Court Opinion

ID: 9752456
Source: CourtListenerOpinion
Date Created: 2023-08-28 18:09:12.464795+00
Date Added: 2024-06-11T09:42:31.666406
License: Public Domain

Dissenting opinion issued August 24, 2023

                                   In The

                            Court of Appeals
                                  For The

                        First District of Texas
                         ———————————
                            NO. 01-21-00331-CV
                         ———————————
       IN THE ESTATE OF LARRY WAYNE EWERS, DECEASED

                    On Appeal from Probate Court No. 2
                          Harris County, Texas
                       Trial Court Case No. 483323

                         DISSENTING OPINION

     In this appeal, appellant, Janice Ewers (“Janice”), individually and as

independent administrator for the estate of Larry Ewers (“Larry’s estate”),
challenges the trial court’s judgment, entered after a bench trial, in the suit for fraud

and unjust enrichment brought against Larry’s estate by appellees, Joseph Fauth, III

and Prentice Cooper (collectively, “appellees”). In six issues, Janice contends that

the trial court erred in concluding that appellees’ claims against Larry’s estate were

not barred by the applicable statutes of limitations, in removing her as the

independent administrator of Larry’s estate, and in finding that Larry made a

fraudulent transfer to Janice before his death.

      Related to Janice’s statute-of-limitations complaint, the majority opinion

erroneously concludes that neither the failure of Citadel Exploration, LLC

(“Citadel”) to comply with its agreement to repay appellees’ loans to Larry Ewers

(“Larry”) in 2011, nor the stopping of payments to appellees in 2014, conclusively

establishes that appellees had actual notice of their legal injuries more than four years

before they filed suit against Larry’s estate. In reaching such a conclusion, the

majority opinion conflates knowledge of a legal injury with knowledge of a theory

of recovery, which is contrary to Texas law on the accrual of claims.

      Further, I note that the majority opinion errs in failing to consider the terms

of the Citadel contracts in determining whether appellees had knowledge of their

legal injury. Validity aside, the Citadel contracts formed the basis of appellees’

relationships with Citadel and Larry and appellees’ expectations about their

purported investments. Thus, the Citadel contracts are indispensable to a fair

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analysis of whether fraudulent concealment deferred accrual of appellees’ claims,

and the majority opinion’s failure to consider them is erroneous.

      Here, the evidence conclusively establishes that appellees had actual notice of

their legal injuries and, through the exercise of reasonable diligence, could have

discovered the facts giving rise to their claims for fraud and unjust enrichment more

than four years before they filed suit against Larry’s estate. Because appellees’

claims are barred by the statute of limitations, I would hold that the trial court erred

in rendering judgment in favor of appellees on their claims for fraud and unjust

enrichment against Larry’s estate. That result also requires the vacatur of the trial

court’s rulings on appellees’ application to remove Janice as independent

administrator of Larry’s estate and appellees’ fraudulent-transfer claim because

appellees had no interest in Larry’s estate. Because the majority opinion holds

otherwise, I dissent.

                               Statute of Limitations

      In her first, second, and third issues, Janice argues that the trial court erred in

concluding that appellees’ claims for fraud and unjust enrichment against Larry’s

estate were barred by the applicable statute of limitations because appellees had

actual knowledge of the wrongful act and their legal injury no later than April 2014,

more than six years before they filed suit; neither fraudulent concealment nor the

continuing tort exception applied to toll the statute of limitations; and the Citadel

                                              3
contracts contradicted Larry’s representations, “red flags” arose within the

limitations period that should have led appellees to investigate, appellees admitted

that nothing Larry represented prevented them from exercising ordinary care to

protect their interests, and a reasonably prudent person under similar circumstances

would have discovered the facts that caused appellees’ legal injury within the statute

of limitations period.

      A four-year statute of limitations applies to appellees’ claims against Larry’s

estate for fraud and unjust enrichment. See TEX. CIV. PRAC. & REM. CODE ANN.

§ 16.004; Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 203 (Tex. 2011).

“[T]he legal-injury rule determines when an injured party’s claims accrue.” Regency

Field Servs., LLC v. Swift Energy Operating, LLC, 622 S.W.3d 807, 814 (Tex.

2021). Once a legal injury occurs, the injured party’s claims accrue, and the statute

of limitations begins to run,

      even if (1) the claimant does not yet know that a legal injury has
      occurred, (2) the claimant has not yet experienced, or does not yet know
      the full extent of, the legal injury, (3) the claimant does not yet know
      the specific cause of the injury or the party responsible for it, (4) the
      wrongful conduct later causes additional legal injuries, or (5) the
      claimant has not yet sustained or cannot yet ascertain any or all of the
      damages resulting from the legal injuries.

Id. (internal footnotes omitted); see also Exxon Corp. v. Emerald Oil & Gas Co.,

348 S.W.3d 194, 207 (Tex. 2011).

                                             4
      Texas courts recognize two common-law exceptions to the legal injury rule.

See S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996). The discovery rule “defers accrual of

a cause of action until the plaintiff knew or, exercising reasonable diligence, should

have known of the facts giving rise to the cause of action.” Marcus & Millichap

Real Est. Inv. Servs. of Nev., Inc. v. Triex Tex. Holdings, LLC, 659 S.W.3d 456, 461

(Tex. 2023).

      “A defendant’s fraudulent concealment of wrongdoing can also toll the

running of the limitations period.” Etan Indus., Inc. v. Lehmann, 359 S.W.3d 620,

623 (Tex. 2011). The doctrine of fraudulent concealment tolls the statute of

limitations “because a person cannot be permitted to avoid liability for his actions

by deceitfully concealing wrongdoing until limitations has run.” S.V., 933 S.W.2d

at 6. This exception “resembles equitable estoppel” because it “estops the defendant

from relying on the statute of limitations as an affirmative defense to [the] plaintiff’s

claim.” Marcus & Millichap, 659 S.W.3d at 463.

      But fraudulent concealment does not extend the statute of limitations period

indefinitely. The estoppel effect of fraudulent concealment ends when “a party

learns of facts, conditions, or circumstances which would cause a reasonably prudent

person to make inquiry, which, if pursued, would lead to discovery of the concealed

cause of action.” Id. at 464 (internal quotations omitted); see also Shell Oil Co. v.

Ross, 356 S.W.3d 924, 928 (Tex. 2011) (“[F]raudulent concealment only tolls the

                                               5
statute of limitations until “the fraud is discovered or could have been discovered

with reasonable diligence.”). Thus, like the discovery rule, the doctrine of fraudulent

concealment “does not apply to claims that could have been discovered through the

exercise of reasonable diligence.” Kerlin v. Sauceda, 263 S.W.3d 920, 925 (Tex.

2008).

      Even if one of these exceptions to the legal-injury rule applies, then, a claim

accrues “when the plaintiff knew or should have known of the wrongfully caused

injury.” KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746,

749 (Tex. 1999). And the plaintiff can have knowledge of the wrongfully caused

injury without knowing the specific nature of each wrongful act that may have

caused it. Id.

      Despite KPMG’s careful distinction between a plaintiff’s knowledge of the

injury and the plaintiff’s knowledge of the nature of the acts that caused the injury,

in this case, the majority opinion holds that there is “no conclusive evidence

establishing the appellees’ actual knowledge of the injury-causing conduct.”

(Emphasis added.) The supreme court’s decision in KMPG, however, illustrates the

fatal flaw in the majority opinion’s holding.

      In that case, KPMG Peat Marwick (“KPMG”) provided accounting and

auditing services to the county housing finance corporation (“HCH”) for a series of

bonds that HCH had issued. Id. at 747. The bank that served as trustee for the bonds

                                                6
(the “trustee”) later hired KPMG to prepare a special procedures report about the

trust’s assets. Id. KPMG did not tell HCH that it was also representing the trustee.

Id.

      In February 1993, HCH sued the trustee after learning that the trustee had sold

capital reserve fund assets at a loss. Id. The trustee moved for summary judgment

on HCH’s claims against it. Id. The trustee’s summary-judgment motion was

granted, and HCH did not appeal that ruling. Id.

      Later, in July 1995, HCH sued KPMG, alleging that KPMG had negligently

or intentionally failed to disclose the trustee’s mismanagement of the trust. Id. at

748. HCH claimed that its cause of action against KPMG did not accrue until

October 1, 1993, when it first learned, in pretrial discovery in its suit against the

trustee, that KPMG had failed to report the irregularities to HCH. Id.

      KPMG moved for summary judgment on HCH’s claims based on the statute

of limitations, and the trial court granted the motion. Id. But the intermediate

appellate court reversed that ruling, holding “that a claim does not accrue until

plaintiff knows not only of the injury, but the specific nature of each wrongful act

that may have caused the injury.” Id. at 749.

      Notably, the supreme court rejected the court of appeals’s formulation of

when a claim accrues. Id. Instead, the supreme court explained that “accrual occurs

when the plaintiff knew or should have known of the wrongfully caused injury.” Id.

                                                7
And “[t]he summary judgment evidence established that the wrongful injury HCH

allege[d] it suffered was the loss of over $621,000[.00] in December 1991 when it

refunded the bonds following the premature sale in 1989 of the reserve fund assets.”

Id. Thus, when HCH brought its first suit against the trustee, it was already

“aware . . . of its injury and that its injury was caused by the wrongful conduct of

another.” Id. As for the plaintiff’s failure to discover KPMG’s involvement until

later, the supreme court noted that when HCH discovered its loss, it should have

investigated “not only the possibility that [the trustee] had mismanaged the fund

assets,” but also why KPMG, as HCH’s auditor, “did not discover or report the

mismanagement.” Id. at 750.

       Applying KPMG’s analytical framework here, appellees need not have had

actual notice that Larry did not merely breach the Citadel contracts but had actually

defrauded appellees.     Citadel’s failure to repay appellees’ loans to Larry in

accordance with the agreements was enough to put appellees on actual notice of their

legal injuries.

       In analyzing whether appellees had notice of their legal injuries, the majority

opinion discounts the Citadel contracts because the trial court ruled that they were

void. But whether the contracts are valid has nothing to do with whether their terms

are among the facts, conditions, and circumstances that would cause a reasonably

prudent person to make an inquiry.

                                             8
      Parties to written agreements are presumed to have knowledge of and

understand the contents of those agreements and their legal effect. In re Raymond

James & Assocs., Inc., 196 S.W.3d 311, 318–19 (Tex. App.—Houston [1st Dist.]

2006, no pet.); see also Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467

S.W.3d 494, 501 (Tex. 2015); Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944

(Tex. 1996); Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962) (reaffirming

principle that contracting parties “have an obligation to protect themselves by

reading what they sign”).

      In the Citadel contracts, appellees warranted that they were “knowledgeable

and experience[d] in the evaluation, acquisition and operation of oil and gas

properties.” They also represented “that they ha[d] such knowledge and experience

in financial and business matters that they [were] capable of evaluating without

outside assistance the merits and risks of investing in the [c]ontract [a]rea.” Further,

appellees affirmed their understanding that the Citadel contracts, “the exhibits

[t]hereto   and    the    [joint   operating       agreement]   (together    with    its

exhibits) . . . represent[ed] the entire understanding and agreement of the [p]arties.”

And appellees agreed that the Citadel contracts could “not be amended except by

subsequent writing executed by all of the [p]arties.”

      Under the contract between Citadel, Fauth, and Fauth’s wife, the Fauths

invested a total of $820,000.00 in Citadel. Citadel agreed to reimburse the Fauths

                                               9
$400,000.00 of that amount within fifty-nine days, making the Fauths’ net

investment $420,000 in exchange for a six percent interest in Citadel.

      Under the contract between Citadel, Cooper, and Cooper’s wife, the Coopers

invested a total of $640,000.00.       Citadel agreed to reimburse the Coopers

$240,000.00 of that amount within fifty-nine days, “making the Coopers’ net

investment $420,000.00 [sic]” in exchange for a six percent interest in Citadel.

      The material terms of a contract to loan money generally include the amount

to be loaned, the maturity date, and the repayment terms. T.O. Stanley Boot Co. v.

Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992); Smith v. Barnhart, 576 S.W.3d

407, 417 (Tex. App.—Houston [1st Dist.] 2019, no pet.). The failure to make a

complete payment when due under a contract may constitute a material breach. N.Y.

Party Shuttle, LLC v. Bilello, 414 S.W.3d 206, 215 n.1 (Tex. App.—Houston [1st

Dist.] 2013, pet. denied).

      Here, the terms of the Citadel contracts required that appellees’ loans be

repaid in full within fifty-nine days, yet neither Fauth nor Cooper received a

reimbursement by the deadline stated in the Citadel contracts. Fauth, who had

withdrawn funds from his retirement account to make the loan to Citadel, had to pay

“just above $65,000.00 in penalties” and “additional taxes” because he did not

receive the promised reimbursement.

                                            10
      When Citadel did not repay appellees’ loans by May 23, 2011, it failed to

comply with the reimbursement provisions of the Citadel contracts. A breach of

contract can establish as a matter of law that a plaintiff has actual knowledge of his

injury. See Marcus & Millichap, 659 S.W.3d at 462.

      Here, there is no evidence that Larry attempted to conceal the significance of

the default, which he might have done by offering appellees an increase of their six

percent interest in Citadel. There is also no evidence that either Larry or appellees

otherwise tried to renegotiate their contracts to account for Citadel’s default and

memorialize any modified terms in writing. Appellees testified only that Larry made

some vague assurances about the long-term value of a deal with Dewbre Petroleum

Corporation (“Dewbre Petroleum”). The evidence thus conclusively shows that by

June 2011, appellees had actual knowledge that Citadel had defaulted on their loans.

      In their fraud claims, appellees sought as damages the amounts they had paid

Larry pursuant to the Citadel contracts, less the total amount they received from the

periodic payments that stopped in 2014. Their damages claims included the loans

to Citadel of $400,000.00 from the Fauths and $240,000.00 from the Coopers. Their

claims accrued and limitations began to run when they did not receive

reimbursement of those funds in 2011, even though they did not know the full extent

of their legal injuries, the specific cause of the injuries, and could not then ascertain

all of the damages resulting from them. See Regency Field Servs, 622 S.W.3d at

                                              11
814; Emerald Oil & Gas, 348 S.W.3d at 209; see also Marcus & Millichap, 659

S.W.3d at 464.

      Additionally, I note that the majority opinion erroneously concludes that

appellees, through the exercise of reasonable diligence, could not have discovered

Larry’s fraud. See Shell Oil Co., 356 S.W.3d at 928; Kerlin, 263 S.W.3d at 925. As

holders of membership interests in Citadel, appellees had the right to inspect its

records.1 See TEX. BUS. ORGS. CODE ANN. § 101.109(a)(3), (4) (person who is

assigned membership interest in limited liability company has right to make

reasonable inspections of company’s books and records even before membership);

see also In re Elusive Holdings, 641 S.W.3d 498, 501 (Tex. App.—Austin 2021,

orig. proceeding) (shareholder has common-law right to examine and copy certain

records of corporation in which shareholder owns shares). Appellees provide no

reason for relying solely on Larry’s word about profits earned in the Dewbre deal

and not examining Citadel’s records, which would have revealed some irregularities

about whether Citadel had any investment with Dewbre Petroleum.

      Because no evidence supports the conclusion that fraudulent concealment or

the continuing tort doctrine applied to toll the statute of limitations on appellees’

1
      The majority opinion cites to appellees’ testimony in characterizing them as
      unsophisticated investors. This characterization is contrary to appellees’ own
      representations in the Citadel contracts. Further, the record shows that Fauth’s wife,
      who was a signatory to the Citadel contract, was a certified public accountant who
      had worked for a Tenneco subsidiary as an accounting manager until about 2000.
                                               12
claims and the evidence conclusively establishes that appellees had actual

knowledge of their legal injuries and, through the exercise of reasonable diligence,

could have discovered the facts giving rise to their claims for fraud and unjust

enrichment more than four years before their filed suit, I would hold that the trial

court erred in rendering judgment in favor of appellees on their claims against

Larry’s estate for fraud and unjust enrichment.

      I would sustain Janice’s first, second, and third issues.

                                       Standing

      In her fourth issue, Janice argues that the trial court erred in removing her as

independent administrator of Larry’s estate because the statute of limitations barred

appellees’ claims against Larry’s estate. In her fifth issue, Janice argues that the trial

court erred in concluding that Larry’s transfer of his interest in Green Energy

Minerals, LLC (“GEM”) before his death constituted a fraudulent transfer because

appellees’ claims against Larry’s estate were barred by the applicable statute of

limitations.

      Here, because the majority opinion errs in holding that appellees’ claims

against Larry’s estate were not barred by the statute of limitations, it necessarily

follows that the majority opinion also errs in affirming the trial court’s ruling

removing Janice as independent administrator of Larry’s estate and in concluding

                                               13
that Larry’s transfer of his interest in GEM to Janice before his death constituted a

fraudulent transfer.

      In removing Janice as independent administrator of Larry’s estate, the trial

court relied on Texas Estates Code section 361.052(a)(1) and (3), which allows a

probate court, on its own motion or the motion of an interested person, to remove a

“personal representative if (1) sufficient grounds appear to support a belief that the

representative has misapplied, embezzled, or removed from the state, or is about to

misapply, embezzle, or remove from the state, all or part of the property entrusted

to the representative’s care” or “(3) the representative fails to obey a proper order of

the court that has jurisdiction with respect to the performance of the representative’s

duties.” TEX. EST. CODE ANN. § 362.052(a)(1), (3). The trial court also mentioned

Texas Estates Code section 404.0035, which allows a probate court, on its own

motion, to “remove an independent executor . . . after providing [thirty] days’

written notice of the court’s intention to the independent executor” if “the

independent executor becomes incapable of properly performing the independent

executor’s fiduciary duties due to a material conflict of interest.” See id. § 404.0035.

      But nothing in the trial court’s judgment nor anything else in the record

indicates that the trial court removed Janice as independent administrator of Larry’s

estate on its own motion. Other than a trial court, only an “interested person” may

apply to remove an independent administrator. See id. § 362.052; see also In re

                                              14
Estate of Chapman, No. 06-17-00051-CV, 2017 WL 5180405, at * (Tex. App.—

Texarkana Nov. 9, 2017, no pet.) (mem. op.).

      The Texas Estates Code defines an “interested person,” in pertinent part, as

“an heir, devisee, spouse, creditor, or any other having a property right in or claim

against an estate being administered.” TEX. EST. CODE ANN. § 22.018(1). The

“interested person” requirement applies not only to removal actions, but also to any

person objecting to or to participating in a probate proceeding. See id. § 55.001 (“A

person interested in an estate may, at any time before the court decides an issue in a

proceeding, file written opposition regarding the issue.”); In re Estate of Gomez, No.

02-21-00290-CV, 2022 WL 2840109, at *4 (Tex. App.—Fort Worth July 21, 2022,

no pet.) (mem. op.); In re Estate of Velasco, 214 S.W.3d 213, 216 (Tex. App.—El

Paso 2007, no pet.) (“Under the [Texas] Probate Code, only a party ‘interested in an

estate’ may bring an action to challenge a proceeding.”).

      The “interested person” requirement is one of standing. See In re Estate of

Daniels, 575 S.W.3d 841, 844 n.4 (Tex. App.—Texarkana 2019, pet. denied)

(addressing whether person was interested party entitled to standing in probate

proceeding). Standing is a necessary element of subject matter jurisdiction, and it

involves the court’s power to hear a case. Tex. Ass’n of Bus. v. Air Control Bd., 852

S.W.2d 440, 443, 445 (Tex. 1993). Because standing cannot be waived, it may be

raised for the first time on appeal, either by a party or by the appellate court. Id.

                                              15
      As discussed above, the statutes of limitations applicable to appellees’ claims

for unjust enrichment and fraud against Larry’s estate expired more than four years

before appellees brought suit. Because appellees have no property right in or claim

to Larry’s estate, they lack standing to seek removal of Janice, the independent

administrator, or otherwise challenge her actions as independent administrator. See

Wright v. Marsh, Nos. 12-10-00367-CV, 12-10-00414-CV, 2012 WL 1623430, at

*9 (Tex. App.—Tyler May 9, 2012, pet. denied) (mem. op.). Instead, the trial court

lacked jurisdiction to grant appellees’ application to remove Janice as independent

administrator or to rule on appellees’ challenge to Larry’s transfer of his interest in

GEM to Janice. Thus, I would hold that the trial court erred in doing both things,

and I would vacate the trial court’s rulings granting appellees’ application to remove

Janice as independent administrator and appellees’ challenge to Larry’s inter vivos

transfer of his interest in GEM to Janice, dismissing those claims for lack of

jurisdiction.

      I would sustain Janice’s fourth and fifth issues.2

                                     Conclusion

      A faithful application of controlling precedent requires the conclusion that the

undisputed evidence shows, as a matter of law, that appellees had actual notice of

2
      Due to my holdings, I need not address Janice’s sixth issue on appeal. See TEX. R.
      APP. P. 47.1.
                                             16
their legal injuries and, through the exercise of reasonable diligence, could have

discovered the facts giving rise to their claims for fraud and unjust enrichment

against Larry’s estate more than four years before they filed suit. Further, because

appellees had no viable claims against Larry’s estate, they had no standing to seek

removal of its independent administrator or bring other claims against her. Because

the majority opinion holds otherwise, I respectfully dissent.

                                              Julie Countiss
                                              Justice

Panel consists of Justices Goodman, Countiss, and Farris.

Countiss, J., dissenting.

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