A divided Dallas Court of Appeals has affirmed a trial court order dismissing claims against Morgan Stanley under Rule 91a.
Collingwood USA, Inc. and Collingwood Brookshire USA, Inc. v. Morgan Stanley & Co., LLC (No. 05-24-00629-CV; April 10, 2026) arose from a contract dispute. Collingwood contracted with a Morgan Stanley employee, Atwan, to advise on opportunities in the oil and gas industry through an independent business venture called Source Rock. Source Rock contracted with Razon, the owner of the Collingwood entities. Razon later assigned this contract to Collingwood. Collingwood alleged that over four years it invested more than $250 million in acquisitions recommended by Atwan, for which it paid “deal fees.” According to Collingwood, the investments didn’t work out, and Collingwood wouldn’t have invested in the first place if Atwan had done his due diligence. Collingwood sued Atwan for breach of contract and violation of common law and statutory duties. It also sued Morgan Stanley alleging negligent supervision of Atwan, violations of the Texas Securities Act, and vicarious liability. Morgan Stanely filed a Rule 91a motion to dismiss. The trial court granted the motion and awarded Morgan Stanley attorney’s fees and costs. Collingwood appealed.
In an opinion by Justice Breedlove, the court of appeals affirmed. As to its negligent supervision claim, Plaintiffs alleged that Morgan Stanley didn’t have proper procedures and policies in place to supervise Atwan. Morgan Stanley responded that Plaintiffs’ claim had no basis in law because it had no duty to Plaintiffs other than preventing physical harm, their claim was barred by the economic loss rule, and Plaintiffs failed to plead all the elements of the claim. The court observed that the economic loss rule “limits the recovery of purely economic damages in an action for negligence,” including in actions for failure to perform a contract (citations omitted). The court thus concluded that “[t]he employer’s duty—unquestionably an element of the claim for negligent supervision—extends only as far as preventing an employee from causing physical harm to a third party. In the absence of physical harm, the claim fails as a matter of law.” The court noted further that even thought SCOTX has not yet opined on the elements of a negligent supervision claims, other Texas intermediate courts of appeals ruled the same way the court did here.
Plaintiffs next alleged violations of the Texas Securities Act, specifically that Atwan “made materially false and misleading sales presentations to Collingwood, by failing to tell Collingwood that he was ‘acting as an agent/broker on both sides of the transaction, earning a fee from the sellers to sell the securities as well as from Collingwood for performing the due diligent and analysis regarding the securities.’” But none of the evidence Plaintiffs adduced to support its claim had anything to do with Morgan Stanley. Instead, Plaintiffs argued that Morgan Stanley had “secondary liability” as a “control person,” i.e., the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person. Tex.Rev.Civ.Stat. Ann. Art. 581-33F comment. A “control person,” consequently, has joint and several liability with the direct violator. But again, the court found that Plaintiffs, though they identified the elements of the claim, did not plead sufficient factual allegations necessary to support a judgment. They didn’t allege that Morgan Stanley actually had the power to control Atwan or Source Rock. Without that, simply labeling Morgan Stanley as a “control person” was merely a “legal accusation … insufficient to survive the motion to dismiss.
As to the vicarious liability claim, the court once more determined that Plaintiffs failed to plead sufficient factual allegations to support its theory. Vicarious liability requires two elements, tortious conduct by an actor and a common law theory imputing the tortfeasor’s liability to another person. Plaintiffs asserted that Rule 91a applies only to independent causes of action, not to agency, respondeat superior, or vice-principal liability theories. But, the court responded, “[a]ccording to the Texas Supreme Court, a cause of action ‘is simply “a factual situation that entitles one person to obtain a remedy”” (citations omitted). Since a theory of imputed liability is necessary to establish vicarious liability, it “is part of a factual situation that permits a remedy against a party who did not commit the underlying unlawful act.”
Consequently, even though Plaintiffs’ theories weren’t independent torts, they were “vicarious liability theories and causes of action; they represent part of the factual situation that could permit a remedy against Morgan Stanley, who did not commit the underlying unlawful acts of Atwan.” The trial didn’t err in dismissing those theories under Rule 91a. This also went for Plaintiffs’ claims of agency (no evidence of express grant of actual authority to Atwan), respondeat superior (no showing of course and scope), and vice-principal liability (no evidence that Atwan’s alleged misconduct occurred while he was acting under his authority as a corporate vice-principal). Finally, the court affirmed the trial court award to Morgan Stanley of $12,500 in attorney’s fees, since it was clearly the prevailing party.
Justice Goldstein dissented. She viewed the majority opinion as treating Rule 91a in terms of a summary judgment. “Other than as to negligent supervision,” she wrote, “the majority focuses its analysis on whether Collingwood alleged facts that, if proven, would establish a necessary element to support a cause of action, rather than what a reasonable person could believe.” Quoting Rule 91a’s statement that “[a] cause of action has no basis in fact ‘if no reasonable person could believe the facts pleased,’” Justice Goldstein observed that “the ‘no basis in fact’ prong is a ‘factual plausibility standard.’” Determining whether a plaintiff’s pleading has no basis in law requires application of the fair-notice pleading standard, under which “the omission of an element is not fatal if the cause of action may be reasonably inferred from what is specifically stated” (citations omitted). What happened in this case, Justice Goldstein argued, was that the majority got into the merits of the case as it would under summary judgment standards, rather than ruling on Morgan Stanley’s special exceptions filed two days after the motion to dismiss. She would have affirmed the trial court as to the negligent supervision claim but reversed as to the remaining claims.
