Mancorp, Inc. v. CULPEPPEER
34 Tex. Sup. Ct. J. 157, 1990 Tex. LEXIS 147, 802 S.W.2d 226 (1990)
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Rule of Law:
A court may disregard the corporate entity and hold an individual shareholder liable under the alter ego doctrine when there is such unity between the corporation and the individual that their separateness has ceased, and adherence to the corporate fiction would promote injustice. The determination is based on the total dealings of the corporation and the individual, and more than a scintilla of evidence supporting both prongs is sufficient to uphold a jury's finding.
Facts:
- Mancorp, Inc. entered into a construction contract with Culpepper Properties, Inc. to build the First Bank Galleria.
- John C. Culpepper, Jr. was the principal of Culpepper Properties, Inc.
- During negotiations, Culpepper told Mancorp's vice president that he personally backed the project.
- A mortgage company confirmed to Mancorp that Culpepper was personally behind the project, and the construction loan was made to both the corporation and Culpepper individually, with Culpepper providing a personal guarantee.
- Culpepper used business cards stating 'Culpepper Properties, Inc., John C. Cul-pepper, Jr., his self'.
- Some of the corporation's debts were paid with checks drawn on an account titled 'John C. Culpepper, Jr., Bank Tower Project' without indicating Culpepper was acting in a corporate capacity.
- Mancorp submitted its proposal to 'Culpepper Properties' and believed it was dealing with Culpepper as an individual.
- After Mancorp completed the work, an unpaid balance of $510,650 remained on the contract.
Procedural Posture:
- Mancorp, Inc. sued John C. Culpepper, Jr. and Culpepper Properties, Inc. for breach of contract in a Texas trial court.
- The defendants counterclaimed for breach of contract, breach of warranty, and deceptive trade practices.
- A jury returned a verdict finding, among other things, that Culpepper Properties, Inc. was the alter ego of John C. Culpepper, Jr.
- Culpepper filed a motion for judgment non obstante veredicto (n.o.v.) on the jury's alter ego finding.
- The trial court granted the motion, setting aside the jury's finding and rendering judgment that Culpepper was not personally liable.
- Mancorp, as appellant, appealed to the Texas Court of Appeals.
- The Court of Appeals affirmed the trial court’s judgment n.o.v., holding there was no evidence to support the alter ego finding.
- Mancorp then appealed to the Supreme Court of Texas.
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Issue:
Does evidence showing a failure to follow corporate formalities, the use of personal funds for corporate debts, personal assurances of financial backing, and representations that blend the individual's identity with the corporation's constitute legally sufficient evidence to support a jury's finding that an individual is the alter ego of their corporation?
Opinions:
Majority - Justice Spears
Yes, such evidence is legally sufficient to support a jury's finding of alter ego. To disregard the corporate entity, a party must show both unity between the individual and corporation and that injustice would result from holding only the corporation liable. Reviewing the trial court’s judgment notwithstanding the verdict requires considering only the evidence supporting the jury's verdict. Here, the evidence of noncompliance with corporate formalities, Culpepper's personal assurances, the wording on his business card, payments from a personal-style account, and Mancorp's belief it was dealing with Culpepper personally, when taken together, constitute more than a scintilla of evidence to show unity. The injustice prong is met because Mancorp relied on Culpepper's misleading representations of personal backing, and evidence that the project was foreclosed upon and other creditors were unpaid suggests Mancorp would be left without a remedy, which would be an inequitable result.
Dissenting - Justice Hecht
No, the evidence is legally insufficient to support a finding of alter ego. The majority improperly combines several pieces of evidence, none of which individually supports an inference of alter ego, to reach its conclusion, stating that 'nothing plus nothing plus nothing is still nothing.' The failure to observe corporate formalities is common in closely held corporations, paying corporate bills with personal funds is not evidence of commingling, and the business card was plainly facetious. Furthermore, there is no evidence of injustice; Mancorp was a sophisticated party that did not contract for a personal guarantee, and its unilateral belief that Culpepper was personally liable is not a basis for disregarding the corporate form. The fact that the corporation might be unable to pay is a risk inherent in contracting with a corporate entity and does not, by itself, create injustice.
Analysis:
This case reaffirms the 'totality of the dealings' approach to alter ego analysis in Texas, emphasizing that a combination of circumstantial evidence can be legally sufficient even if no single factor is dispositive. It also reinforces the highly deferential 'scintilla of evidence' standard for appellate review of jury verdicts that have been overturned by a judgment n.o.v. The decision serves as a significant precedent for creditors seeking to pierce the corporate veil, showing that evidence of an owner's personal assurances and blurring of corporate/personal identities can satisfy the two-prong test for alter ego. For corporate law, it underscores the critical importance for shareholders in closely held corporations to maintain strict corporate formalities and a clear separation between personal and corporate affairs to preserve limited liability.
