Challenging a Finding of Fraud on the Community: Opinions, June 28, 2018

This morning the Fourteenth Court of Appeals released two memorandum opinions, In re Lehman, No. 14-17-00042-CV, on premarital agreements, and Miller v. Miller, No. 14-17-00293-CV, on fraud on the community.

In In re Lehman, wife appealed the trial court’s granting of summary judgment as to whether she voluntarily signed the premarital agreement. The day before their wedding in 2005, the parties executed a PMA which provided no CP would accumulate during the marriage. Attached to the agreement were schedules of their SP prior to marriage. Ten years later, wife filed for divorce. Husband sought summary judgment on the enforceability of the PMA. After a hearing, the trial court granted summary judgment. Wife’s sole issue on appeal is whether the trial court erred in holding wife failed to raise a genuine issue of material fact as to whether she voluntarily signed the PMA. The wife stated in her affidavit that she lived with the husband prior to marriage and that the husband provided the majority of the financial support for her and her two daughters and that she was unable to support herself at the time the PMA was signed. She could not afford her own lawyer when the PMA was signed so the husband paid for her lawyer to advise her on the PMA. She claimed in an affidavit that when she was presented with the PMA, she was not able to opt out of signing it because she had been unable to improve her situation and “just could not make the grade.” She claimed the husband would not have married her but for the PMA being signed and that she was concerned about her children and did not want to “be out on the street.” The court found she did not meet her burden of establishing a fact issue on voluntariness.

In Miller v. Miller, husband appealed the trial court’s reconstitution of the marital estate. Husband and wife married in 1969 and had three children (who were all adults at the time of the divorce). Husband is a doctor and wife worked at his clinic, which had five locations throughout Texas.  In 2007, the parties undertook a business plan to increase their real estate property, accumulating significant property and debt. In addition to their large medical business, husband was responsible for creating a warren of business entities which primarily dealt in real estate. Unfortunately, in 2010, husband suffered a stroke which resulted in him being unable to work for a lengthy period. Wife became his sole caregiver but it was exhausting and trying for her. During his recovery, Husband was abusive to the wife. Their marriage began to deteriorate. Meanwhile, wife sold some of their real estate to cover expenses. In 2012, wife attempted suicide and then shortly thereafter filed for divorce. At some point before trial, one of the Millers’ business partners was indicted for misappropriating funds from a former employer. Despite the indictment, husband continued to trust the partner with the management of one of their development companies.

The bench trial was held over twelve days spanning nearly a year (!), from June 3, 2015 to May 18, 2016, during which time the community estate changed which resulted in updated proposed property divisions. A final decree was signed on December 20, 2016. Husband’s MNT was denied. The trial court’s FF/CL included findings that the wife had little to no future earnings capacity, that she suffers from severe depression, husband was obstructionist during the divorce, he failed to pay court-ordered support, he had the ability to earn substantial income after the divorce, wife was awarded property with little risk, such as cash and retirement accounts, husband was awarded most of his medical practice, and that husband committed fraud on the community to the tune of $189,672.34. The court awarded 49.28% of the community to wife and 50.72% to husband.

For some reason, the case was transferred from the Austin Court of Appeals to the 14th, meaning the 14th would use Austin’s precedents.

Husband’s issues on appeal included the trial court erred by finding the fraud on the community estate, arbitrarily reconstituting the estate absent evidence of damages, ordering a business not party to the divorce to pay wife, and making an unequal property division in a no-fault divorce.

In his first issue, husband made a number of complaints as to the trial court’s fraud finding:

(1) the presumption of fraud on the community never arose because the community character of the property never changed; (2) the disposition of community property was fair to Linda; (3) no fiduciary duty existed between Terry and Linda during the divorce; (4) Linda was uninformed by personal choice in the matters of the community estate; and (5) the community estate remained monetarily whole.

Husband alleged no presumption of constructive fraud arose because community funds were merely transferred to various entities within the community estate for the purpose of maintaining and preserving the community estate and thus the evidence was legally and factually insufficient. At trial, wife presented evidence of a lot of transactions among the various real estate and clinic entities, some of which were in the six figures. The trial court determined that the amount owed to the community estate was $189,672.34, but did not specify the basis for this amount. The COA found that husband’s testimony did not provide clear and compelling explanations for a number of sizable transactions. Also, husband continued to allow the indicted business partner to manage one of their companies, which was valued at over $1 million. The COA also cited other evidence at trial before finding that the trial court, as trier of fact, had sufficient evidence before it to make the determination it did.

Husband also argued that he rebutted the presumption of constructive fraud because most, if not all, of the community estate (worth about $7.6m) was his special community property and that gave him the right to control and dispose of it subject to his sole management. But the COA noted that the spouse’s disposition of his special CP must still be fair to the other spouse and the disposing spouse has the burden of showing the fairness of the dispositions. Husband testified that after his stroke he, inter alia, relied on the advice of professionals and business partners. However, the credibility of his testimony was subject to the trial court’s determination and the trial court could reasonably give husband’s testimony on this point less weight.

Husband also argued that during the divorce, which spanned four years, he did not owe wife a fiduciary duty and thus did not commit fraud on the community. The COA countered that fraud on the community is not an independent tort, but is part of the division of the estate. Courts have recognized fraud on the community when the wrongful disposition of CP occurs during the divorce.

Husband argued that wife testified at trial that she stayed out of the financial affairs even though she had access and means to learn about and participate in the management of property and thus she was “uninformed by personal choice” in matters of the community estate and therefore the trial court erred in finding constructive fraud. The COA noted husband failed to cite any authorities to support this argument. Additionally, there was conflicting evidence concerning the level of wife’s desire to be involved in their business affairs and thus the issue was a matter for the trial court to resolve. But even so, “We are aware of no Texas case holding that the law imposes a requirement of diligence on the non-managing spouse, particularly when a relationship of trust and confidence exists between spouses as to that portion of the community property controlled by the managing spouse.”

Finally, husband argued the trial court abused its discretion in reconstituting a community estate based on assets that were not lost and a community estate that remained “monetarily whole.” Husband argued that during the marriage, he reduced the community’s indebtedness and increased the value of retirement funds. He argued wife did not present evidence that husband engaged in any action that was fraudulent or in breach of his fiduciary duty. The COA found the trial court was within its discretion to not accept husband’s “self-serving testimony” at trial. Husband’s first issue was overruled.

In his second issue, husband argued the trial court erred in finding actual fraud, but as the trial court found only that husband had committed “actual or constructive fraud” and the COA affirmed the constructive fraud finding, it did not need to reach husband’s second issue.

In his third issue, husband alleged wife failed to establish any damages caused by his fraud on the community. This argument, the COA held, is essentially the same as his argument that the community remained monetarily whole and rejected it.

In his fourth issue, husband argued that the trial court erred by including an order in the decree requiring the clinic, which was not a party to the divorce, to pay wife $100,000. The COA found he did not raise this issue at the trial court level and it was thus waived. But even on the merits, the COA noted that the decree does not order the clinic to do anything; it requires husband to make a payment of $100,000 from a bank account in the name of the parties for clinic business (which was a community asset).

In his fifth issue, husband argued the trial court abused its discretion in making a “grossly disproportionate division” in wife’s favor when no fault grounds were proven or found in the trial court’s ruling. As you recall, wife was awarded 49.28% of the community estate and husband was awarded 50.72%. For some reason, husband argued that the values adopted by the court actually result in a 59/41 division but, the COA said, he “does not explain the basis of his conclusion that the trial court’s division actually resulted in a 59-41 division.” The issue was overruled and the trial court was affirmed in full.


Are Court-Appointment Lists Unconstitutional?: Opinions, June 21, 2018

Today the First District Court of Appeals released a memorandum opinion on child support modification, Amudo v. Amudo, No. 01-17-00318-CV, and the Fourteenth released a memorandum opinion on the denial of a protective order, Hassan v. Hassan, No. 14-17-00179-CV, and a really unique published opinion on the constitutionality of the appointments of attorneys ad litem, guardians ad litem, mediators, and guardians under Government Code chapter 37, In re K.L., No. 14-16-01022-CV.

In Amudo v. Amudo, father petitioned to decrease his child support and health insurance obligations. Mother answered. Mother eventually served father with discovery requests which father objected to as being untimely because it was too close to trial. But the trial was continued a couple of times thereafter and father did not amend and answer the requests. At trial, mother objected to father’s evidence on the ground that he did not answer her discovery requests. Father argued mother did not respond to his discovery requests either. But father was the party seeking affirmative relief and, upon mother’s objection, he was not able to testify to his employment, income, and resources because that testimony would have been responsive to mother’s interrogatories. The trial court denied his petition and the COA affirmed.

In Hassan v. Hassan, Elaine filed for a protective order against Tamer. After trial, Tamer moved for directed verdict, which the trial court granted and the COA affirmed. Here is the relevant factual recitation:

The parties proceeded to a bench trial on February 6, 2017. Elaine testified at trial regarding the incidents included in her affidavit. The trial court admitted as an exhibit a photograph of Elaine taken in April 2016; Elaine is pictured wearing a neck brace and has three visible bruises on her right arm.

Elaine testified that Tamer had visited her twice in the three weeks preceding trial. Elaine stated that Tamer did not threaten her with violence during these visits. On cross-examination, Elaine acknowledged that she and Tamer were married twice. Elaine stated that she and Tamer were married in 2005 and divorced in November 2006. Elaine testified that she and Tamer were “common-law married” in December 2006 and “legally” married in 2008.

In response to questioning, Elaine acknowledged that “[a]t any point [she’s] free to go where [she] want[s] when [she] want[s] during the day.” Elaine also stated that she never reported Tamer’s abuse to the police. Elaine testified that she and Tamer currently live about 12-13 miles apart from each other.

Elaine responded “yes” when asked if she was “still afraid of family violence from [Tamer] today?” When asked why she was afraid, Elaine stated “I don’t know. I always go back.”

Elaine rested her case and counsel for Tamer moved for a directed verdict on the grounds that Elaine “has not proved . . . that [Tamer] is, in fact, a threat of future violence, nor is conclusive as to any specific incidents of violence.” The trial court stated that it did “find that the evidence of family violence has been presented” but did not “have any basis for future” violence. The trial court granted Tamer’s motion for a directed verdict.

Perhaps the most interesting decision today is In re K.L., in which the Court of Appeals reversed the trial court’s determination that chapter 37 of the Government Code was unconstitutional. But the COA’s ruling is based on standing, not the merits of the dispute.

In this case, the maternal grandparents of two minor children petitioned to be named primary conservators for the children. The children’s parents were named as respondents though at the time they did not know the identity of one of the fathers. Under Chapter 37 of the Government Code, the trial court appointed an attorney ad litem for the unknown father. Chapter 37 requires courts in certain counties to create and maintain lists of qualified people who are registered to serve as attorneys ad litem, guardians ad litem, mediators, and guardians. Courts are then generally required to make such appointments on a rotating basis from the lists, but may disregard the lists and appoint someone agreed to by the parties or of the court’s own choosing, so long as there is a finding of good cause and an explanation is provided.

After the AAL was appointed, the grandparents filed a motion to reconsider, arguing chapter 37 violated the separation of powers doctrine in the Texas Constitution both because it infringes on core judicial powers and its vague and undefined use of the word “qualified” requires the judiciary to legislate in the guise of interpreting the statute. The grandparents requested the trial court find the statute unconstitutional, rescind the appointment of the AAL, and appoint an AAL without using the chapter 37 procedures.  The State of Texas was notified of the Constitutional challenge.

Before the motion could be heard, the mother filed a counterpetition identifying the child’s father as an “alleged father.” At the hearing on the motion, the father appeared pro se and the appointed AAL appeared as AAL. The State did not appear or respond to the motion. After the hearing, the trial court granted the motion, held that chapter 37 was unconstitutional because it violated the separation of powers doctrine and vacated the appointment of the AAL. The father’s paternity was subsequently established.

Several months later, the OAG intervened and filed a motion to reconsider the order and declaration that chapter 37 procedures are unconstitutional. The trial court denied the motion. The case proceeded to trial. The grandparents were named primary conservators and the parents were named possessory conservators. The State appealed.

The State argues that the grandparents lacked standing to challenge the constitutionality of chapter 37 because the grandparents had no “concrete and particularized,” “actual or imminent” injury from the appointment of a AAL for one of the fathers. The Court of Appeals agreed. The grandparents responded that they had a justiciable interest in the appointment process because 1) they could potentially be ordered to pay the ad litem’s fees and 2) the ad litem would be involved in a case to determine the best interests of their grandchildren.

With regard to the first argument, the COA ruled that the grandparents could still be on the hook for fees whether or not the father or an AAL appeared in his place. That is, there is nothing about the AAL’s appointment that caused that potential injury.

As to the second argument, the grandparents argued that the chapter 37 procedures unnecessarily hamper the trial court’s ability to match an appropriate AAL with the circumstances in a particular case and that, as the child’s grandparents, they have an interest in assuring that an appropriate ad litem is appointed to represent the unknown father. The COA ruled that these arguments do not present a sufficient interest in the representation of an opposing party to give them standing to contest how that representation is accomplished.

As such, the Court of Appeals ruled the  grandparents lacked standing to challenge the constitutionality of chapter 37 and thus the trial court lacked subject matter jurisdiction to consider the issue. The COA modified the judgment to vacate the trial court’s ruling that chapter 37 is unconstitutional and affirmed the judgment in all other respects.

One can’t help but wonder who could have standing to challenge the constitutionality of the chapter. If the grandparents can’t challenge the provision, then who can? The father? Once the father appears in the suit, wouldn’t the AAL be dismissed and the issue moot? Or would the likelihood of future recurrence allow the issue to be heard? Even then, what injury would the father have to seek relief on? Would he have to show that the judge wanted to appoint a particular AAL that was better suited to represent his capacity but was barred from doing so by the appointment list? But in that circumstance, the trial court can deviate from the list for good cause. The head, it reels. We may have to wait until the trial court in this case (the 257th) gets another case and a party whose capacity was previously represented by an AAL or GAL to challenge the provision. It could be a while before we get an answer… if ever.


What is Actual Care, Control, & Possession?: Opinions, June 15, 2018

On June 15, 2018, the Texas Supreme Court released an important opinion on standing to file a SAPCR under TFC §102.003, specifically the interpretation of §102.003(a)(9) (“actual care, control, and possession of the child for at least six months”) in In re H.S., No. 16-0715. The vote was 5-4, with Justices Johnson, Guzman, and Brown joining a dissent authored by Justice Blacklock. Justice Guzman also authored her own dissent.

The child at issue lived in her maternal grandparents’ home for the first 23 months of her life. During the last 8 months, her grandparents were the primary caretakers and providers. The child’s mother was in rehab much of this time. The child saw her father intermittently. While the mother was in rehab, the grandparents directed the child’s day-to-day activities and took care of her daily needs, such as feeding her, clothing her, and paying for her daycare. The parents did still participate in some parenting decisions and saw the child on occasion.

The issue is whether or not the grandparents had standing under §102.003(a)(9) to bring a SAPCR and what the meaning of “actual care, control, and possession” in the statute is. The trial court dismissed the grandparents petition and the Fort Worth Court of Appeals affirmed. The Supreme Court reversed, finding they did have standing and that the meaning of the statutory text does not require any additional considerations posited by other Courts of Appeal, such as legal control, exclusive control, permanent control, or a showing that the parent has abdicated or relinquished his/her rights. In other words, just being a (not necessarily the sole) caretaker for the child on a day-to-day basis for a period of six months is sufficient under the statute, even if the parents continue to help care for the child and make decisions for the child. The Supreme Court emphasized that the issue is standing under the statute, not the final determination.

The test put forward by the Supreme Court is whether:

if, for the requisite six-month time period, the nonparent served in a parent-like role by (1) sharing a principal residence with the child, (2) providing for the child’s daily physical and psychological needs, and (3) exercising guidance, governance, and direction similar to that typically exercised on a day-to-day basis by parents with their children. The statute does not require the nonparent to have ultimate legal authority to control the child, nor does it require the parents to have wholly ceded or relinquished their own parental rights and responsibilities.

The Supreme Court specifically rejected an interpretation from the Beaumont Court of Appeals, which found the statute required legal right of control over the child. (In re K.K.C., 292 S.W.3d 788, 793 (Tex.App–Beaumont 2009, orig. proceeding). The Court also cited approvingly both Smith v. Hawkins, No. 01-0900060-CV, 2010 WL 3718546 at *3 (Tex.App.–Houston [1st Dist.] Sept. 23, 2010, pet. denied) (mem. op.) (finding nothing in the statute required the nonparent’s care and control to be exclusive) and Jasek v. Tex. Dep’t of Family & Protective Servs., 348 S.W.3d 523, 535 (Tex.App.–Austin 2011, no pet.) (finding the Legislature’s word choice manifests an intent to confer standing on a person who had for six months developed and maintained a relationship with the child by virtue of that person’s de facto care, control and possession “as distinguished from a bare legal right of care, control, and possession”).

The Blacklock dissent begins:

Today the Court holds that nearly anyone who has “played an unusual and significant parent-like role in a child’s life” may sue for legal rights of visitation and control over the child even if the child’s parents remain actively involved in the child’s life and oppose the non-parents’ wishes. According to the Court, section 102.003(a)(9) of the Family Code dictates this outcome. I respectfully disagree.

Noting that the grandparents established actual care and actual possession, the dissent goes on to examine what is meant by “actual control.” Both the majority and the dissent cite dictionaries, as they must because the phrase “actual care, control, and possession” is not defined by the statute and it is not a legal term of art. The dissent posits, without citing any authority, that “control” here “means more than day-to-day or hour-to-hour supervision and discipline” and “means responsibility for the important choices that must be made for the child.” (While this is certainly a reasonable interpretation, I do not believe it is the only reasonable interpretation and the statute does not provide much guidance on the point.)

The dissent goes on to argue that the control contemplated by the statute can only take place after the child’s parents have relinquished control, on the theory that “control” must mean something different from “care” and “possession” or the word would be surplusage: “If all parental ‘control’ means is deciding ‘when [a child] gets up and goes to bed, how much television she watches, whether she gets dessert, [and] when she needs to go to the doctor,’ then I can discern no distinction between ‘care’ and ‘control.'” While it is important to give meaning to each word of a statute, reasonable minds can differ on what is taking an axiom of statutory construction too far.

Justice Guzman’s dissent cites how the parents remained involved in the child’s life and exercised their parental rights during the relevant time period to make an overlapping argument that “control” implies a single point of decision-making and that a “non-parent’s supportive participation in parental decision-making commensurate with actual control over the child is neither reasonable nor consistent with the plain meaning of the term.”

Even if one agrees the Supreme Court’s holding, one must acknowledge that is a relatively-broad reading that might open the door to more petitioners in the future. Stay tuned for further cases over what constitutes “control.”  I know a lot of parents who say that there is no such thing.

Post-Divorce Division: Opinions, June 12, 2018

The First District Court of Appeals released a memorandum opinion in Hazelwood v. Hazelwood, No. 01-17-00147-CV, concerning post-divorce division of property.

Husband and wife divorced in 2011. They signed an MSA and a decree was entered. In 2015, wife discovered documents that suggested husband had concealed several retirement accounts and other assets during the divorce. She filed a petition for post-divorce division of the omitted assets and then a supplemental petition for bill of review alleging husband committed fraud. In October 2016 they signed a second MSA which awarded all omitted property to wife, except for two Woodforest bank accounts, one of which belonged to his mother. After the second MSA was signed, husband discovered that his mother’s bank account number was incorrect in the MSA. He executed an affidavit regarding the mistake and how it should be corrected.

On November 7, 2016, the trial court entered a final order based on the MSA, which included the wrong account number. The next day, the parties’ attorneys filed an agreed motion to reform the final order to correct the error. On December 2, 2016, the trial court entered the reformed order, correcting the bank account digits.

In mid-December, wife’s attorney withdrew from representing her. Wife then filed a pro se motion for new trial, asserting she did not agree to the reformed order, that it decreased her award, and that her lawyer lacked authority to represent her when the agreed motion to reform the final order was filed. She also alleged that she discovered new evidence after the court signed the final order on November 7, 2016 indicating husband received oil production distributions during the marriage, despite husband’s representation in the 2011 MSA that he never received distributions or royalties from his oil production partnership. Wife also alleged husband transferred some retirement and life insurance assets to the partnership but she did not attach any evidence to the MNT in support of this assertion. A hearing was held on the MNT. Wife made arguments but no evidence was introduced at the hearing and the MNT was denied. Wife appealed.

Wife brought eleven issues on appeal. The first, that the 2011 divorce decree did not comport with the first MSA, was waived because wife did not make the argument in trial court and the error was not preserved. Her second, third, ninth, tenth, and eleventh issues were inadequately briefed and were thus waived.

As for issues four, five, and six, the COA found wife failed to demonstrate error. In her fourth issue, she argued the trial court erred by failing to vacate her supplemental petition, the one which included the bill of review, because she did not authorize the filing of the petition. But the trial court denied the request for bill of review, so it was unclear how the alleged error impacted the final order.

In her fifth issue, wife argued the trial court erred by failing to send her notice that the final order was signed on November 7, 2016, but she acknowledged that her attorney received notice of the final order and reformed final order.

In her sixth issue, she alleged her attorney lacked authority to represent her when he filed the agreed motion to reform the final order because the scope of the engagement excluded post-judgment work. The Court of Appeals found she failed to rebut the presumption that an attorney acts on behalf of a client with authority.

Wife’s seventh and eighth issues pertained to the trial court’s denial of the MNT. In her seventh issue wife alleged “that the court should have given her some relief from the agreed reformed order because her attorney acted without authority in filing the agreed motion to reform, because she had no notice of the entry of the final order or the agreed motion to reform, and because [husband]’s affidavit about the account number of Woodforest Bank account was made in bad faith.” In her eighth issue, she alleged the trial court erred by failing to hold a hearing on the allegation of newly discovered evidence she raised in her MNT.

A hearing on her MNT was held on February 9, 2017, at which she did not introduce any evidence to controvert husband’s affidavit, rebut the presumption that her husband lacked authority to act on her behalf, or any evidence to justify a new trial based on newly discovered evidence. The issues were overruled and the trial court was affirmed.







Overcoming a Premarital Agreement: Opinions, June 7, 2018

The Fourteenth Court of Appeals released a memorandum opinion in In re Veldekens, No. 14-16-00770-CV, primarily regarding a premarital agreement and the evidence necessary to overcome its separate property provisions.

The day before the parties married in 2007, they executed a premarital agreement which precluded the accumulation of community property during the marriage. Seven years later, wife filed for divorce. After a bench trial, the marital residence was confirmed as wife’s separate property. The husband appealed.

In his first issue, husband argued the trial court erred in ruling the marital property was wife’s separate property because he presented evidence that wife sold a one-half interest in the property to him, including a sales contract and a hand-written note acknowledging husband’s one-half interest. However, it appears from the opinion that either the husband did not provide or admit into evidence a copy of the purported sales contract or the sales contract itself failed to convey a one-half interest in the property to wife. Wife evidently testified that she did not intend to sell a one-half interest in the property to husband and the trial court could have determined her testimony was credible. And the trial court reasonably could have determined that the $50,000 paid by husband to wife was a gift. The Court of Appeals affirmed the trial court’s finding that the property was wife’s separate property and overruled the husband’s first issue.

This also led the COA to overrule the husband’s second issue. Under the terms of the premarital agreement, the parties were barred from making a claim for any property designated as separate property and making such a claim could entitle the other party to attorney’s fees for defending the claim. The Court of Appeals affirmed the trial court’s finding of attorney’s fees for wife in defending against husband’s claim for the marital property.

Finally, in his third issue, the husband alleged the trial court abused its discretion in not awarding him a full SPO. He made the novel argument that “[i]t is well past the time for Texas courts to discard the undefined legal vernacular of ‘best interest’ in resolving conservatorship issues and set forth viable guidelines for determining when a trial court can strip a parent of its alienable right to statutorily mandated periods of possession with his or her children.” The COA cited the Holley factors and then recited the trial court’s findings of fact that the husband uses abusive language around the children, calls the mother inappropriate and extremely vulgar names in the presence of the children, he becomes more frustrated and abusive toward the mother the longer his visitation period lasts, he is stressed by getting the children ready for school in the morning, the children are often stressed when the father participates in the morning routine, husband tended to exercise his possession at his parents’ house which was forty miles from the school, and for these reasons the children should not have overnights on Sunday or Thursday nights. The COA affirmed.