Mancorp, Inc. v. Culpepper

• Decision Date: 14 September 1989
• Docket Number: No. 01-88-831-CV,01-88-831-CV
• Citation: 781 S.W.2d 618
• Parties: MANCORP, INC., Appellant/Cross-Appellee, v. John C. CULPEPPER, Jr., Appellee, and Culpepper Properties, Inc., Appellee/Cross-Appellant. (1st Dist.)
• Court: Texas Court of Appeals

Page 618

781 S.W.2d 618

MANCORP, INC., Appellant/Cross-Appellee, v. John C. CULPEPPER, Jr., Appellee, and Culpepper Properties Inc., Appellee/Cross-Appellant.

No. 01-88-831-CV.

Court of Appeals of Texas Houston (1st Dist.).

Sept. 14, 1989.

Rehearing Denied Dec. 21, 1989.

R. Scott Hogarty, Bill Jones, Liddell, Sapp, Zively, Hill & Laboon, Houston, for appellant/cross-appellee.

James L. Wright, Vinson & Elkins, Houston, for appellee/cross-appellant.

Before COHEN, WARREN and O'CONNOR, JJ.

OPINION

COHEN, Justice.

Mancorp, Inc. ("Mancorp") sued John C. Culpepper, Jr. ("Culpepper") and Culpepper Properties, Inc. for breach of contract. Culpepper and Culpepper Properties, Inc. counterclaimed against Mancorp for breach of contract, breach of warranty, and deceptive trade practices.

Culpepper Properties, Inc., as owner, and Mancorp, as contractor, contracted for Mancorp to build the First Bank Galleria building. Mancorp claimed that the building was complete, pursuant to the terms of the contract and, therefore, Culpepper Properties, Inc. owed the final unpaid balance of $510,650. Culpepper Properties, Inc. contended, among other things, that the building was not complete because of material defects in the building.

The jury returned a verdict for Mancorp against Culpepper and Culpepper Properties, Inc. However, the jury found an offset of $289,376.90 due Culpepper Properties, Inc. for necessary repairs to the building. The trial court entered judgment on the verdict for the difference, $221,273.10, against Culpepper Properties, Inc., but entered a judgment non obstante verdicto ("J.N.O.V.") in favor of Culpepper, individually.

Mancorp appeals from the J.N.O.V., alleging the trial court erred in refusing to enter judgment on the verdict that Culpepper was the alter ego of Culpepper Properties, Inc. Culpepper Properties, Inc. appeals, arguing the trial court erred in: (1) permitting Mancorp to call certain witnesses at trial, in spite of Mancorp's violations of discovery rules; (2) refusing special issues pertaining to Culpepper Properties, Inc.'s counterclaim for breach of warranty and DTPA ¹; (3) erroneously defining the term "breach of contract"; (4) finding the evidence sufficient to support the jury's verdict that Mancorp did not breach the contract; (5) failing to find an irreconcilable conflict between two of the jury's responses; and (6) failing to find cumulative error based on the totality of the foregoing.

Mancorp, in its sole point of error, argues that the trial court erred in granting a J.N.O.V. in favor of Culpepper, individually, in view of the evidence supporting the jury's finding that Culpepper Properties, Inc. is an alter ego of Culpepper. In order to sustain a judgment notwithstanding the verdict, there must be no evidence to support the jury's finding. Williams v. Bennett, 610 S.W.2d 144, 145 (Tex.1980). We must review the evidence in the light most favorable to the disregarded findings, considering only the evidence and inferences supporting them, and rejecting all evidence and inferences to the contrary. Id.

We find that the only testimony concerning alter ego is that of Culpepper, the sole shareholder and president of Culpepper Properties, Inc. Culpepper and two corporate employees were the corporation's only officers and directors. Culpepper could not recall the specifics about the incorporation papers, shareholder's meetings, or board elections. He testified, however, about the corporation's routine practices, and that directors' meetings and board decisions were conducted and made informally because all three directors worked in the same office.

Mancorp produced evidence of seven checks it received in payment for its work. The checks were drawn on the account of "John C. Culpepper, Jr., Bank Tower Project," and were signed by Culpepper, without a designation that he was an agent of Culpepper Properties, Inc. Mancorp contends this is some probative evidence to support its alter ego theory.

Texas courts are reluctant to pierce the corporate veil and impose personal liability upon an individual, such as its chief executive officer and controlling stockholder, thereby destroying an important fiction under which so much of the business of the country is conducted, and will do so only under compelling circumstances. Aztec Management & Inv. Co. v. McKenzie, 709 S.W.2d 237, 239 (Tex.App.--Corpus Christi 1986, no writ).

'Courts will not disregard the corporation fiction ... except where it appears that the individuals are using the corporate entity as a sham to perpetrate a fraud, to avoid personal liability, avoid the effect of a statute, or in a few other exceptional situations.'

Torregrossa v. Szelc, 603 S.W.2d 803, 804 (Tex.1980) (quoting Pace Corp. v. Jackson, 155 Tex. 179, 284 S.W.2d 340, 351 (1955)).

Ownership of all the stock in a corporation by a single individual does not, of itself, make the corporation the alter ego of the individual. Aztec Management & Inv. Co. v. McKenzie, 709 S.W.2d at 239. Although Culpepper did not remember details of the corporate formalities, Mancorp did not prove they were not followed. With only one stockholder and three directors, it is not unusual for corporate meetings to be informal. Torregrossa v. Szelc, 603 S.W.2d at 804.

There is no evidence the bank account used to pay Mancorp was used for any non-corporate purpose, or for anything except this particular corporate project, that Culpepper used the account to pay personal debts, or that personal funds were mixed in the account with project funds. The checks were signed by Culpepper at a time when he was the company president. No other relevant documents were in Culpepper's name, and there was no evidence of a sham corporate structure. See Torregrossa, 603 S.W.2d at 804. Moreover, Mancorp knew of Culpepper's status with Culpepper Properties, Inc. Only Culpepper Properties, Inc., not Culpepper individually, was named in the contract. Id. at 803. Mancorp neither alleged nor proved that it was misled, or changed its position to its detriment, in the belief that Culpepper was personally bound by the contract. We find it significant that the checks Mancorp relies on were all written after the contract was signed with the corporate entity, Culpepper Properties, Inc. As in Torregrossa, Mancorp knowingly made the deal with the corporation. Id. Finally, Culpepper's appealing, but ungrammatical business card, "Culpepper Properties, Inc., John C. Culpepper, Jr., his self," is less than a scintilla of evidence.

Nothing in this case resembles the gross fraud that justified piercing the corporate veil in Castleberry v. Branscum, 721 S.W.2d 270 (Tex.1986). There, the supreme court discussed the alter ego theory, although it recognized that the discussion was unnecessary to the holding. Id. at 272. "The basis used here to disregard the corporate fiction ... is separate from alter ego." Id. The court further stated, "Alter ego applies when there is such unity between corporation and individual ... and holding only the corporation liable would result in injustice." Id. (emphasis added).

No evidence here shows that holding only the corporation liable would result in injustice or that the corporate defendant is unable to pay this judgment. Other cases cited by Mancorp are similarly distinguishable. See First Nat. Bank v. Gamble, 134 Tex. 112, 132 S.W.2d 100 (1939) (fraud); Robbins v. Robbins, 727 S.W.2d 743, 746-47 (Tex.App.--Eastland 1987, writ ref'd n.r.e.) (suit by widow proved community property was used to fund corporation; thus, court found more than "mere unity of financial interest"); Loomis Land & Cattle Co. v. Wood, 699 S.W.2d 594 (Tex.App.--Texarkana 1985, writ ref'd n.r.e.) (promissory notes signed in individual capacity, not as corporate agent).

Disregarding the corporate fiction is an equitable doctrine in which courts take "a flexible fact-specific approach focusing on equity." Castleberry, 721 S.W.2d at 273. Moreover, courts are more likely to disregard the corporate fiction in tort cases than in contract cases, like this one, because the risk of loss in a contract case is apportioned in prior dealings, when the bargain is first struck. Lucas v. Texas Indus., Inc., 696 S.W.2d 372, 375 (Tex.1984). We find no evidence that Mancorp was induced "to fall victim to a basically unfair device by which [Culpepper Properties, Inc.'s] corporate entity was used to achieve an inequitable result." 696 S.W.2d at 376.

We hold, as matter of law, that under the facts of this case, the seven checks constituted no evidence that the corporation was Culpepper's alter ego.

Mancorp's point of error is overruled.

Culpepper Properties, Inc.'s first point of error argues that the trial court erred in permitting one of Mancorp's expert witnesses, David Orthold, to testify, because Mancorp failed to timely identify him. Culpepper Properties, Inc. asked Mancorp, in January 1988, to list its fact and expert witnesses. Pursuant to the court's pre-trial order, the deadline for supplementing the list of expert witnesses was March 10, 1988, and for taking depositions, March 21, 1988.

On March 10, 1988, Mancorp deposed John Sprott, an agent of Ryan Mortgage, the project's lender. Mancorp argued in the trial court that it then first learned of Orthold's importance. On March 17, Mancorp sought leave of court to designate Orthold an expert witness. On Friday, April 1, 1988, the trial court found good cause and allowed Mancorp to designate Orthold. The trial commenced on Monday, April 4, 1988.

Mancorp learned of Orthold in May 1987, during Culpepper's deposition. However, Mancorp argued that at the March 10, 1988 deposition, it first learned that Orthold had been hired by Ryan Mortgage, not Culpepper Properties, Inc., and that he made written monthly reports to Ryan Mortgage and Culpepper Properties, Inc. concerning the percentage of completion of the project. Ryan Mortgage used these reports to decide whether to...