Lucas v. Texas Industries, Inc.

• Decision Date: 11 July 1984
• Docket Number: No. C-1328,C-1328
• Parties: Prod.Liab.Rep. (CCH) P 10,633 Randall Wade LUCAS, Petitioner, v. TEXAS INDUSTRIES, INC. and Everman Corporation, Respondents.
• Court: Texas Supreme Court

Page 372

696 S.W.2d 372

Prod.Liab.Rep. (CCH) P 10,633

Randall Wade LUCAS, Petitioner, v. TEXAS INDUSTRIES, INC. and Everman Corporation, Respondents.

No. C-1328.

Supreme Court of Texas.

July 11, 1984.

Rehearing Denied July 3, 1985.

Rehearing Denied Oct. 9, 1985.

Werner & Rusk, John C. Werner and Michael H. Norman, Houston, for petitioner.

Vinson & Elkins, Craig Smyser, Hicks, Hirsch, Glover & Robinson, Michael Windham and Brian M. Chandler, Houston, for respondents.

CAMPBELL, Justice.

This is a negligence and products liability case. Randall Wade Lucas sued Texas Industries, Inc. (TXI) and Everman Corporation (Everman) for injuries sustained when a ten ton concrete beam came loose from its rigging and fell on his leg. The trial court rendered judgment against the defendants jointly and severally for $2,000,000. The court of appeals reversed the judgment against Everman and rendered judgment that Lucas take nothing against Everman. 634 S.W.2d 748. The court of appeals ordered a remittitur of $344,316.60 of the judgment against TXI and, after Lucas filed the remittitur, affirmed the judgment as modified. Id. We reverse the judgment against TXI and render judgment that Lucas take nothing from TXI.

We reverse the judgment of the court of appeals as to Everman, sever and remand the cause to the court of appeals.

This suit arose from an accident which occurred during the construction of a parking garage in Houston. Miner-Dederick Construction Company was engaged, as general contractor, to build the parking garage. Miner-Dederick subcontracted with Everman to fabricate and erect the concrete beams needed to construct the garage.

Everman then contracted out some of the fabrication work. Although it is disputed whether Everman contracted with TXI or TXI's wholly owned subsidiary, Texas Structural Products, Inc. (Structural), there is no dispute that the beam that fell on Lucas was fabricated by Structural. Everman hired Pre-cast Erectors, Inc. (Pre-cast) to erect the beams. Lucas was an employee of Pre-cast.

The engineer's drawings, for the concrete beams to be manufactured by Structural, required that the beams be fabricated with two types of lifting inserts. These inserts were used with bolts and bell rings to lift the beams off a truck and place them in position in the parking garage. The plans required that the beams have one and a quarter inch inserts on the edge of the beam, and one inch inserts on the face of the beam.

Prior to starting the project, Everman and Pre-cast had several discussions about the beams. There is evidence that at the conclusion of these discussions, Everman advised that Pre-cast need only bring one and a quarter inch lifting equipment.

Pre-cast arrived at the jobsite with only one and a quarter inch lifting equipment. On May 20, 1977, 18 to 20 trucks loaded with concrete beams from Structural's plant were at the jobsite. As Pre-cast prepared to lift the first beam off the first truck, an employee noticed that the edge inserts on this beam were only one inch inserts, instead of the one and a quarter inch inserts called for by the engineer's drawings. Pre-cast attempted to lift the beam with the one and a quarter inch lifting equipment, but the beam fell from its rigging and injured Lucas.

There are two issues in this case: (1) Whether TXI is liable for the tort of its subsidiary, Structural, and (2) Whether there is some evidence to support the jury's finding that Everman was negligent in failing to advise Pre-cast to bring one inch lifting equipment to the project site.

Alter Ego

It is important to note at the outset that disregard of the "legal fiction of corporate entity" is "an exception to the general rule which forbids disregarding corporate existence." First National Bank in Canyon v. Gamble, 134 Tex. 112, 132 S.W.2d 100 (1939).

The trial court and the court of appeals held Structural is the alter ego of TXI. TXI contends those courts applied the wrong standard in holding TXI liable for the tort of its subsidiary. Generally, a court will not disregard the corporate fiction and hold a corporation liable for the obligations of its subsidiary except where it appears the corporate entity of the subsidiary is being used as a sham to perpetrate a fraud, to avoid liability, to avoid the effect of a statute, or in other exceptional circumstances. See Torregrossa v. Szelc, 603 S.W.2d 803 (Tex.1980); Pace Corp. v. Jackson, 155 Tex. 179, 284 S.W.2d 340 (1955). There must be something more than mere unity of financial interest, ownership and control for a court to treat the subsidiary as the alter ego of the parent and make the parent liable for the subsidiary's tort. Hanson Southwest Corp. v. Dal-Mac Construction Co., 554 S.W.2d 712 (Tex.Civ.App.--Dallas 1977, writ ref'd n.r.e.); see also Bell Oil & Gas Co. v. Allied Chemical Corp., 431 S.W.2d 336 (Tex.1968). The corporate entity of the subsidiary must have been used to "bring about results which are condemned by the general statements of public policy which are enunciated by the courts as 'rules' which determine whether the courts will recognize their own child." Roylex, Inc. v. Langson Brothers The type of proof needed to satisfy the plaintiff's burden in an alter ego case varies depending on whether the underlying cause of action is for breach of contract or tort. Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571 (Tex.1975); Bell Oil & Gas Co. v. Allied Chemical Corp., 431 S.W.2d 336 (Tex.1968). Courts have generally been less reluctant to disregard the corporate entity in tort cases than in breach of contract cases. 1 W. Fletcher Cyclopedia of the Law of Private Corporations § 43 (Supp.1982).

Construction Co., 585 S.W.2d 768 (Tex.Civ.App.--Houston [1st Dist.] 1979, writ ref'd n.r.e.); Sutton v. Reagan & Gee, 405 S.W.2d 828 (Tex.Civ.App.--San Antonio 1966, writ ref'd n.r.e.). The plaintiff must prove that he has fallen victim to a basically unfair device by which a corporate entity has been used to achieve an inequitable result. Torregrossa v. Szelc, 603 S.W.2d 803; Preston Farm & Ranch Supply, Inc. v. Bio-zyme Enterprises, 615 S.W.2d 258 (Tex.Civ.App.--Dallas), aff'd, 625 S.W.2d 295 (Tex.1981).

In a tort case, it is not necessary to find an intent to defraud. Generally, in a tort case the financial strength or weakness of the corporate tortfeasor is an important consideration. Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d at 573. If the corporation responsible for the plaintiff's injury is capable of paying a judgment upon proof of liability, then no reason would exist to attempt to pierce the corporate veil and have shareholders pay for the injury. If, however, the corporation sued is not reasonably capitalized in light of the nature and risk of its business, the need might arise to attempt to pierce the corporate veil and hold the parent corporation liable.

The underlying policy argument may be stated as follows: "An inadequately capitalized corporation in a risky business in effect transfers the risk of loss to innocent members of the general public." 19 R. Hamilton, Business Organizations § 234, at 230 (Texas Practice 1973). The financial strength or weakness of the subsidiary is then an important consideration in determining whether the subsidiary is merely a shell through which the parent is conducting its business without taking any of the risks for liabilities incurred.

Unlike in a tort case, however, the plaintiff in a contract case has had prior dealings with the parent corporation. Absent some deception or fraud, the risk of loss is apportioned by virtue of relative bargaining power. See Moore & Moore Drilling Co. v. White, 345 S.W.2d 550, 551-52 (Tex.Civ.App.--Dallas 1961, writ ref'd n.r.e.); Atomic Fuel Extraction Corp. v. Slick's Estate, 386 S.W.2d 180, 190-91 (Tex.Civ.App.--San Antonio 1965, writ ref'd n.r.e.).

Lucas attempted to justify piercing Structural's corporate veil by introducing evidence that: (1) TXI and Structural had some of the same officers and directors; (2) TXI and Structural filed a consolidated income tax return; (3) TXI and Structural used the same corporate logo; (4) TXI suggested safety procedures to be used in Structural's manufacturing plants; (5) Structural borrowed money from TXI; (6) the Structural officer who signed the contract with Everman signed on a line labeled "Texas Industries, Inc."; and (7) in response to interrogatories, TXI stated it delivered the beam which injured Lucas to the jobsite. The trial court submitted, and the jury answered, the following special issue:

Do you find from a preponderance of the evidence that on the occasion in question Texas Industries, Inc. and TXI Structural Products, Inc., activities became so blended that TXI Structural Products, Inc., for all practical purposes became the alter ego of Texas Industries, Inc.?

Answer: "We do" or "We do not"

Answer: We do

"Alter Ego" as used in this issue means the activities of the corporations became so blended that the public would become confused as to which corporation was doing the activity in question as to violate the integrity of the respective corporations.

Based on the jury's answer to this issue, the trial court rendered judgment for Lucas against TXI.

TXI contends there is no evidence to support this issue and, even if there is some evidence, the issue misstates the applicable law. We hold the evidence introduced by Lucas is no evidence of alter ego.

While this is a tort case, no evidence was introduced by Lucas that would indicate that Structural was undercapitalized or incapable of paying a judgment if found liable. The fact that TXI and Structural may have had some or all of the same directors or officers, that TXI and Structural may have filed consolidated income tax returns, that they shared the same corporate logo, or that the two companies conducted inter-corporate business did not induce Lucas to fall victim to a basically...