Linegar v. DLA Piper LLP

• Decision Date: 27 May 2016
• Docket Number: NO. 14–0767,14–0767
• Citation: 495 S.W.3d 276
• Parties: Chris Linegar, Petitioner, v. DLA Piper LLP (US), Respondent
• Court: Texas Supreme Court

495 S.W.3d 276

Chris Linegar, Petitioner,

v.DLA Piper LLP (US), Respondent

NO. 14–0767

Supreme Court of Texas.

Argued February 10, 2016

OPINION DELIVERED: May 27, 2016

Elizabeth Bloch, Husch Blackwell LLP, Austin TX, Lisa Bowlin Hobbs, Kuhn Hobbs PLLC, Austin TX, Donald R. Taylor, Taylor Dunham and Rodrguez, LLP, Austin TX, Natalie A. Taylor, Shrum Taylor PLLC, Austin TX, for Petitioner.

Russell S. Post, Fields Alexander, Geoffrey Alan Gannaway, Constance H. Pfeiffer, Beck Redden LLP, Houston TX, William Robert Peterson, Morgan, Lewis & Bockius LLP, Houston TX, for Respondent.

JUSTICE JOHNSON

delivered the opinion of the Court.

The question before us is whether Chris Linegar, an individual beneficiary of a self-directed retirement account managed by a corporate trustee, had standing to sue DLA Piper, LLP (US) for legal malpractice based on advice the firm allegedly gave him regarding a loan from the retirement account to a third party. The trial court rendered judgment for Linegar based on a jury verdict. The court of appeals concluded that Linegar lacked standing to sue the firm, reversed, and rendered judgment for DLA Piper. We disagree that Linegar lacked standing to sue the firm. We reverse the judgment of the court of appeals and remand to that court for further proceedings.

I. Background

In 2004, Chris Linegar, an Australian businessman, formed Key Ovation, LLC, which he later divided into Key Ovation, LLC and IdentiPHI, LLC. In 2008, IdentiPHI, LLC merged with Saflink Corporation to form IdentiPHI, Inc. (IdentiPHI), a corporation in which Linegar was a major stockholder. The law firm of DLA Piper LLP (US) represented Saflink in the merger process, while the law firm of Akin & Almanza represented IdentiPHI, LLC. Following the merger, DLA Piper represented IdentiPHI as corporate counsel.

During the merger process it became apparent that IdentiPHI needed a short-term bridge loan while it attempted to secure permanent financing. At that time, Linegar served as Chairman, Director, and majority shareholder of Zaychan PTY, Ltd., the corporate trustee of the Linegar Superannuation Fund (Fund), which is an Australian self-managed retirement trust with Linegar and his now ex-wife as the sole beneficiaries. Linegar arranged for the Fund to lend 1.75 million Australian dollars (approximately 1.67 million USD) to IdentiPHI. DLA Piper represented IdentiPHI in the transaction, and the firm also worked directly with Linegar during the relevant time frame. On March 12, 2008, IdentiPHI executed a promissory note to Zaychan, which was “agreed and accepted” by Linegar as Chairman and Director of Zaychan, and which contained a clause granting Zaychan a security interest in all of IdentiPHI's assets. The note was payable on or before June 29, 2008, and it was important that it be timely paid in order to keep the self-directed retirement account in compliance with Australian law.

When it became apparent that IdentiPHI was going to default on the loan, Linegar took several actions. One was to contact his pre-merger Texas lawyer, Rick Akin of Akin & Almanza. Akin discovered that a UCC–1 financing statement had not been filed to perfect Zaychan's security interest in IdentiPHI's assets. Another action Linegar took was to mortgage his home and use the proceeds to pay the loan balance to the Fund before the June 30 deadline. As part of the transaction to make the Fund whole before June 30, the original note from IdentiPHI to Zaychan was extended, renewed, and assigned by Zaychan to Key Ovation, LLC. Key Ovation then executed a promissory note to Linegar for the amount IdentiPHI still owed. Later, Key Ovation signed a replacement note in favor of Linegar, clarifying that it agreed to pay him only what Key Ovation was able to collect on the original note from IdentiPHI.

IdentiPHI filed for bankruptcy on February 11, 2009. Had the security interest in the March 2008 note to Zaychan been timely perfected, Key Ovation, and thus Linegar, would have recovered the full amount due under the note—approximately $1.67 million. Instead, the debt was subject to challenge under section 547 of the Bankruptcy Code

, at least in part because Zaychan's security interest was not perfected until after Akin discovered the situation in June 2008. See 11 U.S.C. § 547(b) (2007). The result was that Key Ovation, the holder of the assigned note, settled its claim in bankruptcy for $150,000, which it in turn paid to Linegar.

Linegar, Zaychan, and Key Ovation sued DLA Piper and DLA Piper lawyer Michael Hutchings for legal malpractice, negligent misrepresentation, breach of fiduciary duty, breach of contract, unjust enrichment, and deceptive trade practices. They claimed that the firm and Hutchings advised Linegar individually regarding the loan, including assuring him that it would be perfected. The trial court granted DLA Piper's motion for summary judgment as to Zaychan; Key Ovation nonsuited its claims; the claims against Hutchings were nonsuited; and Linegar's individual claims against DLA Piper were tried to a jury. During trial Linegar testified that Hutchings told him before the loan was made that the loan would be secured and “everything would be taken care of.” Linegar also testified that he would not have directed or authorized Zaychan to make the loan to IdentiPHI but for Hutchings's assurances. DLA Piper and Hutchings, on the other hand, disputed that Hutchings made the alleged statements and maintained that Hutchings never agreed or implied that he or the firm would look out for Linegar's individual interests regarding the loan transaction.

The jury found that DLA Piper (1) injured Linegar by negligently failing to advise him that the firm did not represent him; (2) made a negligent misrepresentation to Linegar regarding the March 2008 note from IdentiPHI to Zaychan on which Linegar justifiably relied, causing him injury; (3) committed fraud as to Linegar by failing to disclose a material fact to him and the failure injured him; (4) had an attorney-client relationship with Linegar at some time from February 18, 2008 to June 17, 2008, and its negligence in that relationship proximately caused injury to Linegar; and (5) did not comply with its fiduciary duty to Linegar. The jury apportioned 10% responsibility for Linegar's injury to him, apportioned 90% responsibility to DLA Piper, and found Linegar's damages to be $1,293,606. The trial court rendered judgment on the jury verdict and DLA Piper appealed.

Although the firm raised eight issues on appeal, the appeals court determined that Linegar did not have standing to bring suit, reversed and rendered judgment for DLA Piper, and did not address any other issues. ––– S.W.3d ––––, –––– (Tex.App.–Eastland 2014

). In reaching its decision, the court of appeals reasoned that Linegar lacked standing because: (1) Zaychan, not Linegar, was the holder of the IdentiPHI note, so any misrepresentation about the note or its secured status would necessarily have been made to Zaychan; (2) Linegar did not gain standing by replenishing the trust with personal funds; and (3) Linegar lacked standing as a beneficiary of the retirement account because there was no evidence Zaychan, as trustee, could not have or would not have enforced a cause of action against DLA Piper. Id. at ––––.

In this Court, Linegar argues that (1) he had standing to sue DLA Piper because he did not sue on the note but rather sought damages for breaches of duties the firm owed to him individually; (2) his claims were not derivative of Zaychan's claims, nor did he seek to recover on losses Zaychan, as a corporate entity, may have suffered; (3) the court of appeals erred by concluding that Zaychan was the only entity with an interest in the funds and the only party to whom DLA Piper could have made relevant misrepresentations; and (4) DLA Piper is estopped from arguing that if any entity suffered damages it was Zaychan, because it took the position in the trial court that Zaychan did not suffer damages and obtained summary judgment against Zaychan on that basis.

DLA Piper responds that the rules of trustee-beneficiary standing and corporation-shareholder standing apply; although Linegar is a beneficiary of the trust and a shareholder of the corporation, he did not legally own the trust property and had no individual standing to sue for injuries to the trust or its property; and Linegar neither personally relied on DLA Piper nor suffered a “direct loss” that would permit him to sue individually. According to DLA Piper, the crucial fact for standing purposes is that Zaychan, not Linegar, made the loan to IdentiPHI.

II. Discussion

A. Law

A party's standing to sue is implicit in the concept of subject-matter jurisdiction and is not presumed; rather, it must be proved. See Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 445–46 (Tex.1993)

. Standing is a question of law for the court to determine, although facts necessary to the determination may need to be determined by the factfinder. See

id. at 446 ; West v. Brenntag Sw., Inc., 168 S.W.3d 327, 334 (Tex.App.–Texarkana 2005, pet. denied). As relevant to this matter, we recently summarized general standing principles as follows:

In Texas, the standing doctrine requires a concrete injury to the plaintiff and a real controversy between the parties that will be resolved by the court.... The plaintiff must be personally injured—he must plead facts demonstrating that he, himself (rather than a third party or the public at large) suffered the injury.... [The injury] must be concrete and particularized, actual or imminent, not hypothetical.... [T]he plaintiff's alleged injury must be fairly traceable to the defendant's conduct.... [And] the plaintiff's alleged injury [must] be likely to be redressed by the requested relief.

Heckman v. Williamson Cty., 369 S.W.3d 137, 154–55 (Tex.2012)

(emphasis omitted) (citations omitted). The standing analysis begins with determining the nature of the wrong being alleged and whether...