law-alter-ego-piercing-corporate-veil | loss of corporate privileges | officers director personal liability | forfeiture
of corporate privileges | individual personal liability of officer, director of corporation
WHAT IS ALTER EGO?
Alter ego is a basis for disregarding the corporate fiction where a corporation is organized and operated as a
mere tool or business conduit of another individual. See Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex.
1986). It 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." Id., citing First Nat'l
Bank in Canyon v. Gamble, 134 Tex. 112, 132 S.W.2d 100, 103 (1939). Alter ego "is shown from the total
dealings of the corporation and the individual, including the degree to which . . . 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."
Castleberry, 721 S.W.2d at 272; Hall v. Timmons, 987 S.W.2d 248, 250 (Tex. App.-Beaumont 1999, no pet.).
Failure to comply with corporate formalities is no longer a factor in considering whether alter ego exists. Tex.
Bus. Corp. Act Ann. art. 2.21, § A(3) (Vernon Supp. 2002); Aluminum Chems. v. Bechtel Corp., 28 S.W.3d 64,
67 (Tex. App.-Texarkana 2000, no pet.).
Generally, members and managers of an LLC are not liable for judgments against the LLC. Tex. Bus. Orgs.
Code Ann. § 101.114 (West Supp. 2009). But courts have applied corporate veil-piercing principles to
members of LLCs. See McCarthy v. Wani Venture, A.S., 251 S.W.3d 573, 590–91 (Tex. App.—Houston [1st
Dist.] 2007, pet. denied); Pinebrook Props. Ltd. v. Brookhaven Lake Prop. Owners Ass’n, 77 S.W.3d 487, 500
(Tex. App.—Texarkana 2002, pet. denied). Accordingly, a member of an LLC may be held individually liable for
debts of the LLC if the LLC is a mere alter ego for the member. See Pinebrook, 77 S.W.3d at 500.
Under this theory, courts will hold an LLC member liable if there exists such unity between the LLC and the
member that the LLC ceases to be separate, and holding only the LLC liable would promote injustice. See
Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 288 (Tex. 1990) (citing Castleberry v. Branscum, 721 S.W.2d 270,
272 (Tex. 1986), superseded on other grounds by Tex. Bus. Orgs. Code Ann. § 21.223(a)(3) (West Supp.
2009)). To determine whether an LLC is the alter ego of an individual, fact finders must look to the total
dealings of the LLC and individual, which may include “the degree to which [company] formalities have been
followed and [company] and individual property have been kept separately, the amount of financial interest,
ownership and control the individual maintains over the [company], and whether the [company] has been used
for personal purposes.” Castleberry, 721 S.W.2d at 272 (citing Lucas v. Tex. Indus., Inc., 696 S.W.2d 372, 374
(Tex. 1984); Gentry v. Credit Plan Corp. of Hous., 528 S.W.2d 571, 573–75 (Tex. 1975)). In a tort case, usually
“‘the financial strength or weakness of the [company] tortfeasor is an important consideration’” because no
injustice would result if the company responsible for the plaintiff’s injury is capable of paying a judgment upon
proof of liability. Stewart & Stevenson Servs., Inc. v. Serv-Tech Inc., 879 S.W.2d 89, 110 (Tex. App.—Houston
[14th Dist.] 1994, writ denied) (quoting Lucas, 696 S.W.2d at 375). The fact that a company is undercapitalized
supports a finding of alter ego. See Lucas, 696 S.W.2d at 375; O’Berry v. McDermott, Inc., 712 S.W.2d 206,
207–08 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.).
ALTER EGO THEORY | PIERCING CORPORATE VEIL | INDIVIDUAL LIABILITY
CASE LAW FROM HOUSTON COURTS OF APPEALS
“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.” Id. 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. Its rationale is that “‘if
the shareholders themselves disregard the separation of the corporate enterprise, the law will also disregard it
so far as necessary to protect individual and corporate creditors.’” (quoting HENRY WINTHROP BALLANTINE,
BALLANTINE ON CORPORATIONS § 123 at 294 (1946)).
Wilson v. Davis (Tex.App. - Houston [1st Dist.] Aug. 14, 2009)(Taft)
(theories of corporate liability for deadly car wreck caused by intoxicated individual, respondeat superior, course
and scope of employment, piercing corporate veil, alter ego theory, and others)
REVERSE TRIAL COURT JUDGMENT AND RENDER JUDGMENT:
Opinion by Justice Taft
Before Justices Taft, Keyes and Alcala
01-06-00424-CV Rhonda Wilson and Thomas Stevenson, et al. v. Sam Davis, Amalgam Western, et al Appeal
from Probate Court No 1 of Harris County
Marcum v. Marcum (Tex.App.- Houston [1st Dist.] June 12, 2008)(Alcala)
(divorce case, property division, alter ego, piercing corporate veil, jury selection, peremptory challenges)
AFFIRM TRIAL COURT JUDGMENT: Opinion by Justice Alcala
Before Justices Nuchia, Alcala and Hanks
01-04-01062-CV Kenneth Ray Marcum v. Darlene J. Marcum
Appeal from 245th District Court of Harris County
Trial Court Judge: Hon. Annette Galik
Greenfield Energy Inc. v. Duprey (Tex.App.- Houston [14th Dist.] Apr. 10, 2008) (Guzman) (special appearance,
foreign defendant, agency and alter ego theories rejected, minimum contacts, jurisdictional inquiry)
AFFIRMED: Opinion by Justice Guzman
14-07-00527-CV Greenfield Energy Inc., Greenfield Energy, Inc., and Greenfield Oil Trinidad, LTD. v. Lawrence
Duprey and CL Financial, LTD.
Appeal from 295th District Court of Harris County
Trial Court Judge: Tracy Kee Christopher
American Heritage, Inc. v. Nevada Gold & Casionos, Inc. (Tex.App.- Houston [1st Dist.] Feb. 7 2008)(Bland)
(standing, alter ego)
MODIFY TRIAL COURT JUDGMENT AND AFFIRM TC JUDGMENT AS MODIFIED: Opinion by Justice Bland
Before Chief Justice Radack, Justices Alcala and Bland
01-07-00057-CV American Heritage, Inc., d/b/a The Gillmann Group v. Nevada Gold & Casinos, Inc.
Appeal from 234th District Court of Harris County (Hon. Reece Rondon)
Mosqueda v. G&H Diversified MFG (Tex.App.- Houston [14th Dist.] Jan. 31, 2007, pet filed)(Seymore)
(workplace injury, borrowed employees, workers compensation act, exclusive remedy, alter ego, joint business
Mosqueda v. G & H Diversified MFG., Inc.
AFFIRMED: Opinion by Justice Seymore
14-04-00183-CV Guillermina Mosqueda v. G & H Diversified MFG., Inc. and Pacesetter Personnel Service, Inc.--
Appeal from 281st District Court of Harris County.
Justice Seymore wrote a second concurring opinion in Mosqueda v. G&H Diversified MFG (Tex.App.- Houston
[14th Dist.] Jan. 31, 2007)(concurring opinion by Justice Seymore)
Justice Edelman dissented in Mosqueda v. G&H Diversified MFG (Tex.App.- Houston [14th Dist.] Jan. 31, 2007)
(dissenting opinion by Edelman)
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