Sunday, August 12, 2012

Impositon Of Constructive Trust Upheld, Allowing Elderly Homeowner To Get $37K In Proceeds On Home Allegedly Sold Out From Under Her By Grandaughter

In Beaumont, Texas, The Southeast Texas Record reports:

  • The Ninth Court of Appeals of Texas upheld a jury verdict in favor of plaintiff Lenora Fawcett on Thursday, allowing her to keep the award of more than $37,000 in home sale proceeds that had been withheld by her granddaughter.

    Last July, defendants Stephen Young and Kimberly Young, Fawcett's granddaughter, filed a notice of appeal, seeking to reverse the jury's ruling and the subsequent judgment entered by the court.

    Fawcett sued the Youngs in January 2010, claiming they sold her home without consent and gave her only $6,000 from the $148,000 transaction. The trial began March 7, 2011, and ended the following day, with jurors finding that the Youngs failed to comply with their fiduciary duty to Fawcett. The jury awarded Fawcett $37,162 in damages, according to the charge of the jury.

    "While recovering (from an illness, Fawcett's) belongings were removed from her house without her knowledge or consent and placed in a storage POD," the original complaint states.

    "The real property, along with Plaintiff's house, was sold by Stephen and Kimberly Young. The deed was filed May 13, 2009, and conveyed the property for cash and a note of $148,453."

    On appeal, the Youngs argued that no fiduciary relationship existed, that they never held or administered property owned by Fawcett, and that the trial court could not impose a constructive trust in Fawcett's favor.

    The Ninth Court's opinion, authored by Justice David Gaultney, found that a court may impose a constructive trust on property obtained as a result of a breach of fiduciary duty.(1)

    "Under the circumstances, we cannot say the trial court erred in imposing a constructive trust," states the court's July 26 opinion.(2) "We overrule appellants' issues and affirm the trial court's judgment." However, Justice Charles Kreger wrote a dissenting opinion, stating "there is no evidence of a fiduciary relationship" between the parties.
Source: Granddaughter loses appeal of $37K award over home sale proceeds.

For the ruling, see Young v. Fawcett, No. 09-11-00391-CV (Tex. App.-Beaumont [9th Dist.] 2001).

See , generally, The Confidential Relationship Theory of Constructive Trusts - An Exception to the Statute of Frauds, 29 Fordham L. Rev. 561 (1961) (contains discussion on distinction between the confidential relationship and the fiduciary relationship).

(1) The analysis of the court's majority in concluding that the jury decision on the existence of a fiduciary relationship should remain undisturbed follows:

  • Kimberly and Stephen contend that no fiduciary relationship existed, that they never held or administered property owned by Lenora, and that the trial court could not impose a constructive trust in Lenora's favor. The Youngs do not challenge the phrasing of the jury questions or the amount ($37,162) of the damages the jury awarded.

    "The term `fiduciary' refers to a person owing a duty of integrity and fidelity, and `it applies to any person who occupies a position of peculiar confidence towards another.'" Hasson, 286 S.W.3d at 14 (quoting Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 512 (Tex. 1942)). The Supreme Court has explained that the term "contemplates fair dealing and good faith, rather than legal obligation, as the basis of the transaction." Tex. Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507 (Tex. 1980).

    A fiduciary duty may arise from an informal relationship `"where one person trusts in and relies upon another, whether the relation is a moral, social, domestic, or purely personal one."` Fitz-Gerald v. Hull, 237 S.W.2d 256, 261 (Tex. 1951) (quoting "Sec. 225, 54 Am. Jur., `Trusts', p. 173.").

    Specifically, family relationships — where a person trusts in and relies upon a close member of her core family unit — may give rise to a fiduciary duty when equity requires. See Mills v. Gray, 210 S.W.2d 985, 986-89 (Tex. 1948) (mother-son fiduciary relationship). "When the societal relationship is one of loving family members or close personal friends, the justification for and reasonableness of reposing trust one in the other is readily understandable." Roy Ryden Anderson, The Wolf at the Campfire: Understanding Confidential Relationships, 53 SMU L. Rev. 315, 366 (2000).

    Courts generally refer to the informal fiduciary relationship as a "confidential relationship." Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287-88 (Tex. 1998); see also Chapman Children's Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 439 (Tex. App.-Houston [14th Dist.] 2000, pet. denied). Subjective trust alone is not sufficient to establish a confidential relationship. Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962).

    Because not every relationship involving a high degree of trust and confidence rises to the stature of a formal fiduciary relationship, the law recognizes the existence of confidential relationships in those cases "`in which influence has been acquired and abused, in which confidence has been reposed and betrayed. . . .'" Tex. Bank & Trust Co., 595 S.W.2d at 507 (quoting Higgins v. Chicago Title & Trust Co., 143 N.E. 482, 484 (Ill. 1924)).

    Whether a confidential relationship exists is "determined from the actualities of the relationship between the persons involved." Thigpen, 363 S.W.2d at 253.

    The question is ordinarily for the jury in a jury trial where the material facts are disputed. See Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992). "The problem is one of equity" and the circumstances giving rise to the confidential relationship "are not subject to hard and fast lines." Tex. Bank & Trust Co., 595 S.W.2d at 508.

    Factors include whether the plaintiff relied on the defendant for support, the plaintiff's advanced age and poor health, and evidence of the plaintiff's trust. Trostle v. Trostle, 77 S.W.3d 908, 915 (Tex. App.-Amarillo 2002, no pet.); see also Hasson, 286 S.W.3d at 14-16; Hatton v. Turner, 622 S.W.2d 450, 458 (Tex. Civ. App.-Tyler 1981, no writ); Holland v. Lesesne, 350 S.W.2d 859, 862 (Tex. Civ. App.-San Antonio 1961, writ ref'd n.r.e.). The trust must be justifiable. See Thigpen, 363 S.W.2d at 253.

    The record contains evidence of objective manifestations of Lenora's confidence and trust in Kimberly and Stephen, the closeness of their long-standing relationship, acquiescence in and support of the housing agreement, and conduct and affirmations that would justify Lenora's trust. Lenora's agreement with her daughter and son-in-law was known to Kimberly and Stephen, and their conduct, promise, tendered check, and letter indicate an agreement. Essentially, the trial court's judgment requires Kimberly and Stephen to honor their promise to give Lenora money for her house when they sold the property.

    "[F]iduciary relationships are not lightly created." Hasson, 286 S.W.3d at 19. Relatives assist people of advanced years or those who have health problems, and acts of kindness do not ordinarily give rise to fiduciary duties. The extraordinary facts of this case, including Kimberly's letter to Lenora and the Youngs' tender of the dishonored $6,000 check, indicate the parties' recognition of a confidential relationship and the fiduciary duty imposed. The tendered, though dishonored, check indicates Stephen and Kimberly knew that they should pay Lenora from the sale proceeds.

    The jury found that a fiduciary relationship existed. Reasonable and fair-minded jurors may differ with an appellate court on that conclusion, but on this record of disputed facts, the "jurors must be allowed to do so." See City of Keller, 168 S.W.3d at 822. "Jury trials are essential to our constitutionally provided method for resolving disputes when parties themselves are unable to do so." In re Columbia Med. Ctr. of Las Colinas, 290 S.W.3d 204, 211 (Tex. 2009). Fair-minded jurors could reasonably conclude that a confidential relationship existed, and that the confidence was betrayed. We cannot say the jury's findings are contrary to the overwhelming weight of the evidence and clearly wrong and unjust. We hold the evidence is legally and factually sufficient to support the jury findings challenged on appeal.

(2) In allowing the trial court's imposition of a constructive trust to remain undisturbed, the majority made these statements:

  • The trial court's judgment imposes a constructive trust on the property which Kimberly and Stephen purchased in part with money from the sale of the house Lenora built. A constructive trust is an available remedy imposed to redress wrong or prevent unjust enrichment under the circumstances. See generally Meadows v. Bierschwale, 516 S.W.2d 125, 131 (Tex. 1974) (constructive trust); Lesikar v. Rappeport, 33 S.W.3d 282, 303 (Tex. App.-Texarkana 2000, pet. denied) (A constructive trust is "a device equity uses to right a wrong.").

    In Mills v. Gray, a mother's property had been conveyed to a son. Mills, 210 S.W.2d at 986. The property was sold, and another house was purchased. The mother believed that the second house was to be taken in her name. Instead, the son took the property in his name. The mother sought at trial to prove the understanding of the parties at the time of the original conveyance to her son. Id. at 986-87. The trial court excluded the evidence. In the appeal, the Texas Supreme Court cited authority that "[a] parent and child, grandparent and child, or brother and sister relationship is not intrinsically one of confidence," but under certain circumstances may involve a confidential relationship, the abuse of which gives rise to a constructive trust in accordance with the terms of a promise. Id. at 988 (quoting "54 Am. Jur. 178, Sec. 233").

    The Court held the evidence should have been admitted in that case because "if the purported agreement and family arrangement had been established as true, a constructive trust would have arisen by reason of the confidential relation between the parties which would not fall within the prohibition of the Statute of Frauds or the Texas Trust Act." Id. at 989.

    In this case, the jury found a breach of fiduciary duty and determined the amount of damages. We need not decide whether the damage award is reasonable, because the Youngs do not challenge the amount of the damage award or the jury charge on appeal. Because a confidential relationship existed, Kimberly and Stephen had the burden of showing the fairness of the transaction. See Tex. Bank & Trust Co., 595 S.W.2d at 508-09.

    A court may impose a constructive trust on property obtained as a result of a breach of fiduciary duty. Omohundro v. Matthews, 341 S.W.2d 401, 404-05 (Tex. 1960). Under the circumstances, we cannot say the trial court erred in imposing a constructive trust. We overrule appellants' issues and affirm the trial court's judgment.
Editor's Note: Typically, in a civil lawsuit brought by one claiming to have been victimized in a real estate transaction alleging a home equity ripoff, the burden of proof in establishing that the transaction was, in fact, an unfair deceptive ripoff is on the alleged victim.

However (and this case serves as a reminder), if a confidential relationship exists, the burden is shifted to the beneficiary of the transaction to prove the transaction fair and free from fraud and undue influence. Further, such a case can be established by parol evidence since such a situation typically falls outside the applicable Statute of Frauds. See, for example:

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