Cooke v. Karlseng

          On Appeal from the 193rd Judicial District Court Dallas County, Texas Trial Court Cause No. DC-06-02783-L

          Before Justices Brown, Schenck, and Pedersen, III

          MEMORANDUM OPINION

          BILL PEDERSEN, III JUSTICE

         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^[1]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^[2] argue the trial court erroneously denied their plea to the jurisdiction and denied their summary judgment motion on a third affirmative defense, limitations. We reverse the trial court's Order in part, and we dismiss appellants' claims that are subject to this appeal.

         BACKGROUND^[3]

         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 (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 appellants' counsel advised that the business relationship was legal, he also suggested that switching to a law firm structure could expedite a resolution with 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 appellants asserted he quit.

         In March 2006, Cooke filed a lawsuit alleging appellants tortiously transferred partnership assets to new professional corporations, owned solely by the individual appellants, and falsely told Cooke that the partnerships needed to shut down due to certain state regulations. The partnership agreements provided for arbitration, and 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.^[4] 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.

         THE CROSS-APPEAL

         We begin with cross-appellants' issues because the plea to the jurisdiction addresses the threshold issue of standing and the limitations issue addresses which parties are properly before the trial court.

         Plea to the Jurisdiction on Standing

         "A plea to the jurisdiction challenges the court's authority to decide a case." Heckman v. Williamson County, 369 S.W.3d 137, 149 (Tex. 2012). Cross-appellants' specific challenge was to Cooke's standing, which is a question of law that we review de novo. Id. at 150. Standing is a constitutional prerequisite to suit, and a court has no jurisdiction over a claim made by a plaintiff who lacks standing to assert it. Id. A party's standing to sue is not presumed; it must be proved. Linegar v. DLA Piper LLP (US), 495 S.W.3d 276, ...