McLeod v. McLeod

644 S.W.3d 792

Julie MCLEOD, Individually and as Independent Executor of the Estate of Barry McLeod, Appellant

v.Wanda MCLEOD, Individually and Derivatively on Behalf of McLeod Property Development, LLC, and Michel Manfredonia, Appellees

No. 11-20-00076-CV

Court of Appeals of Texas, Eastland.

Opinion filed April 28, 2022

John T. Montgomery, for Appellee Manfredonia , Michel.

Patrick D. Sheridan, Fort Worth, John T. Wilson IV, Dallas, for Appellee McLeod, Wanda.

Greg Allen, Abilene, Matthew W. Choate, Thomas W. Choate, Abilene, for Appellant.

Panel consists of: Bailey, C.J., Trotter, J., and Williams, J.

JOHN M. BAILEY, CHIEF JUSTICE

This appeal arises from a six-day jury trial. The underlying suit concerned McLeod Property Development, LLC, (MPD) a family-member-owned residential property development in Abilene. In 2012, Barry McLeod approached his mother, Appellee Wanda McLeod, about the prospect of developing 112 acres that she owned.¹ He wanted to develop a portion of her farm into a residential property development. Barry and Wanda formed MPD for the purpose of developing the property.

Barry and Wanda were the only members of MPD at the time that it was formed.

Even though Wanda was listed as a managing member of MPD, she did not have any role in its management for the first four years. Barry was the controlling member of MPD until he died unexpectedly on September 23, 2016. Upon Barry's death, his wife, Appellant Julie McLeod, began operating MPD. Disputes soon arose between Wanda and Julie concerning the operation of MPD. Most of the disputes focused on the manner in which Barry had operated MPD. Wanda subsequently took control of MPD from Julie in early 2017.

Wanda filed the underlying lawsuit in January 2018 against Julie in Julie's capacity as the executor of Barry's estate. Wanda alleged causes of action against Barry's estate for breach of fiduciary duty, breach of contract, and unjust enrichment. Julie later filed a petition in intervention in both her individual capacity and derivatively on behalf of MPD against Wanda. Julie also named Wanda's daughter, Michel McLeod Manfredonia, as a third-party defendant. Wanda subsequently filed an amended petition wherein she sued Julie in her individual capacity. Wanda alleged that Julie knowingly participated in Barry's breaches of fiduciary duty.

The trial court submitted a charge to the jury that contained thirty-seven questions.² The jury determined that Barry owed Wanda a fiduciary duty that he breached. The jury also determined that Barry breached the fiduciary duty that he owed to MPD. The jury determined that Barry's breaches of fiduciary duty that he owed to Wanda and MPD were not excused and that Julie was not a knowing participant in these breaches. The jury determined that Barry was unjustly enriched and that five items of property were traceable to his acts of unjust enrichment. The jury determined Wanda did not approve Julie as a member of MPD. The jury also determined that Wanda did not comply with all of the fiduciary duties that she owed to MPD. However, the jury determined that MPD did not suffer any damages because of Wanda's breach of fiduciary duty.

Julie brings ten issues on appeal. She primarily challenges the recoveries obtained by Wanda and MPD against Barry's estate. We affirm in part and we reverse and render in part.

Background Facts

Wanda and her late husband, Garth McLeod, had four children: David, Sharon, Michel, and Barry. Both Garth and David died prior to the formation of MPD. Wanda and Garth owned a 441-acre farm on the edge of Abilene. Wanda testified that she and Garth bought the farm as an investment for their retirement. MPD's residential property development was located on a portion of this farm.

Prior to Garth's death, Barry approached Garth about developing a portion of the farm. Wanda testified that Garth was reluctant to develop the property because of his age. Garth eventually scheduled a meeting with a local engineering firm to discuss the development. However, Garth died before the meeting occurred. Barry then approached Wanda about developing the property. Wanda was also reluctant because of her age (74). However, Wanda eventually decided to let Barry develop the property.

At trial, Wanda and Julie disagreed on the terms of the agreement between Barry and Wanda for the purchase of Wanda's property. The jury determined that Barry agreed to pay Wanda $7,000 an acre for 112 of the acres that she deeded to MPD at the inception of MPD and then Wanda would be paid an additional $4,000 per acre for each acre sold in the development. The jury also determined that Barry did not fail to comply with this agreement. Neither party challenges these jury findings.

Wanda testified that she and Barry agreed that each would also contribute $500,000 to the development, in addition to her real property, and that they would split profits 50/50. With respect to her $500,000 contribution, Barry told Wanda that she needed to obtain a loan for this money. She executed a promissory note in 2013, pledging a part of her farm as collateral.

Prior to his death, Barry managed all of the affairs of MPD. Wanda testified that Barry never paid her fifty percent of the profits from MPD. In this regard, Wanda testified that Barry told her that MPD had not made any profits. However, the financial records of MPD indicated that it had a net book income of $525,883 for 2013 through 2016.

At the time of Barry's death, $167,000 remained unpaid on Wanda's note. Wanda believed that Barry had been making payments on her note. However, he had only paid the interest on her note during the year prior to his death. Conversely, Barry contributed less money to MPD than did Wanda because he had other indebtedness that limited the money that he could contribute to the development.

After Barry's death, Wanda learned about the manner in which Barry had operated MPD. Wanda testified about numerous withdrawals and expenditures made by Barry from MPD's accounts of which she was not aware. For example, Barry used MPD funds to purchase an Audi for his daughter and a BMW for Julie. He also used MPD funds to purchase two rental houses for himself. Barry used MPD funds to pay his and Julie's personal income taxes, their ad valorem taxes, his son's personal income taxes, and his daughter's college tuition. MPD also paid interest on loans for other properties owned by Barry.

Randy Bibb, Barry's long-time accountant, also performed accounting services for MPD at Barry's request. Bibb's knowledge about the financial affairs of MPD was based on the information provided to him by Barry. Bibb testified that he was aware that Barry was taking money from MPD in the form of draws and that Barry was taking an excessive amount as compared to the few draws that were allocated to Wanda. Bibb agreed that Barry took out "hundreds of thousands of dollars, actual cash money" from MPD in the form of draws.

Bibb testified that he had a discussion with Barry in April 2016 about his draws being excessive and increasing. This discussion occurred during the time that Bibb prepared the 2015 tax returns for MPD, Barry, and Wanda. Bibb testified that he told Barry that he needed to discuss the situation with Wanda because she "needs to know." Bibb testified that Barry later told him that he had discussed the matter with Wanda; Barry reported to Bibb that "Mother is fine."

Bibb testified that at the end of 2015, the balance of Wanda's capital account in MPD was approximately $654,000 and the balance of Barry's capital account was $103,390. Thus, Bibb indicated that Barry's account was "short" of Wanda's capital account by $550,633.62 at the beginning of 2016. By the end of 2016, Bibb noted that the difference between the capital accounts was $722,322.92 based in part because Barry's draws in 2016 were $247,174.99 while Wanda's draws were $75,485.70.

Upon Barry's death, Julie initially took over operations of MPD. Julie testified that Wanda asked her to help with MPD. In this regard, Wanda testified that she was grieving the loss of her son at the time. Julie and Wanda discovered that the balance of MPD's bank account was $19,000 on the date of Barry's death. Julie also discovered that MPD had an outstanding bill at that time for street work in the amount of $190,000. Additionally, $167,000 remained owed at Barry's death on Wanda's note for the money that she borrowed to fund MPD. However, MPD had an inventory of lots available for sale. Julie testified that she was able to sell enough lots to pay the outstanding bill and increase the balance of the MPD account to $680,000.

Bibb testified that Julie took Barry's place as the source of Bibb's information about MPD. Bibb soon advised Julie that there was a problem with the capital accounts for MPD. Julie testified that Bibb told her that the capital accounts were "way off" and that they needed to be balanced. Julie wrote Bibb a letter dated February 10, 2017, wherein she stated: "It is my understanding from our prior meeting that the capital account for McLeod Property Development LLC is out of balance, largely because Barry withdrew money from the partnership account without equal distributions going to his mother." Julie asked Bibb to provide her with an accounting on behalf of MPD "which shows the total amount of money Barry's estate owes the partnership [to] make up the shortfall."

Bibb responded to Julie's request in a letter dated February 13, 2017. Among other things, Bibb proposed that Barry's estate should deposit a check for $191,161.46 into MPD's account. Bibb further proposed that MPD should make a payment of $489,091.46 to Wanda. Julie complied with Bibb's proposal by obtaining a loan for the payment of the $191,161.46 that was to be made by Barry's estate into MPD. After depositing the money into MPD's account, Julie sent two checks drawn on MPD's account totaling $489,091.46 to Wanda.

Wanda did not accept Julie's offer to settle the capital accounts in the...