law-corporate-veil-piercing | alter ego | personal liability of shareholders, principal | forfeiture of corporate
privileges |


Piercing the corporate veil is not a cause of action, but is instead a means of imposing
liability for an underlying cause of action.
Gallagher v. McClure Bintliff, 740 S.W.2d 118, 119 (Tex.
App.—Austin 1987, writ denied). In general,
courts will “disregard the corporate fiction, even though
corporate formalities have been observed and corporate and individual property have been kept separately,
when the corporate form has been used as part of a basically unfair device to achieve
an inequitable result
.” Castleberry v. Branscum, 721 S.W.2d 270, 271 (Tex. 1986).5
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)  
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
Probate Court No 1 of Harris County

Specifically, courts disregard the corporate fiction in tort cases in six general instances:

(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 . . . ;
(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

Castleberry has been limited by statute. See TEX. BUS. CORP. ACT ANN. art. 2.21(2), (3) (Vernon 2003)
(recodified effective January 1, 2006 at TEX. BUS. ORGS. CODE ANN. § 2.223 by Act of May 13, 2003, 78th
Leg., R.S., ch. 182, § 1, 2003 Tex. Gen. Laws 267, 427); see also Willis v. Donnelly, 199 S.W.3d 262, 271–72
(Tex. 2006) (recognizing that article 2.21 limited Castleberry in specific situations). However, this case does not
involve a contractual obligation or anything arising from it, which is the general application of article 2.21. See
TEX. BUS. CORP. ACT ANN. art. 2.21(2); see also Gerard Gaspard II, "Texas Guide to Piercing & Preserving
the Corporate Veil, 31-SEP Bull. Bus. L. Sec. St. B. Tex. 24, 34 (Sept. 1994) [hereinafter “Gaspard”] (“[T]he
amendments do not in any way limit the application of any of the possible corporate disregard theories [from
Castleberry] to a tort claim.”). Additionally, article 2.21 limits the use of alter ego and like theories when a
claimant seeks to hold a shareholder liable for a corporate obligation; here, in contrast, appellants seek to hold
a corporation liable for its shareholder’s tortious action under a reverse-piercing theory. SeeIn re Moore, 379
BR 284, 292 n.7 (N.D. Tex. 2007); Glenn D. West, W. Benton Lewis Jr., Corporations, 61 SMU L. Rev. 743,
746–47 (Summer 2008). Accordingly, article 2.21 does not apply.

(6) where the corporate fiction is relied upon as a protection of crime or to justify wrong. Id. at 272 (footnotes
omitted; emphasis added). The court also indicated that “[i]nadequate capitalization is another basis for
disregarding the corporate fiction.” Id. at 272 n.3. Disregard of the corporate fiction on any of the bases
identified above is “an equitable doctrine” to which “Texas takes a flexible fact-specific approach focusing on
equity.” Castleberry, 721 S.W.2d at 273. In large part because of this focus on equity, “[t]he different bases for
disregarding the corporate fiction involve questions of fact,” which, absent “very special circumstances,”
“should be determined by the jury.” Id. at 277. “Courts have generally been less reluctant to disregard the
corporate entity in tort cases than in breach of contract cases.” See Lucas v. Tex. Indus., Inc., 696 S.W.2d
372, 375 (Tex. 1984). Nonetheless, the corporate fiction generally will not be disregarded absent exceptional
circumstances. See Lucas, 696 S.W.2d at 374. Each of the bases identified in Castleberry for disregarding the
corporate form “involve[s] some type of wrongdoing” —or in the words of Castleberry, injustice or inequity. “By
‘injustice’ and ‘inequity’ we do not mean a subjective perception of unfairness by an individual judge or juror;
rather, these words are used in Castleberry

Gaspard at 31; see SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 454 (Tex. 2008) (“Each
example [of the six examples given in Castleberry] involved an element of abuse of the corporate structure,
including example (2), alter ego . . . .”).

alter ego theory of liability occurs under the second situation, italicized above, from Castleberry:
“where a corporation is organized and operated as a mere tool or business conduit of another . . . .”
Castleberry, 721 S.W.2d at 272. “
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.