Cooke v. Karlseng
| Decision Date | 12 April 2022 |
| Docket Number | 05-18-00206-CV |
| Court | Texas Court of Appeals |
| Parties | 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, Appellants/Cross-Appellees v. ROBERT C. KARLSENG; KARLSENG LAW FIRM, P.C.; ASHLEY BRIGHAM PATTEN; PATTEN & KARLSENG LAW FIRM, P.C.; JACQUES YVES LEBLANC; AND LEBLANC, PATTEN & KARLSENG LAW FIRM, P.C., Appellees/Cross-Appellants |
On Appeal from the 193rd Judicial District Court Dallas County Texas Trial Court Cause No. DC-06-02783-L
Before Justices Schenck and Pedersen, III [1]
This is a permissive interlocutory appeal of the trial court's February 6, 2018 Second Amended Order Granting Defendants' Motion for Summary Judgment on Defendants' Illegality and Business Judgment Rule Defenses and Amended Order on Defendants' Plea to the Jurisdiction and Traditional Motion for Partial Summary Judgment Related to the Business Entities' Claims (the Order). See Tex. Civ. Prac. & Rem. Code Ann § 51.014(d). The trial court granted the parties' agreed motion for this appeal, concluding that the Order "involves controlling questions of law about which there is a substantial ground for difference of opinion," id. § 51.014(d)(1), and that an immediate interlocutory appeal "may materially advance the ultimate termination of the litigation," id. § 51.014(d)(2). Those controlling questions take the form of four issues. Appellants[2] contend the trial court erroneously granted summary judgment in favor of the cross-appellants on two affirmative defenses: illegality and the business judgment rule. Cross-appellants[3] argue the trial court erroneously denied their plea to the jurisdiction and their summary judgment motion on a third affirmative defense limitations.
In our initial opinion on these issues, we reversed the trial court's Order in part, dismissed Cooke's individual claims for lack of jurisdiction, and dismissed his derivative claims, concluding that they were barred by limitations.[4] Cooke v. Karlseng, 617 S.W.3d 570, 580 (Tex. App.-Dallas 2019). While an appeal from our judgment was pending, the Texas Supreme Court decided Pike v. Texas EMC Management, LLC, 610 S.W.3d 763 (Tex. 2020). The supreme court concluded that our original opinion should be reconsidered in light of that opinion; it reversed and remanded the case for further proceedings. Cooke v. Karlseng, 615 S.W.3d 911, 912 (Tex. 2021).
On remand, we conclude that the trial court correctly denied cross-appellants' plea to the jurisdiction and their motion for summary judgment on limitations. We likewise conclude that the trial court correctly granted cross-appellants' motion for summary judgment on the affirmative defense of illegality. Accordingly, we affirm the trial court's Order on those three issues and-without reaching the fourth issue- render judgment that appellants take nothing on their claims dismissed by the Order.
BACKGROUND[5]
In 1999, Cooke and Karlseng went into business together to provide title closing services to lenders and real estate companies. Cooke and Karlseng formed a partnership, Title Partners, L.L.P, each with a fifty-percent ownership interest, to supervise the day-to-day management of the business. Karlseng is a licensed attorney and became a licensed escrow agent; Cooke, who is not an attorney, handled marketing duties. Over the next five years, Cooke and Karlseng expanded their business operations to several Texas cities and formed other partnerships with attorneys Ashley Brigham Patten and Jacques Yves LeBlanc. The partners split profits according to the terms of the partnership agreements.
In 2004 and 2005, the Texas Department of Insurance (the TDI) conducted an investigation of the partnerships to determine whether a licensed attorney was supervising the work of certain employees who were closing real estate transactions. Although cross-appellants' counsel advised that the business relationship was legal, he also suggested that switching to a law firm structure could expedite a resolution with the TDI. Thereafter, Karlseng, Patten, and LeBlanc created the defendant law firms and transferred partnership assets and business to the new firms without paying Cooke or observing the requirements of the partnership agreements when transferring these assets. The parties disputed whether Cooke was consulted on this change. The parties unsuccessfully attempted to negotiate a settlement to compensate Cooke either through a buyout or employment/consulting contract. Cooke claimed he was then fired, but cross-appellants asserted he quit.
In March 2006, Cooke filed a lawsuit alleging cross-appellants tortiously transferred partnership assets to new professional corporations, owned solely by the individual cross-appellants, and they falsely told Cooke that the partnerships needed to shut down due to certain state regulations. The partnership agreements provided for arbitration, and cross-appellants filed a motion to compel arbitration. The trial court granted the motion and ordered the parties to arbitration.
A contested arbitration hearing was held in December 2007. The arbitrator ruled in Cooke's favor and awarded him more than $22 million. The trial court affirmed the arbitration order, but this Court vacated the award and remanded the cases for further proceedings. Karlseng v. Cooke, 346 S.W.3d 85, 100 (Tex. App.- Dallas 2011, no pet.).
Over subsequent years, the case has been litigated in depth. Claims and defenses have been added, and a number of legal theories have been raised in response. This permissive appeal turns on four of those theories.
(1) Cross-appellants moved for summary judgment contending that Cooke's claims were barred because the partnership agreements structuring the operations of the Business Entities called for Cooke to share in the profits of the enterprise.
According to title insurance law and regulations, sharing profits with a party not licensed as an escrow agent or an attorney is illegal. The trial court granted the motion. In their first issue, appellants challenge that ruling.
(2) Cross-appellants also moved for summary judgment arguing that Cooke's claims were barred because the attorney-partners' decision to move the illegal operation to one operating legally within law firms was protected by the Business Judgment Rule. The trial court granted this motion as well. Appellants' second issue challenges that ruling.
(3) Cross-appellants filed special exceptions and a plea to the jurisdiction arguing that all claims within Cooke's Second Amended Petition, which were pleaded as his own individual claims, belonged to the Business Entities. Thus, they contended, Cooke lacked standing to bring the claims. The trial court granted the special exceptions and allowed Cooke to replead. His Third Amended Petition added the twelve Business Entities as plaintiffs and-for each of Cooke's pleaded claims- stated that the claim was now being brought individually and derivatively on behalf of the Business Entities. Cross-appellants filed a second plea to the jurisdiction, again arguing that Cooke lacked standing to pursue his individual claims. The trial court denied this second plea, and that ruling underlies cross-appellants' first issue.
(4) Cross-appellants moved for summary judgment arguing that all of the Business Entities' claims were barred by their respective statutes of limitation.[6] The trial court denied this motion; cross-appellants' second issue challenges that ruling.
After some time, the parties agreed to request this permissive appeal, and the trial court granted their motion. Following jurisdictional briefing, this Court concluded that it had jurisdiction to hear the appeal.
We begin with cross-appellants' issues, (a) acknowledging the supreme court's conclusion on the standing issue, and (b) determining-in light of that conclusion-which parties survive the summary judgment motion on limitations and remain properly before the trial court.
Cross-appellants' plea to the jurisdiction was directed at the individual claims brought by Cooke in his 2006 original petition and expanded in his amended petitions. The plea alleged that Cooke's individual claims pleaded only an injury to the Business Entities and thus did not belong to him individually. As a result, cross-appellants argued, Cooke lacked standing to pursue those claims.
The supreme court's opinion in Pike, however, held that "a partner or other stakeholder in a business organization has constitutional standing to sue for an alleged loss in the value of its interest in the organization." Pike, 610 S.W.3d at 778. The court acknowledged the existence of "statutory provisions that define and limit a stakeholder's ability to recover certain measures of damages, which protect the organization's status as a separate and independent entity." Id. It clarified, however, that those statutory provisions relate to the merits of the partner's claim, not to the subject-matter jurisdiction of the court. Id. Thus, a court possesses jurisdiction to render a take-nothing judgment-rather than to dismiss the claim-if the partner fails to meet statutory requirements. See id.
Relying on this analysis from Pike, the supreme court concluded that Cooke did not lack constitutional standing to bring the claims challenged by cross-appellants' plea. Cooke, 615...
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