The Fourth Court of Appeals in San Antonio has reversed a $71 million judgment against Baker Botts, LLP and Wells Fargo Bank Texas, NA, finding insufficient evidence to support the jury’s finding that the defendants’ alleged breaches of their fiduciary duty proximately caused the plaintiff’s damage. Baker Botts, L.L.P. and Wells Fargo Bank Texas, N.A. v. Cailloux, No. 04-05-00446-CV, 2007 WL 460643 (Tex. App.--San Antonio February 14, 2007, no pet. h.). Although Baker Botts prevailed, the case illustrates that the dangers of joint representation do not disappear just because the lawyer obtains signed conflict waivers.
In 1994, Floyd Cailloux and his wife Kathleen hired Baker Botts to develop a comprehensive estate plan for their holdings valued at more than $100 million. Baker Botts was to perform the estate planning in stages. The first stage involved preparing a set of wills naming Wells Fargo as the executor of the couple’s estate and as the trustee under the associated trusts. Baker Botts also established a foundation that would serve as the vehicle for making charitable grants. Floyd Cailloux’s longtime friend, also Wells Fargo’s regional president, was named executive director of the foundation.
During the second phase of the estate planning, the couple executed new wills that, among other things, gave the surviving spouse the power to disclaim interest in the other’s estate. Before Baker Botts entered the final phase of the estate plan, however, Floyd Cailloux died unexpectedly.
As the independent executor of Floyd’s estate, Wells Fargo contacted Baker Botts to represent the bank in connection with the administration. The foundation controlled by the bank’s president also contacted Baker Botts to assist it with any issues that might arise. Given the potential for conflicts of interest arising from this joint representation, Baker Botts required Kathleen, Wells Fargo, and the foundation to execute conflict waivers.
In 2002, after Kathleen had become incapacitated with Alzheimer’s disease, her son brought suit on her behalf against Baker Botts and Wells Fargo alleging that the defendants breached their fiduciary duty to Kathleen by advising her to disclaim her interest in her husband’s estate to increase funding to the bank-controlled foundation.
The jury agreed, finding that that both defendants had breached their fiduciary duty to Kathleen, and that Kathleen would have received $65.5 million had she not executed the disclaimer. As to Baker Botts, the jury concluded that the firm failed “to fully and fairly disclose all important information to Kathleen.” After accounting for pre-judgment interest, the trial court created a $71 million “equitable trust” for Kathleen’s benefit to be funded by the defendants.
In reversing the trial court’s ruling, the appeals court found no evidence that any of the defendants’ alleged breaches of duty caused Kathleen to disclaim her right to Floyd’s estate. Relying on its earlier opinion in Longaker v. Evans, 32 S.W.3d 725 (Tex. App.--San Antonio 2000. pet. withdrawn by agr.), the court found that speculation and inference stacking do not constitute competent evidence that Kathleen’s execution of the disclaimer resulted from the defendants’ alleged wrongdoing. The court found it equally plausible that Kathleen made a choice to support her husband’s charities during her lifetime rather than after.
In addition, the appeals court found that given the facts of this case, the trial court lacked the discretion to impose a constructive trust against Baker Botts and Wells Fargo. The court observed that a constructive trust is an equitable remedy designed to prevent unjust enrichment. In this case, however, neither defendant held legal title to the assets that Kathleen disclaimed; those assets went to Floyd’s designated charities. Accordingly, a constructive trust was not an appropriate remedy against these defendants and would amount to a double recovery for the plaintiff. Although the trial court fashioned its remedy as an “equitable trust” rather than a constructive trust, the appeals court concluded that a constructive trust by any other name remains a constructive trust.
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