In Orr v. Husch Blackwell, LLP, No. 17-3214, (10th Cir. April, 2018), the United States District Court of Appeals for the Tenth Circuit tackled that question.
Robert Orr (“Orr”) was an officer and shareholder of Brooke Corporation and Brooke Capital Corporation (collectively, “Brooke”), public corporations in the insurance agency franchise business. In September 2008, Orr, Brooke, and other companies were sued for fraudulent conduct and other charges in the United States District Court for the District of Kansas. The court appointed a special master to manage the companies, and the special master hired Husch Blackwell, LLP (“Husch”) as counsel. Orr objected to the special master’s business decisions. After Brooke filed for bankruptcy under Chapter 11, the special master became the Chapter 11 trustee for the Brooke bankruptcy estate. Husch was counsel for the trustee. The Chapter 11 bankruptcy was later converted to a Chapter 7 bankruptcy and Husch’s appointment ended.
In October 2016, Orr sued Husch. Orr claimed Husch’s alleged misconduct caused Brooke’s financial collapse. After Husch filed a motion to dismiss, Orr added claims that he sustained additional damages as a result of Husch’s alleged misconduct. The district court dismissed all of Orr’s claims, concluding that he lacked standing; that his claims were barred as a matter of law and that he failed to state a claim.
Orr was pro se, so the Court liberally construed his pleadings. The Court noted that conduct which harms a corporation confers standing on the corporation, not the shareholders. Direct actions by a shareholder against officers or directors of a corporation are generally reserved for injuries affecting the individual legal rights of that shareholder. Orr had to show that he has suffered an injury that is not dependent on an injury to the corporation. Orr did not meet the requirements for bringing an individual action against Husch. Even if Husch caused Brooke’s bankruptcy and Brooke has potential causes of action against Husch for malpractice, as Orr alleges, his own claims are inextricably linked to Brooke and cannot exist independently of any rights of the corporations.
Orr did not show a disproportionate injury from Husch’s alleged conduct or a contractual relationship that would confer standing on him. Although he claims to have consented to the appointment of the special master and the Chapter 11 trustee, such actions undertaken as an officer of Brooke do not establish a contractual relationship between Husch and Orr individually. Accordingly, he does not have standing to pursue these malpractice claims against Husch. The district court’s dismissal is therefore affirmed.
Nationally recognized litigation attorney Thomas Metier practice areas include traumatic brain injuries, spinal cord injuries, trucking accidents and motor vehicle accidents. He is licensed to practice in Colorado, Wyoming, the U.S. District Court–District of Colorado, and the U.S. District Court–District of Wyoming, the 10th Circuit Court of Appeals and the U.S. Supreme Court.