PJC Business

PJC 108.2

P IERCING THE C ORPORATE V EIL

PJC 108.2

Disregarding the Corporate Fiction in Contract-Related Cases (Comment)

The two standards. In 1986, the supreme court held that Texas common law per mits a claimant to pierce the corporate veil by proving constructive fraud. Castleberry v. Branscum , 721 S.W.2d 270, 273 (Tex. 1986). The legislature responded by enacting a statute that imposes a higher standard than Castleberry in certain contract-related cases. Willis v. Donnelly , 199 S.W.3d 262, 271–72 & n.12 (Tex. 2006); SSP Partners v. Gladstrong Investments (USA) Corp. , 275 S.W.3d 444, 455 (Tex. 2008). The instruc tions at PJC 108.3–108.8 contain alternative submissions reflecting the statutory and common-law standards. The statute’s scope and effect. In matters relating to “any contractual obligation of the corporation or any matter relating to or arising from the obligation,” Tex. Bus. Orgs. Code §21.223(b) requires claimants to prove that the shareholder “caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the [claimant] primarily for the direct personal benefit” of the shareholder. Tex. Bus. Orgs. Code § 21.223(b) (formerly Tex. Bus. Corp. Act art. 2.21(A), expired Jan. 1, 2010). The statute originally did not apply to tort claims, but subsequent amendments extended it to all claims “relating to or arising from” a contractual obliga tion, including torts, and section 21.224 now preempts common-law veil-piercing the ories in cases governed by the statute. Menetti v. Chavers , 974 S.W.2d 168, 173–74 (Tex. App.—San Antonio 1998, no pet.) (statute applied when homeowner sued con tractor for breach of contract, fraud, Deceptive Trade Practices Act, and negligence); TecLogistics, Inc. v. Dresser-Rand Group, Inc. , 527 S.W.3d 589, 599 (Tex. App.— Houston [14th Dist.] 2017, no pet.) (statute applied for breach of contract and fraud). The statute further modifies Castleberry by eliminating the failure to observe corpo rate formalities as a consideration for piercing the corporate veil in all claims against holders, owners, subscribers, or affiliates. Tex. Bus. Orgs. Code §21.223(a)(3); see also Aluminum Chemicals (Bolivia), Inc. v. Bechtel Corp. , 28 S.W.3d 64, 67 n.3 (Tex. App.—Texarkana 2000, no pet.). Limited liability companies. Though section 21.223 refers to a “corporation,” a separate provision of the Business Organizations Code extends section 21.223 to lim ited liability companies and their members, owners, assignees, affiliates, and subscrib ers. Tex. Bus. Orgs. Code § 101.002. Determining whether section 21.223(a)(2) applies. In TecLogistics, Inc. , the court usefully organized the five elements that must all exist for section 21.223(a)(2) to apply. First, the defendant must have a relationship with a corporation or limited lia bility company, not some other type of entity. TecLogistics, Inc. , 527 S.W.3d at 597. Second, the defendant must be among a class of persons defined in the statute: “[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 of such a holder, owner,

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