Linegar v. DLA Piper LLP (US)
495 S.W.3d 276
| Tex. | 2016Background
- In March 2008 Linegar (beneficiary of an Australian self-directed retirement Fund) caused the Fund’s corporate trustee, Zaychan (a company he controlled), to lend A$1.75M to IdentiPHI; DLA Piper represented IdentiPHI and advised during the transaction.
- The March 2008 promissory note named Zaychan as payee and purported to grant a security interest in IdentiPHI’s assets; a UCC-1 financing statement was not timely filed to perfect that interest.
- Linegar claims DLA Piper (through lawyer Hutchings) assured him individually the loan would be secured; he later repaid the Fund personally to keep it compliant with Australian law and obtained assignment of the note to Key Ovation.
- IdentiPHI later bankrupt, Key Ovation recovered only $150,000 (after challenges hinging on the unperfected security interest); Linegar sued DLA Piper individually for malpractice, negligent misrepresentation, fraud, breach of fiduciary duty, and related claims.
- A jury found DLA Piper liable to Linegar individually and awarded damages; the court of appeals reversed for lack of standing, holding Linegar could not sue for harms to the trustee/corporation.
- The Texas Supreme Court reversed the court of appeals, holding Linegar had individual standing because DLA Piper owed duties to him personally and he suffered direct injury from relying on the firm’s advice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Linegar had standing to sue DLA Piper individually | Linegar says DLA Piper advised him personally, he relied on that advice, and he suffered a direct, individual loss (not merely a corporate loss) | DLA Piper says any wrong was to Zaychan (the trustee) or the corporation; only Zaychan/Key Ovation had standing because they held the note | Held: Linegar had standing; he alleged and proved personal duty, reliance, and direct injury, so his claims were not merely derivative |
| Whether the claims were derivative of trustee/corporate claims | Linegar contends claims are individual torts for malpractice/negligent misrepresentation, not suit on the note | DLA Piper contends the loss was to trust/corporation and any recovery would be for Zaychan/Key Ovation | Held: Claims were pleaded/tried as individual injuries; jury found attorney-client relationship and reliance by Linegar, so not derivative for standing purposes |
| Whether stockholder/beneficiary standing rules bar Linegar’s suit | Linegar relies on Murphy v. Campbell analogies: professionals who advise individuals can be liable to those individuals for direct harms | DLA Piper relies on Wingate and general rule that shareholders/beneficiaries cannot recover for wrongs done solely to corporation/trust | Held: Murphy controls—when a professional advises an individual and that advice causes direct loss to the individual, the individual has standing despite corporate/trust form |
| Whether the trustee (Zaychan) was the sole proper plaintiff | DLA Piper notes Zaychan held legal title and ordinarily is the proper plaintiff for trust losses | Linegar notes Zaychan’s corporate assets weren’t at risk and the economic burden fell on him personally | Held: Court did not need to apply trustee-exception analysis because the case was tried on individual-duty theories and evidence supported Linegar’s personal injury and reliance |
Key Cases Cited
- Heckman v. Williamson Cty., 369 S.W.3d 137 (Tex. 2012) (summarizing Texas standing doctrine requiring concrete, personal injury and causation)
- Wingate v. Hajdik, 795 S.W.2d 717 (Tex. 1990) (general rule that stockholder cannot recover for wrongs done solely to corporation; exception where duty owed directly to stockholder)
- Murphy v. Campbell, 964 S.W.2d 265 (Tex. 1997) (professional who advises individual stockholders may be liable to them for direct losses resulting from that advice)
- Mass. v. Davis, 168 S.W.2d 216 (Tex. 1942) (authority on duties owed directly to stockholders permitting individual recovery)