Matthews Const. Co., Inc. v. Rosen
796 S.W.2d 692, 1990 WL 130239 (1990)
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Rule of Law:
Filing a lawsuit against a corporation tolls the statute of limitations for a subsequent lawsuit against its individual alter ego, allowing a creditor to pursue the individual to collect on a judgment even after the limitations period for the original claim has expired.
Facts:
- Matthews Construction Company entered into a contract with Houston Pipe & Supply Company.
- Houston Pipe breached the contract in 1979.
- Harvey Rosen was the president and sole shareholder of Houston Pipe & Supply Company.
- After Matthews obtained a judgment against Houston Pipe, the company was unable to pay.
- Matthews contended that Rosen had stripped Houston Pipe of its assets in order to avoid paying the judgment.
Procedural Posture:
- Matthews Construction Company sued Houston Pipe & Supply Company for breach of contract and secured a judgment against it in a trial court in July 1982.
- Unable to collect the judgment, Matthews filed a new lawsuit in February 1984 against Harvey Rosen, the company's sole shareholder, in trial court.
- A jury found that Houston Pipe was the alter ego of Rosen and that Rosen had used the company to perpetrate a fraud.
- The trial court entered judgment for Matthews against Rosen for the amount of the prior uncollected judgment.
- Rosen, as appellant, appealed to the court of appeals.
- The court of appeals reversed the trial court's judgment, rendering a take-nothing judgment against Matthews on the grounds that the suit was barred by limitations.
- Matthews, as appellant, sought review from the Supreme Court of Texas.
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Issue:
Does filing a timely lawsuit against a corporation toll the statute of limitations for a subsequent lawsuit against the corporation's individual alter ego, brought after a final judgment has been entered against the corporation?
Opinions:
Majority - Justice Spears
Yes, filing a suit against a corporation tolls the statute of limitations as to its alter ego. The equitable principles that allow a court to pierce the corporate veil to prevent fraud also justify tolling limitations to achieve a just result. The court extended its prior holding in Gentry v. Credit Plan Corp., explaining that the Gentry decision's footnote about not adding a defendant to a final judgment was a procedural note, not a substantive bar to a second lawsuit. Because Rosen is the 'other self' of Houston Pipe, the claim against him is not stale, as he had notice and an opportunity to defend through the original lawsuit against the corporation. Applying limitations here would serve no underlying purpose and would instead permit the corporate form to be used as a 'cloak for fraud.'
Analysis:
This decision significantly strengthens the power of judgment creditors against individuals who abuse the corporate form. It clarifies that the alter ego tolling doctrine from Gentry applies not only to adding defendants within an existing suit but also to filing a completely new lawsuit after the first judgment is final. This provides a critical post-judgment collection remedy, preventing shareholders from fraudulently draining corporate assets and then hiding behind the statute of limitations. The ruling solidifies Texas's flexible, equity-focused approach to piercing the corporate veil, prioritizing substance over legal formalities to prevent injustice.
