Vous êtes sur la page 1sur 80

THE CAILLOUX CASE A NEW SHERIFF IS IN TOWN

RICHARD C. MOSTY, Kerrville

Mosty Law Firm

State Bar of Texas FIDUCIARY LITIGATION COURSE May 11-12,2006 Houston CHAPTER 10.2

AP 13929

AP 13930

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

TABLE OF CONTENTS THE CAILLOUX CASE

A NEW SHERIFF IS IN TOWN APPENDIX 1 - Jury Charge

APPENDIX 2 - Final Judgment APPENDIX 3 - Excerpts from Pre Trial Contentions of the Parties APPENDIX 4 - Appellate Issues raised by Baker Botts and Wells Fargo

AP 13931

AP 13932

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

THE CAJLLOUX CASE A NEW SHERIFF IS IN TOWN


Introduction The purpose of this paper and my comments is not to retry the Cailloux case or argue the appeal, but to give a general overview of the case which has generated a substantial amount of interest. This conversation is intended to present an understanding of key facts of the case, the jury verdict, the judgment and perhaps a peek at some appellate issues that pertain to fiduciary litigation. The ultimate outcome of the case remains unknown. More importantly, the presentation will hopefully be of assistance to focus on fiduciary duty issues in rapidly changing circumstances, and assist in our advice to clients, as well as our own duties in changing personal dynamics. Or to ask the question:
What do you do when there is a new Sheriff in town?

In the Old West, the Sheriff was in control of the town and set down the rules according to his own way of thinking. When a new Sheriff came to town, it was a sure message to be sure for everyone to find out what the new rules would be. The Litigation As early as 1994, Kathleen Cailloux exhibited signs of Alzheimers. By the time suit was filed, and throughout trial Kathleen was incapacitated to the point she could not participate. Ken Cailloux, on behalf of his mother, initiated the litigation in 2004, alleging attorney malpractice and breach of fiduciary duties against her former attorneys, Baker Botts (and individual lawyers) as well as a breach of fiduciary duty claim against Wells Fargo Bank in its capacity as Executor of Floyd Caillouxs estate. Ken, Paula, and Stephen Andresakis also sued Baker Botts for malpractice, alleging an attorney-client relationship and for negligent misrepresentation. They also brought a breach of fiduciary duty claim against Wells Fargo. The claims of Ken, Paula, and Stephen were dismissed during trial. Jury selection began on February 7, 2005, and the jury verdict was received on February 25, 2005. A copy of the jury charge and final judgment are found in Appendix 1 and 2. Excerpts from the parties contentions in the Agreed Joint Pre-Trial Order are in Appendix 3. The jury returned one breach of fiduciary duty finding against Baker Botts, but failed to find negligence. The jury also returned three breach of fiduciary duty findings against Wells Fargo.

AP 13933

The Cailoux Case A New Sheriff Is In Town

Chapter 10.2

Needless to say, both Baker Botts and Wells Fargo vigorously denied the claims and seek to have them overturned on appeal. Factual Background Floyd and Kathleen Cailloux were married for 55 years. During their lifetime they accumulated an enormous estate, consisting entirely of community property. Floyd owned several companies and eventually became the majority owner of Keystone International which was sold to Tyco after his death for in excess of $130 million dollars. In the early 1980s, Floyd and Kathleen settled in Kerrville, where Ken had previously moved. They lived a quiet, perhaps secluded life. Kathleen was never involved in any financial or business activities. Sometime prior to 1994, Floyd became a major customer of First National Bank of Kerrville. First National Bank was owned primarily by ONeil Griffin, and its President was William Goertz. First National was acquired by Norwest (later named Wells Fargo) in 1994. In 1994, Baker Botts created an estate plan for Mr. Griffin, which included a private foundation. Mr. Griffin introduced Floyd Cailloux to the Baker Botts firm. Following the introduction, Floyd and Kathleen entered into an estate planning process with Baker Botts, executing new wills and creating the Floyd A. Cailloux and Kathleen C. Cailloux Foundation (the "Cailloux Foundation") a private foundation incorporated as a Texas non-profit. Floyd was one of four original directors of the Cailloux Foundation, along with Ivfr.Goertz, then President of First National Bank, Mr. Griffin, principal owner of First National Bank, and Wayne Patterson, an attorney and former employee of Floyds. Mr. Goertz became Executive Director of the Cailloux Foundation and continued to be employed by Wells Fargo throughout the litigation. None of the Cailloux Foundation directors had any relationship with Kathleen aside from rarely seeing her in passing. The Cailloux family members held officer positions, but did not actually participate in the Cailloux Foundation. After Floyds death, participation of the Cailloux family in the Cailloux Foundation became a source of controversy, and an important fact in the litigation. As part of the 1994 estate planning, Baker Botts also drafted the Cailloux 1994 Charitable Remainder Unitrust. The purpose of the 1994 CRUT was to provide substantial income to Floyd and Kathleen during their lifetimes, with the Cailloux Foundation being the principal remainder beneficiary. Floyd and Kathleen signed all the documents in November, 1994. 2

AP 13934

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

On April 7, 1995, Baker Botts drafted, and Floyd executed a new last will and testament for Floyd ("Floyds Will") and a similar last will and testament for Kathleen, as well as the creation of a family limited partnership named Cailloux Interests, Ltd., the Floyd A. Cailloux Management Trust (the Managing Partner of the family limited partnership of which Floyd was sole Trustee), several trusts for the benefit of Ken, Paula, and Stephen, and a revocable trust for Floyd and Kathleen. Floyd died unexpectedly on January 21, 1997 By the time of Floyds death in 1997, the Cailloux Foundation had only accumulated assets of approximately $6 million through annual gifts from Floyd and Kathleen. Floyds Will named Wells Fargo as the executor of his estate, and provided that Kathleen receive his community estate in trust and granted her a testamentary power of appointment over his entire estate. Floyds Will also stated that Kathleen was entitled to receive all of the net income from Floyds community estate during her lifetime, and granted her the right to invade 5% of the principal of his community estate each year during her lifetime. The Testamentary Power of Appointment Kathleen was the income beneficiary of the marital trusts with power of appointment, and the Cailloux Foundation was the principal contingent remainder beneficiary. The testamentary power of appointment in favor of Kathleen eventually became a focal point of the trial. Her power of appointment for the disposition of Floyds entire community estate was limited only to children (including grandchild Stephen) their spouses, and/or charitable institutions. The power of appointment afforded Kathleen the opportunity to entirely exclude the Cailloux Foundation from Floyds estate. When she later disclaimed, she waived her rights, not only to the income and power of invasion, but also to her appointment right to dispose of Floyds estate. A fundamental disagreement at trial was whether Kathleen was adequately advised of her attorneys potential for conflict among multiple clients, particularly with respect to her rights under the power of appointment. The Engagement On January 30, 1997, nine days following the death of Floyd, Baker Botts sent a joint engagement letter to Wells Fargo (in its capacity as executor of Floyds estate) and to Kathleen (in care of Wells Fargo).

AP 13935

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

At the same time, a similar but separate engagement letter was sent to the Cailloux Foundation in care of Mr. Goertz at his Wells Fargo office, establishing a three client representation arrangement. Kathleen had no contact with Baker Botts or Wells Fargo regarding the engagement, the terms of engagement, possible conflicts, or the potential advantages and disadvantages of the common representation. No one suggested that Kathleen might, should, or could obtain independent advice on any conflict of interest issues presented by the common representation. Baker Botts did not seek consent from Kathleen to undertake the multiple representation of the Wells Fargo, as executor, or the Cailloux Foundation, the primary contingent remainder beneficiary. Other than the engagement letters sent to Kathleen Cailloux in care of the Bank, no discussions were undertaken with Kathleen as to the nature, implication, possible adverse consequences or advantages of any common representation. Baker Botts argued that the language of the engagement letters to Kathleen and Wells Fargo included a conflict of interest paragraph which properly and adequately advised her of issues related to any potential conflict of interest in its multiple representation. Mr. Eastland sent Kathleens engagement letter to First National trust officer Wes Dorman who delivered it to Mrs. Cailloux. Plaintiffs contended that delivery of an engagement letter to one of the common clients was ineffective to properly advise Mrs. Cailloux of the existence, nature, implications, and possible adverse consequences of the common representation of multiple clients. Mr. Dorman, also a lawyer, did not attempt to explain or discuss the engagement letter with Kathleen. The second engagement letter was sent to directly to the Cailloux Foundation. Baker Botts contended that both engagement letters contained all necessary disclosures regarding potential or actual conflicts among multiple clients. Plaintiffs contended that full disclosure of potential adverse consequences required more than a "form letter" sent in care of one of the conflicted clients with instructions to discuss with the other client. The Galveston Meeting On February 13, 1997, three weeks after the death of Floyd, a meeting was held in Galveston, Texas to discuss Cailloux family financial matters. Kathleen Cailloux did not attend the meeting. Ken, Paula, Stephen, Baker Botts lawyers and First National Bank officers attended.

AP 13936

The Callloux Case A New Sheriff Is In Town

Chapter 10.2

At this meeting, Ken expressed an interest in succeeding Floyd as a board member for the Cailloux Foundation. All attendees who testified agreed that Mr. Goertz "frankly" informed Ken that the Cailloux family would not be allowed a seat on the board of the Cailloux Foundation. In response to Mr. Goertzs exclusion of Ken and her family from participation in the Cailloux Foundation, Kathleen authorized Ken to have Baker Botts to form a new foundation to be called the Kathleen Cailloux Family Foundation (the "Family Foundation") with specific directives to include the Cailloux family in the operation and direction of the new foundation, making it a family controlled foundation. This request was also later communicated to Baker Botts by Kathleen. The Kathleen Cailloux Family Foundation was in fact created on April 1, 1997, when Kathleen signed all documents prepared by Baker Botts.
The Option Memo

In February 1997, Baker Botts formulated an estate plan for Kathleen to disclaim Floyds estate in favor of the Cailloux Foundation, another of its clients, whose Executive Director was Mr. Goertz. On February 24, 1997, Mr. Goertz had telephone discussions with Baker Botts attorneys with respect to Kathleens "authority" over Floyds estate. Baker Boils informed Mr. Goertz it intended to recommend that Kathleen disclaim her inheritance, with the effect being that 92% of Floyds estate would pass immediately to the Cailloux Foundation rather than to the marital trusts for Kathleen. This amount ended up being $65 million dollars. Mr. Goertz stated that when his notes referred to "authority" he later understood that to refer to Kathleens power of appointment. Baker Botts attorneys testified that they believed they were dealing with Mr. Goertz on behalf of Wells Fargo in its Executor capacity, as well as Executive Director of the Cailloux Foundation. Wells Fargo argued that Mr. Goertz had nothing to do with its Executor functions and was at all times acting solely in his capacity as Executive Director of the Cailloux Foundation, the contingent remainder beneficiary. Baker Boils drafted a memo (later called the Option Memo) originally addressed to Kathleen and the Wells Fargo trust officers, John Rogers and Wes Dorman, which detailed the new estate plan for Kathleen which, among other things, included a suggestion that the Cailloux family members use their willingness to disclaim their interest in Floyds estate (which favored the Cailloux Foundation) as leverage to get the Cailloux Foundation to permit more family involvement in managing the Cailloux Foundation, from whom they were at odds.
5

AP 13937

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

After revisions, at the end of February, the Option Memo was sent to Wells Fargo Officers Goertz, John Rogers, and Wes Dorman for review before discussing it with Kathleen. At the time, no one from Baker Botts, Wells Fargo, or the Cailloux Foundation had talked to Kathleen, and she was never made aware that any proposed estate plan had been drafted or sent to Wells Fargo and Mr. Goertz for advance review. Baker Botts would meet Kathleen for the first time on March 3, 1997, the day Floyds will was admitted to probate. Under the "disclaimer" strategy outlined in the Baker Botts memorandum, Kathleen, Ken, Paula and Stephen would all disclaim their rights in Floyds estate. The stated reason for suggesting this strategy was (a) (b) (c) the avoidance of more than $30 million in tax liability; funding to the contingent remainder charities (primarily the Cailloux Foundation) immediately rather than at Kathleens death reducing the fiduciary liability of Wells Fargo.
$65 million)

Once the disclaimers were executed, 92% of the remainder interest (eventually in excess of

vested in the Cailloux Foundation, over which the Cailloux family had been denied any control or influence. The remaining 8% vested in various other charities. As a result of Floyds death, no material estate taxes were in fact due. Plaintiffs Claims Plaintiffs alleged that Kathleen was never adequately informed by her Baker Botts attorneys of the existence of a conflict of interest, or potential for conflict, or the nature, implications, and possible adverse consequences of the common representation. Further, Plaintiffs alleged that there was no material estate tax due on Floyds death or that as a surviving spouse she could receive her entire inheritance under Floyds Will without taxes. Additionally, Plaintiffs claimed that no one effectively explained to Kathleen that she had other options to avoid or limit estate taxes upon her own death by donating her property to charities or foundations of her choosing during her lifetime or in her will. Plaintiffs claimed that Baker Botts did not explain to Kathleen that rather than disclaiming, she could receive her entire inheritance under Floyds Will or appoint all or a part of Floyds community estate to her new Kathleen Cailloux Family Foundation upon her death.

AP 13938

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

Plaintiffs alleged that only two options were presented to Kathleen by Baker Botts, and the recommended course was the option to direct the family wealth away from Kathleen (or appointees of her choosing) to its other client, the Cailloux Foundation, via the disclaimer strategy. Plaintiffs claimed that had she known, Kathleen could have received her inheritance and exercised her power of appointment to direct Floyds estate to her own Kathleen Cailloux Family Foundation rather than to the Cailloux Foundation from whom her family was then estranged. The March 5th Meeting On March 5, 1997, Floyds Will was admitted to probate (with Baker Botts representing Wells Fargo as executor in that proceeding). Baker Botts lead counsel met with Ken Cailloux before and after the court hearing. Plaintiffs claimed that he advised Ken to select the disclaimer strategy to save taxes and also recommended that Kathleen donate in excess of $40 million to charity from her own estate. After the probate hearing, the Baker Botts lawyer met Kathleen for the first time. Mr. Dorman from Wells Fargo also attended, as did Ken Cailloux. Plaintiffs claim that Baker Boils did not discuss with Kathleen the existence, nature, implications and possible adverse consequences of its common representation, nor adequately explain to her the rights granted to her under Floyds Will, particularly her right to appoint Floyds estate. It was undisputed that this was the first time that any Baker Botts lawyer had met with Kathleen and is the only personal meeting with her prior to the formal execution of documents implementing the disclaimer strategy on April 1, 1997. Baker Boils counsel testified that he covered all the estate planning options, as well as the conflict issues, during a less than one hour meeting with Kathleen, and that he was satisfied she understood. Counsel testified that he thoroughly discussed the potential for conflict of interest as well as Kathleens options and that that he believed Kathleen understood her options, and wanted Floyds estate to pass immediately to the Cailloux Foundation. Wells Fargo Plaintiffs claimed Wells Fargo, as executor of Floyds Will, failed to provide Kathleen with a copy of Floyds will or otherwise inform her of her rights, or her alternate options under her husbands will. Instead, Plaintiffs claimed that Wells Fargo stood silent in breach of its fiduciary duties while she disclaimed her entire inheritance to benefit the Cailloux Foundation, who it knew had excluded the Cailloux family, whose assets were

AP 13939

The Cailoux Case A New Sheriff Is In Town

Chapter 10.2

managed by Wells Fargo and which was under the control of Wells Fargo executive Mr. Goertz to the exclusion of Kathleen or any member of the Cailloux family. Plaintiffs claimed, and Wells Fargo admitted, that it made no direct disclosures to Kathleen, nor had any contact with her. Wells Fargo contended that all of its required disclosures were made through its lawyers, Baker Botts. Wells Fargo contended that it had no affirmative obligation to provide Kathleen with a copy of the Will or its contents or discuss or advise Kathleen with respect to estate planning or a possible disclaimer as being beyond the duties of an Executor.
The Disclaimer

On April 1, 1997, Kathleen executed the "disclaimer strategy" documents-- a new Last Will and Testament, a disclaimer to her inheritance under Floyds Will, and the new Kathleen Cailloux Family Foundation. On that day, Kathleen effectively transferred her marital trust assets to the Cailloux Foundation. Kathleen also divested herself of control over millions of dollars of her own funds by placing them into the 1997 CRUT, as a part of the recommended plan. Between March 27, 1997 and April 11, 1997 Ken, Paula, and Stephen all executed disclaimers to Floyds Will. Thereafter, a declaratory judgment suit was filed which sought and obtained approval of the Cailloux Interests, Ltd. withdrawal transaction. Defendants contended that the declaratory judgment action barred the litigation as a matter of law. Plaintiffs claimed that the declaratory judgment simply declared distribution under Floyds will and the Disclaimers, and did not confirm or judicially approve the actions which lead to the execution of Kathleens Disclaimer.
The Appeal

Of course, the Cailloux case has its own unique appellate issues. The issues raised by Baker Botts and Wells Fargo are set out in Appendix 4. At the time of this writing, the Cailloux brief is due to be filed in late May. One of the unique issues on appeal is whether the Court had the authority to create the "Equitable Trust". Both Wells Fargo and Baker Botts contend that the Trial Court lacks authority to created the Equitable Trust. From a fiduciary litigation standpoint, Baker Botts argues that the "failure to reveal material facts" finding is actually a standard of care issue, and that there is no freestanding duty to reveal material facts. The argument 8

AP 13940

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

continues that since the jury failed to find negligence, this finding is not controlling, and any judgment based on breach of fiduciary duties is barred by the fracturing doctrine. Wells Fargos primary breach of fiduciary duty argument is there is not sufficient evidence to support any finding of breach of fiduciary duties, or that its actions caused Kathleen damage. Wells Fargo argues that issues relating to the execution of a disclaimer are outside its duties as an executor. Lessons Is the Cailloux case unique because of its facts? Is it unique because it presents novel issues in the area of fiduciary litigation? Or Is it simply a reminder of the challenges facing fiduciaries in changing dynamics? In my personal view, the lesson to be learned by fiduciaries and their attorneys (or to be scrutinized by the opposition) is whether the fiduciary properly reacted to new, different, or changing dynamics of personal relationships. Breach of fiduciary duty cases often play out when a relationship changes from a personal (psychological) relationship into a new legal relationship overlaid with fiduciary duties. With regard to duties of fiduciaries, I am not sure that there are a lot of precedent setting issues to the Cailloux case. Rather, the issues to focus on are of an acute recognition of the difference of moving from a psychological relationship, a personal relationship, into the legal relationship of a fiduciary. One clear lesson should be an increased awareness among lawyers, and among clients, of the possibility for fiduciary claims which arose in changing personal and psychological relationships. Lawyers may face common themes and fact patterns, in which we sometimes do not react when fiduciary duties are overlain into an existing relationship. Is there a new Sheriff in town?
When the new Sheriff arrives, has everyone learned the new rules? or When dynamics change does the iew "fiduciary adjust or change behavior from the personal psychological relationship into ajlduciary relationship?

Often times a lawyer has developed a long standing relationship with a client as a friend, confidant, advisor, or legal counselor. In many instances, the lawyers primary contact might be with only one of multiple clients, such as only a husband, or the primary business partner. In those circumstances, if the primary contact changes, then suddenly there is a fiduciary duty that passes to others, with whom the lawyer might have little relationship.
9

AP 13941

The Cailoux Case A New Sheriff Is In Town

Chapter 10.2

Now the lawyer can be cast into a fiduciary relationship with a virtual stranger. The lawyer is a fiduciary to a person with whom he had no prior confidential or trust relationship. The same can be true of a banker or accountant or financial advisor who has primary contact with one spouse in a financial relationship. All of a sudden at the death of that spouse, the bank or accountant or family friend might be called upon to be executor of the estate, and owe fiduciary duties to a person they hardly know. Does the lawyer adjust to the new circumstances? Does the new fiduciary adjust?

A Scenario - The Country Estate Is there a new Sheriff in Town? As an example we might often see in the Hill Country, Mom and Dad own a family ranch, and over the years have accumulated a substantial amount of assets, or perhaps a business. In this case we will assume that the ranch is Dads separate property (Dads Ranch), but the community has paid off a large mortgage, and greatly improved the ranch for years. Dad also had some separate stock at the time of the marriage. Mom and Dad have accumulated in excess of $1,000,000 in liquid assets, about half of which is in a stock account with right of survivorship. Dad has been the sole controlling patriarch for years, and Country Lawyer has represented him for over 40 years barely knowing Mom and only knowing the children in passing. Country Lawyer prepared wills for Mom and Dad that leave all of their assets into a marital trust with mandatory income to the survivor, remainder to their three children equally. Both wills have a power of appointment, giving the survivor the right to direct the deceaseds estate to any person, or charity, or to the survivors choosing. Dad has a verbal general partnership with his Brother, which has a lucrative ranching business, including cattle inventory, cattle hedging accounts and mineral interests acquired during the marriage. The partnership leases Brothers ranch and feedlot for a healthy annual rental. Son 1 runs Dads Ranch with Dad and lives there. He is Dads favorite, and Dad wants him to keep the ranch, and everything associated with the ranch. Country Lawyer also represents Son 1, but with limited activity. Son 2 left the ranch for a fashion job in New York, and has not been to the ranch in years. Daughter married a lawyer from Los Angeles. Son 2 and Daughter are Moms clear favorites. LA Lawyer has been stirring the pot, and the children do not speak, and the family is on the verge of litigation over how Dad and Son 1 are running the ranch. 10

AP 13942

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

Banker has known Dad since they were kids. Dad, and now Son 1, sit on the Board, and are both important customers. He has never had more than a courtesy conversation with Mom or the other children.
Scenario 1

Mom dies first. Does Dad ever fund the marital trust? Does Dad carry out the terms of the trust? What assets are placed in the trust? Does the County Lawyer insist that Dad act like a fiduciary toward all the children? Does Banker, as executor of the Estate and the Trustee, affirmatively see to it that the testamentary trusts are funded, the trust assets fairly apportioned, and the terms of the trust complied with? Does the Executor have an obligation to do so? Or does Dad keep operating "his ranch" the same way he has forever with Country Lawyer representing him, letting Dad make all the decisions.
Scenario 2

Same fact situation as above, Dad dies first, and Country Lawyer undertakes to represent Mom as an individual in her ongoing estate plan, the Bank as executor and trustee. Does Country Lawyer get to know Mom and find out what she wants to do under the terms of the will? What if she wants to exclude Son 1 from her will, or from Dads estate? (Remember Country Lawyer also represents Son 1) Does Country Lawyer and Banker (knowing what Dad wanted since they had known him as a confidant for so many years) carry forward what they know to be Dads desires.
Scenario 3

During the course of the probate of Dads Will, it is discovered that some $500,000.00 in liquid assets is listed in Mom and Dads name with the right of survivorship to Mom. Country Lawyer knows that Moms favorite child is different from Dads favorite child, and Mom wants to change her Will to treat the children differently now that Dad is gone. What does Country Lawyer do? Does he continue to represent Mom and Dads estate? Does he advise Mom that she now has the $500,000.00 outside of probate, and can dispose of it anyway she chooses?

11

AP 13943

The Cailoux Case A New Sheriff Is In Town Scenario 4

Chapter 10.2

Dad also was in the lucrative ranching partnership with Brother, in which Mom did not take any activity whatsoever, nor did she have any knowledge. Now Brother is in a partnership fiduciary relationship with Mom in her own community interest in the partnership assets. Brother is also a fiduciary with Dads interest in the marital trust, with the children as remainder beneficiaries. Does brother act as a fiduciary? Or does he simply continue the ranching operation as he always has without consulting with Mom? Does he account for the proceeds? Does Accountant (who does taxes for everyone) have any responsibilities to Mom? Is the Bank, as trustee of the marital trust, required to take any affirmative action to protect the partnership interest in the marital trust?
Scenario 5

Same fact situation. Mom and Dad executed mirror image Wills leaving a marital trust for the other, and remainder to the three children equally. Over time, the two children side up with mom, and Son 1 sides up with Dad in a bitter dispute. Dad has Accountant (who does tax returns for Mom and Dad) begin keeping a separate accounting of community and separate property estates, claims for reimbursement, and economic contribution. The result is, over years, that Accountant calculates that the community estate owes Dads separate estate hundreds of thousands of dollars. What duties, if any, does the Accountant have to Mom to disclose the accounting which have lessened her community estate significantly?
Scenario 6

Because of the bitter dispute, Dad decides to change his mirror Will without telling Mom, excluding the two children who are favored by Mom, and including only Son 1. Can County Lawyer draw up a new Will for Dad? Does Country Lawyer have a duty to disclose to Mom that Dad no longer has the mirror image?
Scenario 7

Mom dies, and mirror image Will is admitted to probate. Does Moms estate have a claim against Accountant for his actions in creating the separate accounting without her knowledge? 12

AP 13944

The Cailloux Case A New Sheriff Is In Town

Chapter 10.2

Does Dad owe a fiduciary duty to his children to not change his Will after Moms death? If so, what remedies might they have? Final Thoughts As is obvious, the intertwined, complex personal relationships create a literal minefield for the person who has now been thrust into the new role as fiduciary, as well as the lawyer, who has seen the landscape change dramatically. How the fiduciary and lawyer react to the change in circumstances, or if they react at all, will be crucial. I have briefly set out the background of the Cailloux case, as well as some scenarios to describe some of the types of conflict issues, when dealing with multiple parties in changing dynamics. Jim McCormick who will follow me will lay out the technical rules and considerations that the lawyer must address in conflict or interest questions. Conclusion When a new Sheriff arrives in town, pay attention to the new Sheriff.

13

AP 13945

AP 13946

04/11/2008 10:18 IFAX Mosty Law Firm@ktc.com Sam

16 001/024

NO. 03-603-B

KATHLEEN C. CAILLOIJX VS.

X X
)(

IN ThE DISTRICT COURT 198 JUDICIAL DISTRICT

BAKER BOUS, LL1, )( WELLS FARGO BANK TEXAS, NA., )( S. STACY EASTLA.ND, and STEFf[EN T. DYER X

KERR COUNTY, TEXAS


coq of tie. odgkW
IS S

MIS certdicaia is sftixe. K t rue and crrBd

CIXARGE OF TEE COJTRT

Arrs -

e-Y
UNOAUKED1I KW 0M24, Tam

2oAS

MEMBERS OF THE JURY:

This case is submitted to you by asking questions about the facts, which you must de from the evidence you have heard in this trial. You are the sole judges of the credibility of the witnesses and Ow-weight to be given their testimony, but in matters of law, you must be governed by the instructions in this Charge. In discharging your responsibility on this jury, you will observe all the instructions which have previously been given you. I" now give you additional instructions which you should carefully and strictly follow during your deliberations. 1. 2. Do not let bias, prejudice or sympathy play any part in your deliberations. In arriving at your answers, consider only the evidence introduced hereunder oath and

such exhibits, if any, as have been introduced for your consideration under the rulings of the Court,
that is, what you have seen and heard in this courtroom, together with the law as given you by the

Court. In your deliberations, you will not consider or discuss anything that is not represented by the evidence in this case. 3. Since every answer that is required by the Charge is important no jurorp44state
Ilk

or consider that any required answer is not important.

AP 13947

04/11/2008 10 : 48 IFAX Mostv Law Firm@ktc.com

Sam

002/024

4,

You must not decide who you think should win, and then try to answer the questions

accordingly Simply answer the questions, and do not discuss nor concern yourselves with the effect of your answers.
S.

You will not decide the answer to a question by lot or by drawing straws, or by any

other method of chance Do not return a quotient verdict. A quotient verdict means that the jurors agree to abide by the result to be reached by adding together each juro? a figures and dividing by the number ofjurors to get an average. Do not do any trading on your answers; that is, one juror should not agree to answer a certain question one way if others wifl agree to answer another question another way. 6. You must render your verdict upon the vote often or more members ofthcjury. The

same ten or more of you must agree upon all of the answers made and to the entire verdict. You will not, therefore, enter into an agreement to be bound by a majority or any other vote of less than ten jurors. If the verdict and all of the answers therein are reached by unanimous agreement, the presiding juror shall sign the verdict for the entire jury. If any juror disagrees as to any answer made
by the verdict ! those jurors who agree to all findings shall each sign the verdict

7.

You are instructed that you are not to allow yourselves tobe influenced in any degree

whatsoever by what you might think or surmise the opinion of the Court to be, The Court has no

right by any word or act to indicate any opinion respecting any matter of fact involved in this case, nor to indicate any desire respecting its outcome. The Court has not intended to express any opinion upon any matter of fact in this case; and, if you have observed anything which you have or may interpret as the Courts opinion upon any matter of fact in this case, you must wholly disregard such.
8. It is your duty as a juror to consult with your fellow jurors and to delibetjla

view to reaching an agreement, if you can do so without violence to

Oslo
AP 13948

04/11/2006 10:48 IFAX Mosty Lrnrn Firm@ktc.com

Sam

003/024

decide the case for yourself, but do so only after an impartial consideration of the evidence with your fellow jurors. In the course of your deliberation, do not hesitate to reexamine your views and to change your opinion on any matter if convinced it is erroneous. However, do not surrender your honest convictions as to the weight of effect of evidence solely because of the opinion of your fellow jurors, or for the mere purpose of returning a verdict. These instructions are given you because your conduct is subject to review the seine as that of the witnesses, parties, attorneys and the Judge. If it should be found that you have disregarded any of these instructions, it will be jury misconduct and it may require another trial by another jury; then all of our time will have been wasted. The presiding juror or any other who observes a violation of the Courts instructions shall immediately warn the one who is violating the same and caution the juror not to do so again. After you retire to the jury room, you will select your own presiding juror. It is the duty of the presiding juror: (1) to preside during your de1ibcrations,

(2)

to see that your deliberations are conducted in an orderly manner and in accordance-

with the instructions in this Charge, (3) to write out and hand to the bailiff any communications concerning the case that you

desire to have delivered to the Judge, (4) (5) (6) to vote on the questions, to write your answers to the questions in the spaces provided, and to certify to your verdict in the space provided for the presiding juro?s signature or

to obtain the signatures of all jurors who agree with the verdict if your verdict is
0
.

AP 13949

04/11/2008 10:48 IFA:( Musty Law Firm@ktc.com

+ Sam

a 004/024

You should not discuss the case with anyone, not even with other members of the jury, unless all of you are present and assembled in the jury room. Should anyone attempt to

task to you about

the case before the verdict is returned, whether at the courthouse, at your home, or elsewhere, please inform the Judge of this fact. When words are used in this Charge in a sense which varies from the meaning commonly understood, you are given a proper legal definition, which you are bound to accept in place of any other meaning. Your answer to all questions must be based on a preponderance of the evidence. The term "preponderance of the evidence" means the greater weight and degree of credible testimony or evidence introduced before you and admitted in this case. When you have answered all the questions you are required to answer under the instructions of the Judge and your presiding juror has placed your answers in the spaces provided and signed the verdict as presiding juror or obtained the signatures, you will inform the bailiff at the door of the jury - room that you have reached a verdict, and then you will return into court with our verdict.

JUDGE PRESIDING

I,IIIp

M4
ef

. A 4
-

AP 13950

04/11/2008 10:43 IFAX Mosty Law Firm@ktc.com

Sam

16005/024

QUESTION 1

Did Baker Both, LLP breach its fiduciary duly to Kathleen C Cailloux in any of the following ways? The conduct of Baker Botts, LLP includes the conduct of S. Stacy Eastland and Stephen T. Dyer.
in

(a)

Failing to fully acid fairly disclose all important information-to Kathleen C. Caifloux concerning the transactions in question. Answer "Yes" or "No"

(b)

Falling to act with the utmost loyalty toward Kathleen C. CaiflouL


Answer "Yes" or "No."

k/U
(c) Participating in transactions that were not fair and equitable to Kathleen C Cailloux. Answer "Yes" or "No."

(d)

Failing to act in the utmost good faith and exercise the most scrupulous honesty toward. Kathleen C. Cailloux Answer "Yes" or
"No4"

AP 13951

04/11/2008 10:48 IFAX Mosty Law Firm@ktc.com

+ Sam

Z 008/024

QUESTION 1A If you have answered Yes" to any part of Question 1 (Baker Botts fiduciaty duty], then answer the

following qiestion. Otherwise, do not answer the following question.


Did Wells Fargo Bank Texas, N. A. and/or William Goertz, individually, knowingly participate in any of Baker Botts LLPs breach or breaches of fiduciary duty that you found in Question 1?

The conduct of Wells Fargo Bank Texas, NA includes the conduct of John Rogers and Wes Dorman, Wells Fargos conduct includes the conduct of William Goertz if he was acting with Wells Fargos authority or apparent authority. Authority for another to act for a party must arise from the partys agreement that the other act on behalf and fbi the benefit of the party. If a party so authorizes another to perform an act that other party is also authorized to do whatever else is proper, usual and necessary to perform the act expressly authorized. Apparent authority exists if a party (1) knowingly permits another to hold himself out as having authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead areasonablypmdent person to rely on the apparent existence of authority to his detriment, Only the acts of the party sought to be charged with responsibility for the conduct of another may be considered in determining whether apparent authority exists.
Answer "Yes" or "No" as to each party. Wells Vargo Bank Texas, N A:

jfo
___

William Goeilz:

Qb_

AP 13952

04/11/2006 10:49 IFAX MUsty Law Firm@ktc.com

4 Sarni

Z 007/024

QUESTION lB

If you have answered "Yes" to any part of Question 1 [Baker Buts fiduciazy dutyl, then answer the following question. Otherwise, do not answer the following question.
By what date did Kathleen C CaiJoui know or, in the exercise of reasonable diligence, should have known of the breach or breaches of fiduciary duty committed by Baker Both LLF

For the purposes ofthis question only, Kathleen Caillouxs conduct includes the conduct of Kenneth Cailloux if be was acting vnthKathleen C. Caillouxs authority or apparent authority prior to the date upon which he obtained a power of attorney for Kathleen C. Cailloux. Authority for another to act for a party lutist arise from the partys agreement that the other act on behalf and for the benefit of the party. If a party so authorizes another to perform an act, that other party is also authorized to do whatever else is proper, usual, and necessary to perform the act expressly authorized. Apparent authority exists if a party (1) knowingly permits another to hold himself out as having authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead a reasonably prudent person to rely on the apparent existence of authority to his detriment. Only the acts of the party sought to be charged with responsibility for the conduct of another may be considered in determining whether apparent authority exists. For the purposes ofthis question only,, after the date upon which Kenneth CaMouic obtained a power of attorney for Kathleen C Caifloux, "Kathleen C. Caillouf includes Kathleen C Cailloux and Kenneth Cailloux.

Answer with a date..

0_y
.

AP 13953

04/11/2006 10:43 IFAX Mosty Law Firm@ktc.com

- Sam

Z 008/ 024

QUESTION 1C

If you have answered "Yes" to any part of Question 1 [Baker Baits fiduciaiy following question Otherwise, do not answer the following question

duty],

then answer the

What sum of money, if any, if paid ,iow in cash would fairly and reasonably compensate Kathleen C. Cailloux for her damages, if any, which were proximately caused by such conduct?

Do not increase or reduce the amount in one answer because of your answer to any other question about damages. Do not speculate about what any partys ultimaterecoverymayor may not be. Any recovery will be determined by the Court when it applies the law to your answers at the time of jtidgment. Do not add any amount for interest on damages, if any.
Consider each of the following elements of damages, if any, and none other. (a) The value that Kathleen C. Cailloux would have received in trust had she not signed the disclaimer. Answer in dollars and cents.

$(j5Sr1tLop\
(b) Lost income that Kathleen C. Caffloux would have received had she not signed the disclaimer. Answer separately in dollars and cents for damages, if any, that Were sustained in the past In reasonable probability will be sustained in the future:

(c)

The economic loss resulting from Kathleen C. Cailloufs inability to take a


withdrawal of principal from her marital bypass trust

5% annual

Answer in dollars and cents. S 0 .

AP 13954

04/11/2006 10:48 IFAX Mosty Law Firm@ktc.com

Sam

003/024

QUESTION 2

Did Wells Fargo Bank Texas, N. A. breach its fiduciary duty to Kathleen C. Cailloux in any of the following ways?

The conduct of Wells Fargo Bank Texas, NA. includes the conduct of John Rogers and Wes Dorman. Wells Fargos conduct includes the conduct of William Goertz if he was acting with Wells Fargos authority or apparent authority. Authority for another to act for a party must arise from the paTtys agreement that the other act on behalf and for the benefit of the party. If a party so authorizes another to perform an act that other party is also authorized to do whatever else is proper, usual, and necessary to perform the act expressly authorized. Apparent authority exists if a party (1) knowingly permits another to hold himself out as having authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead a reasonablyprudent person to rely on the apparent existence ofauthority to his detriment. Only the acts of the party sought to be charged with responsibility fbr the conduct of another may be considered in determining whether apparent authority exists.
(a) Failing to fully and fairly disclose all important information to Kathleen C Cailloux concerning the transactions in question. Answer "Yes" or "No."

It

(b)

Failing to act with the utmost loyalty toward Kathleen C. Calllnx Answer "Yes" or "No."

(c)

Participating in transactions that were not fair and equitable to Kathleen C. Caifloux. Answer "Yes" or "No."

AP 13955

04/11/2008 10:43 IFAX Mcisty L Firm@ktc.com

Sam

0 10 / 024

(d)

Failing to act in the utmost good faith and exercise the most scrupulous honesty toward Kathleen C Cailloux. Answer "Yes" or "No."

Les

LL

AP 13956

04/11/20:8 10.48 IFAX Mosty Law Firm@ktc. com

+ Sam

011/024

QUESTION IA If you have answered "Yes" to any part of Question 2 [Wells Fargo fidueiaiy duty], then answer the following question. Otherwise, do not answer the following question. Did Baker Both L,LP or William Gocrtz, individually, knowingly participate in any of Wells Fargo Bank Texas, N. As breach or breaches of fiduciary duty that you found in Question 2? The conduct of Baker Botts, LLP includes the conduct of S. Stacy Eastland and Stephen T. Dyer.

"William Goertz, individually," does not include the conduct of William Goertz ifhe was acting with Wells Fargos authority or apparent authority. Authority for another to act for a party must arise from the partys agreement that the other act on behalf and for the benefit of the party. If a party so authorizes another to p erform an act, that other party is also authorized to do whatever else is proper, usual, and necessary to perform the act expressly authorized.
Apparent authority exists if a party (I) knowingly permits another to hold himself out as having authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead a reasonably prudent person to rely on the apparent existence of authority to his detriment- Only the acts of the party sought to be charged with responsibility for the conduct of another may be considered in determining whether apparent authority exists. Answer "Yes" or "No." Baker Both, LLP William Coeitz

(A L5

(4~
0.

Cr-

AP 13957

04/11/2008 10:48 FAX Mosty Law Firm@ktc.com

- Sam

012,1024

QUESTION 2B

If you have answered "Yes" to any part of Question 2 [Wdls Fargo fiduciary duty], then answer the following question. Otherwise, do not answer the following question.
By what date did Kathleen C Cailloux know or, in the exercise of reasonable diligence, should have known of the breach or breaches of fiduciary duty committed by Wells Fargo Bank Texas, NA.?

For the purposes of this question only, Kathleen Caillouxs conduct includes the conduct of Kenneth Cailloux lute was acting with Kathleen C. Caillouxs authority or apparent authority prior to the date upon which he obtained a power of attorney for Kathleen C. Cailloux. Authority for another to act for a party must arise from the partys agreement that the other act on behalf and for the benefit of the party If a party so authorizes another to perform an act, that other party is also authorized to do whatever else is proper, usual, and necessary to perform the act expressly authorized. Apparent authority exists if a party (I) knowingly permits another to hold himself out as having authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead a reasonably prudent person to rely on the apparent existence of authority to his detriment. Only
the acts of the party sought to be charged with responsibility for the conduct of another may be

- considered in determining whether apparent authority exists. For the purposes of this question only, after the date upon which Kenneth Cailloux obtained a power of attorney for Kathleen C. Cailloux "Kathleen C. Calllowe includ Kathleen C. Cailloux and Kenneth Cailioux.
Answer with a date,

Pt,

"I

roUNT

uc,

AP 13958

04/1 1/2006

10:49 IFAX Mosty Law Firm@ktc.com

+ Saw

Z 01:3/024

QUESflO 2C If you have answered "Yes" to any part of Question 2 (Wells Fargo fiduciary following question. Otherwise, do not answer the following question
duty],

then answer the

What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Kathleen C. Cailloux for her damages, if any, which were proximately caused by such conduct? Do not increase or reduce the amount in one answer because of your answer toy other question about damages. Do not speculate about what any partys ultimate recovery may or may not be. Any recovery will be dctenrthied by the Court when it applies the law to your answers at the time of judgment. Do not add any amount for interest on damages, if any. Consider each of the following elements of damagm if any, and none other:

(a)

The value that Kathleen C. Cailloux would have received in trust had she not signed the disclaimcr. Answer in dollars and cents. $ .00

(b)

Lost income that Kathleen C. Cailloux would have received had she not-signed the disdauner.
o

Answer separately in dollars and cents for damages if any, that Were sustained in the past: In reasonable probability will be sustained IN the future

0. C

tAo

AP 13959

04/11/2006 10:48 IFAX Mosty Law Firm@ktc.com

+ Sam

Ej014/024

(c)

The economic loss resulting from Kathleen C. Caillouxs inability to take a 5% annual withdrawal of principal from her marital bypass trust.

Answer in dollars and cents.

$.0

IC

AP 13960

04/11/2008 10:43 IFAX Mostv Law Firm@ktc.com

Sam

015/024

Q1ThSTLON 3 Did the negligence, if any, of Baker Both, LIP proximately cause injury to Kathleen C. Cailloui?

The conduct of Baker Botts, LU includes the conduct of S. Stacy Eastland and Stephen T. Dyer. "Negligence," when used with respect to the conduct of Baker Botts, LLP, means failure to use ordinary care; that is, failing to do that which an attorney of ordinary prudence would have done under the same or similar circumstances, or doing that which an attorney of ordinary prudence would not have done under the same or similar circumstances. "Ordinary care," when used with respect to the conduct of Baker Botts, LLP, means that degree of care that an attorney of ordinary prudence would use under the same or similar circumstances. Proximate cause," when used with respect to the conduct of Baker Botts,, LU, means that cause which, in a natural and continuous sequence, produces an event, and without which cause such event would not have occurred In order to be a proximate cause, the actor omission complained of must be such that an attorney using ordinary care would have foreseen that the event, or some similar event, might reasonably result therefrom. There may be more than one proximate cause of an event.
Answer Ye" or "No."

iVo

AP 13961

04/11/2006 10:48 IFAX Mosty Law Firm@ktc.com

Sam

018/024

QUESIION 3A

If you have answered "Yes" to Question 3 [Baker Botts negligence], then answer the following question Otherwise, do not answer the following question.
By what date should Kathleen C. Caffloux, in the exercise of reasonable diligence, have discovered the negligence of Baker Both, LLP?

For the purposes of this question only, Kathleen Caillouxs conduct Includes the conduct ofKlenneth Cailloux if he was acting with Kathleen C. Caiflouxs authority or apparent authority prior to the date upon which he obtained a power of attorney for Kathleen C. Cailloux.

Authority for another to act for a party must arise from the partys agreement that the other act on behalf and for the benefit of the party. If a party so authorizes another to perform an act, that other
party is also authorized to do whatever else is proper, usual, and necessary to perform the act expressly authorized-

Apparent authority exists if a party (1) knowingly permits another to hold himself out as having
authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead a reasonably prudent person to rely on the apparent existence of authority to his detriment. Only the acts of the party sought to be charged with responsibility for the conduct of another may be considered in determining whether apparent authority exists. For the purposes of this question only, after the date upon which Kenneth Cailloux obtained a power of attorney for Kathleen C. Cailloux, "Kathleen. C. Caillouf includes Kathleen C. Cailloux and Kenneth Cailloux.
Answer with a date.

fi

AP 13962

04/11/2008 10:48 IFAX Mostv Law Firm@ktc.com

Sam

Z 017/024

QUESTION 313

Ifyou have answered "Yes" to Question 3 [Baicet Botts negligeucej, then answer the following question. Otherwise, do not answer the following question.
What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Kathleen C. Cailloux for her loss, if any, proximately caused by the negligence of Baker Botts, LLP? Do not increase or reduce the amount in one answer because of your answer to any other question about damages. Do not reduce the amount, if any, in your answer because of the negligence, if any, of Kathleen C Cailloux. Do Liot speculate about what any partys ultimate recovery may or may not be. Any recovery will be determined by the Court when it applies the law to your answers at the time of judgment. Do not add any amount for interest on damages, if any.

Consider each of the following elements of damages, if any, and none other
(a) The value that Kathleen C Cailioux would have received in trust had she not signed the disclaimer. Answer in dollars and cents,
$

(b)

Lost income that Kathleen C. Cailloux would have received had she disclaimer. Answer separately in dollars and cents for damages, if any, that Were sustained
in the past: S____________

not signed the

In reasonable probability will be sustained in the future:

S______________

44

tc: Jj

2o
AP 13963

04/11/2008 10:43 IFAX Mosty Law Firi@ktc.corn

.* Sam

LJO18/024

(c)

The economic l os s resulting from Kathleen C. CaiIlouxs inability to take a 5% annual withdrawal of principal from her marital bypass trust. Answer in dollars and cents.

gc1:
r4

LU

~11

AP 13964

04/11/2008 10:43 IFAX Mosty Lrnw Firm@ktc.com


C.

Sam

013/024

QUESTION 4 For each person found by you to have caused or contributed to cause the injury to Kathleen Cailoux, if any, find the percentage of responsibility of those named below.

Kathleen Caillouxs conduct includes the conduct of Ken Cailloux if he was acting with Kathleen Caillouxs authority or apparent authority. "William Goertz, individually," as used below, does not include the conduct of William Goertz if he was acting with Wells Fargos authority or apparent authority. Authority for another to act for a party must arise from the partys agreement that the other act on behalf and for the benefit of the party. If a party so authorizes another to perform an act, that other party is also authorized to do whatever else is proper, usual, and necessary to perform the act expressly authorized. Apparent authority exists if a party (1) knowingly permits another to hold himself out as having authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead a reasonably prudent person to rely on the apparent existence of authority to his detriment. Only the acts of the party sought to be charged with responsibility for the conduct of another may be considered in determining whether apparent authority exists. "Percentage of responsibility" means that percentage attributed to those named below with respect to causing or contributing to cause in any way the injury or other harm for which recovery of damages is sought. The percentages you find must total 100 percent The percentages must be expressed in whole ziuinber& The responsibility attributable to any person named below is not necessarily measured by. the number of acts or omissions found. The percentage attributable to a person need not be the same percentage attributed to that person in answering another question.
A.

William Coertz, individually Baker Botts, LLP Wells Fargo Bank Texas, N.A Kathleen Cailloiri
Lrzj

b.
C.

d.

V.

..Y

AP 13965

04/11/2008 10:48 IFAX MUsty Law Firm@ktc.com

- Saw

020/024

QUESTION 5

If you have answered "Yes" to any part of Question 1 [Baker Botts fiduciary duty] or Question 3 [Baker BoUS negligence), then answer the following question. Otherwise, do not answer the following question.
Do you find by clear and convincing evidence that the harm to Kathleen C. Cailloux resulted from malice?

The conduct of Baker Butts, LLP includes the conduct of S. Stacy Eastland and Stephen T. Dyer. "Clear and convincing evidence" Weans the measure or degree of proof that produces a firm belief or conviction of the truth of the allegations sought to be established. "Malice" means: An act or omission by Baker Butts, LLP(i) Which, when viewed objectively from the standpoint of Baker Botts, LLP at the time ofits occurrence, involved an extreme degree of risk, considering the probability and magnitude of the potential harm to others, and Regarding which Baker Butts, UP had actuaJ, subjective awareness of the risk involved, but nevertheless proceeded with conscious indifference to the rights, safety, or welfare of others.
Answer "Yes" or "No"

(H)

\ 1\
-

\ V

AP 13966

04/11/2008 10:48 IFAX MUsty Law Firm@ktc.com

- Sam

021/024

QUESTION 5A

If you have answered "Yes" to Question 5 [Baker Botis malice], then answer the following question. Otherwise, do not answer the following questioa.
What sum of money, if any, if paid now in cash, should be assessed against Baker Both, Lii? and awarded to Kathleen C. Cailloux as exemplary damages, if any, for the conduct found in response to Question 5?

"Exemplary damages" means an amount that you may in your discretion award as a penalty or by way of punishment Factors to consider in awarding exemplary damages, if any, are: (a) (b) (c) (d) (c) (t) The nature of the wrong. The character of the conduct involved. The degree of culpability of Baker Botts, LLP. The situation and sensibilities of the parties concerned. The extent to which such conduct offends a public sense ofjustice and propriety The net worth of Baker Botts, LIP.
Answer in dollars and cents for exemplary damages, if any.

AP 13967

04/11/2006 10:50 IFAX Mosty Law Firm@ktc.com

Sam

Z 022/024

QU)ISTION 6 if you have answered "Ye& to any part of Question 2 [Wells Fargo fiduciary dutyl, then answer the following question. Otherwise, do not answer the following question. Do you find by dear and convincing evidence that the harm to Kathleen C. Cailloui resulted from malice?

"Clear and convincing evidence" means the measure or degree of proof that produces a firm belief or conviction of the truth of the allegations sought to be established. "Malice" means: An act or omission by Wells Fargo Bank Texas N. A..(i) Which, when viewed objectively from the standpoint of Wells Fargo Bank Texas, N. A. at the time of its occurrence, involved an extreme degree of risk, considering the probability and magnitude of the potential harm to others, and
Regarding which Wells Fargo Bank Texas, N A. had actual, subjective awareness of the risk involved, but nevertheless proceeded with conscious indifference to the rights, safety, or welfare of others. Answer "Yea" or "No"

(ii)

.AJo

<-

AP 13968

04/11/2008 10:50 IFAX hicisty Lay Firm@ktc. com

Sam

023/024

QUESTION 6A

If you have answered "Yes" to Question 6 (Wells Fargo malice], then answer the following question. Otherwise, then do not answer the following question.
What sum of money, if any, if paid now in cask, should be assessed against Wells Fargo Bank Texas, N. A. and awarded to Kathleen C. Cailloux as exemplary damages, if any, for the conduct found in response to Question 6?

"Exemplary damages" means an amount that you may in your discretion award as a penalty or by way of punishment Factors to consider in awarding exemplary damages, if any, are: (a) (L) (c) (d) (e) (f) The nature of the wrong. The character of the conduct involved The degree of culpability of Wells Fargo Bank Texas, N. AThe situation and sensibilities of the parties concerned, The extent to which such conduct offends a public sense of justice and propriety The net worth of Wells Fargo Bank Texas, N. A.
Answer in dollars and cents for exemplary damages, if any.

AP 13969

04/11/2008 10:50 IFAX Mosty Law Firm@ktc.com

- Sam

024/024

cERTiFICATE

We, the

Jury,

have answered the above and foregoing Questions as herein indicated, and

herewith return the same into court as our verdict. (To be signed by the Presiding Juror if unanimous)
io

Presiding Juror

(If any Juror disagrees as to any answer made then those Jurors who agree to all answers made shall sign - at least ten must sign) Lw

Ar4400ek_.

r\

FEB.5 2005
.

AP 13970

04/11/2006 10:48 IFAX

MUsty

Las Firm@ktc.com

+ Sarii

li 001/005 Pae 115

ent"Bit: DISTRICT JUDGE & OFFICE;

830 7922294;

Juni.O

11:30AM;

CA(JSENO. 03-603-B KA1BT.EEN C. CAILLOUX, KENNETH F. CA1LLOUX, PAULA L. HEIJ...ItMAN, and ROBERT STEPHEN MDRESAK1, PlaintffLc,
Vs. X )( )( )( )(

IN THE DISTRICT COURT

IRR COUNTY, TEXAS

BAKER T3OTT, LLP, WELLS 1AiWO BANK TEXAS, N.A.,.)( S. STACY EASTLAND, and STEPHEN T. DYER Defendants.

198 121 JUDICIAl. IMSTRTCT

MOJjFJEI! FTNAL JUDGMENT On the 71h day of February, 2005, the above cause came on for trial. Plahitiff, Kathleen C. Cailloux, appeared thro ugh hcrncxt friend, Kenneth F. Cailloux, and Plaintiffs, KenxtthF. Cailloux, Paula L. Heileman, and Robert Stephen Andresakis, appeared in person. All Plaintiffs sntotittced ready for trial. Dfendarits, Baker Botts, LLP ("Baku Botts), Wells Fargo Bank N.A. as successor to Wells Fargo Bank Texas, N.k.CWells Fargo"), S. StacyEastlaiid, anti Stephen T. Dyer, appeared in person and through their designated representatives and announced ready for trial. The Court determined that it had jurisdiction over the subject matter and the parties. Ajury was duly empaneled. Plaintiffs, Kenrtetti. Cailtoux, Paula L. Hdileman, and Robert Stephen Andresakis, dismissed their causes of action. After hearing theevidcnce and argunielits of counsel, thejuryrandercd its verdict upon the questions submitted. The Charge ofthe Court and the verdict of the jury are incorporated by reference for all purposes. Kathleen C. Cailloux moved for entry ofjudnent on the verdict and to disregard the verdict as to incorno damages and comparative responsibility only. Baker Botts and Wells Fargo moved for judgment notwithstanding the verdict. The Court., hwing considered the motions, rendsrsjudgrnent in favor of Kathicen C. Cailloux. IT IS, THEREFORE, ORDERED. ADJUDGED, AND DECREED as follows: I. The motion of Kathleen C. Caihlonx to disregard the verdict ofthcjwy in response

AP 13971

04/11/2006 10:46 IFAX MUsty Law Firm@ktc.com

Sent By DISTRICT JUDE OFFICE;

620 79224

Sam Jun-7-05 11:$1A;

002/005 Page 215

to Question 4 in granted and the Jindings of the jury on Question 4 are disregarded. 2, In order to place Kathleen C. Cailioux In the position she would have held but for the breach of fiduciary d14y by Baker Botts the breath of fiduciary dulyby Wells Fargo and had shenot signed the disc1amer, this Court, using its equitable powers, awards Kathleen C. Cailloux recovery against Baker Botts and Wells Fargo for the principal of the marital truats ($65,500,000) and prejudgment interest at the rate of 5.25% from August 28 2003 until thedato of this judgment in the amount of $5,596,735.70,
I Rath leen C. Caillotix shall have and recover judgment from Baker Botts for:
(a) The sum of $65500,000 to Thnd the lost maritalirusts, to be distributed to the

Kathleen C. Cailloux Equitable Trust as provided herein; (b)


(c)

The sum of $5,596,7 35-70 as prejudgment interest;


Post-judgment interest at the rare of 5.25% until paidi

(d) 4.

Court costs in the amount of $61,082.81.

Kathleen C. Cailloux shall have and recover judgment from Wells Fargo for. (a) The sum of$65,500,000 to fund the lost marital tnistE, to be distributed to the Kathleen C. Cailloax Eqwtabe Trust as provided herein; (b) (c)
(d)

The sum of $5,596,735.70 as prjudgment interest; Post-judgment intrcst at the rate of 5.25% until paid;
Court costs in the amount of $61,082.81. Cailkmx to

5.

Nothing contained herein shall be construed as entitling Kathleen C.

recover any amount in excess of 165,500,000 plus pre-judgment interest in the amount of
$5,59735.70; post-judgment interest at thorate of 5.251/o from the date ofjudgmertt until paid, and

court tO5t5 in the amount of $61,082.81 6. Defendants shall pay the um if $65,500,000 plus pre-judgment interest in the sum
until

of$5,596,735.70 and powtjudgrnent interest at the rate of 5.25% from the date of thejudgment

paid to Kenneth F, Cai I lux, as next friend ofKathleen C. Cailloux. Kenneth F. Cailloux is ordered 2

AP 13972

04/11/2008 10:47 IFAX MUsty Law Firm@ktc.com

Sam 792 294; Jun-7-05 II31AM; Page

003/005

Cent Sy: DISTHICT JUCE8, OFEIE;

aso

to deliver such recovery, after payment of attorneys fees incurred, to 1. P. Morgan Chase Bank NA,, as uT rwee,I pursuant to the terms of the judicially created Kth1acn C. Cailloux Equitabic

Trust (the "Equitable Trust"). Wells Fargo is disqualified from serving as Trustee of theKathicen C. Cailloux Equitable Trust. 7. The Trustees obligation will be to receive the net recovery as set out above and as

delivered byKenneth F. Cailloux, acting as next friend and attorneyin fact for Kathleen C. Cailloux, and thereafter to hold the fund in the Kathleen C. Cailloux P4uiLablc Trust under the following provisions; (a) As long as Kathleen C. Cailuw lives, Trustee shall
pay to

her all of the net

income of the Equitable Trust, in quarter-annual or more frequent installments, and may pay to her such principal of the Equitable Trust as Trustee in its sole judgment may determine is necessary for her health, support, or maintenasee in her accustomed standard of living. Anything else
herein notwithstanding. Kathleen C. Caifloux may require that the netincome

be distributed dilrectlyto her and that Trustee convert unproductive Equitable Trust property to productive Equitable Trust property within a reasonable period of time; and undistributed net income at Kathleen C, Cai ilouxs death (whether accrued or collected) shall be paid to her estate. In determining whether principal is ncccssary for that purpose, Trustee shall consider resources reasonably available to her for that purpose. (b) Kathleen C. Cailloux shall have the power to direct Trustee to pay to her from the principal of the Bquilable Trust, for each full applicable calendar year, the greater cjf(i) Five Thousand Dollars, or (ii) wi amount not to exceed in value 5% of the fair market value of the principal of the Equitable Trust, The fair market value shall be determined as of the last day of the particular calendar year. Each amount so paid shall be funded in cash 3
CT

Other

AP 13973

04/11/2006 10:47 IFAX Mosty Las Firm@ktc.com Sent Sy; DISTRICT - JUDGE OFFICE; 830 702 224

Sam 11:31AM;

a004/005 -

properties or both, as determined by Trustee. KLhlen C. Cailloux may exercise this power for any calendar year only by
giving

written notice

thercofto Trustee before the end of that year and only if she lives through that year. To the extent she fails to exercise this power for any calendar year, her power to do so for that year shall lapse at the end of that calondar year. (c) Unless the properties or the Equitable Trust are sooner exhausted,. the Equitable Trust shall terrnnate upon Kathleen C. Caillouxs death. The principal of the Equitable Trust shall then pass and be paid as follows: 1. An amount equaL to 4% of thc combined value of the principal of the Equitable Trust, determined as of the termination of the Equitabler Trust, shall then pass and be paid to Shriners Hospital for Crippled Children, Houston Unjt, or its sueeessor, buifShriners Hospital for Crippled Children, Houston Unit, or its successor, is not then an organizatoTi described in Section 170(c) of the Internal Revenue Code, that amount shall. then pass and be paid to the Floyd A. Cailloux and Kathleen C. Cailloux Foundation. 2. An amount equal to 2% of the combined value of the principal of the Equitable Trust, dcLrrnined as of the terrnisiation of the Equitable Trust, shall then pass and be paid to the University of Texas M.D. Anderson Cancer Center, Houston, Texas, or its successor, to be used for medical research for the benefit of children; but if The University of Texas M.D. Anderson Cancer Center, or its successor, is not then an organization described in Section 170(c) of the Internal Revenue Code, the amount shall then pass and be paid to the Floyd A. Cailloux and Kathleen C. Cailloux Foundation. 3. An amount equal to 2% of the combined value of the principal of the 4

AP 13974

04/11/2008 10:47 IFAX Mosty Lay, Firrn6ktc. corn SnVU DISTRICT JUDGS ; OFFICE;

Sam J

005/005 Page 5/5

3O294

705 11:32AM;

Equitable Trust, determined as of the termination of the Equitable Trust, shall then pass and be paid to Schreiner College (Schreir University), Kenville, Texas, or its successor, to he used to eTeate the Floyd Cailkrnx and Kathleen Cailloux Endowment Fund for the benefit of Schreiner College, or to augment such fund if such fund is already in existence, as a permanent eudownicnt, with the income for the hind to be used for the general purposes of Schreiner College, as determined by its Board of Trustees; but if Sebreiner College, or its successor, is not then an organiaiion doseribod in Section 170(a) of the Internal Revenue Code, that amount shall then pass and be paid to the Floyd A. Cailloux and Kathleen C. Caluloux Foundation
-

4. Any and all remaining principal of the Equitable Trust not passing under subparagraphs (1) through (3) above shall then pass and be paid to the Floyd and Kathleen C. Cailloux Foundation. (d) Any doubt in making or failing to make any distribution of principal to Kathleen C. Cailloux shall be resolved in her favor. 8, 9. a clerical error All relief not granted is DENIED. This is a final judgment. The Judnent Nunc Pro Tune was entered on the 7th day of April, 2005, to correct
To

the Courts Original Final Judgment dated April 6,2005, wherein the final draft of

said judgment, paragraph (c) 4 regarding the distribution ofthe remaining prineipal ofthe Equitable Trust to the Floyd A. Cailloux and Kathleen C Cailloux Trust was inadvertently omitted. This Modified Judgment is entered correcting the name of Wells Fargo to Wells Fargo Bank N.A. as succsor to Wells Fargo Bank Texas, N.A. ("Wells Fargo"). SIGNED AND ENThRED this the

41 day of May, 2
Emil Karl Prohl Judge Prcsiding El

0 -A 1W

AP 13975

AP 13976

APPENDIX 3
CONTENTIONS OF THE PARTIES FROM JOINT PRE TRIAL ORDER

The following excerpts from the contentions of the parties were taken from the Joint Pre Trial Order.
Plaintiffs Contentions: Plaintiffs contend that because of the conduct and advice of the Baker Botts Defendants as her attorneys, and Wells Fargo as executor of the estate, that Kathleen C. Cailloux executed a disclaimer of her entire bequest in Floyd Caillouxs estate, resulting in the loss of her marital trust and the opportunity to exercise the power of appointment, loss of income from the marital trust, and loss of the power of invasion of the marital trust which resulted in damages of approximately $105 million. Childrens claims dismissed during trial: The Caillouxs also brought allegations against William F. Goertz, a Wells Fargo vice president, which were settled prior to trial. The Baker Botts Defendants Contentions: The Baker Botts Defendants deny Plaintiffs allegations. The Baker Botts Defendants contend that they fulfilled all duties owed to Floyd and Kathleen Cailloux, and did not breach any such duly. The Baker Botts Defendants further contend, among other things, that the estate planning transactions at issue were consistent with and achieved Floyd and Kathleen Cailloux s estate planning goals. The Baker Botts Defendants deny that they represented Kenneth Cailloux, Paula Heileman, or Robert Andresakis with respect to these transactions or otherwise, and that they made any negligent or other misrepresentation to them.....

AP 13977

In summary, the Baker Botts Defendants contend that they did not breach any duties owed to any of the persons named as Plaintiffs. The Baker Botts Defendants deny that they had an attorney/client relationship with Kenneth F. Cailloux, Paula Heileman, or Robert Stephen Andresakis. The Baker Botts Defendants further deny that they committed fraud or made misrepresentations to any named Plaintiff, either directly or as part of any alleged conspiracy. The Baker Botts Defendants contend that the 1997 estate planning transactions undertaken by Kathleen Cailloux, including the withdrawal transaction, disclaimer, 1997 will, and 1997 CR UT, accurately reflect Kathleen Cailloux stated intent with regard to her estate planning goals, and were an extension of the estate planning that she and Floyd Cailloux had undertaken both prior to and during the time that Baker Botts represented them. The Baker Botts Defendants further contend that the 1997 transactions - including the withdrawal transaction, disclaimer, 1997 will, and 1997 CRUT - achieved the stated estate planning goals of Floyd and Kathleen Cailloux, which included: (a) to provide for the needs of the surviving spouse; (b) to provide an additional $20 million, total, to trusts for the benefit of the Cailloux Issue; (c) to provide the remainder of their respective estates to charity; and (d) to maximize the amount available to be left to charity by minimizing estate, gift, and income taxes. For example, through the family limited partnership withdrawal transaction, the trusts for the benefit of the Cailloux Issue received a wealth transfer that was initially equivalent to $20 million, with those trusts now having access to assets, valued at more than $70 million. The Baker Botts Defendants contend that there is no evidence that Mrs. Cailloux believes that the estate planning work done on her behalf by Baker Botts was in any way contrary to her intent or wishes, or that she would support the claims made against the Baker Botts Defendants

AP 13978

in this case. The Baker Botts Defendants further deny that any of their actions caused damages to any of the Plaints.
Wells Fargos Contentions:

Wells Fargo denies Plaintiffs allegations. Wells Fargo contends that it owed none of the duties sought to be imposed by Plaintiff, including any duty to advise the Caillouxs concerning the terms of Floyd Cailloux will and the disclaimers drafted by Kathleen Cailloux s attorneys executed by Plaintiffs, and filed of public record in the probate proceedings. Wells Fargo further contends that it fulfilled its duties as executor by properly administering Floyd Cailloux s estate, a matter which is not in dispute. Wells Fargo further contends that it properly distributed the residuary estate of Floyd Cailloux in accordance with the unequivocal disclaimers executed by the Caillouxs and afina4 binding judgment of the probate court. Wells Fargo contends the Caillouxs damage claims against Wells Fargo stem entirely from the Caillouxs decision to execute disclaimers of any rights to Floyd Cailloux s estate pursuant to TEX. PROB. CODE ANN. SECTION 3 7A. Wells Fargo did nothing to cause the Caillouxs

to execute the disclaimers and played no role with respect to same. Wells Fargo s only role was its statutory duty under Section 37A to receive the disclaimers. Wells Fargo did not develop Kathleen Cailloux s estate plan involving the disclaimers, draft the disclaimers, or receive Baker Botts correspondence transmitting drafts of the disclaimers or describing the effect of the disclaimers. The Caillouxs never requested Wells Fargo s advice or counsel regarding the disclaimers and Wells Fargo did not undertake to provide the Caillouxs any advice concerning the disclaimers. Further, the Caillouxs never asked Wells Fargo to explain any aspect of Floyd Cailloux will or inheritance rights they had. The only transaction in which Wells Fargo engaged was the Withdrawal Transaction, which required the Floyd Cailloux Estates

AP 13979

agreement, and which resulted in the transfer of wealth from Floyd Cailloux s Estate to the Cailloux Issue of approximately $10 million (at the time). That transaction is not the subject any dispute by Plaintiffs..... Wells Fargo contends it had a purely ministerial role with respect to the disclaimers dictated by Section 37A of the PROBATE CODE: to receive the disclaimers and administer the estate in accordance with their terms. The Caillouxs petitioned for and obtained an order
of the of

probate court interpreting Floyd Cailloux s will and the disclaimers, as a matter of law, and requiring Wells Fargo to distribute Floyd Cailioux s estate to the specific charities named in his will. The Caillouxs are estopped from seeking damages related to the distribution of Floyd Cailloux s estate and their claims are barred by resjudicata, collateral estoppel, quasi-estoppel and judicial estoppel. Further, the final judgment of the Probate Court is not subject to collateral attack, except by bill of review, filed in the probate court, alleging extrinsic fraud Wells Fargo contends it owed no duty to explain, interpret or provide advice to the Caillouxs concerning the terms of Floyd Cailloux s will or any other legal document. As interested parties in the probate proceedings, the Caillouxs are charged with knowledge
of the

contents of the documents on file with the Probate Court as a matter of law, including Floyd Cailloux s will. The doctrine of constructive notice establishes an irrebuttable presumption that the Caillouxs had actual knowledge prior to executing the disclaimers of the very information that the Caillouxs claim Wells Fargo was duty-bound to disclose. Thus, the Caillouxs claims fail as a matter of law and are conclusively time-barred by the applicable statutes of limitations.

AP 13980

Wells Fargo contends that it is not liable for any alleged misconduct of William Goertz, a settling defendant. At all relevant times, William Goertz, along with Wayne Patterson and Neil Griffin, were directors of the Floyd A. and Kathleen C. Cailloux Foundation. Mr. Goertz service on the Board of the Foundation was a purely personal undertaking at Floyd Cailloux request and was not within the course and scope of his duties at Wells Fargo. He served on the Board without compensation as a personal favor to Floyd Cailloux. Any actions taken by Mr. Goertz were on behalf of the Foundation and not as an agent of Wells Fargo.... Wells Fargo denies that Kathleen Cailloux was harmed by her disclaimer.... Wells Fargo denies that the Cailloux Issue have been harmed by their disclaimers.... Wells Fargo asserts the following affirmative defenses: (1) lack of standing and conflict of interest of Ken Cailloux to serve as next friend; (2) waiver, estoppel and ratification; (3) statute of limitations; (4) res judicata, collateral estoppel, judicial estoppel, quasi-estoppel, and the bar against collateral attack of a judgment; (5) legal justification; (6) limitation and release of liability; (7) laches; and (8) offset of the substantial gains the Cailloux Issue experiencedfrom the Withdrawal Transaction. Wells Fargo fully invokes proportionate responsibility pursuant to the Texas Civil Practice and Remedies Code...

AP 13981

AP 13982

APPENDIX 4 DEFENDANTS APPELLATE ISSUES Wells Fargo a. Whether no legally and factually sufficient evidence supports the jurys findings that Wells Fargo breached fiduciary duties to Kathleen Cailloux. Whether no legally and factually sufficient evidence supports the jurys findings that Wells Fargos conduct proximately caused Kathleen Cailloux s damage. Whether the trial court erred in admitting non-probative hearsay testimony by Ken Cailloux about his mothers purported preference. Whether the judgment is unsupportable, ineffective and/or void. Whether the status of limitations bars Kathleen Caillouxs claim as a matter of law requiring rendition, and alternatively whether the trial court submitted a defective and reversibly erroneous discovery rule question requiring remand. Whether res judicata barred this lawsuit as a matter of law. Whether the trial court improperly instructed the jury concerning Wells Fargos liability as a fiduciary. Whether the trial court erroneously disregarded the jurys percentage of responsibility findings and erroneously denied submission of jury questions regarding valid defenses. Whether, if nothing else, the judgments "equitable trust" must be modified to incorporate the jurys percentage of responsibility findings and to eliminate those elements of the "equitable trust" that create a double recovery and that lack authority or evidentiary support.

b.

C.

d. e.

f. g.

h.

1.

Baker Botts

Is the $65.5 million "equitable trust" a recognized remedy under Texas Law? 2. Is there any evidence that the $65.5 million finding constituted damages to Plaintiff? Can Baker Botts be held liable on a non-disclosure theory given its victory on the malpractice question, the loyalty question, the good faith question, and all other liability questions? In other words, does the judgment violate the "fracturing rule?"

3.

AP 13983

4.

Is there any evidence of causation? Did the trial court err in its wording of the jury question about non-disclosure?

6. 7.

Does the statute of limitations bar this lawsuit? Did the trial court err in wording the limitations question so that it inquired about the plaintiffs discovery of "breach or breaches" instead of the plaintiffs discovery of facts? Did the trial court err in disregarding every one of the jurys findings in answer to the comparative responsibility question? If the $65.5 million "equitable trust" is a recognized remedy, should it nonetheless be substantially reformed?

10.

Should the $5 million prejudgment interest award be eliminated in light of the fact that the charities who would receive that interest have had the $65.5 million in principal all along and thus have not lost the use of the money? Should the attorneys fee award be eliminated in light of the fact that the fee award has no support in the pleading, evidence, or findings?

11.

AP 13984

TRANSACTIONAL PITFALLS: CONFLICT AND FIDUCIARY ISSUES Changing Faces and Scary Places

RICHARD C. MOSTY C. DIXON MO STY Mosty Law Firm Kerrville, Texas

State Bar of Texas 8TH ANNUAL CHANGING FACE OF WATER RIGHTS IN TEXAS June 28-29 1 2007 San Antonio CHAPTER 4

AP 13985

AP 13986

MOSTY LAW FIRM


222 Sidney Baker South, Suite 400 Kerrville, Texas 78028-5983 (830) 792-7711 (830) 792-7717 fax www.mostylaw.com Civil Trial Practice. Mediation. Arbitration.
Richard C. Mosty

Born Fredericksburg, Texas, October 23, 1950; Admitted to bar, 1976, Texas. Preparatory education, Trinity University (B .A., 1973); Legal education, St. Marys University of San Antonio (J.D., with honors, 1976). Fraternity: Phi Delta Phi, Harlan Society. Assistant District Attorney, 198th and 216th Districts, 1976-78. South Plains Association of Governments (Mediation Training); Texas Association of Mediators. Member: Kerr County, Bexar County and American Bar Associations; State Bar of Texas, District 15 Grievance Committee, 2000-2006 Panel Chair, District 15 Grievance Committee, 2003-2006 College of the State Bar of Texas; Life Fellow: Texas Bar Foundation. Board Certified, Civil Trial Law, Texas Board of Legal Specialization. Board Certified, Civil Trial Advocacy, National Board of Trial Advocacy Texas Monthly Super Lawyer 2006. e-mail: rmosty@mostylaw. coin
C. Dixon Mosty

Born Kerrville, Texas, August 22, 1977; Admitted to bar, 2003, Texas. Preparatory education, Texas Tech University (B.A., with honors, 2000); Legal education, St. Marys University of San Antonio (J.D., magna cum laude, 2003). Fraternity: Phi Delta Phi. St. Marys Law Journal, 2001-03; Research/Articles Editor, 2002-03. Kerr County, Bexar County and American Bar Associations; State Bar of Texas. e-mail:cdmosty@rnostylaw.com

AP 13987

AP 13988

Changing Faces and Scary Places TABLE OF CONTENTS I.

Chapter 4

INTRODUCTION ........................................................................1 CONFLICTS OF INTEREST ...............................................................1 A. The General Conflicts Rule .............................................................1 B. Begin With Foresight - Four Step Process ..................................................2 C. Conclusion ..........................................................................3

II.

III. CHANGING FACES AND SCARY PLACES .................................................. A. Fiduciary Relationships ................................................................ 1. A Scary Place to Begin ............................................................. a. Presumption of Unfairness ..................................................... b. The Burden of Proof is on the Fiduciary - Never Forget This............................. c. Aiding and Abetting/Conspiracy 2. A Scary Place To Be ............................................................... a. Duty of Loyalty and Good Faith.................................................. 3. A Scary Place to End- In Front of a Jury ............................................... B. Three Types of Fiduciary Relationship .................................................... 1. Formal, Informal and Special Fiduciary Relationships .................................... C. Formal Fiduciary Relationships ......................................................... 1. Formal Fiduciary Relationships Created by Statute, e.g partners ............................ 2. Formal Fiduciary Relationships Recognized by Common Law .............................. 3. Case Authority D. Informal Fiduciary Relationships ........................................................ 1. Informal Fiduciary Relationship as a "Fact Question" ..................................... 2. Aspects of an Informal Fiduciary Relationship .......................................... a. Fact Intensive ................................................................ b. Business Transactions.......................................................... c. Focus on the alleged Fiduciarys Acts.............................................. d. Trust is not enough............................................................ e. Special Fiduciary Relationships .................................................. f. Informal Relationships in Transactional Context Practice.............................. 6 3. Spouses ......................................................................... a. Fraud on Community........................................................... b. Third Party Liability ........................................................... 4. Family Relationships .............................................................. a. Parent/Child ................................................................. b. Brother/Sister ................................................................ c. Aunt/Nephew ................................................................ d. Niece ....................................................................... e. Widow/Stepfather ............................................................. f. In- laws ..................................................................... g. Fianc ...................................................................... h. Same/Sex Partners ............................................................ 5. Professional Relationships .......................................................... a. Accountant .................................................................. b. Stockbroker .................................................................. c. Business Agent ............................................................... 6. Co-Tenants ...................................................................... a. Duties of Fiduciaries ...........................................................

3 4 4 4 4 4 4 4 4 4
5 5 5

6 6 6 6 6 6

IV. SUMMARY: CHANGING FACES AND SCARY PLACES ......................................8

AP 13989

AP 13990

Changing Faces and Scary Places

Chapter 4 Conflicts of interests, self dealing, reluctance to disclose material facts, and/or Lawyer, advisor, and professional with affirmative duties to advise the family/fiduciaries.
II. CONFLICTS OF INTEREST Changing Faces - Accepting Representation
Truism: Hindsight is 20120

CHANGING FACES AND SCARY PLACES


I. INTRODUCTION I want to preface this paper by saying that it is a trial lawyers perspective on issues often faced by transactional lawyers. The "Changing Face" title for this seminar is truly appropriate in focusing attention to the "changing face" of conflicts issues and fiduciary duty issues involved in a dynamic transactional practice, whether in the area of water law or not. The purpose of this article and the related comments is not to restate the large collection of excellent CLE articles on conflicts, fiduciary duties, and legal obligations of fiduciaries. Instead, the article is, in large part, a compilation of different sources that may be helpful in anticipation, identification, and analysis of issues involved in legal conflicts of interest and fiduciary duties in a transactional world. It is most critical that an attorney be able to identify and anticipate potentially problematic situations, then be able to identify the obligations and react accordingly. A lawyer is expected to "look around corners," identify issues, identify conflicts, identify fiduciary obligations without regard to various dynamics, and to prevent and react to issues before they occur. To effectively anticipate, analyze, react, and respond appropriately to changing dynamics and relationships within a legal or business transaction, is an extraordinarily difficult task. Moreover, attorneys can fmd themselves in the middle of family or personal relationships which entail both social and legal duties among clients, or to others. The overlay of legal conflicts of interest and fiduciary duties within the context of existing relationships, with their pre-existing business or personal dynamics, creates a dangerous environment for lawyers to practice. In some instances, a fiduciary relationship is a part of the transactional background which injects the duties of a fiduciary (whether spouse, sibling, partner, and/or executor) into a family relationship. The fiduciary may well be a family member who has no real concept how to act like a fiduciary, or no desire to do so. In a business or legal transaction, the patriarch, matriarch, older sibling, lawyer, banker, advisor, or professional may find themselves in the midst of divided loyalties including:

Before undertaking the representation of multiple clients in any transaction, the lawyer must take Rule 1.06 of Texas Disciplinary Rules of Professional Conduct to heart, and carefully follows its mandates. The same analysis must be undertaken when deciding whether to accept a new client who may have conflicting interests with an existing client.
Practice Note: Lawyers typically analyze conflict of interest issues in terms of different clients. Perhaps a transactional lawyer should consider the potential conflicts of representing spouses. For example, are riparian or groundwater rights community or separate property? Is the sale, lease or use of these rights community or separate property, or does it implicate a possible reimbursement or economic contribution claim?

A. The General Conflicts Rule Rule 1.06 (b) Texas Disczilinaiy Rules of Professional Conduct, is the starting point for a four point analysis of any consideration to represent multiple clients in the same or related matters:

(b) A lawyer shall not represent a person if the representation of that person: (1) involves a substantially related matter in which that persons interests are materially and directly adverse to the interests of another client of the lawyer or the lawyers firm; or (2) reasonably appears to be or becomes adversely limited by the lawyers or law firms responsibilities to another client or to a third person or by the lawyers or law firms own interest. (c) A lawyer may represent multiple clients if:

Social dynamics or social norms of the family, Duties to a family business, and its owners (family members), Family members with fiduciary duties to others, Duties to a business with outside owners,

The source material for this section is adapted from James under Rule 1.06, Advanced Fiduciary Litigation, 2006.
MacCormick, Solving Conflicts

AP 13991

Changing Faces and Scary Places (1) the lawyer reasonably believes the representation of each client will not be materially affected; and (2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any. (d) A lawyer who has represented multiple parties in a matter shall not thereafter represent any of such parties in a dispute among the parties arising out of the matter, unless prior consent is obtained from all such parties to the dispute. (e) If a lawyer has accepted representation in violation of this Rule, or if multiple representation properly accepted becomes improper under this Rule, the lawyer shall promptly withdraw from one or more representations to the extent necessary for any remaining representation not to be in violation of these Rules. (f) If a lawyer would be prohibited by this Rule from engaging in particular conduct, no other lawyer while a member or associated with that lawyers firm may engage in that conduct." B. Begin With Foresight - Four Step Process Rule 1.06 requires a four step process wherein an attorney is required to constantly evaluate the evolving situation and the evolving relationship between an attorney and their client.
Practice Note: Foresight. When you begin to analyze Step 1, Step 2, and Step 3, always keep in mind the implications of Step 4, which suggests that ifyou are wrong you must later withdraw resulting in added cost, delay, and inefficiency to the client, not to mention a possible claim against the conflicted lawyer

Chapter 4 "... the lawyers independentjudgmenton be halfof a client or the lawyers ability or willingness to consider, recommend, or carry out a course of action will be or is reasonably likely to be adversely affected by the lawyers representation of or responsibilities to, the other client." (See Comment 6) Step 2. Disinterested Analysis- Is Consent Possible? Before even asking for client consent the lawyer must evaluate if waiver of the conflict is realistic. If a disinterested lawyer could form a reasonable belief that she can represent all of the clients without material and direct adverse effect on any of them, only then can she seek a waiver of the conflict from the affected clients or potential clients. Comment 7 to Rule 1.06 states:
. when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances, the lawyer involved should not ask for such agreement or provide representation on the basis of the clients consent.
rf

When more than one client is involved, the question of conflicts must be resolved as to each client. (Comment 7) Comment 4 to Rule 1.06 makes this point: "Loyalty to a client is impaired not only by the representation of opposing parties... but also in any
situation when a lawyer may not be able to consider, recommend, or carry out an appropriate course of action for one client because of the lawyer own interests ofresponsibilities to others. The conflict in effect forecloses alternatives that would otherwise be available to the client. Practice Note: The burden is always on Lawyer.

Step 1. Objective Analysis-Adverse Interests. First, the burden is on the lawyer to make a disinterested objective analysis of each potential clients interests to any materially or directly adverse interests of the other jointly-represented clients or potential clients. The lawyer must also perform an objective analysis of the lawyers or law firms responsibility to third parties, or their own interests. "Directly adverse" means:

Boilerplate "conflicts waivers" may ask potential clients to represent to the lawyer that no conflict exists, without the lawyer providing any specific factual analysis of what the conflict may or may not be. While knowledge of the clients perception of potential conflicts is valuable, the fundamental burden cannot be shifted, and a boilerplate "conflict waiver" should not be used to avoid the analysis. The lawyer alone must identify and analyze conflicts of interests; the burden cannot be shifted to the client or potential client.

AP 13992

Changing Faces and Scary Places


Step 3. Full Disclosure - Before Accepting Engagement

Chapter 4

engagement, then welcome to the Changing Faces and Scary Places of fiduciary duties. Do you really want to take this case?
III. CHANGING FACES AND SCARY PLACES A. Fiduciary Relationships 1. A Scary Place to Begin The lawyer should begin any representation with a clear understanding that she, as a fiduciary, and her client fiduciary, begin with two strikes a presumption of unfairness and the burden of proof to prove the fairness of all dealings. Moreover, those advising or acting with a fiduciary may find themselves faced with a claim of conspiracy or aiding and abetting a breach of fiduciary duty. Presumption of Unfairness When parties to a fiduciary relationship enter into a transaction between themselves, equity creates a presumption that the transaction was unfair to the party who did not profit or benefit from the transaction. Stephens Cty. Museum, Inc. v. Swenson, 157 S.W.2d 257, 260 (Tex. 1975); Archer v. Griffith, 390 S.W.2d 735, 740 (Tex. 1964). The Burden of Proof is on the Fiduciary - Never Forget This. In litigation on fiduciary relationships, the primary question is whether the fiduciary complied with his/her fiduciary duty to the beneficiary. The burden of proof on this question is on the fiduciary. See State Bar of Texas - Pattern Jury Charges (Business, Consumer, Insurance and Employment) 104.2 (2006) (hereinafter referred to as PJC Business) Aiding and Abetting/Conspiracy The lawyer who advises, or is involved with a fiduciary may become a target of litigation. A party that knowingly induces a fiduciary to breach or participates in the breach can be held liable as a tortfeasor.
Kinzback Tool Co. v. Corbett- Wallace Corp. 160 S. W 2d509 (Tex. 1942)

If the lawyer can satisfy Steps 1 and 2, then full disclosure to the client is required, BEFORE undertaking representation. The lawyer must make full disclosure to the clients or potential clients of the existence,
nature, implications, and possible adverse consequences of the representation and the advantages involved, ifany "in order to effect

a valid conflicts waiver, if a waiver is possible at all. See Rule 1.06(c)(2). (Emphasis added)
Practice Note: it is for the client to decide whether the client wishes to accommodate the other interest involved, and it isfor the client to decide only after full disclosure.

a.

The most important disclosure may be the description of the significance of the conflict to that client. In other words, a simple recitation of the rule or a bland listing of an equal number of "pros and cons" may be inadequate unless the significance of the "pros versus the cons" is sufficiently explained.
Practice Query: Is it possible to achieve an effective objective, disinterested analysis, with full disclosure, when one prospective client owes fiduciary duties to another prospective client?

b.

Step 4. Continuous Review/Withdrawal

Step Four requires a lawyer to withdraw from one or more representations to the extent necessary to not violate Rule 1.06. No other member of the firm may engage in a representation if another member of the firm is conflicted from doing so. Rule 1.06(f).
Reminder: Hindsight is 20120

c.

Conclusion If a lawyer gets to the Step 4 requirement of withdrawal, then you should expect that the client from whom you asked for consent will second guess your first decision to undertake the representation. A Lawyers disclosures, analysis, ability to look around corners, and ability to anticipate the future, will be viewed in perfect hindsight. This may expose an inherent flaw in the conflicts analysis, and in turn mandates that steps 1-3 must be considered extremely carefully. If the lawyer can indeed provide a disinterested, objective analysis with full disclosure and accept the

C.

A third party may be liable for a spouses breach of fiduciary duty. Chu v. Hong, 185 S.W.3d 507, 513 (Tex. App.Fort Worth 2005). The husband sold the community business behind wifes back and secreted

The source material for this paper is in no small part, a compilation of materials from OConnors Texas Causes of Action (2007) Chapter 11: Fiduciary Duty; John F. Nichols, Sr., Fiduciary Litigation- Defining Relationships, Fiduciary Litigation Course, 2006; Warren Cole, J0 Chris Lopez,
Charles M Wilson, Fiduciary Litigation Issues inFamilyLaw,

2.

Fiduciary Litigation Course, 2006.

AP 13993

Changing Faces and Scary Places

Chapter 4 B. Three Types of Fiduciary Relationship 1. Formal, Informal and Special Fiduciary Relationships Fiduciary relationships are created in three ways:

the proceeds. Wife filed for divorce and a suit against buyer and his attorney to set aside the sale and for damages arising from the fraudulent conspiracy between husband, buyer, and buyers attorney. The court of appeals affirmed a judgment setting aside the sale and for actual and punitive damages and attorneys fees.
2. A Scary Place To Be a. Duty of Loyalty and Good Faith. The duty of undivided loyalty is the core duty of a fiduciary relationship. It demands that the fiduciary act in utmost good faith and at all times place the interests of the beneficiary above his own. The duty of loyalty prohibits the fiduciary from using the advantage of his position to gain any benefit for himself at the expense of the beneficiary and prohibits him from placing himself in any position where his self interest might conflict with his obligations as a fiduciary. See PJC Business 104.2 A Scary Place to End- In Front of a Jury Assuming perfect hindsight in your conflict analysis and your fiduciary obligations, how would you feel about a jury answering this question about your actions?
Did Lawyer (you) comply with your fiduciary duties to your Mad Client? As Mad Clients lawyer, you owed Mad Client a fiduciary. To prove you complied with your duty, duty. you must show by a preponderance of the evidence: a. b.
C.

(1) Formal fiduciary relationships created by statute, common law or contract; (2) Informal fiduciary relationships created by a relationship of trust and confidence; (3) Special fiduciary relationships established by the status of the relationship. Fiduciary relationships createdby statute, common law or contract are referred to as "formal relationships," while fiduciary relationships created by facts are referred to as "informal relationships." See e.g.
Comment to Sec. 1.04, PJC Business; Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507 (1980)

3.

C. Formal Fiduciary Relationships 1. Formal Fiduciary Relationships Created by Statute, e.g partners One statutory fiduciary relationship that a lawyer often encounters in a transactional practice is that of partners. Representation of a partnership, or one or more partners creates fertile ground for both conflict of interest and fiduciary duty claims. A partner owes to the partnership, the other partners, and a transferee of a decreased partners partnership interest: (1) a duty of loyalty and (2) a duty of care. Tex. Bus. Org . Code Ann. 152.204. 2. Formal Fiduciary Relationships Recognized by Common Law Common law formal relationships that may be common to a transactional practice include.

d.

e.

The transactions in question were fair and equitable to Mad Client; You made reasonable use of the confidence that Mad Client placed in you; You acted in the utmost good faith and exercised the most scrupulous honesty toward Mad Client; You placed the interests of Mad Client before your own, did not use the advantage of your position to gain any benefitforyourselfat the expense of Mad Client, and did not place yourself in any position where your selfinterest might conflict with your obligations as afiduciary; and You fully and fairly disclosed all important information to Mad Client concerning the transactions. Answer:

(1) Attorneys (2) Partners and associates of law firms (3) Agents (a) Escrow agents (b) Insurance agents
(4) Spouses (5) Holders of power of attorney

(6) (7) (8) (9) 3.

Corporate officers Joint venturers Executors and trustees Securities brokers

(Adaptedfrom PJC Business 104.2)

Case Authority For a more complete list of authority for recognized common law formal relationships and the

AP 13994

Changing Faces and Scary Places

Chapter 4 Business Transactions. To prove a fiduciary relationship in a business transaction, the fiduciary relationship must exist before and apart from the transaction in question. Grim Truck and Tractor Co. v. Navistar Intl. Transp., 823 SW2d 591 (Tex. 1992). A common-law duty of good faith and fair dealing does not exist in all contractual relationships. See Great Am. Ins. Co. v. North Austin Mun. Util. Dist. No. 1, 908 s.W.2d 415, 418 (Tex. 1995). Rather, the duty arises only when a contract creates or governs a special relationship between the parties. See Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). Focus on the alleged Fiduciarys Acts. A critical issue may be the voluntary nature of ones actions in establishing the relationship. Heutt v. State, 970 S.W.2d 119 (Tex.App.-Dallas 1998, no writ). Trust is not enough. The instruction in PJC 1:04.1 recognizes that subjective trust and feelings do not, of themselves, establish an informal relationship. Even though a fiduciary relationship may arise "from moral, social, domestic or purely personal relationships," antecedent dealings between persons, or the mere fact that one subjectively trusts the other, while significant factors, do not alone justify the plaintiff in reposing confidence in another person in the sense demanded by a fiduciary relationship. Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962); Swanson v. Schlumberger Technology Corp., 959 S.W.2d 171, 176 (Tex. 1997) Special Fiduciary Relationships The "special relationship" is a fiduciary relationship established by the status between parties giving rise to a duty of good faith and fair dealing. The special relationship does not carry with it the full range of fiduciary rights and duties normally associated with the other fiduciary relationships discussed above. Crim Truck and Tractor Co. v. Navistar Intl. Transp., 823 S.W.2d 591, 594 (Tex. 1992). "The duty of good faith and fair dealing merely requires the parties to deal fairly with one another and does not encompass the often more onerous burden that requires a fiduciary to place the interest of the other party before his own. Grim Truck and Tractor Co. v. Navistar Intl. Transp., 823 S.W.2d 591, 594 (Tex. 1992). e. d. c. b.

duties owed, an excellent source is OConnors Texas Causes of Action (2007) Chapter 11- Fiduciary Duties.
D. Informal Fiduciary Relationships 1. Informal Fiduciary Relationship as a "Fact Question" In other circumstances, particularly those which involved complex relationships of family, business or financial dealings, banking, or non lawyerprofessionals, the existence of a fiduciary is usually a question of fact. See e.g. Grim Truck & Tractor Co. v. Navistar Intl Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992). Texas Pattern Jury Charges suggests the following question to be considered by the jury in an informal relationship determination:
Jury Question from P.J. C. Business 104.1 Did a relationship of trust and confidence exist between Don Davis and Paul Payne? A relationship of trust and confidence existed if Paul Paynejustifiablyplaced trust and confidence in Don Davis to act in Paul Payne 5 best interest. Paul Payne subjective trust andfeelings alone do notjustify transforming arms-length dealings into a relationship of trust and confidence. Answer: Once the existence of the relationship is established, the burden ofproofswitches from the beneficiary to the fiduciary.

The PJC jury question focuses attention to the entirety of the relationship, not the end result of the relationship. If there is no pre-existing relationship or prior course of conduct between the parties separate and apart from the relationship in issue there may be no fiduciary relationship as a matter of law. See, Richter v. Wagner Oil Co., 90 S.W.3d 890, 896 (Tex. App. San Antonio 2002, no pet. hist.).
2. Aspects of an Informal Fiduciary Relationship a. Fact Intensive Most fiduciary or confidential relationships arise from the circumstances of a particular case. To prove an informal fiduciary relationship, the plaintiff must establish the dealings between the plaintiff and the fiduciary continued long enough to justify the plaintiffs reliance on the fiduciary to act in the plaintiffs best interest.

AP 13995

Changing Faces and Scary Places f. Informal Relationships in Transactional Context Practice. Transaction lawyers often deal with multiple parties who may have multiple informal fiduciary relationships. Sometimes the extent of those relationships is not known to the attorney. Some informal relationships that may be encountered include the following: Spouses The relationship that exists between husband and wife has been held to create a fiduciary duty, requiring the duty of utmost good faith. Matter of Marriage of Moore, 890 S.W.2d, 827 (Tex. App. - Amarillo 1994, no writ); Matter of Marriage of DeVine, 869 S.W.2d 415, 428 (Tex. App. - Amarillo 1983, writ denied). As expressed by State Bar of Texas, Texas Pattern
Jury Charge - Family (2006) PJC 206.1. A relationship of confidence and trust exists between a husband and wife with regard to that portion of the community property that each controls. This relationship requires that the spouses use the utmost good faith and frankness in their dealings with each other. Because of the nature of the spousal relationship, conduct ofa spouse affecting the property rights of the other spouse may be fraudulent even though identical conduct wouldnot befraudulent between non-spouses.

Chapter 4 4. Family Relationships The existence of a family relationship does not alone establish a fiduciary relationship. See Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 508 (Tex. 1980) Tuttlebee v. Tuttlebee, 702 S.W.2d 253, 256 (Tex. App. - Corpus Christi 1985, no writ).
Practice Note: The common denominator in most fiduciary findings in the "family" context seems to occur when the parties engage in business orfinancial transactions.

3.

Fraud on Community. Breach of a legal or equitable duty which violates the fiduciary relationship existing between spouses is termed fraud on the community, a concept based on the theory of constructive fraud. In re Estate of Herring, 970 S.W.2d, 583, 586 (Tex. App. Corpus Christi 1998, no writ); Zieba v. Martin, 928 S.W.2d 782 (Tex. App. - Houston [14 t Dist.] 1996, no writ); Jackson v. Smith, 703 S.W.2d 791 (Tex. App. - Dallas 1985, no writ). Third Party Liability A third party maybe liable for a spouses breach of fiduciary duty. Chu v. Hong, 185 S.W.3d 507 (Tex. App.Fort Worth 2005). Husband sold the community business behind wifes back and secreted the proceeds. Wife filed for divorce and a suit against Buyer and his attorney to set aside the sale and for damages arising from the fraudulent conspiracy between husband, buyer, and buyers attorney. The court of appeals affirmed a judgment setting aside the sale and for actual and punitive damages and attorneys fees. b.

a.

Parent/Child As a general rule, however, parents are considered to be in a fiduciary relationship with their minor children as a matter of law. S. V. v. R. V., 933 S.W.2d 1, 8 (Tex. 1996); Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962); Consolidated Gas & Equip. Co. v. Thompson, 405 S.W.2d 333, 337 (Tex. 1966). However, parents do not necessarily owe fiduciary duties to their adult children. See Edsall v. Edsall, 238 S.W.2d 285 (Tex. Civ. App.-Eastland 1951, writ ref d n.r.e.). Trostle v. Trostle, 77 S.W.2d 908 (Tex.App.Amarillo 2002, no pet. hist.) (stepmother owed no fiduciary duty to stepson to include him in wrongful death lawsuit arising from death of his father). A fiduciary relationship was upheld in Williams v. Williams, 559 S.W.2d 888 (Tex. Civ. App-Waco 1978, writ ref d n.r.e.) where a Constructive Trust was imposed on property had deeded to son. At the time of conveyance, mother was in poor health, and depended heavily on son to manage her property; that son had promised mother to hold title to the property for the benefit of mother during her life and then to divide the property among the children. Mills v. Gray, 210 S.W.2d 985 (Tex. 1948) In anticipation of divorce, husband and wife conveyed property to her son with oral agreement that son would convey property to his mother after divorce. After reconciliation, son refused to reconvey, and Husband and Wife successfully sued to impose constructive trust upon the son as a fiduciary. Brother/Sister "A brother and sister relationship is not intrinsically one of confidence." Oak Cliff Bank & Trust Co. v. Steenbergen, 497 S.W.2d 489, 492 (Tex. Civ. App.-Waco 1973, writ ref d n.r.e.). However, in the Oak ClffBank case, the sister was able to overcome the general statement and obtain a recovery against her deceased brothers estate for breach of fiduciary duty. In Stephens County Museum, Inc. v. Swenson, 517 S.W.2d 257 (Tex. 1974), two elderly sisters brought suit against their brother to set aside conveyances to a b.

a.

AP 13996

Changing Faces and Scary Places

Chapter 4

museum on the advice of their brother, who was also a member of the museums board of directors. The brother had been giving them investment and business advice for almost forty years. A fiduciary relationship existed. Hatton v. Turner 622 S.W.2d 450, (Tex.App.-Tyler 1981, no writ), involved a fiduciary claim between ten brothers and sisters over title to real property. Dad deeded the property to Son allegedly so that he could qualify for old age assistance. After Dads death, the remaining children challenged the Deed and successfully sought to place a constructive trust on the property. A fiduciary relationship existed between the father and the son due to kinship, the fathers advanced age and poor health, and that Dad subjectively trusted his son to share with his other children.
Aunt/Nephew In Texas Bank and Trust Co. v. Moore, 595 S.W.2d 502 (Tex. 1980), the Bank, as administrator of Maggie Littell, deceased, filed suit against A.E. Moore, Maggies nephew who had received transfers from Aunt as joint tenant with right of survivorship. The jury rejected the nephews defense of gift, and awarded the Estate full damages plus punitive damages. The Nephew was found to be a fiduciary of his aunt and failed to rebut the presumption of unfairness. In Sorrell v. Elsey, 748 S.W.2d584(Tex.App.-San Antonio 1988, writ denied), nephews, who assisted aunt and served as executors of her husbands estate, were held to be in a fiduciary relationship with aunt and were required to return "gifts." Niece A jury finding of the existence of a confidential relationship has been affirmed in family situations based upon the close relationships developed over many years. Hambletv. Conveney, 714 S.W.2d 126, 129 (Tex. App. - Houston [1St Dist.] 1986, no writ) (signing a contract with nieces husband);. Widow/Stepfather In Laog v. Lee, 777 S.W.2d 158, 163-164 (Tex.App.-Dallas 1989, no writ) the Dallas Court of Appeals upheld a fiduciary relationship and breach of fiduciary duty between a young widow and her uncle and step-father who had provided investment advise. The Court felt a fiduciary relationship existed as a result of the widows young age, lack of business experience, the family connection, and her state of grief. e. In- laws A brother-in-law was held to be the fiduciary ofhis elderly, disabled sister-in-law because he performed personal chores, and was pursuing further real estate f. d. c.

education, and had been named executor ofthe sister-inlaws will. Tuttlebee v. Tuttiebee, 702 S.W.2d 253, 256 (Tex.App.-Corpus Christi 1985, no writ). The trial courts judgment canceling two deeds from the sister-inlaw to the brother-in-law was affirmed.
Fianc In at least one instance a fiduciary relationships has been found to exist between a couple who was engaged and agreed to purchase a home. Andrews v. Andrews, 677 S.W.2d 171, 174 (Tex. App. - Austin 1984, no writ). g. It. Same/Sex Partners Same sex individuals cohabiting in Texas are not recognized as having a "fiduciary relationship" as a matter of law either as "partners" or as "spouses" or otherwise. Zaremba v. Cliburn, 949 S.W.2d 822 (Tex.App.-Ft. Worth 1997, writ denied) (claims barred by Statute of Frauds, Tex. Bus. & Corn. Code Ann. 26.01 (a),(b)(3); the "anti-palimony" rule). Professional Relationships Non-legal professionals (e.g. accountants) are generally not considered to be fiduciaries of their clients as a matter of law. See; Sauvres v. Christitian, 253 S.W.2d 470 (Tex. Civ. App. Ft. Worth 1952, writ ref d
5. n.r.e.); Harrison County Finance Corp. v. KPMG Peat Marwick, L.L.P., 948 S.W.2d 941 (Tex. App.-

Texarkana 1997) revd on other grounds, 988 S.W.2d 746 (Tex. 1999).
Practice Note: The nature of the advice given, the trust reposed, and the fact that lay persons may unequivocally trust and rely upon their professional advisors may be criticalfactors to a jury question.

Accountant In Dominguez v. Brackey Enterprises, Inc. the existence of a fiduciary relationship between an accountant and his clients was submitted to the jury as a question of fact. The Court upheld a jury fmding "where a party is accustomed to being guided by the judgment or advice of another in legal and accounting matters, and there exists a long association in a business relationship, as well as a personal friendship." 756 S. W. 2d 788, 791 (Tex.App.-El Paso 1988, writ denied). b. Stockbroker
Pace v. McEwen, 574 S.W.2d 792 (Tex.Civ.App.-

a.

El Paso 1978, writ ref d n.r.e.) claimed breach of fiduciary duty against a stockbroker, for allegedly influencing an elderly client to transfer stock to him shortly prior to her death. A fiduciary relationship existed because of the ages and frail woman acting

AP 13997

ChanL-ing Faces and Scary Places

Chanter 4

without independent advise gave her fiduciary the balance of her stock, which almost left her in an impoverished condition.
c. Business Agent Whether an agency relationship will actually be characterized as a fiduciary relationship depends upon the agreement of the parties and the agents right of control. If the agent has no discretion or authority to select the means of accomplishing the transaction for the principal, the agent will not be deemed a fiduciary agent for purposes of the transaction. Schiller v. Elick, 240 S.W.2d 997 (Tex. 195 1) 6. Co-Tenants While partnerships and joint venturers are considered to be fiduciary relationships as a matter of law, mere co-tenancy or co-ownership of property does not establish an informal fiduciary relationship. McDonald v. Follett, 180 S.W.2d 334 (Tex. 1944); Hammon v. Ritchie, 547 S.W.2d 698 (Tex. Civ. App. Fort Worth 1977), writ ref d n.r.e.). Co-tenancy may serve as a relevant fact of "trust and confidence" for a jury under PJC 104.1 in a jury deliberation upon an informal fiduciary relationship. a. Duties of Fiduciaries Specific fiduciary duties can vary. For a discussion and case authority for the differing duties and by various fiduciaries see OConnors Texas Cases of Action (2007), Chapter 11 - Fiduciary Duty IV. SUMMARY: CHANGING FACES AND SCARY PLACES In summary, perhaps one of the best things that a lawyer could do is to copy the fiduciary duty jury questions and instructions in this article and keep them close at hand, or maybe hand them to a client. If a lawyer is brave enough to accept multiple clients and then brave enough to be a fiduciary and represent fiduciaries, one must always act with the highest foresight possible, to look around comers, to anticipate and react promptly, and to act with utmost honesty, loyalty and always with full disclosure.

Piece of cake. No worries.

AP 13998

Apr. 11. 2011

2:49PM

No. 1969

P. 2/26

MOSTY LAW FIRM


ivvi,.wstkzw.com

Richard C. Mosty*

April 11, 2011

Mr. Richard L. Ellison 327 Earl Garrett St, Ste. 106 Kerrville, Texas 78028 Re:

Via Telefax No. (830) 792-5602

Cause No. 10114A; ComandzeroProperties, Ltd. vs. PhicofL.L. C andA.B. Phillips

Dear Mr. Ellison: Efi1Osed please find Herbert C. WiUiamon, Ms Responses to Hill Countiy Iitity Homes Request for Production "Al incerely. egalto C. Dixon Mosty Enclosure cc: Client

222 Sidnq Bake S. Suite 400 Kerrville, Texas 78028 830-792-7711 830-792.7717 Fax

AP 13999

Apr. 11, 211

2:49PM

No. 1969

P. 3/26

0011 U 11M.

COMANCHERO PROPERTIES, LTD. and KEYSTONE ESTATES; LTD. ly PifiCOF, L.L.C. and A.B. PHILLIPS, and HELL COUNTRY INTEGRITY HOMES, LLC.

t)iJi

216" Tli JUDICIAL DISTRICT


Fl

.caiaiu

HERBERT C. WILLIAMSON, IIIS RESPONSES TO HILL COUNTRY INTEGRITY HOMES EEOUESTJTOR ?ROflUCTION TO:

HILL COUNTRY INTEGRITY HOMES, LLC, Defendant/Counter-Plaintiff,by and through its attorney of record, Richard Ellison, 327 Earl Garrett St., Ste. 106, Kerrville, Texas 78028
HERBERT C. WILLIAMSON, Hi, pursuant to Rule 196 of the Texas Rules of Civil

Procedure, files the attached Responses and Objections to Defendant/Counter-Plaintiff, Hill County 1nteityHomes, LLCs Request for Production. Respectfully submitted, MOSTY LAW FIRM 222 Sidney Baker So., Ste. 400 Kerrville, Texas 78028 Telephone (830) 792-1711 Telef 1830 717 ,- Richard C. Mosty State Bar No. 14594800 C. Dixon Mosty State Bar No. 24041532 Attorneys for Plaintiffs Certificate of Service I hereby certify that I e served a true and correct copy of the foregoing to the following ontheJk.. day of ,2011. Richard L. Ellison 327 Earl Garrett St., Ste. 106 Kerrville, Texas 78028 Rick Harrison Fritz, Byrne, Head & Harrison, PLLC 98 Sari Jacinto Blvd., Ste. 2000 Austin, Texas 78701-4288 Via Telefax No. (830) 792-5602

Via Telefax No. (5 12) 477-5267

AP 14000

A. H. 2011

2:50PM

Nc. 1969

P. 4/26

RESPONSES TO REQUEST FOR PRODUCTION 1. Any agreement between the respondent and any law firm concerning legal representation in claims against Phillips, HCIH and Phicof. Response: Defendant objects to this request on the basis that such agreement is protected by the attorney-client privilege. Information relating to legal services will be provided in response to Requests for Disclosures. See Tex. R. Civ. P. 195.1

2,

invoices and statements received by respondent for legal services in this case.
Resp o ns e:

Defendant objects to this discovery request in that it seeks information from testifying experts through a Request for Production, which is not permitted by the rules of discovery. See Tex. R. 6A P. 195.1

3.

All communications between the respondent and Amos Barton concerning this case. gponse: Responsive documents are attached to this response.

4.

All communications between the respondent and Todd Burdick concerning this case. Response: None.

5.

All communications between the respondent and Sgt. Wayne Matthews concerning this case. Response: None.

6.

All communications between the respondent and any other law enforcement agency concernin g this case. p,nse: None.

7.

All documents that evidence damages you claim in this case.

Res p ons e:

Defendant, individually, is not claiming damages in this case other than attorneys fees incurred, therefore, no documents responsive. Documents relating to attorneys fees will be produced in response to a Request for Disclosure.

8.

All documents that evidence your claims against HCIF. Response: Defendant, individually, has not made any claims against RCIH, therefore, no documents responsive.

AP 14001

A) r, ii. 2911

2:50PM

NO 1969

P. 5/26

9.

All documents that evidence your claims against Phillips. Defendant, individually, has not made any claims against Phillips, therefore, no documents responsive.

10.

All documents that evidence your claims a gainst Horace Cofer. Response: Defendant, individually, has not made any claims against Horace Cofer, therefore, no documents responsive.

11.

All documents that evidence your claims against Phicof. Response: Defendant, individually, has not made any claims against Phicof, therefore, no documents responsive.

12.

All documents that evidence any defense you have to any counter-claim in this case. At this time, no documents responsive that have not already been produced by Andrew Phillips, Jr., Bill Counttvlritegritv Homes, or Phicof Defendant does intend to use documents produced by those parties in support of his defense. Defendant will supplement this response in accordance with the Texas Rules of Civil Procedure if necessary.

ii

The respondents curriculum vitae and resume. Responsive documents are attached to this response.

14.

The articles of formation and bylaws of Comanchero Properties. LP, Response; As a limited partnership, there are no articles of formation and bylaws for this entity, therefore, no documents responsive.

15.

The articles of formation and bylaws of COM-4, LLC. Response; Responsive documents are attached to this response.

16.

All evidence that you allege supports your claim that Phillips, Phicof or HCIH committed fraud. Response; Defendant, individually, has not made any claim that Phillips, Phicof, or HCII-1 committed fraud, therefore, no documents responsive.

17.

All evidence that you allege supports your claim that Phillips or Phicof owed you a fiduciary duty. 3

AP 14002

Ao. H. 2011

2:59PM

No. 1909

P. 6/26

pgse:

Defendant, individually, has not made any claim that he is individually owed a fiduciary duty, therefore, no documents responsive.

18.

All evidence that you allege supports your claim that Phillips, Phicof or HCffI committed theft. Response: Defendant, individually, has not made any claim that he is individually owed a fiduciary duty, therefore, no documents responsive.

19.

All documents and information that you have provided to any expert who may offer opinion testimony at trial. Response: Defendant objects to this discovery request in that it seeks information from testifying experts through a Request for Production, which is not permitted by the rules of discovery. See Tex, R. Civ. P. 195.1

20.

Your engagement or retainer agTeement with any expert who may offer opinion testimony at trial,

Res ponse -,

Defendant objects to this discovery request in that it seeks information from testifying experts through a Request for Production, which is not permitted by the rules of discovery. See Thx, R. civ. P. 1951

21.

All communications with any expert who may offer opinion testimony at trial. Defendant objects to this discovery request) n. that it seeks information from testifying experts through a Request for Production, which is not permitted by the rules of discovery. See Tex, P. Civ, P. 195.1

AP 14003

Apr. 11. 2011

2:50PM

No. 1969

P. 7/26

From: Herbert C. Williamson, LII [maflth:hcwlll)amson@hctc.net ) Sent: Thursday, March 10, 20113:36 PM To: Dixon Mosty Subject: FW: Williamson

From: Anios Barton (mai1toamosb@198da.com ) Sent: Thursday, August 19, 2010 2:42 PM To: Herbert C. Williamson, III Subject: RE: Williamson Herb. Im needing to get in touch with Maurice Pete Moore. I was told that he is affiliated with Hunter Equities and you may have his contact information. Additionally, 1d like to meet with you regarding the loan documents. I will be In budget hearings in Kimble County in the morning, but would like to shoot for an afternoon meeting IT youre available.

COF1DENT1AIJTY NOTICE: This email and any attachments are for the sole use of the intended cipientt,$) and contain infonnation that may be confidential and/or legally privileged. If you have received this email in error. please notify the aender by reply email and delete the message. Any disclosure , copying, distribution or use of this communication by someone other than the intended recipient is strictly prohibited. The Texas Bar Disciplinary Rules requires Texas lawyers to notify recipients of e-mail that: (1) e-t*fl communication is not a secure method of communication; (2) atiy email that is sent to you or by you may be copied and held by various computers through which it passes as it goes from sender to recipient; (3) a person nor participating in our coiwnunication may intercept our Conizxiunications by improperly gaining access to your computer or even aome computer not connected to either of us through which the e-mail passes. From Herbert C. Williamson, in (mailto:hcwililamsontg)hctc.net ] Sent: Monday, August 09, 2010 6:22 PM To: Amos Barton Subject: FW; Williamson
Mr. Barton: Perfectly understandable. Thanks for your response. Your meeting should be interesting. Please do contact me after your meeting. Again thank you for your consideration and I look forward to our conversation. Very truly, Herb Williamson

HCW-0001

AP 14004

Apr. 11. 2011

2:51PM

No. 1969

P. 8/26

From: Amos Barton [mailLo:amosb'198da.com ] Sent: Monday, August 09, 2010 4:21 PM To: Rebecca Williamson Subject Re: Williamson
I have a meeting with defense counsel on this matter tomorrow. I will contact you to discuss at that time. Sorry for missing your call as we were in grand jury in McCulloch Co. Amos L. Barton 198th District Attorney

(830) 257-7575 (830) 257-7580 Fax antosb@I98da.com

On Aug 9, 2010, at 12:50 PM, "Rebecca Williamson" <rvilliarnsonihctc.net > wrote:

Dear Mr. Barton, I tried to contact you this morning and your voicemail indicated that an online contact would be the most efficient method. I simply wanted to indicate that the contingent civil settlement is not finished and will not be until all parties have signed the various documents. Given that the other side tends to spin things, either Dixon or I will notify you when all has been agreed to and executed. Thanks for your consideration and give me a call when you can.

Best regards,
IillfiiT*T1

HCW-0002

AP 14005

Apr, 11. 2011

2:51PM

No. 1969

P. 9/26

From. Herbert C Williamson, III (mailto : hcUtamson@hctc.net] Sent: Thursday, March 10, 20113:37 PM To: Dixon Mosty Subject FW: Herb,

From: Amos Barton [mallto:amosb@19Bda.com ] Sent: Wednesday, January 19, 20119:19 PM To: Herbert C. Williamson, LU Subject; Herb,

Good visiting tonight. Righteousness will prevail my friend. Would love to have you and yours over to the house for dinne.r and a cigar... Amos L. Barton 198th District Attorney
(830) 257-7575

(830) 257-7580 Fax arnosb@198da.com On Dec 1, 2010, at 6:42 PM, "Herbert C. Williamson, HI" <bcwilliamson@hctc.net > wrote:

From: Dixon Mosty [maldmosty@ktt.com ]


Sent: Wednesday, December 01, 2010 4:53 PM To: I w1lliamsonhdc.n; Dwaine Machann; Richard C. Mosty Subject: IC wtth McDade

Mother interesting phone call from McDade. First just wanted to know that I got his email, and that he is out and will touch base with us after the first of the year. He says he
is not even planning on attending the criminal trial b/c he Is sick of the damn foor, and he does need to tend to his health issues. Apparently he got some more bad news today that he detailed but I dont entirely undeistand. Also commented that he noticed the Motklns to Quash were granted and he said to Ellison "I told you so, you are not going to get in all that crap" None of it makes any sense to to Tom. Anyway - take all that for what it Is worth C. Dixon Mosty Mosty Law Firm 222 Sidney Baker S. Kerrville, Texas 78028 (830) 7927711 (phone) (830) 792-7717 (fax)

{L1iTEtItIsTc]

AP 14006

Apr. H. 2011

2:51PM

No. 1969

P. 10/26

cdmostvktc.com (email)

No virus found in this message. Checked by AVG - ww.avgcm Version: 10.0.1204 / Virus Database: 1435/3471 Release Date: 03/02/11

HCW-000 4

AP 14007

Apr. II. 2011

2:51PM

No. 1969

P. 11/26

RESUME OF HERBERT C. WILIJAMSON, III


P.O. Box 260
Telephone: 830.640.3153 E-mail: hcwimamson@hctc.net

Hunt, TX 18024 Fax: 830.640.3155

Ranching
July 2001 to Present

Hunt, TX

Business Ex-encr

Houston, TX MERLON PETROLEM COMPANY April 1999 to July 2001 Consultant Director and Interim CFO (to March 2001) for private company engaged in exploration and development In east Taxes and onshore Egypt. Completed $25 million secondary equity private placement in July 2001. Houston, TX SEVEN SEAS PETROLEUM COMPANY October 1998 to April 1999 Director and CFO. Registered this Canadian Company (TSE) in U.S. and commenced trading on AMEX. Completed $110 million high yield note financing to develop oil discovery In Colombia Initiated sale negotiations with major Integrated U.S. oil company.

CREDIT SUISSE FIRST BOSTON CORPORATION Houston, TX August 1995 to October 1998 Director in Enemy Group of Investment Banking Department. Originated advisory assignment and strategy for the United States $3.6 billion divestiture of the Elk Hills Naval Petroleum Reserve - one of the largest producing oil and gas fields in North American and to date the laiest privatization by the United States. Represented Falcon Drilling in merger with Reading and Bates Drilling and Tuboscope Inc. In Its sale to Drexel Oilfield Services. Structured and negotiated icr YPF (Maais) a production and drilling joint venture with Amoco. Advised Ashland Corp. and Total on the sale of their North American producing properties. Originated mandates and completed Initial public offerings for Titan Exploration Inc. and Domain Energy Corp. Completed secondary equity offering for Falcon Drilling and Issuance of high yield notes for Rutherford Moran Energy Corp. Secured assignments as co-manager hr high yield offerings by Lomack Petroleum, Stone Energy and Louis Dreyfus 011& Gas. PARKER & PARSLEY PETROLEUM COMPANY Midland, TX April 1985 to April 1995 Vice Chairman & Executive Vice President Formulated and executed corporate acquisition and financing strategies resulting in growth from a private company with $75 million In asset value to the seventh largest public Independent oil and gas concern with over $1.4 billion In asset value. Structured and completed numerous negotiated and unsolicited mergers and acquisitions including the following transactions: HCW Oil, Inc. ($80 million - 1991), Indian Wells and MGF Oil Companies ($45 million - 1998). Parker & Parsley ($50 million 1989), Damson Oil ($250 million 1991), Mobil Oil properties ($128 million 1991). Prudential-Graham ($508 million 1993). PG&E properties ($122 million - 1994) and Bridge Oil Ltd. ($490 million 1994).
Financing transactions included $400 million in equity financing for 40 drilling and income partnerships, five separate tender offers to form and subsequently augment a pubidy traded partnership and successor public corporation, single exchange offer to consolidate five public partnerships and simultaneous conversion to corporate form (February 1991), $50 million equity offering (April 1992). designed unique $189 million convertible trust preferred offering (March 1994), $60 million common stock offering (June 1994), $113 million equity offering (October 1994) and $100 million 10 year debenture offering.

HCW-0005

AP 14008