Kerr jury sides with widow
February 24, 2008
San Antonio Express-News
http://www.mysanantonio.com/news/MYSA022605_1A_cailloux_verdict_e3fa34fe_html20609.html
KERRVILLE — A jury here decided Friday that Wells Fargo Bank and the Baker Botts law firm breached their fiduciary duties to Kathleen Cailloux in estate-related work in 1997, and set her damages at $65.5 million.
But the verdict, returned after 17 hours of deliberation, also held Cailloux partly responsible for losses incurred by family members who disclaimed their inheritance from her late husband, Floyd Cailloux, on the advice of estate planners.
The eight-figure damage finding capped a three-week trial and fueled tears and hugs among Cailloux family members gathered in court.
It also drew vows of appeal by disappointed defense attorneys.
The amount of the actual damage award won’t be known until state District Judge Karl Prohl rules on a yet-to-be-filed motion for judgment by lawyers for Kathleen Cailloux, 90.
“The verdict is an indictment of the way Kathleen Cailloux was treated,” said Rick Harrison, her attorney. “It shows the people of Kerr County won’t tolerate an abuse of trust like we saw in this case.”
Dean Fleming, attorney for Wells Fargo, the executor of Floyd Cailloux’s will, said, “The bank feels very strongly that the verdict will eventually be overturned.”
Endorsed by 10 of the 12 jurors, the decision split responsibility for the damages equally among Kathleen Cailloux, the Houston law firm, the bank and Bill Goertz, a bank executive who, until recently, directed and served on the board of a charitable foundation since its creation in 1994 by the Cailloux family.
The foundation, which has given tens of millions of dollars to area civic projects and charities, was not a defendant in the suit.
“We all parted feeling we did the best job we could,” said Susan Dennis, the jury forewoman. “It was very difficult, a super-complicated case. We worked so hard.”
The dispute centered on an estate plan crafted in the wake of the January 1997 death of Floyd Cailloux, who moved to Kerrville in 1982 after making a fortune with Keystone International, a valve manufacturer in Houston.
To avoid tax liabilities projected as high as $45 million and to provide immediate funding for charities favored by the family, attorney Stacy Eastland proposed that Floyd’s heirs disclaim their rights under his will.
The family and probate court signed off on giving the Floyd and Kathleen Cailloux Foundation 92 percent, or $60 million, from his estate. The balance went to Schreiner University in Kerrville, the Shriner Children’s Hospital and the M.D. Anderson Cancer Center, records showed.
That left Kathleen Cailloux with $50 million besides personal property, leaving $20 million in a trust for the other heirs.
The suit accused Eastland and fellow Baker Botts attorney Stephen Dyer of conspiring with bank trust officers to push through the plan for the benefit of the foundation led by Goertz, without fully briefing the Caillouxes on its implications.
Joe Cheavans, a senior partner at Baker Botts, a firm with 700 attorneys, defended his staff’s conduct.
“We’re proud of the fine legal work our lawyers did for Floyd and Kathleen Cailloux,” he said, noting jurors did not find the firm guilty of negligence or malice. “We acted in the utmost good faith to our clients.”
Eastland, who has since left the firm, couldn’t be reached.
Just before trial, Goertz was dropped as a defendant in a settlement that saw all four members of the foundation board surrender their seats to Cailloux family members, who had been denied a role in the organization after Floyd Cailloux’s death.
Goertz was disappointed to again find himself Friday in the role of defendant, Fleming said, adding: “Over the years he had shown nothing but the utmost loyalty to Floyd Cailloux and his family, and he is saddened that a jury failed to recognize such.”
Kathleen Cailloux, 90, has Alzheimer’s disease and was involved in name only in the suit brought in 2003 by her son, Kenneth, who has power of attorney for her.
Kenneth Cailloux, his sister, Paula Heileman, and her son, Stephen Andresakis, were initially plaintiffs in the suit but dropped out after the trial began. The family declined to comment after the verdict.
Juror Dennis said the assignment of partial responsibility to Kathleen Cailloux came because too few questions were asked of advisers about the estate plan.
“We all cut Mrs. Cailloux some slack because of her condition and I think the jury as a whole felt that she relied on Ken,” Dennis said. “If Ken didn’t understand, and he was helping his mother, he should have been more demanding of the attorneys for answers.”
Kenneth Cailloux testified he didn’t ask about things he didn’t understand in the financial plan.
Heirs’ suit over estate plan now in court
February 9, 2008
San Antonio Express-News
http://www.mysanantonio.com/news/MYSA021005_02B_cailloux_trial_91876ca8_html18347.html
KERRVILLE — Testimony began Wednesday in a lawsuit that seeks in excess of $100 million from lawyers and a bank involved in estate planning for the late Floyd Cailloux and his widow, Kathleen.
Evidence in the three-week trial is expected to focus on how Kathleen Cailloux came to give $65 million to a foundation that bore the family name but over which the family had no authority.
A secondary issue is whether three heirs who each signed over $3.3 million to the foundation fully understood their actions.
Because she has Alzheimer’s disease, Kathleen Cailloux, 94, is unable to testify in the suit brought by her children, Kenneth Cailloux and Paula Heileman, and Heileman’s son, Robert Andresakis.
Floyd Cailloux led a valve company called Keystone International Inc. before retiring to Kerrville from Houston in 1981.
Upon his death in 1997, his wife of 55 years found herself in control of more than $100 million.
Lawyers for the defendants, Wells Fargo Bank and attorneys with the Houston law firm of Baker Botts, told the jury of eight woman and four men in opening statements Wednesday their clients’ actions were consistent with an estate plan endorsed by the family and approved by the probate court.
“This case is really about an effort to change — after the fact — the estate wishes of two fine and charitable people,” said David Beck, attorney for Baker Botts.
He cited avoidance of a $35 million tax liability as the reason Kathleen Cailloux gave the bulk of her husband’s estate to the Floyd and Kathleen Cailloux Foundation, formed in 1994.
Wells Fargo attorney Mike O’Donnel said his client diligently performed its duty as estate executor and had no role in crafting the now-disputed financial plans.
Rick Harrison, the Caillouxs’ attorney, claims the defendants took advantage of the grieving widow to gain control over assets through the estate plan that deviated from the terms of Floyd Cailloux’s will.
Harrison said Kathleen Cailloux was insufficiently briefed before approving the estate plan prepared by Baker Botts attorneys Stacy Eastland and Stephen Dyer just 69 days after Floyd’s death on Jan. 21, 1997.
He claimed Baker Botts and Wells Fargo each reaped more than $200,000 in fees while failing to protect the family’s interests.
The plaintiffs are seeking return of the $65 million, reimbursement for the loss of $24 million in potential interest, and $20 million to reimburse Heileman, Andresakis and Kenneth Cailloux for signing away their inheritance.
Both sides said the evidence they will rely heavily on are hundreds of documents prepared and exchanged among the parties in connection with settling the estate and the creation of trust funds and charitable foundations by the Caillouxs.
Roughly 70 spectators crowded the courtroom for the start of the trial, which District Judge Karl Prohl said features some of Texas’ top legal talent. The public spectacle contrasted with the low profile traditionally maintained by the Caillouxs.
Bill Goertz of San Antonio was dropped as a defendant in the case last month after a settlement that saw him and three other directors resign from the board of the Floyd and Kathleen Cailloux Foundation.
Members of the Cailloux family, who previously were denied a seat on the board after Cailloux’s death, now hold three spots on the foundation board.
Baker Botts, Legal Malpractice, Equitable Trust and Wells Fargo
Andrew Lavoott Bluestone
February 22, 2007
Bluestonelawfirm.com
http://blog.bluestonelawfirm.com/blog-articles-baker-botts-legal-malpractice-equitable-trust-and-wells-fargo.html
We are scratching our head over this case. A 10-2 verdict? Double Dipping? Defendants who drop out of the story?
“In Baker Botts, et al. v. Kenneth F. Cailloux, as Next Friend of Kathleen C. Cailloux, the 4th Court of Appeals in San Antonio reversed a 2005 trial court judgment ordering Baker Botts and Wells Fargo Bank Texas N.A. to pay $71 million in damages to their former estate-planning client Kathleen C. Cailloux, a wealthy widow in Kerrville.
In an opinion written by Justice Catherine Stone, the three-justice panel reversed the judgment against Baker Botts and Wells Fargo on the ground that nothing in the record proved that Baker Botts or Wells Fargo breached a fiduciary duty that caused Cailloux to disclaim her right to the estate of her late husband, Floyd Cailloux. The appeals court rendered a take-nothing judgment in favor of the firm and the bank.
In 1995, a jury in 198th District Judge Emil Karl Prohl’s court in Kerrville had found that Kathleen Cailloux would have received $65.5 million in trust if she had not disclaimed her right to Floyd’s estate. However, the jury also found the woman had no lost-income damages or economic-loss damages as a result of executing the disclaimer. Prohl ordered Baker Botts and Wells Fargo, the executor of Floyd’s estate, to pay $71 million in damages to fund a trust for Kathleen Cailloux.
However, in its opinion, the 4th Court found Prohl abused his discretion by creating an “equitable trust” to hold the millions of dollars he ordered Baker Botts and Wells Fargo to pay.
“We are further troubled by the “equitable trust’ fashioned by the trial court because it essentially places Kathleen in a better position than she previously occupied,” Stone wrote in the 11-page opinion, in which Chief Justice Alma Lopez and Justice Karen Angelini joined.
The litigation stems from estate planning Baker Botts did for Cailloux and her husband, a founder of Keystone International.
According to a lawyer for Kathleen and for her son Kenneth Cailloux, Austin’s Richard Harrison, Kathleen and Floyd were worth about $130 million. Kenneth is his mother’s legal guardian, because Kathleen is incapacitated by Alzheimer’s disease.
The plaintiffs alleged in the sixth amended petition that the defendants conspired to convince her, right after Floyd Cailloux’s death in 1997, to disclaim her rights to her husband’s estate and to transfer more than $60 million to the Cailloux Foundation — ostensibly to save more than $30 million in taxes — without informing her of other estate-planning options.
According to the 4th Court’s opinion, more than six years after Kathleen disclaimed her husband’s estate, her son Kenneth, as her next friend, sued Baker Botts and Wells Fargo for, among other things, breach of fiduciary duty relative to Kathleen’s execution of the disclaimer.
The defendants denied all of the allegations.
In February 2005, a jury in Prohl’s court, by a 10-2 vote, found Baker Botts breached its fiduciary duty to Kathleen Cailloux by failing to disclose “all important information” when doing estate-planning work for Cailloux following the death of her husband in January 1997. The jury, however, found Baker Botts did not breach its fiduciary duty in three other areas: by failing to act with the utmost loyalty toward Cailloux, by participating in transactions that were not fair and equitable to Cailloux, or by failing to act in the utmost good faith and to exercise the most scrupulous honesty toward the widow.
The jury also found Wells Fargo breached its fiduciary duty to Kathleen Cailloux and found that former bank official William Goertz, who also served on the board of the Floyd A. Cailloux and Kathleen C. Cailloux Foundation, individually participated in that breach. Goertz settled before trial.
The jury assessed 25 percent of the responsibility for the injury to Cailloux, another 25 percent against Baker Botts and 25 percent each against Wells Fargo and Goertz.
For the breaches of fiduciary duty, the jury found Kathleen Cailloux should be compensated with $65.5 million — the value she would have received in trust had she not agreed to disclaim her rights to the money.
Prohl signed a judgment in April 2005 ordering Baker Botts and Wells Fargo to pay $71 million into a new trust, the Kathleen C. Cailloux Equitable Trust. He ruled Kathleen Cailloux can use the interest from the trust and can withdraw up to 5 percent of the principal yearly.
While the jury returned a $65.5 million verdict, Prohl added $5.6 million in prejudgment interest, plus court costs and postjudgment interest.
Baker Botts and Wells Fargo appealed the judgment, claiming, among other things, that there was insufficient evidence to support the jury’s findings that their alleged breaches of fiduciary duty proximately caused Kathleen Cailloux damage, and the trial court had no power to create an equitable trust.
Ken Cailloux, Kathleen Cailloux’s son, also appealed the judgment, alleging there was insufficient evidence to support the jury’s finding that his mother is entitled to nothing for lost income.
The 4th Court panel reversed the trial court’s judgment to the extent that it imposes a $65.5 million equitable trust on Baker Botts and Wells Fargo, and rendered a take-nothing judgment in their favor, but it affirmed the trial court’s judgment in connection with Kathleen Cailloux’s claim for lost income.
Kerrville judge affirms $71 million verdict against Baker Botts
Monica Perin
April 6, 2005
Houston Business Journal
http://www.bizjournals.com/houston/stories/2005/04/04/daily28.html?f=et63
A state court judge in Kerrville on Wednesday upheld a $65.5 million verdict against Houston-based law firm Baker Botts and Wells Fargo Bank in a case involving the estate of a wealthy Houston businessman.
District Judge Karl Prohl issued a final judgment Wednesday based on the multimillion-dollar jury verdict in favor of Kathleen Cailloux that came down in February.
Prohl affirmed the original $65.5 million jury verdict and awarded an additional $5.5 million for pre-judgment interest income, bringing the total award to $71 million.
“We do not believe that this judgment is supported by either the applicable law or the jury’s verdict,” said Joe Cheavans, the Baker Botts partner representing the firm in the case. He said the firm will appeal the judgment and is “confident that the appellate court will reverse” the judgment.
The jury held the law firm and the bank, along with a bank executive, responsible for losses totaling tens of millions of dollars incurred by the family of Floyd Cailloux as a result of an estate plan drawn up by the law firm and the bank, which was the executor for the estate.
Cailloux, who died in January 1997, made his fortune with Keystone International, a valve manufacturer in Houston.
The lawsuit was filed on behalf of Cailloux’s 90-year-old widow, Kathleen Cailloux, by her son, Kenneth, who holds power of attorney for her.
The lawsuit accused Baker Botts attorneys of conspiring with bank trust officers to formulate an estate plan favoring a family foundation which one of the bank officers, Bill Goertz, directed and served as a board member.
The lawsuit contended that Kathleen Cailloux was not fully informed about the plan, which called for the heirs of Cailloux to disclaim their rights under his will in order to avoid huge tax liabilities.
The $65.5 million represents funds that Mrs. Cailloux would have received in trust upon her husband’s death had attorneys from Baker Botts not failed to disclose important information to her before she signed documents disclaiming her husband’s estate, her lawyers said.
Kathleen Cailloux was represented by Rick Harrison of Austin law firm Fritz, Byrne, Head & Harrison LLP and by Richard Mosty and Donald Dorsey, both attorneys in Kerrville.
At the time of the jury verdict, Baker Botts’ Cheavens defended the firm’s work on the estate and noted that the jury did not find the firm guilty of negligence or malice.
“We acted in the utmost good faith to our clients,” he said.
Estate of Denial® provides news, analysis and commentary on abusive practices occurring in probate courts and via probate instruments (wills, trusts, guardianships, powers of attorney). We provide original perspective to educate the public regarding this growing threat to both individual freedoms and property rights.
