H. Jonathan Cooke, Individually and on Behalf of Escrow Partners Dallas, L.P. Escrow Partners Dallas, GP, Inc. Escrow Partners Houston, L.P. Escrow Partners Houston, GP. Inc. Escrow Partners Austin, L.P. Escrow Partners Austin, GP, Inc. Escrow Partners San Antonio, L.P. Escrow Partners San Antonio, GP, Inc. Title Partners, L.L.P. North American Management, L.L.P. TJ Partners I, LLC And TJ Partners II, LLC v. Robert C. Karlseng Karlseng Law Firm, P.C. Ashley Brigham Patten Patten & Karlseng Law Firm, P.C. Jacques Yves LeBlanc And LeBlanc, Patten and Karlseng Law Firm, P.C.
05-18-00206-CV
Tex. App.Aug 14, 2019Background
- From 1999 Cooke and attorney Karlseng operated title-closing partnerships (Title Partners and related entities); profits were split per partnership agreements.
- In 2004–2006 TDI audited whether attorney supervision was present; Karlseng, Patten, and LeBlanc thereafter moved partnership assets and operations into new law-firm entities without paying Cooke or following partnership transfer procedures.
- Cooke sued in 2006 alleging fraud, breach of fiduciary duty, conversion, breach of contract, unjust enrichment, shareholder oppression, and related claims; the case proceeded through arbitration and multiple appeals/arbitrations over years.
- Defendants (the attorney-partners and their firms) moved below asserting (a) illegality of profit-sharing, (b) protection under the business-judgment rule, (c) lack of standing (plea to the jurisdiction), and (d) statutes-of-limitations bar to the business entities’ claims.
- The trial court granted summary judgment on illegality and business-judgment defenses but denied the defendants’ plea to the jurisdiction and their limitations summary judgment; the parties sought and obtained a permissive interlocutory appeal.
- On appeal the court focused on (1) whether Cooke had standing to bring individual claims (or instead the claims belonged to the business entities) and (2) whether derivative claims related back or are barred by limitations; the court reversed as to standing and limitations and dismissed most claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing: whether Cooke had individual standing for claims pleaded in 2006 (fraud, fiduciary breach, contract, conversion, etc.) | Cooke argued some claims (fraud/negligent misrep.) alleged personal reliance and individual injury; also asserted he could have proceeded derivatively or as a direct action under Tex. Bus. Orgs. Code §21.563 | Defendants argued all claims alleged harm to the partnerships/business entities, so Cooke (a limited partner) lacked individual standing | Held: Claims alleged injuries to the business entities; Cooke lacked standing to bring them individually; trial court erred in denying plea to jurisdiction; individual claims dismissed. |
| Relation back / Limitations: whether Cooke’s derivative claims (added in 2014) relate back to the 2006 filing or are time-barred | Cooke argued the derivative claims rely on the same facts and thus relate back under Civ. Prac. & Rem. §16.068 so limitations do not bar them | Defendants argued adding twelve business entities as plaintiffs in 2014 does not relate back, and because Cooke lacked standing in 2006 there was no filing to relate back to | Held: Because Cooke lacked standing in 2006, the original filing conferred no jurisdiction and derivative claims cannot relate back; derivative claims (except those for TJ Partners I and II specifically reserved) are barred by limitations. |
| Illegality defense: whether sharing partnership profits with an unlicensed party made claims barred as illegal (trial court granted summary judgment for defendants) | Cooke contended the transfers and conduct were unlawful and not shielded | Defendants argued the profit-sharing arrangement was illegal under title-insurance law and thus barred recovery; also moved on this ground below | Held: Court did not reach this issue because standing and limitations resolved all claims subject to appeal; thus no disposition on illegality. |
| Business-judgment rule defense: whether attorney-partners’ move into law-firm structure was protected by business-judgment rule (trial court granted summary judgment for defendants) | Cooke argued defendants’ conduct was not privileged and involved self-dealing and conversion | Defendants argued their decision to restructure was a protected business decision within the rule | Held: Court did not address the merits because standing and limitations rulings made consideration unnecessary. |
Key Cases Cited
- Heckman v. Williamson County, 369 S.W.3d 137 (Tex. 2012) (standing and plea to the jurisdiction standards)
- Linegar v. DLA Piper LLP (US), 495 S.W.3d 276 (Tex. 2016) (assessing standing question-of-law review and claim-by-claim standing)
- Hall v. Douglas, 380 S.W.3d 860 (Tex. App.—Dallas 2012, no pet.) (limited partner lacks standing for injuries that merely diminish partnership value)
- Karlseng v. Cooke, 346 S.W.3d 85 (Tex. App.—Dallas 2011) (prior appeal in the same litigation)
- Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546 (Tex. 1985) (summary judgment standards)
- Travelers Ins. Co. v. Joachim, 315 S.W.3d 860 (Tex. 2010) (de novo review of summary judgment)
- HECI Exploration Co. v. Neel, 982 S.W.2d 881 (Tex. 1998) (statute of limitations for negligent misrepresentation and unjust enrichment issues)
- Swank v. Cunningham, 258 S.W.3d 647 (Tex. App.—Eastland 2008, pet. denied) (derivative actions treated as direct actions remain derivative in nature)
- Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845 (Tex. 2005) (distinguishing standing and capacity)
- Goss v. City of Houston, 391 S.W.3d 168 (Tex. App.—Houston [1st Dist.] 2012, no pet.) (original void-for-lack-of-jurisdiction petition cannot toll or create jurisdiction for later filings)