed appellee Merrill Lynch Trust Co. of Texas (now known as Merrill Lynch Trust Co. FSB) to be the sole independent executor of his estate � without court intervention and without bond � and the sole trustee of the trust. The will contains a “no-derivative action” clause that explicitly prohibits appellants from bringing any derivative cause of action, particularly “any derivative cause of action to collect damages on behalf” of Ed’s estate or the trust. The will also contains an “in terrorem clause” forfeiting all gifts, even if a beneficiary’s challenge to the dispositions under the will “was taken in good faith and with probable cause.” However, the will gave Lisa the power to seek removal of Merrill Lynch as “the current fiduciary” and appointment of a replacement fiduciary. Appellants sued Merrill Lynch in November 2003. Their live pleading at the time of trial (Plaintiffs’ Fifth Amended Original Petition) essentially claimed that Ed’s will revoked his marital agreement with Toni and that Toni was not entitled to any of Ed’s property as the “contents of the home.” Appellants alleged that Merrill Lynch committed gross misconduct and gross mismanagement by transferring property to Toni, and they sought removal of Merrill Lynch as independent executor and disgorgement of its executor fee. Merrill Lynch filed a counterclaim that added Toni as a third-party defendant. At the close of appellants’ case-in-chief, the probate court granted Merrill Lynch’s motion for judgment in part and ordered that appellants take nothing on their damage claims on three of the cars, the contents of the home, and exemplary damages against Merrill Lynch based on fraud, specific-intent malice and bad faith. After a four-day trial, the probate court entered a final judgment that appellants take nothing on all of their remaining claims, rejecting appellants’ claims to remove Merrill Lynch as independent executor and to disgorge any fees and appellants’ claim for exemplary damages based on conscious-indifference malice. Merrill Lynch was awarded attorney’s fees from the estate in the sum of $153,246.32 at trial, an additional attorney’s fee of $15,000 if appellants unsuccessfully appeal to the court of appeals, and an additional attorney’s fee of $8,000 if appellants unsuccessfully appeal to the Supreme Court of Texas. Toni was awarded attorney’s fees from appellants in the sum of $46,764.80 at trial, an additional attorney’s fee of $15,000 if appellants unsuccessfully appeal to the court of appeals, and an additional attorney’s fee of $8,000 if appellants unsuccessfully appeal to the Texas Supreme Court. Court costs were taxed against appellants. HOLDING:Affirmed as modified. Appellants’ four issues are whether the probate court erred: 1. in concluding that a gun collection (that was temporarily stored at Ed’s business) was among the contents of the home, rather than property of the trust; 2. in denying appellants recovery of their attorney’s fees; 3. in awarding Merrill Lynch attorney’s fees; and 4. in awarding Toni attorney’s fees. In their first issue, appellants are indirectly attempting to do on appeal what they did not do in the probate court so as to avoid violating the will’s no-derivative action and in terrorem clauses. The relief that appellants seek on appeal is the relief that the probate court refused to grant Merrill Lynch at trial the imposition of a constructive trust on the gun collection or on proceeds from any gun sales. In the probate court, appellants sought only damages from Merrill Lynch for its delivery of the gun collection to Toni. Appellants lack standing to seek constructive trust relief on appeal, the court decides. Arguing that because the probate court imposed a constructive trust on five of the 12 categories of contested property as a result of Merrill Lynch’s alleged neglect, appellants in their second issue complain that the trial court abused its discretion in refusing to award them their attorney’s fees. An abuse of discretion does not occur when a trial court bases its decision on conflicting evidence. The probate court found that Merrill Lynch defended appellants’ removal action in good faith and was entitled to recover its attorney’s fees under Texas Probate Code �149C(c). The probate court specifically found that the estate suffered no actual harm or damages from Merrill Lynch’s incorrect categorization of some of the contested property. The probate court did take issue with the reasonableness of Merrill Lynch’s interpretation that the phrase contents of the home included personal property wherever located, but in finding that Merrill Lynch defended the action in good faith, the court noted that the estate was not harmed and that Merrill Lynch’s disagreements were reasonable. The probate court did not abuse its discretion in awarding Merrill Lynch attorney’s fees, the court decides. Appellants complain of the probate court’s award of attorney’s fees to Toni, recoverable from appellants. They assert that the probate court abused its discretion in granting Toni leave to file a trial amendment, that no legal basis for the award exists, and that Toni did not substantially prevail. The probate court found that appellants’ and Merrill Lynch’s live pleadings implicitly sought declaratory relief; as a basis for awarding Toni her attorney’s fees, it relied on Edwards Aquifer Auth. v. Bragg, 21 S.W.3d 375 (Tex. App. – San Antonio 2002). Bragg does not address, however, either the propriety of an attorney’s fee award to any party or whether a claim the implicitly requests declaratory relief can properly be treated as a claim under Chapter 37. Because this case does not involve any claims under Chapter 37, there was no legal basis to award Toni attorney’s fees, and the probate court erred in awarding Toni attorney’s fees under Chapter 37. OPINION:Vance, J.; Gray, CJ, Vance and Reyna, JJ.

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