Fiduciary Litigation — The Cailloux Case
The fiduciary duty owed by attorneys to their clients in estate planning matters has come under ever-increasing scrutiny and has been the focus of a growing amount of litigation.
Cailloux v. Baker Botts is one of the more recent cases, famous for its jury award of $65.5 million. After earning his fortune with Keystone International, the well-known valve manufacturing company, Floyd Cailloux moved to Kerrville, Texas in 1982. Zeke MacCormack, Kerr jury sides with widow, MySA.com, Feb. 25, 2005. He enlisted the law firm of Baker Botts as his attorney. A lawyer for the firm prepared a will for Floyd, which he executed in 1995, appointing Wells Fargo as the executor. Glenda Taylor, Cailloux Family Seeking Damages, Kerrville Daily Times, Jan. 14, 2005. Further, Floyd established a marital trust for his wife and a trust for his children. In January 1997, Floyd Cailloux died and was survived by his wife and children. Baker Botts attorney Stacy Eastland suggested “that Floyd’s heirs disclaim their rights under his will,” to avoid hefty tax liability after disclaimer. The Floyd and Kathleen Cailloux Foundation, previously created in 1994, received a 92% share from the estate, totaling $60 million dollars. Wells Fargo bank officer Bill Goertz was director of the foundation.
Floyd’s wife, Kathleen Cailloux, and his children, represented by the Austin law firm Fritz, Byrne, Head & Harrison LLP and Kerrville attorneys Richard Mosty and Donald Dorsey, filed suit in the 198th District Court in August 2003. Monica Perin, Kerrville judge affirms $71 million verdict against Baker Botts, Houston Business Journal, April 6, 2005. Floyd’s son, daughter, and grandson nonsuited their claims once the trial began on February 8th, 2005. Brenda Sapino Jeffreys, Jury Returns $65 Million Verdict Against Baker Botts, Other Defendants, Tex. Law., March 9, 2005). The plaintiffs claimed in the sixth amended petition that “Baker Botts attorneys [had] conspired with [Wells Fargo] 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 Caillouxes claimed that neither Kathleen nor the other heirs were fully informed of the plan’s implications. However, at trial, Kenneth Cailloux, son and heir of Floyd Cailloux, testified that he had failed to inquire into the aspects of the estate plan that he did not understand.
The original defendants in the law suit were “the legal firm Baker Botts; Wells Fargo Bank Texas; William Goertz, one of four original directors of the Cailloux Foundation; S. Stacy Eastland and Stephen Dyer, attorneys with Baker Botts.” Eastland and Dyer have since left Baker Botts and are now working for Goldman Sachs in Houston. Upon reaching a settlement, Goertz was dropped as a defendant before the trial. The settlement required the current members of the Cailloux Foundation board of directors to surrender their seats to Cailloux family members, who had been denied any role in the Foundation since the death of Floyd Cailloux.
The three-week trial ended after seventeen hours of jury deliberations, resulting in a $65.5 million dollar verdict in favor of the Cailloux family. The jury found that Baker Botts, in failing to disclose all important information, had breached its fiduciary duty toward Kathleen Cailloux. It also found a breach of fiduciary duty on the part of Wells Fargo, the executor of the will, in which Goertz had participated individually, as he headed the foundation that received the disclaimed estate property. Though named as defendants, the jury was not asked to make any findings against either Eastland or Dyer. The award was later adjusted upward by District Judge Karl Emil Prohl to $71 million to reflect $5.6 million in pre-judgment and post-judgment interest and court costs of $61,000. Brenda Sapino Jeffreys, Baker Botts and Wells Fargo Bank Texas Hit With $71 Million in Damages, Other Defendants, Tex. Law., April 8, 2005.
The jury verdict, a 10-2 vote, “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.” Partial responsibility was assessed against Kathleen Cailloux because, according to Juror Dennis, not enough questions were asked during the estate planning process. The award money would go into the Kathleen C. Cailloux Equitable Trust, allowing Cailloux to use the trust’s interest and to withdraw up to 5 percent annually of the trust’s principal.
The award did not sit well with Wells Fargo defense attorney Dean Fleming, who said that, “[as] far as I can tell, it’s unprecedented in Texas law for a judge just to create a trust out of whole cloth,” referring to Prohl’s use of his equitable powers to establish the trust.
On February 14, 2007, the Texas Fourth Court of Appeals reversed the trial court’s judgment explaining that Cailloux failed to prove causation. The stated that there was “no evidence that any of the alleged breaches of duty by Wells Fargo caused Kathleen to disclaim her right to Floyd’s estate.” The court reached a similar conclusion with respect to Baker Botts. The court then rendered a take nothing judgment in favor of Baker Botts and Wells Fargo. See Baker Botts LLP v. Cailloux, No. 04-05-00446-CV (Feb. 14, 2007).
In dicta, the court also noted that “even if we were to assume that causation was proven as a matter of law at trial, we would nonetheless hold the trial court abused its discretion by imposing an “equitable trust” upon Baker Botts and Wells Fargo.”