Keyes v. Weller

• Docket Number: 22-1085
• Decision Date: 28 June 2024
• Citation: 692 S.W.3d 274
• Parties: Mary Alice KEYES and Sean Leo Nadeau, Petitioners, v. David WELLER and IntegriTech Advisors, LLC, Respondents
• Court: Texas Supreme Court

692 S.W.3d 274

Mary Alice KEYES and Sean Leo Nadeau, Petitioners,

v.David WELLER and IntegriTech Advisors, LLC, Respondents

No. 22-1085

Supreme Court of Texas.

Argued January 31, 2024

OPINION DELIVERED: June 28, 2024

On Petition for Review from the Court of Appeals for the Third District of Texas

Sheldon E. Richie, Katherine J. Walters, Austin, for Petitioners.

Isabelle Antongiorgi, David Erwin Dunham, Austin, for Respondents.

Justice Lehrmanndelivered the opinion of the Court.

In this case, the plaintiffs bring fraud claims against two individual members of a limited liability company based on their alleged misrepresentations made while acting as agents of the company.Under well-settled Texas common law, individuals are personally liable for torts they commit as corporate agents.We are asked what effect, if any, Texas Business Organizations Code Section 21.223 has on that commonlaw principle when the corporate agent who allegedly commits a tort, like each of the defendants in this case, also owns an interest in the company.Section 21.223 shields corporate shareholders, as well as members of a limited liability company, from liability "to the corporation or its obligees with respect to … any contractual obligation of the corporation or any matter relating to or arising from the obligation on the basis that the [shareholder] is or was the alter ego of the corporation or on the basis of actual or constructive fraud, a sham to perpetrate a fraud, or other similar theory."Tex. Bus. Orgs. Code§ 21.223(a)(2).An exception to this limitation on liability exists when the shareholder "caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee pri- marily for the direct personal benefit of the [shareholder]."Id.§ 21.223(b).

The defendants argue that Section 21.223 shields them from liability because they were acting as agents of the company and there is no evidence that they were seeking a direct personal benefit.The court of appeals rejected that argument and reversed the trial court’s summary judgment for the defendants on the fraud claims, remanding those claims to the trial court for further proceedings.We hold that Section 21.223 does not limit an individual’s liability under the common law for tortious acts allegedly committed while acting as a corporate officer or agent, even when the individual is also a shareholder or member.Accordingly, we agree with the court of appeals and affirm its judgment.

I.Background¹

David Weller provides aviation consulting services through IntegriTech Advisors, LLC, of which he is the sole member.In September 2017, Weller began discussing a potential employment relationship with MonoCoque Diversified Interests, LLC, which is in the business of buying, selling, and leasing airplane parts.MonoCoque is wholly owned by Mary Alice Keyes and Sean Leo Nadeau.Both also serve as agents of the company.

Weller met with Keyes and Nadeau numerous times over several months to discuss employment terms.In early January 2018, the parties exchanged emails outlining the agreed terms, including Weller’s salary, an additional $50,000 training fee payable quarterly to IntegriTech, and various payments based on a percentage of MonoCoque’s revenues and investments that Weller generated, The compensation included a payment of two percent of MonoCoque’s company-wide gross revenue (capped at $15 million) during Weller’s employment.Keyes and Nadeau represented to Weller that the revenue payments would be made quarterly and were nondiscretionary.In reliance on the representations regarding compensation, Weller declined other pending employment opportunities, accepted MonoCoque’s offer, and began working for MonoCoque on January 13, 2018.

A few weeks later, MonoCoque presented Weller with a "term sheet" containing confidentiality, noncompete, and nonsolicitation provisions, as well as an alternative dispute resolution agreement.The term sheet included a compensation provision listing Weller’s salary and a "[d]iscretionary incentive bonus of a maximum of two percent (2%) of gross sales revenue based upon level of activity attributed to Weller to achieve said sale."Weller did not sign the documents.Over the next few months, the parties exchanged revised drafts of the various documents but could not reach an agreement and thus never executed them.

In April 2018, Weller inquired about the past-due revenue payments and training stipend for the first quarter.Keyes denied that MonoCoque was obligated to make the revenue payments because Weller had not executed the above-mentioned agreements.Weller then met with Keyes, Nadeau, and MonoCoque’s lawyer.At that meeting, Keyes and Nadeau told Weller that MonoCoque had never intended to make the revenue payments on a quarterly basis, but they stated that MonoCoque would pay the first-quarter training stipend and indicated that it would make the revenue payments at some later date.Mo- noCoque subsequently paid Weller the training stipend.

On May 29, Weller resigned.Keyes then sent Weller a letter stating that "no more funds are due to you by [MonoCoque]" because the parties had "never reached any agreement regarding terms of employment."Weller responded with an invoice demanding a prorated portion of the second-quarter training stipend and estimated amounts for the unpaid revenue interest.MonoCoque, through its lawyer, responded with a letter stating that because Weller "would never agree to any terms of employment,"he"remained an employee at-will with no provision made for any future payments" after his departure from the company.The letter further stated that MonoCoque "never agreed to pay [Weller]‘revenue incentive’ or ‘training’ compensation" and owed him no further payment.

Weller and IntegriTech sued MonoCoque, Keyes, and Nadeau, asserting a breach-of-contract claim against MonoCoque and asserting various fraud claims and a Texas Securities Act claim against all three defendants.The plaintiffs alleged that Keyes and Nadeau made fraudulent misrepresentations and omissions regarding MonoCoque’s obligation to compensate Weller to induce him to provide employment and consulting services and that he justifiably relied on those misrepresentations.The plaintiffs further alleged that Keyes and Nadeau were individually liable for their own fraudulent and tortious conduct that they engaged in as agents of MonoCoque.MonoCoque brought several counterclaims.

The defendants filed a motion for partial summary judgment, arguing that Section 21.223 of the Texas Business Organizations Code bars the claims against Keyes and Nadeau individually because the complained-of acts were performed in their capacities as authorized agents of MonoCoque.²The trial court granted the motion and severed the subject claims into a separate action, resulting in a final judgment for Keyes and Nadeau on all claims asserted against them individually.Weller and IntegriTech appealed that judgment.³

The court of appeals reversed, holding that Section 21.223’s limitations on corporate owners’ liability apply when claimants seek to hold such owners liable for corporate obligations by piercing the corporate veil, but that the statute does not abrogate longstanding common law that "individuals are directly liable for their own tortious conduct—even if committed in the course and scope of their employment."684 S.W.3d 496, 499(Tex. App.—Austin2022)(citingMiller v. Keyser,90 S.W.Sd 712, 717–18(Tex.2002)).In so holding, the court noted that the majority of appellate courts to address the issue have reached the same conclusion.Id. at 501(collecting cases).A minority of courts, however, have held that Section 21.223 can apply regardless of whether the individual defendant’s liability is premised on a veil-piercing theory or direct liability for his own tortious conduct as an agent for the company.See, e.g., TecLogistics, Inc. v. Dresser-Rand Grp.,527 S.W.3d 589, 598(Tex. App.— Houston[14th Dist.]2017, no pet.)(holding that Section 21.223applied where the defendant shareholder "was the human agent through which [the company] committed actual fraud against" its contractual obligee).We granted Keyes and Nadeau’s petition for review to address this split.

II.Discussion

We begin with a discussion of the development of the law regarding personal liability for corporate obligations and the related but distinct issue of personal liability for tortious conduct in which an individual engages as a corporate agent.

A.Piercing the Corporate Veil

[1–3] Under longstanding Texas common law, corporate shareholders, officers, and directors are generally shielded from liability for corporate obligations.Willis v. Donnelly,199 S.W.3d 262, 271(Tex.2006).But "courts will disregard the corporate fiction"—i.e., pierce the corporate veil— and hold such agents individually liable for those corporate obligations when the agents "abuse the corporate privilege."Id.A veil-piercing doctrine is not a substantive cause of action but "a method to impose personal liability on shareholders and corporate officers who would otherwise be shielded from liability for corporate debts."Shandong Yinguang Chem. Indus. Joint Stock Co. v. Potter,607 F.3d 1029, 1035(5th Cir.2010)(applying Texas law);see alsoCox v. S. Garrett, L.L.C.245 S.W.3d 574, 582(Tex. App.—Houston[1st Dist.]2007, no pet.).

[4] Two oft-invoked common-law veil-piercing theories are (1) alter ego, which is triggered "when there is such unity between corporation and individual that the separateness of the corporation has ceased"; and (2) when the corporate form is used as "a sham to perpetrate a fraud."Castleberry v. Branscum,721 S.W.2d 270, 271(Tex.1986).As to the latter, in Castleberrythis Court concluded that to prove there has been a sham to perpetrate a fraud, and thereby pierce the corporate veil, a claimant need not show "actual fraud"(defined as ...