Holloway v. Skinner

• Decision Date: 11 August 1993
• Docket Number: No. 3-92-010-CV,3-92-010-CV
• Citation: 860 S.W.2d 217
• Parties: Graham HOLLOWAY, Appellant, v. Rick SKINNER and Alvin Ord's, Inc., Appellees.
• Court: Texas Court of Appeals

Page 217

860 S.W.2d 217

Graham HOLLOWAY, Appellant, v. Rick SKINNER and Alvin Ord's, Inc., Appellees.

No. 3-92-010-CV.

Court of Appeals of Texas,

Austin.

Aug. 11, 1993.

Rehearing Overruled Sept. 22, 1993.

Michael A. Scaperlanda, Cedar Park, for appellant.

Robert F. Neal, Law Offices of Robert F. Neal, Austin, for appellees.

Before CARROLL, C.J., and KIDD and B.A. SMITH, JJ.

BEA ANN SMITH, Justice.

Graham Holloway appeals from an adverse judgment rendered in favor of Rick Skinner and Alvin Ord's, Inc. (collectively, "appellees") on a tortious-interference-with-contract claim. Appellees alleged that Holloway, the president, a director, and a shareholder of Holligan, Inc. ("Holligan"), interfered with a contract entered into by appellees and Holligan. A jury found in favor of appellees on the tortious-interference claim, and the trial court, after denying Holloway's motion for judgment non obstante veredicto (n.o.v.), rendered judgment on the verdict awarding appellees actual and punitive damages. On appeal, Holloway contends that his status as president, director, and shareholder of Holligan shields him from liability for interfering with the contract between appellees and Holligan. We will affirm the trial court's judgment.

BACKGROUND

Skinner was the original owner of Alvin Ord's, a sandwich-shop franchise. In 1981 Holloway and his father-in-law, Tom Culligan, approached Skinner with an offer to purchase Alvin Ord's. The three parties agreed to do business under the corporate name of Holligan, Inc., with Skinner contributing company-owned Alvin Ord's stores and franchise agreements, while Holloway and Culligan would contribute management skills and capital. Skinner received a promissory note from Holligan for $63,000, a percentage of the gross sales of the Alvin Ord's restaurants pursuant to a royalty agreement, a percentage of Holligan's stock, and a job with the corporation. During the sale negotiations, Skinner attempted and failed to obtain written personal guarantees from Holloway and Culligan on Holligan's obligations to Skinner. Nevertheless, Skinner, Holloway, and Culligan reached an agreement for the sale of Alvin Ord's and began doing business as Holligan, with Holloway serving as the corporation's president. ¹

From 1981 to 1984, Holligan sporadically maintained its obligations under the note and the royalty agreement. By 1984, relations between Skinner and Holloway had deteriorated, and Skinner left Holligan as an officer/employee. Holloway's annual salary was then approximately $24,000. Holloway's salary increased to $33,000 in 1985, and increased again to $44,500 in 1986. In 1985 Holligan's outside auditor questioned the corporation's continued viability, and, due to Holligan's economic situation, its largest secured creditor, United Bank of Texas, threatened foreclosure.

Culligan had died sometime before, and his wife, Jean, succeeded to his interest, including his large percentage of Holligan stock. In response to United Bank's pressure, Jean Culligan opted to purchase Holligan's debt from the bank and replace it as Holligan's largest secured creditor. She also sought to purchase Skinner's interest in Holligan in order to eliminate Holligan's ongoing debt to him. Skinner refused to sell his interest, and Holligan defaulted on its obligation to him in July 1985. Skinner sued Holligan for breach of its obligations under the note and the royalty agreement and secured a favorable judgment in June 1986. However, the judgment remained unsatisfied because Holligan filed for bankruptcy protection.

Subsequently, appellees filed the present suit claiming that Jean Culligan, Holloway, and Holloway's wife had tortiously interfered with Skinner and Holligan's contract by forcing the company to default on its obligations. The jury failed to find against Jean Culligan and Holloway's wife, but found that Holloway had tortiously interfered with Skinner's contract with Holligan. After denying Holloway's On appeal, Holloway contends that, as the president, a director, and a shareholder of Holligan, he could not have interfered with Skinner and Holligan's contract as a matter of law. In the alternative, Holloway argues that, even if he interfered with the contract between Skinner and the corporation, such interference was privileged as a matter of law because he was acting in his capacity as the president, a director, and a shareholder of Holligan in inducing the corporation to breach its obligations to Skinner under the note and the royalty agreement.

motion for judgment n.o.v., the trial court rendered judgment on the jury verdict awarding actual and punitive damages.

DISCUSSION

Typically, a tortious-interference action involves a third party who knowingly induces a party to a contract to breach, thereby damaging the other party to the contract. In such a case, the plaintiff must show that: (1) a contract subject to interference existed; (2) the act of interference was willful and intentional; and (3) such intentional act proximately caused plaintiff's damages or loss. Victoria Bank & Trust Co. v. Brady, 811 S.W.2d 931, 939 (Tex.1991). If the plaintiff can show these elements and establish a prima facie case of tortious interference, the burden shifts to the defendant to show that the interference was justified. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex.1989); Armendariz v. Mora, 553 S.W.2d 400, 405 (Tex.Civ.App.--El Paso 1977, writ ref'd n.r.e.). To establish the affirmative defense of legal justification, the defendant must show that the interference (1) was done in a bona fide exercise of the defendant's own rights, or (2) the defendant's interest in the contract's subject matter was equal or superior to the plaintiff's. Sterner, 767 S.W.2d at 691.

Holloway maintains that, regardless of whether Skinner established a prima facie case for tortious interference, Holloway enjoys immunity from liability for his conduct due to his status as a corporate agent. Although we agree with the principle that, generally, corporate directors and officers will not be liable for tortiously interfering with the contracts of their corporate principal, we believe that Holloway states the proposition too broadly; such immunity is usually not absolute. See generally 3 William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 1001 (perm. ed. rev. vol. 1986).

The Texas Supreme Court has acknowledged that "an officer or director may not be held liable in damages for inducing the corporation to violate a contractual obligation, provided that the officer or director acts in good faith and believes that what he does is for the best interest of the corporation." Maxey v. Citizens Nat'l Bank, 507 S.W.2d 722, 726 (Tex.1974) (emphasis added). As we understand this statement, when corporate officers and directors act against the interest of the corporation, act for their own pecuniary benefit, or act with the intent to harm the plaintiff in inducing the breach of contract, they can be held liable to the injured party. See 3 Fletcher § 1001.

We recognize that one circumstance seems to justify holding a corporate agent absolutely immune from liability for interfering with the corporation's contract--when the interests of the corporation and its agent are so closely aligned as to be incapable of separation. See, e.g., Baker v. Welch, 735 S.W.2d 548, 549 (Tex.App.--Houston [1st Dist.] 1987, writ dism'd) (holding that corporation's president/sole shareholder was so closely aligned in interest with corporation as to be same entity, incapable of tortious interference); see also Schoellkopf v. Pledger, 778 S.W.2d 897, 903 (Tex.App.--Dallas 1989, writ denied) (relying on Baker in holding that individual defendants who wholly owned corporation were so closely aligned with corporate principal as to be same entity); cf. Deauville Corp. v. Federated Dep't Stores, Inc., 756 F.2d 1183, 1196-97 (5th Cir.1985) (holding wholly-owned subsidiary incapable of conspiring with parent corporation because financial interests are identical). The theory underlying absolute immunity for a director in a "one person" corporation is that the director and the corporation are, in effect, identical, and a party cannot be liable The sort of absolute immunity that whole owners/sole shareholders enjoy is, however, inapplicable here. In both Baker and Schoellkopf, the defendants entirely owned the corporation that breached the contract; in the instant case, Holloway owned only about forty percent of Holligan when the corporation defaulted on its obligation to Skinner. Because Holloway did not own all of Holligan, he lacked that unity of financial interest which would warrant considering him the same entity as Holligan. ² Under these circumstances, Holloway could act in his own best interest while acting against the corporation's. Consequently, we hold Holloway does not enjoy the immunity that shields sole shareholders from liability for tortious interference with Holligan's contracts.

for inducing him or herself to breach a contract. See 3 Fletcher § 1001.

Stressing that no reported Texas case involving a tortious-interference claim against a corporate agent has held the defendant liable, Holloway concludes that such liability can never attach. We disagree. Although most of these cases loosely discuss the principle that corporate agents are generally not liable for inducing a breach of the corporation's contracts, they recognize the possibility that agents could be liable for tortiously inducing a breach if, for example, they had acted outside the scope of their agency, in furtherance of personal objectives, or with malice. ³ See, e.g., John Masek Corp. v. Davis, 848 S.W.2d 170, 175 (Tex.App.--Houston [1st Dist.] 1993, writ denied); American Medical Int'l, Inc. v. Giurintano, 821 S.W.2d 331, 335-36 (Tex.App.--Houston [14th Dist.] 1991, no writ); Victor M. Solis Underground Util. & Paving Co., Inc. v. City of Laredo, 751...