Cooke v. Karlseng
Dallas Court of Appeals, No. 05-18-00206-CV (August 14, 2019)
Justices Brown, Schenck, and Pedersen, III (Opinion, linked here)
In this looooong-running business dispute with a tangled and protracted procedural history, Cooke sued his ex-partners for alleged wrongs that occurred in 2005 and 2006. Originally, he asserted his claims individually, back in 2006. But the Dallas Court of Appeals concluded those claims were predicated on alleged injuries to the partnerships, rather than to Cooke directly (even though the value of his partnership interests may have been diminished in the process). Therefore, he lacked standing to bring those claims individually. But, Cooke argued, he surely had the right to assert the claims derivatively, and Tex. Bus. Org. Code § 21.563(c)(1) authorizes a court to treat a derivative claim “as a direct action” in certain circumstances. So, no problem, right? Wrong, said the Dallas Court. “Section 21.563 does not turn a derivative claim into an individual claim.” It just allows a court to treat a derivative claim like a direct claim in certain procedural respects, where appropriate. And here, even if Cooke could have brought his claims derivatively at the outset, “the fact remains he did not,” and he lacked standing to bring them as he did.

One door closed, Cooke tried another. In an amended petition he recharacterized all his claims as asserted both individually and derivatively on behalf of the partnerships. But he waited until 2014 to do that. When his ex-partners argued the newly asserted derivative claims were barred by limitations, Cooke contended (1) the derivative claims clearly arose from the same facts as the substantially identical claims he had asserted on an individual basis back in 2006, and (2) the derivative claims therefore “related back” to that original filing under Tex. Civ. Prac. & Rem. Code § 16.068. Wrong again, the Court concluded. Remember, Cooke lacked standing to pursue those claims as originally filed. “For that reason, the trial court never obtained jurisdiction over his [original] claims.” Consequently, there was nothing to which the amended, derivative claims could relate back. And so they were barred by limitations.