Douglas v. Delp

• Decision Date: 29 April 1999
• Docket Number: No. 97-0827,97-0827
• Citation: 987 S.W.2d 879
• Parties: 42 Tex. Sup. Ct. J. 431 Benjamin A. DOUGLAS and Douglas, Kressler, & Wuester, P.C., Petitioners, v. Gertrude DELP and Billy Delp, Respondents.
• Court: Texas Supreme Court

Page 879

987 S.W.2d 879

42 Tex. Sup. Ct. J. 431

Benjamin A. DOUGLAS and Douglas, Kressler, & Wuester, P.C. Petitioners, v. Gertrude DELP and Billy Delp, Respondents.

No. 97-0827.

Supreme Court of Texas.

Argued Sept. 8, 1998.

Decided March 25, 1999.

Rehearing Overruled April 29, 1999.

Charles T. Frazier, Jr., Dwayne J. Hermes, Gregory J. Lensing, Dallas, for petitioner.

Jerome J. Schiefelbein, Jon M. Smith, Gary F. DeShazo, Austin, for respondent.

Justice HANKINSON delivered the opinion for a unanimous Court.

Billy and Gertrude Delp sued Benjamin A. Douglas and Douglas, Kressler & Wuester, P.C., (collectively DKW) for legal malpractice arising out of representation in a business dispute. When Billy later filed for bankruptcy, the malpractice claims were included as an asset in the bankruptcy estate. The bankruptcy trustee sold the claims to a representative of DKW's malpractice carrier, who then successfully moved the trial court for an agreed dismissal of Billy's claims. The trial court eventually directed a verdict for DKW on all of Gertrude's legal malpractice and Deceptive Trade Practices Act (DTPA) claims. The court of appeals held that the trial court erred by approving the agreed dismissal of Billy's claims and granting a directed verdict on Gertrude's malpractice claim and two of her three DTPA claims. 948 S.W.2d 483. For the reasons we explain below, we conclude that: (1) Billy lacks standing to pursue his claims; (2) while Gertrude has standing to pursue the mental anguish damages part of her legal malpractice claim, she may not recover in this case because those damages arise as a consequence of economic loss; and (3) based on the allegations and evidence in this case, Gertrude may not recover under the DTPA. We therefore vacate in part and reverse in part the judgment of the court of appeals, render judgment that Gertrude take nothing on her legal malpractice and DTPA claims, and dismiss the remainder of the Delps' claims for want of jurisdiction.

In the mid-1950s, Billy and Gertrude Delp, along with their partner John Harvison and his wife, formed Nu-Way Oil Company. They eventually created several Nu-Way companies (collectively Nu-Way) and acquired others, including Economy Oil and Dynamic Industries. In the 1980s, they formed Nu-Way, Inc., which held the stock to these other companies. Billy owned half of the stock in Nu-Way and Economy and one-third of the stock in Dynamic; the Harvison family owned the remaining stock in these companies. Billy, Gertrude, and Harvison served as the companies' directors.

In 1987, the directors of Nu-Way, Inc., voted to go public. In order to do so, Billy, Gertrude, and Harvison formed FFP Partners, L.P. In exchange for becoming limited partners, Dynamic, Economy, and Nu-Way each contributed their assets to FFP Partners. These companies then formed FFP Operating, which was a subsidiary of, and managed, FFP Partners. They also formed FFP Management, which became a general partner of both FFP Partners and FFP Operating. Billy, Harvison, and six others were the directors of FFP Management. Billy was FFP Management's chief executive officer. Gertrude was neither an officer nor a director of FFP Management.

Soon after going public, Billy contends that Harvison began attempting to buy businesses outside of the companies' core business activities. Fearing that such a move would hinder the partners from meeting expansion commitments they had made to investors, Billy met with attorneys from DKW to discuss whether Gertrude and he could take legal action to thwart Harvison's attempts. DKW advised Billy and Gertrude that they were legally entitled to modify the FFP Management board because companies that Billy and Gertrude controlled, Economy and Nu-Way, owned fifty percent of FFP Management's voting rights. Thereafter, in an attempt to make the board smaller and less susceptible to Harvison's influence, Billy authorized notice of a special meeting to be sent to FFP Management shareholders.

In response to the special meeting notice, Harvison called for a separate shareholders' meeting, at which Billy was terminated as FFP Management's chief executive officer. At subsequent Nu-Way and Economy meetings, Harvison was removed as an officer of those companies. Billy was given authority to vote all of Nu-Way's and Economy's stock in FFP Management, thereby giving Billy control of the outcome of FFP Management shareholders' meetings.

Harvison responded by suing Billy and Gertrude, who were represented by DKW. Two days into a temporary injunction hearing, at which Gertrude was the primary witness, the two sides began settlement negotiations. Eventually they reached an agreement, which Harvison's attorneys finalized in a compromise settlement agreement. After meeting with DKW for approximately thirty minutes to an hour, Billy and Gertrude signed the agreement. Part of the agreement required Gertrude to resign from the boards of Nu-Way and Economy, which resulted in their boards being deadlocked, with only Billy and Harvison as directors.

Nu-Way began experiencing financial difficulties shortly thereafter. Sunbelt Savings eventually sued Nu-Way, Billy, and Harvison on notes Nu-way executed, which Billy and Harvison personally guaranteed. Sunbelt settled with Harvison, but obtained a $1.2 million judgment against Nu-Way and Billy. Billy was unable to force Nu-Way to liquidate its assets, allegedly due to the director deadlock. In the settlement with Harvison, Sunbelt sold the $1.2 million judgment to Harvison. Harvison then assigned the judgment to a company his children owned, which foreclosed on the Nu-Way assets. As a result, the Delps lost all the assets they held through Nu-Way.

In May 1991, Billy and Gertrude sued DKW for legal malpractice over its handling of the settlement agreement and for failing to adequately prepare Gertrude for her testimony in the temporary injunction hearing. In November 1991, Billy filed for chapter 11 bankruptcy, claiming that he was forced to do so because of the Sunbelt foreclosure and his inability to sell any Nu-Way assets. Billy listed the malpractice claims against DKW as an asset. Gertrude was not a party to the bankruptcy, and her legal malpractice claims were not listed as an asset. The bankruptcy court, over Billy's objection, confirmed a reorganization plan. On Billy's appeal, the bankruptcy court's order was affirmed by the federal district court and the Fifth Circuit. See In re Delp, 42 F.3d 640 (5th Cir.1994) (mem.). Pursuant to the reorganization plan, the bankruptcy trustee sold the claims against DKW to Philip Treacy & Associates, which was acting on behalf of DKW's malpractice carrier. Treacy then filed with the trial court a motion to dismiss Billy's malpractice claims, agreed to by Treacy and DKW. The trial court granted the motion over Billy's objection.

Gertrude proceeded to trial on her legal malpractice and DTPA claims against DKW. Her expert, George Berry, testified that Billy and Gertrude had suffered $9.1 million in damages because of DKW's malpractice. Berry reached this figure by calculating: (1) the decline in the Delps' net worth caused by the loss of their holdings in the Nu-Way companies, (2) Billy's lost earning capacity, and (3) Billy's lost credit reputation. Berry testified that Gertrude's damages constituted one-half of this figure, or $4.55 million. Gertrude also claimed damages for mental anguish, explaining that she suffered stress and depression that forced her to see a doctor, and caused physical ailments including hair loss and esophageal reflux.

At the close of Gertrude's case, the trial court granted a directed verdict for DKW. Gertrude and Billy appealed the directed verdict and the dismissal of Billy's claims. The court of appeals reversed and remanded as to both Gertrude's and Billy's interest in the malpractice claims and part of Gertrude's DTPA claims. 948 S.W.2d at 497. We granted DKW's petition for review. We first examine DKW's complaints about Billy's claims, and then its complaints about Gertrude's claims.

DKW complains that Billy lacks standing to challenge the dismissal of his legal malpractice claims. Reasoning that Texas law prohibits assigning legal malpractice claims, the court of appeals concluded that the dismissal of the claims following the assignment to Treacy was error. 948 S.W.2d at 491-92. Without addressing the validity of the assignment or the dismissal, we agree with DKW that Billy lacks standing to challenge the assignment or dismissal in this proceeding.

Under section 541 of the Bankruptcy Code, filing a petition for bankruptcy creates a bankruptcy estate. See 11 U.S.C. § 541(a); Louisiana World Exposition v. Federal Ins. Co., 858 F.2d 233, 245 (5th Cir.1988). "[A]ll legal or equitable interests of the debtor in property as of the commencement of the case" become part of that estate, including any legal claims that belonged to the debtor before the petition was filed. 11 U.S.C. § 541(a)(1); see State Farm Life Ins. Co. v. Swift (In re Swift), 129 F.3d 792, 795 (5th Cir.1997). The bankruptcy trustee is the representative of the estate. See 11 U.S.C. § 323(a). Once a claim belongs to the estate, "then the trustee has exclusive standing to assert the claim." Schertz-Cibolo-Universal City Indep. Sch. Dist. v. Wright (In re Educators Group Health Trust), 25 F.3d 1281, 1284 (5th Cir.1994).

When Billy filed his bankruptcy petition, his legal malpractice claims became part of the bankruptcy estate. Once the claims became part of the estate, only the bankruptcy trustee had standing to pursue them. By filing his bankruptcy petition, Billy relinquished to the trustee any standing to prosecute or dispose of the claims. At no time did standing revest in Billy. When the reorganization plan was confirmed by the bankruptcy court, and subsequently affirmed on appeal, it included the legal malpractice claims as an asset. Billy was afforded a full opportunity to object to...