Harwood Tire-Arlington, Inc. v. Young

• Decision Date: 19 February 1998
• Docket Number: INC,No. 2-96-343-CV,TIRE--ARLINGTO,2-96-343-CV
• Citation: 963 S.W.2d 881
• Parties: HARWOODand Harwood Tire, Inc., Appellants. v. Faron YOUNG, Appellee.
• Court: Texas Court of Appeals

Page 881

963 S.W.2d 881

HARWOOD TIRE--ARLINGTON, INC. and Harwood Tire, Inc., Appellants. v. Faron YOUNG, Appellee.

No. 2-96-343-CV.

Court of Appeals of Texas Fort Worth.

Feb. 19, 1998.

Watson, Kerr, & Parker, P.C., Elizabeth Sturdivant Kerr, Fort Worth, for Appellant.

Law Offices of John David Hart, John David Hart, Fort Worth, for Appellee.

Before DAY, DAUPHINOT, and RICHARDS, JJ.

OPINION

DAUPHINOT, Justice.

This is a negligence case arising from an on-the-job injury. Faron Young sued his employer and its parent company, both nonsubscribers to worker's compensation insurance. The jury found both corporations liable and awarded Young $1.3 million in damages. Appellants challenge the legal and factual sufficiency of the jury's negligence and alter ego findings. Appellants also assert that they were unfairly prejudiced by the exclusion of evidence of other insurance in lieu of worker's compensation insurance. Lastly, Appellants claim that the lawsuit against the parent company was barred by the statute of limitations.

We affirm.

DISREGARDING THE CORPORATE FICTION

Young's original employer, Harwood Tire, Inc. ("HTI"), reorganized approximately thirty days before Young was injured. The reorganization consisted of creating four subsidiary corporations including Harwood Arlington, Inc., purportedly Young's new employer after the reorganization. Young sued both Harwood Arlington, Inc. and its parent, HTI, claiming that Harwood Arlington, Inc. was HTI's alter ego. The jury found in Young's favor on the alter ego issue. Appellants challenge both the legal and factual sufficiency of the evidence to support the jury's alter ego finding.

In determining a "no-evidence" point, we are to consider only the evidence and inferences that tend to support the finding and disregard all evidence and inferences to the contrary. See Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex.1996); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661-62 (1951). If there is more than a scintilla of such evidence to support the finding, the claim is sufficient as a matter of law, and any challenges go merely to the weight to be accorded the evidence. See Leitch, 935 S.W.2d at 118.

A "no-evidence" point may only be sustained when the record discloses one of the following: (1) a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla of evidence; or (4) the evidence establishes conclusively the opposite of a vital fact. See Juliette Fowler Homes, Inc. v. Welch Assocs., 793 S.W.2d 660, 666 n. 9 (Tex.1990) (citing Robert W. Calvert, "No Evidence" and "Insufficient Evidence" Points of Error, 38 TEX. L. REV. 361, 362-63 (1960)). There is some evidence when the proof supplies a reasonable basis on which reasonable minds may reach different conclusions about the existence of the vital fact. See Orozco v. Sander, 824 S.W.2d 555, 556 (Tex.1992).

An assertion that the evidence is "insufficient" to support a fact finding means that the evidence supporting the finding is so weak or the evidence to the contrary is so overwhelming that the answer should be set aside and a new trial ordered. See Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965). We are required to consider all of the evidence in the case in making this determination. See Jaffe Aircraft Corp. v. Carr, 867 S.W.2d 27, 29 (Tex.1993).

The owner of a corporation is generally not liable for the corporation's debts. Under the doctrine of limited liability, creditors have recourse only against the corporation itself, not against its parent company or shareholders. However, when the corporate privilege is abused, courts will disregard the corporate fiction and hold the parent company or shareholders liable. See Castleberry v. Branscum, 721 S.W.2d 270, 271 (Tex.1986); Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 573 (Tex.1975). "We disregard the corporate fiction ... when the corporate form has been used as part of a basically unfair device to achieve an inequitable result." Castleberry, 721 S.W.2d at 271.

Alter ego is one of several bases for disregarding the corporate fiction. See id. at 272. Alter ego comes into play "where a corporation is organized and operated as a mere tool or business conduit of another corporation." See id. Alter ego applies when there is such unity between the parent corporation and its subsidiary that the separateness of the two corporations has ceased and holding only the subsidiary corporation liable would result in injustice. See id. It is shown from the total dealings of the parent corporation and its subsidiary. See id.; Gentry, 528 S.W.2d at 573-76. Inadequate capitalization is another basis for disregarding the corporate fiction. See Castleberry, 721 S.W.2d at 271 n. 3; Torregrossa v. Szelc, 603 S.W.2d 803, 804-05 (Tex.1980). Young's jury question on the issue of disregarding the corporate fiction encompassed both the alter ego and inadequate capitalization theories.

The determination of whether the corporate fiction should be disregarded is a fact question for the jury. See Castleberry, 721 S.W.2d at 271. It is a fact-specific determination made on a case-by-case basis. See id. at 273.

When Faron Young went to work for HTI, it owned three unincorporated tire stores in Arlington, Bedford, and Irving. Young was the service manager of the Arlington store at the time he was injured.

HTI reorganized in June of 1992 by creating four subsidiary corporations--Harwood Arlington, Inc., Harwood Bedford, Inc., Harwood Irving, Inc., and Harwood CSF, Inc. HTI remained the parent corporation and retained 100% ownership of the stock in all four subsidiaries. Before the reorganization, Frank Roszell owned 100% of HTI's stock and was its sole director. After the reorganization, Roszell owned 100% of HTI's stock and was the sole director of all subsidiaries.

Roszell was not an officer of Harwood Arlington, Inc. Roszell's wife and Robert Yantis were officers of Harwood Arlington, Inc. and also officers of some of the other subsidiary corporations. Roszell's motivation for the reorganization was to have HTI grow and prosper. He believed this could best be done by incorporating each store. Limiting the liability of HTI and its subsidiaries played a small part in Roszell's decision to reorganize HTI.

Each subsidiary had its own by-laws and articles of incorporation and obtained its own federal tax-identification number. A consolidated tax return was prepared for HTI and all subsidiaries; however, each subsidiary filed its own franchise tax reports. The corporate records were maintained "exceptionally well," and there was no commingling of funds. Corporate formalities were observed, and intercorporate transfers were documented.

Before the reorganization, HTI had assets of $1,174,734 and retained earnings of $390,966. As part of the reorganization, Roszell decided how assets would be allocated among the subsidiaries. Harwood Arlington, Inc. was allocated $154,000 in assets and $98,000 in retained earnings. Roszell testified that HTI was more capable of paying a judgment before the reorganization than Harwood Arlington, Inc. was after the corporate restructuring.

After the reorganization, Roszell was given blanket approval in managing all of the subsidiaries. The newly-formed subsidiaries continued to do business exactly as they did before. Neither the signs on the stores nor the employee's uniforms changed. Before the reorganization, HTI employed all of the workers at the Arlington, Bedford, and Irving tire stores. The employees did not complete new applications after the reorganization. If a subsidiary store was understaffed, Roszell gave "permission" to hire more employees.

Vandolyn Lambert, Roszell's C.P.A., did work specifically for Harwood Arlington, Inc. after the reorganization. She was paid by HTI, not Harwood Arlington, Inc. HTI paid for Roszell's personal income tax return to be prepared. Roszell did not pay for it and did not report it as income.

Assets of the subsidiaries were exchanged between the companies through intercompany transfers. When Harwood Arlington, Inc. was closed, some equipment and employees were transferred from the Arlington store to other subsidiaries. Roszell testified that he did not know if the other subsidiaries paid for the equipment received from Harwood Arlington, Inc.

In 1992, Harwood Arlington, Inc. paid $50,000 of Roszell's $102,000 salary. Even though Harwood Arlington, Inc. was characterized as "barely breaking even" at the end of 1993, it paid Roszell a $47,000 management fee shortly before it closed in December. Harwood Arlington, Inc. owed no debts at the time it closed. It closed with $36,000 in assets.

The term "HTI" was used synonymously for all the stores after the reorganization. Since its inception and before reorganization, HTI held itself out to the public as "HTI Arlington." It continued to do business as "HTI Arlington" after reorganization through the time of trial. The paychecks of the Arlington store's employees were drawn on an account denominated "HTI Arlington" both before and after the reorganization. After the reorganization, HTI provided each store with a generic safety manual prepared by Roszell bearing the corporate "HTI" logo.

The location at which the Arlington store did business was actually owned by Goodyear. Harwood Arlington, Inc. never signed a lease with Goodyear after the reorganization. Instead, the lessee on the lease both before and after the reorganization was HTI. After the reorganization, Harwood Arlington, Inc. never signed a lease with HTI. The letter notifying Goodyear of the termination of the lease on the Arlington store was written by Roszell and signed "Harwood Tire, Inc. d/b/a Harwood Arlington."

As part of the reorganization, HTI transferred all real estate formerly owned...