GIBSON~GRUENERT
L.L.P.
ATTORNEYS
& COUNSELORS AT LAW
TEXAS
- LAFAYETTE
PIERCING
THE CORPORATE VEIL AND
SUCCESSOR LIABILITY
By:
Fred Rhodes
The purpose of creating a corporate entity is to limit the
liability of the shareholders. In response to this effort courts have
created equitable exceptions to this concept. Under certain
circumstances the corporate entity may be disregarded. This is also
known as piercing the corporate veil and is the most frequent method
for holding the shareholders liable for the acts of a corporation. In
attempting to pierce the corporate veil, a plaintiff is pursuing two
claims; one concerning the claim against the corporate entity and a
second to hold individual shareholders liable for the corporation’s
debt or wrongdoing. The claim to pierce the corporate veil will be
treated differently depending on whether it is a contract claim or a
tort claim. Texas cases have attempted to treat contract claims and
tort claims differently in determining whether to pierce the corporate
veil.
In contract claims, a plaintiff is required to show “actual
fraud” in order to pierce the corporate veil, while a tort claimant
is not held to such a high a burden of proof and no showing of actual
fraud is required. Texas courts have applied this equitable doctrine
and the Texas Legislature has attempted to limit court rulings by
providing the shareholders of Texas corporations with more certainty
and protection from liability for the contractual obligations of the
corporation. Piercing the
corporate veil has been called the most confusing area in corporate
law, and with good reason. With the legislature’s revisions of
Article 2.21 of the Texas
Business Corporation Act and the response to the revision by
Texas and federal courts, it has become even more confusing.
Article 2.21 of the Texas
Business Corporation Act
was amended to its current form, effective September 1, 1997.
The amended version makes it more difficult for a plaintiff to hold
individual shareholders liable for a corporation’s acts.
Liability of Subscribers and Shareholders
A.
A holder of shares, an owner of any beneficial interest in
shares, or a subscriber for shares whose subscription has been
accepted, or any affiliate thereof or of the corporation, shall be
under no obligation to the corporation or to its obligees with respect
to:
(1)
such shares other than the obligation, if any, of such person
to pay to the corporation the full amount of the consideration, fixed
in compliance with Article 2.15 f this Act, for which such shares were
or are to be issued;
(2) any contractual obligation of the corporation or any matter relating
to or arising from the obligation on the basis that the holder, owner,
subscriber, or affiliate is or was the alter ego of the corporation,
or on the basis of actual fraud or constructive fraud, a sham to
perpetrate a fraud, or other similar theory, unless the obligee
demonstrates that the holder, owner, subscriber, or affiliate caused
the corporation to be used for the purpose of perpetrating and did
perpetrate an actual fraud on the obligee primarily for the direct
personal benefit of the holder, owner, subscriber, or affiliate; or
(3) any obligation of the
corporation on the basis of the failure of the corporation to observe
any corporate formality, including without limitation; (a) the failure
to comply with any requirement of this Act or of the articles of
incorporation or bylaws of the corporation; or (b) the failure to
observe any requirement prescribed by this Act or by the articles of
incorporation or bylaws for acts to be taken by the corporation, its
board of directors, or its shareholders.
B.
The liability of a holder, owner, or subscriber of shares of a
corporation or any affiliate thereof or of the corporation for an
obligation that is limited by Section A of this article is exclusive
and preempts any other liability imposed on a holder, owner, or
subscriber of shares of a corporation or any affiliate thereof or of
the corporation for that obligation under common law or otherwise,
except that nothing contained in this article shall limit the
obligation of a holder, owner, subscriber, or affiliate to an obligee
of the corporation when:
(1) the holder, owner,
subscriber, or affiliate has expressly assumed, guaranteed, or agreed
to be personally liable to the obligee for the obligation; or
(2) the holder, owner,
subscriber, or affiliate is otherwise liable to the obligee for the
obligation under this Act or another applicable statute.
C.
Any person becoming an assignee or transferee of certificated
shares or of
uncertified
shares or of a subscription for shares in good faith and without
knowledge or notice that the full consideration therefor has not been
paid shall not be personally liable to the corporation or its
creditors for any unpaid portion of such consideration.
D.
An executor, administrator, conservator, guardian, trustee,
assignee for the benefit of creditors, or receiver shall not be
personally liable as a holder of or subscriber to shares of a
corporation, but the estate and funds in his hands shall be so liable.
E.
No pledgee or other holder of shares as collateral security
shall be personally liable as a shareholder.
Tex. Bus. Corp. Act Ann.
Art. 2.21 (Vernon Supp. 1998)
In its present form Article 2.21 requires that a plaintiff must
allege and prove that the corporation was used to perpetrate an actual
fraud on the plaintiff for the “direct personal benefit” of the
defendant shareholder. This is a greater quantum of proof than that
found in earlier versions of the statute.
If the underlying claim does not arise out of a “contractual
obligation,” the rules which apply to an attempt to pierce are
equitable and are as follows:
Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986)
explains that a court should disregard the corporate fiction:
(1)
when the fiction is used as a means of perpetrating fraud;
(2) where a corporation is organized and operated as a mere tool or
business conduit of another corporation;
(3) where the corporate fiction is resorted to as a means of
evading an existing, legal obligation;
(4) where the
corporate fiction is employed to achieve or perpetrate monopoly;
(5) where the
corporate fiction is used to circumvent a statute; and
(6) where the
corporate fiction is relied upon as a protection of crime or to
justify wrong.
721 S.W.2d at 272.
In a footnote, Castleberry also contains language to
support piercing for “inadequate capitalization” Id. at
272, n.3. Castleberry addressed the distinction between alter
ego liability and piercing. The
court explained:
[A]lter
ego is only one of the bases for disregarding the corporate
fiction: “where a corporation is organized and operated as a mere
tool or business conduit of another corporation.”
The Fifth Circuit Court of Appeals
has frequently applied Castleberry’s holding. One of
the best discussions is in Pan Eastern Exploration Co. v. Hufo Oils,
855 F.2d 1106 (5th Cir. 1988):
The
Castleberry opinion is puzzling.
It begins with a most general principle “when the corporate
form has been used as part of a basically unfair device to achieve an
inequitable result” ‑ then follows with a laundry list of
seven relatively detailed rationales that intertwine and overlap, yet
point in different directions. We
think we can fairly discern, however, three distinct strands of
corporate disregard under Texas law.
855 F.2d at 1131.
The Court went on to explain those three distinct strands:
“[A]lter
ego” proper, . . . where a corporation is operated as a mere tool or
business conduit of another corporation . . . ;
“[I]llegal
purpose”. . . use of the corporation “as a technique for avoiding
legal limitations on natural persons or corporations . . . ;”
“[S]ham
to perpetrate a fraud . . .”
Id. at 1131‑33.
In Nordar Holdings, Inc. v. Western Sec., Ltd., 969 F.
Supp 420 (N.D. Tex. 1997), the Court discussed the “single business
enterprise” doctrine and distinguished it from piercing the
corporate veil under Texas law.
This doctrine is, like sham to perpetrate a fraud,
fact‑intensive. Castleberry explained:
Alter
ego applies when there is such unity between corporation and
individual that the separateness of the corporation has ceased and
holding only the corporation liable would result in injustice.
It is shown from the total dealings of the corporation and the
individual, including the degree to which corporate formalities have
been followed and corporate and individual property have been kept
separately, the amount of financial interest, ownership and control
the individual maintains over the corporation, and whether the
corporation has been used for personal purposes.
Id. at 272.
In Southwest Properties, L.P., v. Lite-Dec of Texas, Inc.,
989 S.W.2d 69 (Tex. App.–San Antonio 1999, pet. denied), the Court
held that the language of Section 53.026 of the Texas
Property Code regarding contractual relationships, does not
place contractual liability on an owner because such an interpretation
would set new requirements for alter ego liability under
Art. 2.21(A).
While Texas courts have not directly addressed this issue as to
disregarding the corporate fiction due to a defendant having used it
for an illegal purpose, the concept is mentioned in a footnote in Menettti
v. Chavers, 974 S.W.2d 168 (Tex. App.‑‑San Antonio,
1998 no pet.); and in Leon Ltd. v. Albuquerque Commons Partnership,
862 S.W.2d 693 (Tex. App.‑‑El Paso, 1993 no writ).
The Fifth Circuit in Pan Eastern Exploration Co. v. Hufo
Oils, 855 F.2d 1106 (5th Cir. 1988), did offer this explanation:
Illegal
purpose disregard differs from alter ego, however, because it can be
used even when all corporate formalities have been kept.
There are few cases that illustrate this strand of corporate
disregard in any pure form; in practice, the illegal purpose rationale
is usually an alternative base in an alter ego or “sham to
perpetrate fraud” case.
Id. at 1132.
For an example of how a Court will apply this approach, see First
Nat’l City Bank v. Banco Para El Comercio, 462 U.S. 611, 630,
103 S.Ct. 2591, 2601 (1983). The
majority held “the Court has consistently refused to give effect to
the corporate form where it is interposed to defeat legislative
policies.” Id.; See also, Fidelity &
Deposit Co. of Maryland v. Commercial Casualty Consultants, Inc.
976 F.2d 272 (5th Cir.
1992).
This theory is separate from alter ego. See Castleberry
supra, at 272. This
does not require a showing of actual fraud, the plaintiff need only
show “constructive fraud.” Id. at 273.
In explaining the rules applicable to sham to perpetrate a
fraud, Castleberry cited a passage from Tiprett v. Pointer,
580 S.W.2d 375, 385 (Tex. Civ. App.‑‑Dallas 1979, writ
ref’d n.r.e.):
.
. . whether [the individual] misled them or subjectively intended to
defraud them is immaterial ... for the action was so grossly unfair as
to amount to constructive fraud.
“Constructive fraud” is the breach of some legal or
equitable duty which, irrespective of moral guilt, the law declares
fraudulent because of its tendency to deceive others, to violate
confidence, or to injure public interests. Id.
The Supreme Court has continued to accept the holdings of Castleberry.
In Centec Realty, Inc. v. Siegler, 899 S.W.2d 195 (Tex.
1995), the Court held “we will disregard the corporate fiction under
‘alter ego’ theory when the corporation is ‘organized and
operated as a mere tool or business conduit of another
corporation.’” 899 S.W.2d at 197, citing Castleberry.
Article 2.21 might be read as limiting or even abolishing
individual liability for corporate shareholders or affiliates in cases
based on or arising out of contractual obligations, unless the
defendant caused the corporation to perpetrate an actual fraud on the
claimant. And the act was
for the direct and personal benefit of the individual shareholder or
corporate affiliate. However, the statute still allows piercing claims
under certain circumstances.
The statute protects only shareholders or affiliates of
“corporations.” The Business
Corporation Act defines “corporation” as a “corporation
for profit subject to the provisions of this Act, except a foreign
corporation.” Tex. Bus. Corp.
Act Ann. Art. 1.02
(A)(11). (Vernon Supp. 1998). “Foreign
corporation” is a “corporation for profit organized under laws
other than the laws of this state.”
Tex. Bus. Corp. Act Ann. Art. 1.02(A)(14). (Vernon Supp. 1998).
Shareholders of non‑Texas corporations may still
theoretically be held liable. See
also In Re Guyana Dev. Corp., 168 B.R. 892, 907, n. 28 (Bankr.
S.D. Tex. 1994).
The statute applies only to contractual obligations and “any
matter relating to or arising from the obligation.” Texas courts
have explained the limits of Article 2.21.
In Menettti v. Chavers, 974 S.W.2d 168 (Tex.
App.‑‑San Antonio, 1998 no pet.), homeowners obtained a
DTPA judgment against the shareholders of a construction company.
The appeals court addressed the issue of whether, under
amendments to Article 2.21, the shareholders could be liable under the
DTPA without a showing of actual fraud:
In
the case before the court, both contract and tort claims have been
brought against the Menettis. Whether
a showing of actual fraud is required to pierce the corporate veil in
this case is, we believe, a question of some difficulty.
However, after surveying the case law and the legislation,
which seem to be somewhat at odds on the entire issue of
corporate‑veil piercing, we conclude that the claims before us
do relate to or arise from a contractual obligation and therefore fall
under the amended Article 2.21. Thus, the Chaverses were required to
demonstrate actual fraud to pierce the corporate veil and hold the
Menettis individually liable.
Id.
Menetti also decided that when contract and tort claims
are mixed and a plaintiff seeks to pierce the corporate veil, the
higher standard of showing “actual fraud” would be required:
We
are persuaded that this is the correct course because we believe the
traditional concerns of tort cases, that the parties have not
encountered each other voluntarily, do not apply here, where the
Menettis and the Chaverses did in‑ fact enter a bargain
knowingly.
Menetti at 174
In Love v. State, 972 S.W.2d 114, (Tex. App.–Austin
1998, no pet.), shareholders attempted to use Article 2.21 to avoid
personal liability under the Texas
Natural Resources Code. The
Court disagreed and stated that civil penalties are not a contractual
obligation, or a matter arising out of such an obligation.
The statute does not apply if the shareholder caused the
corporation to be used to defraud the plaintiff in order to benefit
directly the shareholder; and if a plaintiff is not attempting to make
a shareholder or affiliate liable for the corporation's debts, Article
2.21 does not apply. In Atlantic
Richfield Co. v. Long Trusts, 860 S.W.2d 439 (Tex.
App.‑‑Texarkana 1993, writ denied), plaintiffs sought to
establish that ARCO had breached a contract.
Plaintiff’s argued that the breach was caused a subsidiary of
ARCO. In spite of ARCO
objections, the jury was presented with the question of whether the
subsidiary was an alter ego of ARCO.
The jury decided that it was.
The appeals court held that Article 2.21 did not apply since
the plaintiffs were not attempting to make ARCO liable for a
contractual obligation of its subsidiary. 860 S.W.2d at 445‑46.
In Mechanical Contractors, Inc. v. Gonzalez, 894 S.W.2d
832 (Tex. App.‑‑ Corpus Christi 1995, no writ).
A divorce judgment ordered the former spouse of an attorney's
client to pay his ex‑wife's attorney’s fees. The former spouse
failed to pay and the attorney garnished the bank accounts of a
company set up by the judgment‑debtor. The trial court found
that the corporation was the alter‑ego of the
judgment‑debtor, and ordered the bank to turn over proceeds of
the account to the attorney. 894 S.W.2d at 833‑34. The court of
appeals affirmed the judgment, but didn’t mention Article 2.21.
The Court apparently concluded that the attorney was not
seeking to make a shareholder liable for an obligation of a
corporation but the reverse.
Article 2.21 replaced Article 2.21(A). That statute provided
that a shareholder was not liable for:
˙ any contractual obligation of the corporation on the basis of actual
or constructive fraud, or a sham to perpetrate a fraud, unless the
obligee demonstrates that the holder, owner, or subscriber caused the
corporation to be used for the purpose of perpetrating and did
perpetrate an actual fraud on the obligee primarily for the direct
personal benefit of the holder, owner or subscriber; or
˙ any contractual
obligation of the corporation on the basis of the failure of the
corporation to observe any corporate formality, including without
limitation: (a) the failure to comply with any requirement of this Act
or the articles of incorporation or bylaws of the corporation; or (b)
the failure to observe any requirement prescribed by this Act or by
the articles of incorporation or bylaws for acts to be taken by the
corporation, its board of directors of its shareholders.
One court explained the statute change by saying the
legislature was “responding to the ‘uproar’ in the business
community over the ramifications of Castleberrv on stockholder
liability.” Western Horizontal Drilling, Inc. v. Jonnet Energv
Corp., 11 F.3d 65, 68 n.3 (5th
Cir. 1994). See also Farr v. Sun World Savings Ass’n, 81 0
S.W.2d 294, 296 (Tex. App.‑‑El
Paso 1991, no writ). Farr
stated that the amendments “effectively eliminated constructive
fraud and the failure to observe corporation formalities and
requirements as vehicles for establishing shareholder liability . .
.” on contract claims. 810 S.W.2d at 296. The 1993 amendments
applied to any claim not finally adjudicated as of September 1. Farr,
supra, held that the 1989 amendments would apply to cases
pending when the statute was passed. 810 S.W.2d at 296‑97
(piercing law is remedial, not substantive, so, in the absence of
language in the statute to the contrary, it applies retroactively).
Therefore, the 1997 amendments apply to all pending cases.
A plaintiff seeking to pierce will find its action stayed, if the
defendant files for bankruptcy. In
re S. I. Acquisition, Inc , 817 F.2d 1142 (5th Cir. 1987), held
that a claim against a shareholder of the debtor for alter ego is
“property of the estate.” 817 F.2d at 1150‑52.
If the defendant files for bankruptcy protection, the case
against the alleged alter ego is subject to the automatic stay. Id.
at 1153.
The Court limited its ruling to “alter ego” claims, stating
alter ego claims do not depend upon a showing that a creditor relied
“on the control entity” or “fraud on a particular creditor.” Id.
at 1152. If the
plaintiffs' piercing theory could be pursued by any corporate
creditor, it’s property of the estate and subject to the automatic
stay; if the theory is exclusive to one, it’s not property of the
estate and not subject to the stay. This means that only the trustee
is allowed to assert alter ego claims on behalf of the estate unless
the Court rules otherwise.
In order to get the Court’s leave to pursue such claims a
creditor must persuade the Court to find: (1) the claim is colorable;
(2) the intervention is brought on behalf of the estate; and (3) the
trustee (or debtor‑in‑possession) has unjustifiably
refused to bring the suit or abused its discretion in not suing.
In re Guvana Dev. Corp., 168 B.R. 892, 909 (Bankr. S.D.
Tex. 1994).
In In re Rutger Schimmelpenninck, 1999 WL 551938 (5th
Cir.), the court discussed the “property of the estate” issue, the
issue of whether the creditor is seeking "recovery or
control" of property of the debtor's estate and the effect
seeking injunctive relief will have on such analysis and outcome.
In Gentry v. Credit Plan Corp., 528 S.W.2d 571 (Tex.
1975), the Texas Supreme Court held that a suit against a corporation
tolls a claim against its alter ego. 528 S.W.2d at 575.
In Matthews Constr. Co.,
Inc. v. Rosen, 796 S.W.2d 692 (Tex. 1990), the court explained and
reiterated the rule:
[Plaintiff’s]
claim against [the corporation] is not stale because Plaintiff has
already pursued that claim to judgment. Neither is [Plaintiff’s]
claim against [the shareholder] stale because [the shareholder] is
simply [the corporation's] “other self”‑‑ he is not a
legally separate entity from the corporation.
By its nature, piercing claims limit the defenses available to
a defendant. The affirmative defense of estoppel has been used
successfully by defendants. In Paine v. Carter, 469 S.W.2d 822
(Tex. Civ. App.‑‑Houston [14th Dist.] 1971, writ ref’d
n.r.e.). The Court explained why:
The
cases in Texas have made it clear that in order for the doctrine of
alter ego to apply, there must be an attempted use of a corporate
vehicle in a fraudulent manner or in a manner which would ordinarily
defraud an unsuspecting or good faith third party.
Moreover, where a party knows of the relationship between a
corporation and its shareholder and chooses freely and
voluntarily to deal with them in their respective capacities,
he is estopped to claim that the corporation is the alter ego of the
individual (or the reverse thereof).
469 S.W.2d at 827 (citations omitted).
But note that in Gensco, Inc. v. Canco Equip. Inc., 737
S.W.2d 345, 348 (Tex. App.‑‑Amarillo 1987, no writ), the
Court stated that the jury must find that the plaintiff knew the
“essential facts” of the relationship among the alleged alter egos
and that the plaintiff chose, in spite of such knowledge, to deal with
but one of them. Id.
Successor liability is the theory that a successor entity may be
liable for the acts of an entity which has been acquired.
Just like piercing the corporate veil, this theory is
disfavored under Texas law by statute and common law. Courts have not
been willing to extend successor liability and have sought to limit it
as a theory to create liability or defendants.
Article 5.10.B, as amended in 1997, provides:
B.
A disposition of any, all, or substantially all, of the
property and assets of a corporation, whether or not it requires the
special authority action of the shareholders of the corporation,
effected under Section A of this article or under Article 5.09 of this
Act or otherwise:
(1)
is not considered to be a merger or conversion pursuant to this
Act or otherwise; and
(2)
except as expressly provided by another statute, does not make
the acquiring corporation, foreign corporation, or other entity
responsible or liable for any liability or obligation of the selling
corporation that the acquiring corporation, foreign corporation, or
other entity did not expressly assume.
Tex.
Bus. Corp. Act
Ann. Art. 5.10 (B)(Vernon
Supp. 1998).
In attempting to place liability on a successor, a plaintiff
bears the burden of proof otherwise courts will apply the presumption
embodied in the Article 5.10. In Celotex Corporation v. Tate,
797 S.W.2d 197 (Tex. App.–Corpus Christi 1990, no writ), the
plaintiff produced no evidence of successorship only that Celotex. had
acquired Philip Carey.
In Suarez v. Sherman Gin Co., 697 S.W.2d 17 (Tex.
App.‑‑Dallas 1985, writ ref’d n.r.e.), the Court
pointed out Article 5.10 was adopted in response to Western‑Resources
Life Ins. Co. v. Gerhardt,
553 S.W.2d 783 (Tex. Civ. App.‑‑Austin 1977, writ ref’d
n.r.e.). In Gerhardt. the Court held that an acquiring
corporation could be liable for the obligations of the acquired
corporation under the “de facto” merger doctrine.
Id. at 787. Suarez explained that “the
legislature’s prompt action to override Gerhardt and
statutorily preclude application of the “de facto”
merger doctrine in Texas clearly states a public policy opposed to the
doctrine.” 697 S.W.2d at 20.
An exception to Article 5.10 is when the corporation whose
assets were acquired is a foreign corporation. Meaning one not
incorporated under the laws of Texas.
It will still be difficult to hold a corporation liable for a
debt or obligation it did not expressly assume when it acquired the
assets.
As noted in Suarez, supra, courts consider the following
factors in analyzing a “de facto” merger claim:
˙ There is a continuation of the enterprise of the seller corporation,
so that there is a continuity of management, personnel, physical
location, assets, and general business operations;
˙ There is a continuity of shareholders which results from the
purchasing corporation paying for
the acquired assets with shares of its own stock, this stock
ultimately coming to be held by the shareholders of the seller
corporation so that they become a constituent part of the purchasing
corporation;
˙ The seller corporation ceases its ordinary business operations,
liquidates, and dissolves as soon as legally and practically possible;
˙ The purchasing corporation assumes those liabilities and obligations
of the seller ordinarily necessary for the uninterrupted continuation
of normal business operations of the seller corporation.
Suarez at 697 S.W.2d at 20.
However, Suarez refused to apply the “de facto”
merger doctrine due to action of the Texas Legislature in enacting
Article 5.10.
Under the “product line” theory, “a successor that
continues the output of a line of products assumes strict liability
for defective units of the same product line previously manufactured
and sold by its predecessor.” Mudgett v. Paxson Machine Co.,
709 S.W.2d 755, 758 (Tex. App.‑‑Corpus
Christi 1986, writ ref d n.r.e.).
Mudgett rejected the attempt to change Texas law and
adopt a product‑line theory of successor liability, stating that
the “decision to make such a far‑reaching change in the law is
not ours, but uniquely within the province of the legislature.” Id.
at 759.
In Holden v. Capri Lighting, 960 S.W.2d 831, (Tex.
App.‑‑Amarillo 1997, no writ), the plaintiff attempted to
establish “product line” successor liability arguing that such a
doctrine existed under California law and asked the Court to apply
California law. When the plaintiff failed to provide any evidence as
to California law, the Court applied Texas law (Article 5.10) and
rejected the “product line” theory.
This is a less stringent version of the “de facto” merger
doctrine. If the
acquiring entity acquires the assets and good will, and continues the
business, it becomes liable for the selling
corporation's
obligations. In Mudgett v. Paxson Machine Co., 709 S.W.2d 755,
758 (Tex. App.‑‑Corpus
Christi 1986, writ ref’d n.r.e.) the Court explained that given the
legislature's sound rejection of the “de facto” merger doctrine,
the “mere continuation” doctrine was clearly also against the
public policy of the state.
However, in Phippen v. Deere and Co., 965 S.W.2d 713
(Tex. App.‑‑Texarkana 1998, no pet.), the Court was
willing to apply the “mere continuation” doctrine. The plaintiff
contended that the acquiring entity’s act of shutting down the
acquired entity and the starting of the “new” entity was a
fraudulent transaction to escape liability. Alternatively, the
plaintiff argued that there was sufficient evidence for the jury to
conclude that the “new” entity was a mere continuation of the
“old” one.
The Court concluded that the evidence supported both theories:
We
conclude that the record was sufficient to show that Traveland and
Four Star engaged in a fraudulent transaction in an effort to escape
liability, and we further conclude that the evidence was sufficient to
show that Four Star was a mere continuation of Traveland.
Either of these circumstances was enough to support the jury's
finding that Four Star is liable for Traveland’s obligations under
the security agreement and power of attorney.
965 S.W.2d 726
In reaching this conclusion, the Court outlined the type of
evidence produced by the plaintiff which supported the Court’s
finding:
Four
Star took possession of all of Traveland's assets, valued by Phippen's
accountant at $935,000.00, from J & J after J & J foreclosed
on Traveland for nonpayment of rent; that a few days later, Four Star
opened for business at the same location where Traveland operated,
using Traveland's assets and employees;
that Four Star's operation was basically the same as
Traveland's, except that it was operating under a new name;
and that the purpose of shutting down Traveland and starting up
Four Star was to give him a “fresh start” to try to recoup the
money he had invested in Traveland.
Id.
The Texas
Legislature, in apparent response to “tort reform” movement, has
revised Article 2.21 to curtail the ability of a plaintiff to pierce
the corporate veil. The Texas courts have viewed such legislation as a
public policy decision and have not been willing to interpret the
statute in a way that offers much hope that piercing will expand
beyond the current narrow definitions. When faced with mixed claims of
contract and tort the few courts addressing this issue have held that
all claims must meet the more stringent standards created by Article
2.21. This means that plaintiffs will continue to have a difficult
task in piercing or creating successor liability.
Copyright 2002
Gibson~Gruenert L.L.P.
Page updated
03/10/2008
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