Court Opinion

ID: 6333116
Source: CourtListenerOpinion
Date Created: 2022-04-20 06:12:01.261931+00
Date Added: 2024-06-11T09:23:25.779015
License: Public Domain

Affirmed and Remanded and Opinion Filed April 12, 2022

                                                In The
                                 Court of Appeals
                          Fifth District of Texas at Dallas
                                       No. 05-18-00206-CV

    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

                    MEMORANDUM OPINION ON REMAND
                      Before Justices Schenck and Pedersen, III1
                           Opinion by Justice Pedersen, III

    1
      Justice Ada Brown was a member of the original panel in this case, but due to her appointment to the
federal bench, she did not participate in issuing this opinion on remand.
        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. Appellants2 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-appellants3 argue the trial

court erroneously denied their plea to the jurisdiction and their summary judgment

motion on a third affirmative defense, limitations.

    2
       The appellants/cross-appellees include: 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 (the Business Entities) and H. Jonathan Cooke, who appeals individually and on behalf of the Business
Entities. We will refer to Cooke and the Business Entities collectively as the appellants.
    3
       The appellees/cross-appellants include: 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. We will refer to these parties as the cross-appellants.
                                                  –2–
       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.

   4
      We did not reach the defensive issues of illegality and the business judgment rule in our original
opinion.
                                                 –3–
                                       BACKGROUND5

       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

   5
       This case has been appealed multiple times. As we did in our most recent opinion, we adopt the
relevant factual background statement from the first appeal in 2009, Karlseng v. Cooke, 286 S.W.3d 51,
53–54 (Tex. App.—Dallas 2009, no pet.), and we add facts concerning subsequent events as necessary to
resolve this appeal.
                                                –4–
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.

                                         –5–
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.

                                          –6–
        (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.

                                    THE CROSS-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.

                            Plea to the Jurisdiction on Standing

        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

   6
       The limitations motion was titled Motion for Summary Judgment on the Business Entities’ Claims.

                                                 –7–
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 S.W.3d at 913; see also Lipshy v. Burk, No. 05-19-

00493-CV, 2020 WL 6696368, at *3 (Tex. App.—Dallas Nov. 12, 2020, no pet.)

(mem. op.) (relying on Pike and concluding limited partners have jurisdictional

standing to assert claim for reduction in value of their respective partnership

interests). Thus, the trial court correctly denied cross-appellants’ plea to the

jurisdiction, and their first issue must be overruled.

                        Summary Judgment on Limitations

      Cross-appellants contend in their second issue that the trial court erroneously

denied their summary judgment motion on limitations for Cooke’s derivative claims

filed in 2014. Cooke argues that these claims relate back to his timely filed individual

claims. In our original opinion, we concluded that—because Cooke lacked standing

                                          –8–
to bring the claims based solely on injuries to the Business Entities—the challenged

claims could not relate back, because the doctrine of relation back cannot create

jurisdiction where none existed. Goss v. City of Houston, 391 S.W.3d 168, 175 (Tex.

App.—Houston [1st Dist.] 2012, no pet.). Having concluded now that Cooke did in

fact have standing to bring those claims, we look at the relation-back argument

through a different lens.

      After concluding in Pike that a partner in a business organization has

constitutional standing to sue for an alleged loss in the value of his interest in the

organization, Pike, 610 S.W.3d at 778, the supreme court went on to clarify that

whether a claim brought by a partner actually belongs to him or to the partnership is

an issue of capacity “because it is a challenge to the partner’s legal authority to bring

the suit.” Id. at 779 (citing Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848

(Tex. 2005)). This distinction—between the concepts of standing and capacity—is

dispositive of the limitations issue in this case.

      The relation-back statute provides:

      If a filed pleading relates to a cause of action . . . that is not subject to a
      plea of limitation when the pleading is filed, a subsequent amendment
      or supplement to the pleading that changes the . . . facts or grounds of
      liability . . . is not subject to a plea of limitation unless the amendment
      or supplement is wholly based on a new, distinct, or different
      transaction or occurrence.

CIV. PRAC. & REM. § 16.068. It is undisputed that Cooke’s original petition, asserting

his claims individually, was timely filed. Thus, his amendment will relate back and

will not be subject to the bar of limitations unless it “is wholly based on a new,
                                        –9–
distinct, or different transaction or occurrence.” Id. Cooke’s amendment added no

new facts or grounds of liability for the defendants. Indeed the only change in his

pleading was the addition of a footnote following the statement of each of his claims

saying that “Mr. Cooke asserts this claim both individually and derivatively on

behalf of each of the entities named in the caption.”7

        The change in the pleading, thus, was solely a matter of Cooke’s capacity as

plaintiff. Lovato instructs that errors in capacity may be corrected and relate back to

timely filed petitions. 171 S.W.3d at 852–53. We conclude that the claims Cooke

added in 2014 do relate back to his timely filed individual claims and thus are not

barred by limitations.

        The trial court did not err in denying cross-appellants’ motion for summary

judgment on limitations. We overrule cross-appellants’ second issue.

                                          THE APPEAL

        In two issues, appellants challenge the trial court’s grant of summary

judgment in favor of cross-appellants on the affirmative defenses of illegality and

the business judgment rule. We apply well-known standards in our review of

   7
       The footnotes went on:
        Each entity is a closely held corporation or partnership. For the partnerships, no demand
        was made on any of the general partners because (a) each general partner is a closely held
        corporation and (b) because demand on the general partners would be futile because both
        (1) the wrongdoers to be acted against are in control of the GP, and (2) numerous
        discussions and years of litigation have shown that the individuals controlling the GP are
        unwilling to compensate Mr. Cooke. Because these entities are closely held, the Court
        should treat the action as a direct action.

                                                 –10–
traditional summary judgment motions. See Nixon v. Mr. Prop. Mgmt. Co., 690

S.W.2d 546, 548 (Tex. 1985). The movant has the burden to demonstrate that no

genuine issue of material fact exists and it is entitled to judgment as a matter of law.

TEX. R. CIV. P. 166a(c); Nixon, 690 S.W.2d at 548–49. We consider the evidence in

the light most favorable to the nonmovant. 20801, Inc. v. Parker, 249 S.W.3d 392,

399 (Tex. 2008). We credit evidence favorable to the nonmovant if reasonable jurors

could, and we disregard evidence contrary to the nonmovant unless reasonable jurors

could not. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844,

848 (Tex. 2009). Within the framework of these standards, we review the summary

judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010).

                                               Illegality

        If a contract requires a party to do a thing that cannot be done without violating

the law, then the contract violates public policy and is void. Phila. Indem. Ins. Co.

v. White, 490 S.W.3d 468, 483 (Tex. 2016). Illegality is an affirmative defense. Id.

at 485. It is also a legal question, which we review de novo. Id.

        Cross-appellants’ traditional summary judgment motion argued that the

partnership agreements between the attorneys and Cooke were illegal because the

Business Entities, as structured, could not legally engage in the business of title

insurance as attorney fee offices.8 The trial court agreed and granted the motion. The

    8
        A “fee office” is operated by an attorney who is a licensed escrow agent and who closes transactions
in a title company’s name.
                                                  –11–
Order provided that Cooke would take nothing on his claims that, either individually

or derivatively, sought to recover damages “based on the ongoing operation of any

of the Business Entities.”9

         In this Court, appellants argue that the agreements establishing the Business

Entities are not facially illegal because they do not specifically provide for an illegal

mode of performance. Appellants contend that “[a]ll that would be required for the

partnerships to be in compliance is for the participants to be appropriately licensed

by the TDI.” It is true that a contract that could have been performed in

a legal manner will not be declared void because it may have been performed in an

illegal manner. Signal Peak Enters. of Tex., Inc. v. Bettina Invs., Inc., 138 S.W.3d

915, 920–21 (Tex. App.—Dallas 2004, pet. struck). If the contract does not appear

illegal on its face, then we will not hold it to be illegal and void “unless the facts

showing its illegality are before the judge.” Id. In this case, however, the facts

“before the judge” established that the partnership agreements could not have been

performed legally because Cooke was not “appropriately licensed” by the TDI10 and

because he was Karlseng’s partner, not a bona fide employee in the title insurance

business.

         The Texas Insurance Code directs that:

    9
       The Order permitted Cooke to pursue only claims regarding recovery of assets of the Business
Entities.
    10
        It is undisputed that Cooke was not a licensed attorney, a licensed escrow agent, or a licensed title
agent. Likewise, it is undisputed that the Business Entities were not licensed title insurance agencies.
                                                   –12–
      A commission, rebate, discount, portion of a title insurance premium,
      or other thing of value may not be directly or indirectly paid, allowed,
      or permitted by a person engaged in the business of title insurance or
      received or accepted by a person for engaging in the business of title
      insurance or for soliciting or referring title insurance business.
TEX. INS. CODE ANN. § 2502.051. Cooke acknowledges that his role in the enterprise

was marketing the partners’ title insurance business, which amounts to “soliciting or

referring title business.” See id. The code does make certain exceptions to this

prohibition against splitting title insurance premiums, including “payment of bona

fide compensation to a bona fide employee principally employed by a title insurance

company, title insurance agent, or direct operation.” Id. § 2502.053(3).

      Cooke argues that nothing would prohibit one of the Business Entity’s

owners—i.e., Cooke—from operating as a bona fide employee of Karlseng’s fee

office. Cooke does not disclaim his status as the attorneys’ partner; his claims in this

lawsuit are rooted directly in that status. Thus, to prevail, he must argue that he could

be both a partner, entitled to share profits with the attorneys, and an employee, hired

and paid only for work performed under the attorneys’ control and supervision. We

disagree that such a duality can exist in the context of the highly regulated insurance

industry. No authority cited by Cooke supports such an interpretation of the

insurance code provisions before us. We are bound to apply these statutes according

to their plain language, and that plain language prohibits splitting title insurance

premiums with an unlicensed individual or entity who is marketing the business. Id.

§ 2502.051.

                                         –13–
      Our conclusion is supported by the TDI’s own findings and conclusions

involving the business relationships at issue here. In 2005, the TDI undertook its

investigation of Karlseng’s business operations, specifically those involving Escrow

Partners Dallas GP, Inc. and Title Partners, L.L.P. On January 30, 2006, the

Commissioner signed his Consent Order identifying the results of the TDI’s

investigation. Among the TDI’s allegations that were investigated was whether

Karlseng “paid title insurance premiums to improperly licensed persons [and]

operated as a title fee attorney through individuals who were not his actual bona fide

employees.” The Consent Order found, inter alia, that Karlseng and Cooke shared

ownership of title insurance businesses and that Cooke was neither licensed nor an

attorney. Among the TDI’s conclusions of law was the following:

      Robert Karlseng, Escrow Partners Dallas GP, Inc., and Title Partners,
      L.L.P., directly or indirectly, paid or permitted payment of a portion of
      a title insurance premium or any thing of value to a person for engaging
      in the business of title insurance or for soliciting or referring title
      insurance business, as contemplated by TEX. INS. CODE ANN.
      § 2502.051 . . .

Based on these findings and conclusions, Karlseng was ordered to pay an

administrative penalty of $100,000. The Texas Supreme Court has “long held that

an agency’s interpretation of a statute it is charged with enforcing is entitled to

‘serious consideration,’ so long as the construction is reasonable and does not

conflict with the statute’s language.” R.R. Comm’n of Tex. v. Tex. Citizens for a Safe

Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011). We conclude that the

TDI’s determination that the fee splitting at issue in this appeal was sanctionable as
                                         –14–
a violation of the insurance code was both reasonable and in accordance with the

statutory language. Its determination, therefore, is due some deference. See id.

      Based on the unambiguous language of the Texas Insurance Code, and giving

deference to the TDI’s interpretation of that code, we conclude that the partnership

agreements between the attorneys and Cooke were illegal because the Business

Entities, as structured, could not legally engage in the business of title insurance as

attorney fee offices. Barring application of one of the defensive theories urged by

Cooke, and discussed below, the trial court did not err in granting cross-appellants’

motion for summary judgment on illegality.

                          Exceptions to Unenforceability

      Appellants argue alternatively that even if the partnership agreements did not

comply with Texas insurance law, they could still be enforced based on either of two

exceptions to their unenforceability. Appellants argue that the parties were not in

pari delicto and that enforcement of the agreements is actually supported by the

public policy of the State of Texas.

                                   In Pari Delicto

      Parties are said to be in pari delicto—literally, “in equal fault”—when both

are blameworthy in an inappropriate transaction. See Small v. Parker Healthcare

Mgmt. Org., Inc., No. 05-11-01471-CV, 2013 WL 5827822, at *4 (Tex. App.—

Dallas Oct. 29, 2013, no pet.) (mem. op.). When one party to an illegal contract is

                                        –15–
not culpable, i.e., not in pari delicto, courts may allow that party to enforce the

agreement and to recover despite the illegal nature of the contract. Id.

      Appellants contend that “Cooke was a non-lawyer relying on the

representations of his lawyer-partners.” They argue that Cooke was never “on the

same footing as [cross-appellants] because of their superior legal knowledge” and

that Cooke had to trust that cross-appellants “were telling him the truth at every

turn.” Appellants argue that Karlseng kept Cooke away from the TDI investigation

and that Cooke “suffered a disadvantage of information and expertise, and was at

the mercy of his partners.”

      However, a mistake on Cooke’s part concerning the legality of the partnership

agreements does not render the agreements enforceable. Parties to a contract are

presumed to be knowledgeable of the law, which is why courts will generally leave

parties to an illegal contract as they find them. Lon Smith & Assocs., Inc. v. Key, 527

S.W.3d     604,    618     (Tex.    App.—Fort      Worth      2017,    pet.    denied)

(citing Plumlee v. Paddock, 832 S.W.2d 757, 759 (Tex. App.—Fort Worth 1992,

writ denied)). Stated differently, “courts are no more likely to aid one attempting to

enforce such a contract than they are disposed in favor of the party who uses the

illegality to avoid liability.” Id. Indeed, Cooke’s belief that the partnership

relationship was legal is simply not relevant. See Small, 2013 WL 5827822, at *5

(citing Plumlee, 832 S.W.2d at 759).

                                        –16–
      We agree with our sister court’s holding in Lon Smith that instead of a mistake

of law, invocation of the in pari delicto doctrine requires a mistake of fact,

specifically the situation wherein “the illegality of the transaction depends on the

existence of peculiar facts known to the defendant but unknown to the plaintiff.” 527

S.W.3d at 618. In that case, the court explained the relevant distinction:

      [W]here a person sues for services rendered another in an occupation
      which is illegal, unless the employer is duly licensed to carry it on,
      which he is not, such person may recover unless he knew that the
      employer had no license, for while he is bound to know that the
      employer must have a license to make the business legal, his mistake
      as to his having such license is a mistake of fact and not of law.
Id. (quoting Oakes v. Guarantee Ins. Co., 573 S.W.2d 899, 902 (Tex. App.—

Eastland 1978, writ ref’d n.r.e.)). There is no mistake of fact in Cooke’s case. What

makes the partnership agreements illegal are his lack of a license to engage in title

insurance business and his acceptance of fee splits as an unlicensed partner in the

title insurance business. Whether or not he knew the agreements were illegal, he

certainly knew that he was not licensed and that he was accepting fee splits as a

partner. See id.

      We conclude that the in pari delicto exception does not apply in this case to

render the illegal partnership agreements enforceable.

                                    Public Policy

      Appellants also contend that the public policy of our State argues for enforcing

the partnership agreements. They rely on the opinion in Geis v. Colina Del Rio, LP,

362 S.W.3d 100, 110 (Tex. App.—San Antonio 2011, pet. denied), which holds that
                                   –17–
even when parties are in pari delicto, relief may be granted if public policy demands

it. Appellants urge us to apply that holding here.

       Appellants argue first that the TDI has extensive authority to regulate the

insurance industry and to protect the public and that its authority should not be

“usurped” by the courts. Indeed, the TDI has weighed in on the legitimacy of the

partnership agreements that governed the Business Entities and concluded that the

fee splitting envisioned by the agreements violated the insurance code and was

sanctionable. Appellants point to evidence that “shows that [the] TDI was prepared,

in its discretion, to conclude that the parties’ business arrangement was ‘reasonable’”

at one point in its investigation. But that preliminary conclusion was based upon the

inaccurate representation that Cooke was a bona fide employee of Karlseng and his

fee office. He was not. We note in this context as well that it was Cooke who initially

invoked the courts’ involvement in this dispute; he asked the trial court to enforce

his partnership rights under the agreements. Having sought resolution by the courts,

Cooke cannot now say that it is contrary to public policy for the courts to rule. If the

law disallows the enforcement he seeks, the courts must say so.

       Appellants next argue that the public policy that the title insurance regulations

aim to promote will not be furthered by invalidating the partnership agreements. We

do not quarrel with appellants’ assertion that a motivation for the regulations was to

limit payments of rebates and discounts to certain providers. However, the statute is

broader than those specific limits. It specifically prohibits splitting a portion of a title

                                           –18–
insurance premium with any person “for soliciting or referring title insurance

business.” INS. § 2502.051. Cooke acknowledges his role in the title insurance

business was advertising, i.e., soliciting title insurance business on behalf of the

Business Entities. We cannot conclude that the policy behind a statute is supported

by enforcing its prohibitions in some instances but not in others.

       Finally, appellants contend that a failure to enforce the partnership agreements

would unjustly enrich cross-appellants. Of course Cooke does not deny that he was

“enriched” during the tenure of the illegal contracts nor that he was paid for his

efforts in assisting in the re-organization of the businesses. We cannot say that equity

demands that Cooke receive more through this litigation.

       None of appellants’ policy arguments persuade us that we should abandon the

judicial policy against enforcing illegal contracts. This policy is not intended to

protect or punish either party to the contract; it is for the benefit of the public.

Plumlee, 832 S.W.2d at 759. “Courts are no more likely to aid one attempting to

enforce such a contract than they are disposed in favor of the party who uses the

illegality to avoid liability.” Id.

       We affirm the trial court’s grant of summary judgment on cross-appellant’s

illegality defense. The trial court correctly determined that Cooke should take

nothing on his individual and derivative claims seeking to recover damages based

on the ongoing operation of any of the Business Entities.

                                         –19–
                                          CONCLUSION

         We affirm the trial court’s denial of cross-appellants’ plea to the jurisdiction

and its denial of cross-appellants’ motion for summary judgment based on the statute

of limitations. We affirm the trial court’s grant of summary judgment on cross-

appellants’ motion for summary judgment on the defense of illegality.11 We direct

that Cooke shall take nothing on his claims—individual and derivative—based on

the ongoing operation of any of the Business Entities.

         Based on the trial court’s Order, we remand this cause so that Cooke may

pursue his claim regarding recovery of assets of the Business Entities.

                                                      /Bill Pedersen, III//
                                                      BILL PEDERSEN, III
                                                      JUSTICE

    11
      Given that resolution, we need not reach appellants’ challenge to the trial court’s grant of summary
judgment on the business judgment rule.
                                                 –20–
                       Court of Appeals
                Fifth District of Texas at Dallas
                           JUDGMENT

H. JONATHAN COOKE,                       On Appeal from the 193rd Judicial
INDIVIDUALLY AND ON                      District Court, Dallas County, Texas
BEHALF OF ESCROW                         Trial Court Cause No. DC-06-02783-
PARTNERS DALLAS, L.P.;                   L.
ESCROW PARTNERS DALLAS,                  Opinion delivered by Justice
GP, INC.; ESCROW PARTNERS                Pedersen, III. Justice Schenck
HOUSTON, L.P.; ESCROW                    participating.
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

No. 05-18-00206-CV    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

                                  –21–
       In accordance with this Court’s opinion of this date, 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 is AFFIRMED.

       It is ORDERED that appellees 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. recover their costs of
this appeal from appellants 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.

       The cause is REMANDED for determination of H. Jonathan Cooke’s claim
regarding recovery of assets 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.

Judgment entered this 12th day of April, 2022.

                                        –22–