NOT DESIGNATED FOR PUBLICATION T. SEMMES FAVROT VERSUS JAMES P. FAVROT, AS TRUSTEE OF THE H. M. FAVROT, JR. TRUST NO. 3 * * * * * * * * * * * NO. 2011-CA-0495 COURT OF APPEAL FOURTH CIRCUIT STATE OF LOUISIANA APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2008-3396, DIVISION L-6 Honorable Kern A. Reese, Judge * * * * * * Judge Roland L. Belsome * * * * * * (Court composed of Judge Patricia Rivet Murray, Judge Dennis R. Bagneris, Sr., Judge Roland L. Belsome) Kyle Schonekas Patrick S. McGoey Andrea V. Timpa SCHONEKAS EVANS McGOEY & McEACHIN, L.L.C. 650 Poydras Street Poydras Center, Suite 2105 New Orleans, LA 70130 COUNSEL FOR PLAINTIFF/APPELLANT Jack M. Alltmont April L. Watson SESSIONS FISHMAN NATHAN & ISRAEL, L.L.P. 201 St. Charles Avenue Suite 3815, Place St. Charles New Orleans, LA 70170--1052 COUNSEL FOR DEFENDANT/APPELLEE November 16, 2011
NOT DESIGNATED FOR PUBLICATION AND Alicia M. Bendana LOWE STEIN HOFFMAN ALLWEISS & HAUVER, L.L.P. 701 Poydras Street 3600 One Shell Square New Orleans, LA 70139-7735 COUNSEL FOR INTERVENORS/APPELLEES AFFIRMED IN PART, VACATED IN PART, AND REMANDED
This appeal is taken from the trial court s judgment dismissing with prejudice the petition and supplemented and amended petition of T. Semmes Favrot. The trial court judgment also issued a declaratory judgment from which the plaintiff seeks relief. For the reasons that follow we affirm in part, vacate in part and remand. T. Semmes Favrot (Semmes) filed a petition seeking to have his brother James Favrot (James) removed as Trustee of the H.M. Favrot, Jr. Trust No. 3 (Trust). 1 Later, H. M. Favrot, Jr., Kathleen Favrot Van Horn, Caroline Favrot Trube, and Henry Shane (collectively the intervenors ) filed a petition of intervention opposing the removal of James as the trustee. Then James, Tim, Kathleen and Caroline filed a petition of reconvention for declaratory judgment. The Trust was established by H. Mortimer Favrot, Jr. (Tim) and his wife in favor of their four children, James, Semmes, Kathleen, and Caroline. The four children each have a 25% beneficial interest in the Trust. The Trust consists of ownership interests, direct and indirect, in Favrot & Shane real estate projects. James is the Trustee of the Trust and also President of Favrot & Shane, where he has been employed for more than 20 years. 1
Semmes is an attorney who practiced law with the law firm of Adams & Reese until 2004. Semmes agreed to resign from Adams & Reese and join Favrot & Shane. As part of that transition, Tim, James and Semmes entered into an agreement that set forth the terms of employment for each son. Those terms were set forth in the 2003 agreement. Once employed with the company, Semmes sought to have the 2003 agreement renegotiated to increase his personal interest in the Favrot & Shane new real estate projects. Over James objections, Semmes negotiated a larger percentage of new real estate projects. The 2003 agreement was therefore amended to reflect that change, as amended it became the 2004 agreement. Semmes employment with the company was terminated in 2005. After Semmes departure from the company, a new agreement was created and is referred to as the 2005 agreement. Removal of James as Trustee Semmes seeks to have James removed as trustee of the Trust alleging that James has breached his fiduciary duty and his duty of loyalty in administering the trust. More specifically, he contends that James: 1) had a conflict of interest and was self-dealing when he represented his own interest as well as the Trust s in negotiating the 2003, 2004, and 2005 agreements; 2) failed to timely provide documentation relating to Trust information requested by Semmes as a beneficiary of the Trust; and 3) failed to timely disclose the contents of the 2005 agreement and other Trust information to the beneficiaries. Louisiana law provides that the trustee has the duty to administer the Trust in the interest of all beneficiaries impartially. La. R.S. 9:2082. The removal of a 1 The original petition was later supplemented and amended. 2
trustee is governed by La. R.S. 9:1789, which states in pertinent part: [a] Trustee shall be removed in accordance with the provisions of the Trust instrument or by the proper court for sufficient cause. La. R.S. 9:1789(A). (emphasis added). A trustee s conflict of interest or self-dealing to the detriment of the Trust, if proven, can certainly provide sufficient cause for removal if done without authorization by the settlor or consent by the beneficiary. See 11 La. Civ. L. Treatise, Trusts 14:4 (2010 ed.). However, it takes more than just technical violations of the Trust Code or mere hostility or animosity between the Trustee and beneficiary to establish sufficient cause for removal. Fertel v. Brooks, 2002-0846, p. 10 (La.App. 4 Cir. 9/25/02), 832 So.2d 297, 304; See also, In Re Mashburn Marital Trusts, 2006-741 (La.App. 1 Cir. 12/28/06), 951 So.2d 1136. The allegations of self-dealing and conflicts of interest essentially relate to the three negotiated agreements. The agreements are individually referred to as the 2003 agreement, the 2004 agreement, and the 2005 agreement. At the close of plaintiff s case-in-chief, James motioned the trial court to dismiss with prejudice Semmes claims. The trial court granted that motion as to the 2003 agreement and the 2004 agreement, because of Semmes participation in those transactions. However, the motion was denied as to the claims related to the 2005 agreement. After the trial on the merits and post-trial briefing, the trial court found that there was no evidence that James breached his fiduciary duty or duty of loyalty to the Trust or its beneficiaries, and there was nothing presented to support the allegation that he was unable to treat Semmes impartially as a beneficiary due to their contentious relationship. Accordingly, the trial court dismissed Semmes claims with prejudice. 3
It is well settled that the Court of Appeal may not set aside a trial court's finding of fact in the absence of manifest error or unless it is clearly wrong. Burnett v. Lewis, 2002-0020 (La.App. 4 Cir. 7/9/03) 852 So.2d 519. Tim, anticipating his retirement from the business, wanted to have both his sons participating in Favrot & Shane. He had invited Semmes to resign from Adams & Reese and join the company. In preparing for Semmes employment with the company, Tim, James, and Semmes negotiated the 2003 agreement. That agreement established that if James and Semmes maintained their employment with the company for a period of three years they would have the option of purchasing Tim s interest in the operating companies. Tim shares 50/50 interest in the Favrot & Shane operating companies with Henry Shane. It was further established that at the conclusion of the three years, or on February 1, 2007, James would be eligible to purchase 55% of Tim s interest and 45% would be available to Semmes. 2 If either son did not meet the third anniversary date, the other son would be eligible to purchase 100% of Tim s interest in the operating company. The agreement also stated that during the three year period of employment Tim s 50% ownership interest in new real estate projects would be divided among James, Semmes and the Trust. The division of Tim s 50% of new real estate projects during that time frame was to be 20% to James, 10% to Semmes and 70% to the Trust. 3 According to the terms of the 2003 agreement, Tim s stock interest in the operating company would be sold to James and Semmes in 2007 and from that time on the Trust would no longer share in the 2 These terms were more specifically set forth in a Stock Transfer Agreement. 3 The percentages equated to each of the four Favrot children receiving 8.75% through the Trust, James receiving an additional 10% individually and Semmes receiving and additional 5% individually. 4
interest of the new real estate projects. The three men agreed to the terms and executed the 2003 agreement. Semmes began his employment with the company in February 2004. Soon thereafter, Semmes began to express his dissatisfaction regarding the 2003 agreement and thought he should receive a greater percentage of the new real estate projects. Over James objections, Semmes successfully persuaded Tim to amend the 2003 agreement reallocating his interest in new real estate projects. That reallocation increased James individual share to 18% and Semmes individual share to 12%, while reducing the percentage received through the Trust to 5% for each sibling. 4 The amended 2003 agreement became the 2004 agreement. James and Semmes professional relationship did not develop as Tim had hoped. James and Semmes could not overcome their differences, even through mediation. Semmes employment with the company did not last the conditional three years set forth by the 2004 agreement. Semmes was fired in March of 2005. Now Semmes argues that James breached his duties as trustee during the negotiations of the 2003 and 2004 agreements. We disagree. These agreements were entered into with the authorization of the Tim as settlor of the Trust, and Semmes willingly participated in the negotiations and consented to the outcome. 5 Just as the trial court did, we find no evidence that James breached his duties to the Trust or the beneficiaries as it relates to the 2003 and 2004 agreements. Once Semmes was terminated from Favrot & Shane, he was no longer entitled to a percentage of Tim s share of the operating companies. Based on the 4 The Trust s percentage in new real estate projects was reduced from 35% to 20%. 5 Tim established this redistribution through a memorandum that was signed only by Tim. 5
agreements Semmes entered into in 2003 and 2004, he would be limited as a beneficiary of the Trust to only 5% of new real estate projects until the sale of the operating companies in 2007. At that time the Trust would cease to receive any percentage of interest in new real estate projects. Rather than following the 2004 agreement, Tim and James created the 2005 agreement, which provided for an increase in Trust interest for a prolonged period of time by allocating 32% of new real estate interest through 2012 and then 8% until 2015. This became the 2005 agreement. Semmes complains that he was left out of negotiations for the 2005 agreement and that James was self-dealing, had a conflict of interest and was overall not acting in the best interest of the Trust or its beneficiaries. Originally, Semmes participated in the negotiations of the 2003 agreement and initiated the 2004 agreement because he was negotiating the terms of his employment. Once his employment was terminated, his individual interest ceased to exist. There was no evidence of anything clandestine about Semmes not being a part of the 2005 agreement since he was no longer an employee of the company. The information only needed to be available to him in light of his status as a beneficiary. It s undisputed that Tim has always funded the Trust with interest in real estate. The Trust has never held interest in the operating companies. So any suggestion that James acquisition of Tim s interest in Favrot & Shane was a breach of his duty to the Trust is unsupported. Furthermore, the 2005 agreement was beneficial to the Trust. At trial, Semmes presented the testimony of Mr. Ken Weiss as an expert in Louisiana Trusts. Although he testified that there were potential conflicts of 6
interest for James with regards to the 2005 agreement, he conceded that the result of that agreement increased the Trust s interest from 20% to 32% of new real estate projects. Mr. Weiss also agreed that there are three general exceptions to the duty of loyalty: transactions authorized by the settlor, or agreed to by the beneficiary, or approved by the court. It is undisputed that as trustee James manages the Trust assets. However, the testimony at trial clearly established that as settlor, Tim makes all the decisions on what percentage of interest the Trust acquires and that those percentages have varied throughout the years. All of the agreements at issue were authorized by Tim. As the breach of loyalty relates to the production of documentation and information, Semmes argues that he was not provided information in a timely fashion, and that in some instances he was denied information. The Trust Code provides that: A trustee shall give to a beneficiary upon his request at reasonable times complete and accurate information as to the nature and amount of the trust property, and permit him, or a person duly authorized by him, to inspect the subject matter of the trust, and the accounts, vouchers, and other documents relating to the trust. La. R.S. 9:2089. The record indicates that James may not have complied with all of Semmes overburdensome requests as timely as Semmes would have liked, but there was no evidence that any pertinent information was withheld from Semmes. Ultimately, the documents and information requested were made available to Semmes. At best, the failure to provide such information upon request amounts to a technical violation of the Trust Code, but is not sufficient cause to remove James as trustee. Lastly, Semmes contends that James animosity and hostility towards him prevents James from treating Semmes impartially as a beneficiary of the Trust. 7
Although the trial court found that the acrimony was evident, it did not find support for Semmes contention that it interfered with the administration of the Trust. Thomas v. Kneipp, 43,228, p. 19 (La.App. 2 Cir. 5/28/08), 986 So.2d 175, 187. The testimony proved that James managed the assets of the Trust and distributions to the beneficiaries equally and fairly while communicating all necessary information and reports to each beneficiary. Again, we cannot find that the trial court was manifestly erroneous or clearly wrong in its findings. For the reasons discussed, we find no error in the trial court s dismissal of T. Semmes Favrot s petition and supplemental and amended petition. Declaratory Judgment Prior to the trial in this matter, the parties had stipulated that the sole issue to be tried was Semmes claim to remove James as trustee. All other claims, including Semmes damages claim and the reconventional demand were severed and reserved for another day. However, the trial court s judgment grants a declaratory judgment in favor of James, Tim, Kathleen, and Caroline determining: a. The Trustee is authorized by law and under the Trust instrument to pay all of the fees and costs in this lawsuit against T. Semmes Favrot s interest in the Trust, and b. The Trustee is authorized by law and by the Trust instrument to distribute the Trust assets to the beneficiaries, including distribution of all of the assets Trust so as to in effect severe the beneficiaries joint interests as Trust beneficiaries. Even though the trial court may have had the necessary evidence to rule on the reconventional demand, it was clearly outside the issue being tried. The trial court was bound by the stipulations entered into by the parties. General Inv., Inc., v. Thomas, 400 So.2d 1081, 1083 (La. App. 4 Cir. 1981). Accordingly, the judgment is vacated in part to delete the declaratory judgment. 8
Conclusion In sum, we affirm the dismissal with prejudice of T. Semmes Favrot s original and supplemented and amended petitions; we affirm the taxing of costs against T. Semmes Favrot; we vacate the declaratory judgment portion of the trial court s judgment, and we remand this matter to the trial court for further proceedings. AFFIRMED IN PART, VACATED IN PART, AND REMANDED 9