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Dla Piper LLP (US) v. Linegar

Court of Appeals of Texas, Eleventh District

December 21, 2017

DLA PIPER LLP (US), Appellant

         On Appeal from the 201st District Court Travis County, Texas Trial Court Cause No. D-1-GN-10-000789

          Panel consists of: Wright, C.J., Willson, J., and Bailey, J.



         This court previously determined that Chris Linegar lacked standing to bring suit against DLA Piper LLP (US); however, the Texas Supreme Court granted Linegar's petition for discretionary review, determined that Linegar did have standing to sue DLA Piper for legal malpractice, and remanded the cause to this court to address the remaining issues. Linegar v. DLA Piper LLP (US), 495 S.W.3d 276 (Tex. 2016), rev'g 507 S.W.3d 768 (Tex. App.-Eastland 2014). We now affirm the trial court's judgment.[1]

         Linegar, an Australian financier and investor, formed a company called Key Ovation. He later divided that company into two companies: Key Ovation, LLC and IdentiPHI, LLC, both of which were based in Austin, Texas. In 2008, IdentiPHI, LLC merged with Saflink Corporation, a Seattle company. In the merger, Saflink was represented by DLA Piper, and IdentiPHI, LLC was represented by Akin & Almanza. IdentiPHI, Inc. (IdentiPHI) was the name of the merged company, and Linegar was a major stockholder in that company. After the merger, DLA Piper represented IdentiPHI as corporate counsel.

         During the merger process, it became apparent that IdentiPHI needed capital to stay in business while it attempted to secure permanent financing. Linegar proposed a "bridge loan" from his superannuation fund (a self-managed retirement trust) in Australia. Linegar, as chairman, director, and majority shareholder of Zaychan Pty Limited, an Australian corporation that served as trustee for the retirement fund, arranged for a bridge loan of 1.75 million Australian dollars (AUD)-which was equivalent to approximately 1.64 million U.S. dollars (USD)- from the retirement fund. In conjunction with the bridge loan, IdentiPHI executed a promissory note on March 12, 2008; the promissory note contained a clause granting Zaychan a security interest in all of IdentiPHI's assets. The note was payable on or before June 29, 2008.

         Prior to the execution of the note, Linegar attended a dinner party with the board members of IdentiPHI and several other individuals. Linegar claimed that he sat next to Michael Hutchings, a partner at DLA Piper, and that they discussed Linegar's concerns regarding the bridge loan. Linegar testified that Hutchings assured him that his security interest was not at risk and that "everything would be taken care of." Linegar testified that he believed that DLA Piper represented him in connection with the loan. DLA Piper did not disclose to Linegar that it was not representing him and that his interests were adverse to IdentiPHI's interests.

         In mid-June, Linegar became concerned that IdentiPHI was not going to pay back the loan by June 29. He consulted with Rick Akin of Akin & Almanza regarding his options in the event that he had to "call up the loan." Akin discovered that DLA Piper had not filed the UCC-1 financing statement; thus, Zaychan's security interest had not been perfected. Due to strict regulations on making loans from superannuation funds in Australia, the loan had to be paid back by June 30, 2008. In order to mitigate his loss and to keep his superannuation fund in compliance with Australian law, Linegar took out a mortgage on his home and repaid his superannuation fund. Zaychan assigned the note to Key Ovation, and Key Ovation amended the note to extend the payment deadline. Key Ovation then filed the UCC-1 financing statement. Key Ovation also issued a promissory note to Linegar in which Key Ovation was required to pay Linegar the amount of the original loan if and when Key Ovation collected on the loan from IdentiPHI.

         Cash-strapped, IdentiPHI ultimately filed for bankruptcy. Key Ovation recovered $150, 000 (USD) of the $1.75 million (AUD) loan and gave that money directly to Linegar "[b]ecause it was his money." Key Ovation and Linegar did not pursue the full amount of the note in the IdentiPHI bankruptcy because the security interest was subject to attack due to its belated perfection.

         Linegar, Zaychan, and Key Ovation sued DLA Piper and Hutchings for legal malpractice, negligent misrepresentation, breach of fiduciary duty, breach of contract, unjust enrichment, and deceptive trade practices. They claimed that DLA Piper and Hutchings advised Linegar individually regarding the loan, including assuring him that it would be perfected, and they sought actual and punitive damages. Zaychan's claims were dismissed with prejudice on summary judgment. Key Ovation filed a notice of nonsuit in which it dismissed its claims without prejudice. Linegar's claims against DLA Piper and Hutchings proceeded to a jury trial. However, in order to simplify the jury charge, Linegar nonsuited his claims against Hutchings. The jury found for Linegar on his claims of negligent failure to warn, negligent misrepresentation, fraud by failure to disclose, legal malpractice, and breach of fiduciary duty. The jury found damages in the amount of $1, 293, 606 and apportioned 90% responsibility to DLA Piper, 10% to Linegar, and 0% to Akin & Almanza. Based on the jury's verdict, the trial court rendered judgment for Linegar in the amount of $1, 164, 245.40, plus interest.

         Because DLA Piper's first issue on appeal challenging Linegar's standing has been resolved in Linegar's favor, we address Issues Two through Eight in this opinion on remand. In its second issue, DLA Piper asserts that the trial court erred when it excluded evidence and refused jury questions regarding the conduct of Zaychan and Key Ovation, which DLA Piper asserts are responsible third parties. In the third issue, DLA Piper contends that the trial court erred when it admitted a Washington rule of professional conduct regarding a lawyer's obligations to non-clients when the Washington rule varied from Texas law. In the fourth issue, DLA Piper contends that the trial court erred when it admitted certain evidence regarding SEC filings yet excluded other evidence regarding SEC filings. In its fifth issue, DLA Piper complains that the trial court erred when it lumped Linegar's claims into one question in the jury charge even though the damages flowed from three distinct drawdowns on the loan. In the sixth and seventh issues, DLA Piper challenges the legal sufficiency of the evidence to show that an agreement existed between DLA Piper and Linegar to form an attorney-client relationship and to show the existence of any negligent misrepresentation or fraudulent omission on the part of DLA Piper. In its final issue, DLA Piper urges that the amount of damages awarded to Linegar was excessive.

         In its second issue, DLA Piper contends that it should have been permitted to introduce evidence and obtain jury findings on the responsibility of both Zaychan and Key Ovation for the harm suffered by Linegar. See Tex. Civ. Prac. & Rem. Code Ann. ch. 33 (West 2015). DLA Piper asserts that Zaychan is a responsible third party because, as trustee of Linegar's superannuation fund, Zaychan violated its duties under Australian law when it loaned money to IdentiPHI. DLA Piper asserts that Key Ovation is a responsible third party because it "accepted less than 10% of the Note's value in an unreasonable settlement."

         A responsible third party is "any person who is alleged to have caused or contributed to causing in any way the harm for which recovery of damages is sought." Id. § 33.011(6). "The trier of fact, as to each cause of action asserted, shall determine the percentage of responsibility . . . with respect to each person's causing or contributing to cause in any way the harm for which recovery of damages is sought . . . ." Id. § 33.003(a). As pointed out by the Texas Supreme Court, this is not a suit on the note; it is a suit for legal malpractice and other torts committed by DLA Piper during its alleged representation of Linegar. 495 S.W.3d at 280. The harm for which damages were sought in this case related to the failure to timely perfect the security interest in the note. See, e.g., City Nat'l Bank of Sulphur Springs v. Smith, No. 06-15-00013-CV, 2016 WL 2586607, at *7-8 (Tex. App.-Texarkana May 4, 2016, pet. denied) (mem. op.) (determining that the harm or injury for which recovery of damages could be sought in a legal malpractice suit that involved a missed deadline under statute of limitations was the loss of the cause of action and holding that "only those persons who contributed in causing the loss of [the] cause of action against the Bank should be considered by the jury in the proportionate responsibility issue"). Thus, only those persons or entities who contributed to causing the untimely perfection of the security interest in the note are responsible third parties. DLA Piper did not assert at trial and does not assert on appeal that Zaychan or Key Ovation contributed to the untimely filing of the UCC-1 financing statement.

         Additionally, Linegar-not Key Ovation-was responsible for making the decision to accept the bankruptcy settlement that DLA Piper contends was unreasonable. The reasonableness of that decision, which was based on the advice and recommendation of Akin & Almanza, was addressed in depth at trial. In this regard, we note that the jury determined ...

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