Court Opinion

ID: 3073884
Source: CourtListenerOpinion
Date Created: 2015-10-16 00:58:12.082233+00
Date Added: 2024-06-11T07:38:02.480685
License: Public Domain

Opinion filed July 24, 2014

                                                 In The

            Eleventh Court of Appeals
                                             __________

                                       No. 11-12-00201-CV
                                           __________

                             DLA PIPER US, LLP, Appellant
                                                     V.
                                CHRIS LINEGAR, Appellee

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

                            MEMORANDUM OPINION
       This appeal arises from a lawyer liability case in which the jury found for
Chris Linegar on multiple claims centered around alleged misrepresentations made
by the law firm of DLA Piper US, LLP 1 regarding a loan. The trial court rendered
judgment on the jury verdict in favor of Linegar for $1,164,245.40 in damages and

       1
           In its notice of appeal, DLA Piper notes that its correct name is DLA Piper LLP (US).
for prejudgment and postjudgment interest. Because we find that Linegar lacked
standing to pursue his claims against DLA Piper, we reverse and render.
      Linegar is an Australian financier and investor.      In 2004, he formed a
company called Key Ovation. He later divided the company into two companies:
Key Ovation, LLC and IdentiPHI, LLC. Both companies were based in Austin,
Texas. In 2008, IdentiPHI merged with Saflink Corporation, a Seattle company.
In the merger, Saflink was represented by DLA Piper, and IdentiPHI was
represented by Akin & Almanza. IdentiPHI, Inc. became the name of the merged
company, and Linegar owned thirty-five percent of the new company. In the
process of completing the merger, it became apparent that IdentiPHI needed capital
to stay in business until IdentiPHI could secure the necessary funding for the
company to grow. Linegar proposed a “bridge loan” from his superannuation fund
(retirement account) in Australia. Zaychan Pty Limited, an Australian corporation
that served as the trustee for Linegar’s retirement fund, was the lender for the
bridge loan. Linegar signed the promissory note as chairman and director of
Zaychan under the designation, “AGREED AND ACCEPTED.”                     The $1.75
million loan (in Australian dollars) was to be repaid by 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 lawyer at DLA Piper, and discussed his
concerns regarding the loan to IdentiPHI.        It was Linegar’s testimony 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.

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        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 he had to “call up the loan.” Akin discovered
that DLA Piper had not filed the UCC-1 financing statement and, thus, Zaychan’s
promissory note 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 filed
the UCC-1 financing statement and perfected the loan. Peter Gilbert, as CEO of
Key Ovation, signed the new note on behalf of Key Ovation. 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.
        Subsequently, Key Ovation loaned IdentiPHI an additional $400,000.
IdentiPHI was cash-strapped and ultimately filed for bankruptcy. Key Ovation
agreed to take $550,000 from a stalking-horse bidder instead of pursuing the full
note in bankruptcy because the security interest was subject to attack due to the
time of perfection of the note. Key Ovation recovered $150,000 of the original
$1.75 million loan and the full amount on the subsequent $400,000 loan. Key
Ovation gave the money directly to Linegar as required under the promissory note
between Key Ovation and Linegar.
        Linegar, Zaychan, and Key Ovation filed suit against DLA Piper and alleged
multiple claims. 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 sought to dismiss its claims without prejudice. Linegar’s
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claims proceeded to a jury trial, and the jury found for Linegar on his negligent
failure to warn, negligent misrepresentation, fraud by failure to disclose, legal
malpractice, and breach of fiduciary duty claims. The jury found damages in the
amount of $1,293,606 and apportioned ten percent responsibility to Linegar. The
trial court rendered judgment on the jury verdict for Linegar in the amount of
$1,164,245.40.
        DLA Piper presents eight issues on appeal: (1) whether Linegar had standing
to bring suit against DLA Piper; (2) whether the trial court erred when it excluded
evidence of and when it refused jury questions on the conduct of two responsible
third parties: Zaychan and Key Ovation; (3) whether 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;
(4) whether the trial court erred when it admitted certain evidence regarding SEC
filings and when it excluded other evidence regarding SEC filings; (5) whether the
trial court erred when it lumped Linegar’s claims into one question in the jury
charge when the damages flowed from three distinct drawdowns on the loan;
(6) whether there is sufficient evidence of an agreement to form an attorney-client
relationship between DLA Piper and Linegar; (7) whether there is sufficient
evidence of a negligent misrepresentation or a fraudulent omission based on a
three-to-four-minute dinner conversation regarding the loan; and (8) whether the
damages are excessive. 2
        We will first address DLA Piper’s claim that Linegar lacked standing to
bring suit against DLA Piper because, at the relevant time, Linegar, as an
individual, was not the holder of the note to IdentiPHI; Zaychan was. Standing is
an issue that can be raised at any time because it is a part of subject-matter

        2
         Linegar and Zaychan originally filed a notice of cross-appeal, but they subsequently chose not to
pursue the cross-appeal and did not file a cross-appellants’ brief.

                                                    4
jurisdiction, which is never presumed and cannot be waived. Tex. Ass’n of Bus. v.
Tex. Air Control Bd., 852 S.W.2d 440, 443–45 (Tex. 1993). The focus in a
standing issue is whether the party bringing the lawsuit has a sufficient relationship
with it so that there is a justiciable interest in the outcome. Austin Nursing Ctr.,
Inc. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005). Standing exists if the party
bringing the lawsuit is personally aggrieved by the alleged wrong. Nootsie, Ltd. v.
Williamson Cnty. Appraisal Dist., 925 S.W.2d 659, 661 (Tex. 1996).
      The general test for standing in Texas requires that there “be a real
controversy between the parties” and that the controversy “will be actually
determined by the judicial declaration sought.” Tex. Ass’n of Bus., 852 S.W.2d at
446 (quoting Bd. of Water Eng’rs v. City of San Antonio, 283 S.W.2d 722, 724
(Tex. 1955)). When a corporation suffers an injury, the corporation is the party
that has standing to bring suit. Wingate v. Hajdik, 795 S.W.2d 717, 719 (Tex.
1990). “A corporate stockholder cannot recover damages personally for a wrong
done solely to the corporation, even though he may be injured by that wrong.” Id.
An exception to the rule, however, is that a stockholder may bring suit if the
wrongdoer violates a duty owed to the stockholder directly and if the stockholder
suffered damages. Id. To recover individually, the stockholder must prove a
personal cause of action and a personal injury. Id.
      In addition, when a trust suffers an injury due to a third party’s actions, the
proper party to bring suit on behalf of the trust is the trustee. InterFirst Bank-
Houston, N.A. v. Quintana Petroleum Corp., 699 S.W.2d 864, 874 (Tex. App.—
Houston [1st Dist.] 1985, writ ref’d n.r.e.) (holding beneficiary lacked standing to
assert claim against the estate); see also Hamilton v. McLean, No. 03-99-00320-
CV, 2000 WL 502828, at *3 (Tex. App.—Austin Apr. 27, 2000, no pet.) (not
designated for publication) (citing InterFirst Bank-Houston, 699 S.W.2d at 874).
“It is only when the trustee cannot or will not enforce the cause of action that he
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has against the third person that the beneficiary is allowed to enforce it.” InterFirst
Bank-Houston, 699 S.W.2d at 874. When the beneficiary is permitted to enforce
the cause of action, the beneficiary is acting for the trustee on behalf of the trust,
not on behalf of himself. Id.
      Linegar’s main contention in the lawsuit against DLA Piper was that DLA
Piper failed to secure “his” interest in the loan as DLA Piper represented to him
that it would and that, as a result of the misrepresentation, Linegar lost over one
million dollars.    Throughout the proceedings below, DLA Piper challenged
whether Linegar had standing to bring suit against DLA Piper. Specifically, DLA
Piper argued that, even though the money for the loan came from Linegar’s
retirement fund, Zaychan, as trustee of the fund, was the holder of the note and the
sole party that had an unsecured interest in the note. We agree with DLA Piper’s
contention that Linegar lacked standing in this case.
      Linegar, as an individual, was not a party to the note. Linegar “AGREED
AND ACCEPTED” to the note as chairman and director of Zaychan. The note
was made payable to Zaychan and was subsequently transferred from Zaychan to
Key Ovation, another company that Linegar controlled.              Although Linegar
voluntarily borrowed money in order to repay his retirement fund, Linegar agrees
that his decision to repay Zaychan with personal funds has no impact on his
standing.   Whether Linegar is viewed as a shareholder of Zaychan or as a
beneficiary of his retirement account in which Zaychan served as trustee, Linegar
does not have standing to bring this suit. There is no evidence to show that
Zaychan could not or would not enforce a cause of action against DLA Piper. In
fact, the record directly contradicts such a proposition because Zaychan was an
initial plaintiff in this suit. And, even if Zaychan had refused to bring suit against
DLA Piper, Linegar would only be authorized to bring suit on behalf of Zaychan,
not on behalf of himself.
                                          6
      Linegar argues that the question is not who has standing to sue on the note
but, rather, who has standing to sue DLA Piper for misrepresentations it made to
Linegar. Thus, Linegar contends that he has standing because DLA Piper gave
advice to him, he relied on that advice, and he was injured as a result. Linegar
points out that it was his retirement money that was loaned at his direction and his
retirement money that was lost. He directs us to Murphy v. Campbell, 964 S.W.2d
265 (Tex. 1997), to support his argument that he suffered a direct loss.
      In Murphy, accountants advised both a company and its stockholders about
the tax consequences of a sale of the company, and specifically advised the
stockholders about the effect of the dissolution on their individual interests. 964
S.W.2d at 267. The supreme court held that the stockholders had standing to sue
because “the effects of tax treatment would directly fall” on the stockholders and
the stockholders suffered a direct loss as a result of their direct reliance on the
accountants’ advice. Id. at 268. Linegar’s case is distinguishable. He did not seek
advice regarding an interest that he held; he sought advice regarding an interest
that Zaychan held. While we agree that it was his retirement money that was
loaned, Linegar, as an individual, was not the party who loaned the money.
Linegar, as the chairman and director of Zaychan, agreed to and accepted the terms
of the note. If DLA Piper made any misrepresentations or failed to disclose any
information, it did so toward Zaychan. Linegar, as an individual, did not have a
security interest in the note that needed to be perfected; only Zaychan did.
Therefore, the only party that DLA Piper could have made misrepresentations to at
the time of the loan transaction regarding whether the loan was secured was
Zaychan. We hold that Linegar did not have standing to bring suit against DLA
Piper. DLA Piper’s first issue is sustained.
      Because the standing issue is dispositive of this case, it is not necessary for
us to address the seven remaining issues presented by DLA Piper. See TEX. R.
                                          7
APP. P. 47.1. We reverse the judgment of the trial court and render judgment in
favor of DLA Piper that Linegar take nothing in his suit against DLA Piper.

                                                  JIM R. WRIGHT
                                                  CHIEF JUSTICE

July 24, 2014
Panel consists of: Wright, C.J.,
Willson, J., and Bailey, J.

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