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applying abuse-of-discretion standard to approval of settlement agreement by guardian for ward
Summary of this case from Webre v. BlackOpinion
No. 01-03-00279-CV
Opinion issued November 18, 2004.
On Appeal from Probate Court No. 2 Harris County, Texas, Trial Court Cause No. 274,652.
Larry D. Knippa, Knippa Kral, Houston, TX, for Appellant.
Kendall M. Gray and James E. Myers, Andrews Kurth, L.L.P., Houston, TX, for Appellee.
Panel consists of Justices TAFT, JENNINGS, and BLAND.
MEMORANDUM OPINION
This is the third appeal arising from the same guardianship matter. Appellant, J. Michael Epstein ("Michael"), appeals from an order approving a settlement for Michael's incapacitated mother, Alta J. Epstein ("Alta"), the guardian of whose estate is John A. Hutchison III. We consider whether the trial court abused its discretion in approving the settlement. We affirm.
Background
Michael sued Alta, alleging that she had committed various wrongful acts as trustee of testamentary trusts established under the will of Julius Epstein, Michael's father and Alta's late husband. Alta was later declared incapacitated from Alzheimer's disease. Michael became the sole trustee of the testamentary trusts. Hutchison eventually became the guardian of Alta's estate.
Alta owned a shopping center ("the Memorial shopping center"). One of her tenants was A-1 Cleaners ("A-1"), a dry-cleaning business. There was evidence that A-1's business generated pollution that contaminated the Memorial shopping center and also the groundwater that flowed onto nearby Town and Country Village Shopping Center and toward or into a nearby residential neighborhood. On July 13, 2001, the owners of the Town and Country property ("the TC owners") sued Alta, as owner and operator of the Memorial shopping center, for violations of federal and state environmental laws, for gross negligence, and for nuisance arising from the A-1 contamination. Hutchison and the TC owners negotiated a settlement. Hutchison sought the trial court's approval; Michael opposed the settlement's approval. After hearing evidence and reviewing briefing, the trial court approved the settlement.
The TC owners also sued the owners of A-1, who were not parties to the settlement that is the basis of this appeal.
Approval of the Settlement
"On written application to the court and when a guardian of the estate deems it is in the best interest of the estate, the guardian may, if authorized by an order of the court: . . . make a compromise or a settlement in relation to property or a claim in dispute or litigation;. . . ." TEX. PROB. CODE ANN. § 774(a)(4) (Vernon Supp. 2004-2005). The trial court expressly found that the settlement was fair, reasonable, and in Alta's best interest. We review a trial court's approval of a settlement involving a ward for abuse of discretion. Cf. Crouch v. Tenneco, Inc., 853 S.W.2d 643, 646 (Tex.App.-Waco 1993, writ denied) (applying abuse-of-discretion standard to court's approval of settlement in context of class action).
A. The Settlement's Terms
The settlement, executed in six documents, provided in pertinent part as follows: the TC owners released their claims against Alta's estate arising from the A-1 contamination. The TC owners would use their best efforts (1) to remediate the contamination at the Memorial shopping center, using the environmental contractor and some of the remediation equipment that was already being used in the remediation of their own property, and (2) to obtain a final certificate of completion from the Texas Environmental Quality Commission ("TEQC"). In exchange, Alta's estate would reimburse (with interest) the TC owners the funds that they expended to remediate the Memorial shopping center, up to a maximum of $580,000; Alta's estate would borrow the reimbursement funds under a note, backed by a deed of trust, from the TC owners. The estate would pay the interest on any sums advanced under the note until six months after the earlier of the issuance of a TEQC final certificate of completion or five years after the note's execution, at which point the note would become due. The note also allowed Alta's estate to borrow up to $85,000 from the TC owners to pursue A-1 or any other potentially responsible parties. The TC owners would assign any claims that they had against A-1 to Hutchison, and they would allow their environmental contractor to assist Alta's estate in prosecuting claims against responsible third parties. The estate assigned rents from the Memorial shopping center to the TC owners, but retained a license to collect and to use the rents, provided that the rents be used to pay the note, taxes, and costs before they could be used for other purposes, such as Alta's support.
The estate's environmental consultant would work with the TC owners' consultant to solicit and to award the lowest bids for the clean-up work.
B. Michael's Objections
1. Limitations
Under issue two, Michael first contends that the trial court abused its discretion in approving the settlement because the statute of limitations absolutely barred the TC owners' claims against the estate. Specifically, Michael relies on evidence that the TC owners' remediation contractors first discovered contaminant in two off-site monitoring wells located between the TC owners' property and A-1 in late 1998 or early 1999. The TC owners did not file suit until July 2001.
Michael relies on a line of authority providing that the statute of limitations for a "`direct invasion of one's property of a permanent character . . . begins to run from the date of the invasion. . . .'" Tennessee Gas Transmission Co. v. Fromme, 269 S.W.2d 336, 337 (Tex. 1954) (quoting 28 TEX. JUR. 149, Limitation of Actions, § 66) (holding that negligence cause of action accrued when plaintiff's legal rights were invaded by contaminated water's first flowing upon plaintiff's land). Assuming without deciding, as Michael argues and Hutchison contests, that a two-year statute of limitations applied to all of the TC owners' causes of action, this line of authority does not support Michael. The evidence that the TC owners knew of the A-1 contamination in 1999 would not trigger the statute of limitations under Michael's authority because the contamination was detected at off-site wells between their property and A-1's facility, not on their property. The evidence also indicated that the A-1 contamination had not yet entered the TC owners' property as of early 2000, fewer than two years before the TC owners filed suit. Accordingly, assuming that a two-year limitations period applied, the trial court reasonably could have concluded that the TC owners' claims did not accrue before early 2000 and, accordingly, that limitations did not bar those claims.
2. The TC Owners' Alleged Contributory Acts
Michael next contends, under issue two, that the trial court abused its discretion in approving the settlement because the TC owners' remediation system sucked the A-1 contaminants onto their own property. Michael does not explain, however, how the TC owners could have remediated their property without using the remediation method that they used, which had the incidental effect of pulling off-site ground water onto their site. Neither does he explain why the TC owners would not be entitled to remediate their own property — especially when their remediation plan was approved by the TEQC — even if pulling some off-site contamination toward their property was a necessary consequence. Moreover, the trial court reasonably could have viewed the TC owners' responsibility for drawing the A-1 pollution onto their own property as a contested, fact-dependent causation or liability issue that would have required litigation; the trial court also could have believed Hutchison's testimony that the estate could not afford such litigation.
3. The Absolute Nature of the Estate's Obligation
Michael further asserts, under issue two, that the trial court abused its discretion in approving the settlement because "the Ward's payment obligation is absolute and fixed in time, while the obligation of [the TC owners] to remediate is not." Specifically, Michael complains that the settlement agreement requires the TC owners only to use their best efforts to remediate, while the agreement requires the estate to pay the note at a date certain.
Hutchison testified that he tried to negotiate an absolute obligation to remediate, but that the TC owners would not agree — in part because they could not control the TEQC's issuance of a final certificate; however, Hutchison testified that he believed that the remediation could be completed within the five-year time frame. Hutchison's testimony was supported by that of the TC owners' remediation contractor, who testified that he believed that remediation would be fully completed within the five-year period. Furthermore, Hutchison testified that it would be in the TC owners' interest to clean up the Memorial shopping center because that property was contaminating theirs, and they could not get a TEQC certificate of completion until their own property was sufficiently cleaned. Additionally, the TC owners' environmental attorney testified that contaminated property could be refinanced, even at the same rate as that at which non-contaminated property could be financed, as long as "a remedy [was] in place that [was] working," and that he knew of about "two dozen" banks that would do so. Hutchison also testified that two experts had advised him that the property could be financed once the clean-up plan was in place and progressing.
The TC owners' environmental attorney also testified that "if the property itself is assigned a zero value because the remediation lien can go up to the value of the property, that's not adequate security for a loan, and they're going to require some form of security." Of course, that same individual also testified that the Memorial shopping center's value was about $600,000 and that his clients' best estimate of the total remediation cost for the Memorial shopping center was $300,000 to $400,000, which was less than that property's value.
Thus, the trial court reasonably could have believed that it was in Alta's best interest to settle, despite not obtaining an absolute remediation obligation, because the experts predicted that remediation would be fully complete before the note became due and because refinancing would be available.
4. Defense Costs
Michael next argues, under issue two, that the trial court abused its discretion in approving the settlement because the estate's expenses of defending the TC owners' environmental lawsuit would allegedly be minimal. Specifically, Michael argues that "the only defense costs" to the estate "would be the legal arguments" because all parties to the suit "agree that A-1 is the culprit." Michael's challenge overlooks testimony from Hutchison that the estate could not afford what he and his environmental counsel concluded would be the high expenses of defending against the TC owners' claims. Moreover, the settlement agreement provided for the estate to borrow up to $85,000 to prosecute claims against potentially responsible parties, and Hutchison testified that that amount would be a "drop in the bucket" compared to the attorneys' and experts' fees that could accrue in such a suit. Accordingly, the trial court reasonably could have concluded that the potentially high costs of defending against the TC owners' claims justified settlement.
Michael also argues that Hutchison presented no evidence "as to the validity of the $85,000.00 litigation advance," including whether this amount was adequate to prosecute claims against A-1 and whether a judgment against A-1 could be satisfied. However, Michael did not assert this challenge below, and, thus, he has waived it. See Tex.R.App.P. 33.1(a). Moreover, the TC owners' environmental attorney testified, "I think A-1 has the ability to pay for this remedy or has an ability to contribute substantially to this remedy. That's my personal opinion," . . . which he based upon the "very favorable cost of the remedy" and A-1's financial statement.
5. Vicarious Liability and Statutory Claims
Michael further argues, under issue two, that the trial court abused its discretion in approving the settlement because "there is no common-law vicarious liability of a landlord (ward) for the acts of its tenant (A-1), and the statutory environmental cost recovery statutes are not prospective."
The TC owners asserted, among other claims, claims for recovery of remediation costs under Texas and federal statutes. See 42 U.S.C.S. § 9607(a)(1), (2) (1997) [hereinafter "CERCLA"]; TEX. HUM. RES. CODE ANN. § 361.344(a) (Vernon 2001) [hereinafter "SWDA"]. SWDA section 361.344 provides in pertinent part that
[a] person who conducts a removal or remedial action that is approved by the commission and is necessary to address a release or threatened release may bring suit . . . to recover the reasonable and necessary costs of that action and other costs as the court, in its discretion, considers reasonable.
TEX. HUM. RES. CODE ANN. § 361.344(a). Michael's only appellate argument concerning the SWDA claim is that it "fails because . . . there is no plan approved by any regulatory body to clean up . . . A-1 Cleaners' [contamination] plume" and "section 361.344 refers to removal or remediation action that is approved by the TEQC," and "no such plan currently exists. . . ." This argument completely overlooks that the TC owners had or would incur costs in cleaning up the A-1 contamination that migrated onto their site and that the TEQC had already approved a remediation plan for the TC owners' property. Moreover, if the current TEQC-approved plan somehow did not cover the clean-up of the new contamination, Michael does not explain what would prevent the TC owners from obtaining TEQC approval to clean the A-1 pollution as it migrated onto their property.
Michael's only appellate argument concerning the CERCLA claims is that "jurisdiction for this federal cause of action exclusively is in the federal courts." Again, even assuming that this is true, Michael does not explain what, besides a settlement, would prevent the TC owners from filing their CERCLA claims against the estate in federal court.
Finally, we note that the TC owners' environmental attorney indicated that his clients' theory of liability against the estate was that it was the owner of a facility from which hazardous substances were released and was thus jointly and severally liable with A-1 for the clean up. See 42 U.S.C. § 9607(a)(1), (2) (providing that "the owner . . . of a . . . facility . . ." or "any person who at the time of disposal . . . owned or operated any facility at which such substances were disposed of . . ." is liable for certain costs).
The trial court would thus have been within its discretion in rejecting these challenges to the settlement.
6. Recourse Under the Note
In a final argument under issue two, Michael asserts that the trial court abused its discretion in approving the settlement because every asset in Alta's estate was allegedly at risk to satisfy the note should she default. No one disputed below that the note was "recourse." However, there was also testimony, set out above and below, that the experts believed that remediation could be completed before the note would come due, allowing for the Memorial shopping center's sale to satisfy the note or for refinancing; that refininancing could occur even if the remediation was not fully complete within five years; and that the best estimate of the actual cost to remediate the Memorial shopping center was $300,000 to $400,000, although that price range could not be guaranteed because of possibly higher operating costs. Accordingly, the trial court reasonably could have rejected this challenge to the settlement.
Finally, under issue one, Michael asserts that the trial court abused its discretion in "surrendering the protection of Probate Code section 805" because payment of the settlement allegedly would "increasingly reduce the ward's estate, which is already inadequate for her support and which provides no protection from ultimate loss of the [Memorial shopping center] property."
Probate Code Section 805, entitled "Order of Payment of Claims," provides:
(a) The guardian shall pay a claim against the estate of the guardian's ward that has been allowed and approved or established by suit, as soon as practicable, in the following order, except as provided by Subsection (b) of this section:
(1) expenses for the care, maintenance, and education of the ward or the ward's dependents;
(2) funeral expenses of the ward and expenses of the ward's last illness, if the guardianship is kept open after the death of the ward as provided under this chapter, except that any claim against the estate of a ward that has been allowed and approved or established by suit before the death of the ward shall be paid before the funeral expenses and expenses of the last illness;
(3) expenses of administration;
(4) other claims against the ward or the ward's estate.
(b) If the estate is insolvent, the guardian shall give first priority to the payment of a claim relating to the administration of the guardianship. The guardian shall pay other claims against the ward's estate in the order prescribed by Subsection (a).
TEX. PROB. CODE ANN. § 805(a)-(b) (Vernon Supp. 2004-2005). The settlement agreement gives priority to using the Memorial shopping center rents to pay the interest due on remediation advances, rather than giving priority to the ward.
Michael cites no authority for the proposition that a trial court cannot, after having found that doing so would be in the ward's best interest, depart in any way from the terms of section 805 in approving a settlement for the ward. In any event, the following evidence supports the trial court's ruling because one reasonably could conclude from it that both Alta's needs and the settlement's terms could be satisfied.
The Memorial shopping center was appraised at $580,000 without environmental contamination. The TC owners' environmental attorney testified that the clean-up costs for that property ranged between $250,000 and $1.2 million, depending upon what would be done, and that the settlement proposal was attempting to "come up with the cheapest, least cost remedy for this contamination." Moreover, Alta's estate would not necessarily be responsible for the $665,000 maximum principal provided by the note, but only for the principal amount that was required to remediate the property and to prosecute the third-party claims: if less than $665,000 was expended to remediate and to prosecute, then less would be borrowed under the note; if more than $665,000 was expended in remediation (prosecution lending was capped at $85,000), then the estate's liability would be capped. And there was the testimony that the TC owners' contractor's best estimate of the actual remediation cost was $300,000 to $400,000. There was also evidence that "not one penny" of the estate's money would pay for clean-up that did not originate in the Memorial shopping center. Finally, Hutchison testified that the first year's interest under the settlement agreement would be $1,700 monthly and that the estate had other sources of income to pay that interest. Given this evidence, the trial court reasonably could have rejected this challenge to the settlement.
8. In General
With respect to each of Michael's issues, we note that there was also testimony that the Memorial shopping center had little value as contaminated, that the estate could not afford to remediate it without the type of arrangement provided by the settlement, and that the settlement provided the financial means to remediate the property and to retain its value for the estate. Some testimony also showed that, if the A-1 contamination on the Memorial shopping center was not remediated, it would flow toward a nearby residential subdivision. The trial court was thus within its discretion if it concluded that the settlement afforded the estate a reasonable means of obtaining financing to remediate the Memorial shopping center and that remediation was needed both to protect the asset's value and to prevent potential lawsuits by nearby residents.
Moreover, Hutchison testified that he spent about 150 hours working with various experts and counsel on the TC owners' claims; that his experts agreed that there was a "very reasonable possibility" that the contamination over which the TC owners had sued was coming from the A-1 site; that the TC owners alleged millions of dollars of damages to them arising from the A-1 contamination; that the settlement was fair and reasonable for Alta, based upon his discussions with his experts and his environmental counsel, whom he described as "one of the best environmental lawyers in the state"; that the settlement was in Alta's best interest because it gave her financing to remediate her property and thereby to preserve her equity in it, it prevented exposing her to "significant" and "huge" potential liability to the TC owners and the subdivision residents, she had other sources of income to pay the interest over the remediation period, he obtained the lowest cap on liability under the note that he could, and it allowed her to borrow funds and to have assistance in pursuing A-1 for remediation costs. Given this testimony, the trial court also could reasonably have concluded that the settlement was in Alta's best interest.
Conclusion
We overrule each of Michael's issues.
We affirm the order of the trial court.