Mancorp, Inc. v. Culpepper

• Decision Date: 10 September 1992
• Docket Number: No. 01-88-00831-CV,01-88-00831-CV
• Citation: 836 S.W.2d 844
• 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 844

836 S.W.2d 844

MANCORP, INC., Appellant/Cross-Appellee, v. John C. CULPEPPER, Jr., Appellee and CULPEPPER PROPERTIES, INC., Appellee/Cross-Appellant.

No. 01-88-00831-CV.

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

Sept. 10, 1992.

R. Scott Hogarty, Bill Jones, James W. Paulsen, Houston, for appellant.

James L. Wright, Andrew W. Austin, Eva Ramos, Austin, for appellee.

Before COHEN, O'CONNOR and PRICE ¹, JJ.

OPINION ON REMAND FROM THE TEXAS SUPREME COURT

COHEN, Justice.

On original submission, we affirmed the trial court's judgment. Mancorp, Inc. v. Culpepper, 781 S.W.2d 618 (Tex.App.--Houston [1st Dist.] 1989). We held that no evidence showed Culpepper Properties, Inc. was the alter ego of John C. Culpepper, Jr.; consequently, we held the trial court did not err in granting a judgment n.o.v., and in refusing to hold John C. Culpepper Jr. personally liable. Justice O'Connor dissented. She would have held the trial judge erred in granting the judgment n.o.v. because legally sufficient evidence supported the jury's finding of alter ego. Id. at 628-30. The supreme court granted Mancorp's writ of error, held that the trial judge erred in granting the judgment n.o.v. because legally sufficient evidence supported the alter ego finding, reversed our judgment, and remanded the cause for us to rule on Mr. Culpepper's cross-points of error contending that the evidence was factually insufficient to support the alter ego finding. Mancorp. Inc., v. Culpepper, 802 S.W.2d 226, 231 (Tex.1990). Two justices dissented. Id. at 231-35. We now hold the evidence is factually insufficient to support the jury's finding of alter ego. Consequently, we sustain Culpepper's cross-points of error, and remand the cause to the district court for a new trial on the issue of alter ego.

In reviewing factual sufficiency, we reverse only if the evidence is "so against the great weight and preponderance of the evidence as to be manifestly unjust--this regardless of whether the record contains some 'evidence of probative force' in support of the verdict." In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951). Under the alter ego theory, courts disregard the corporate entity when there is such unity between the corporation and the individual that the corporation ceases to be separate and when holding only the corporation liable would promote injustice. Mancorp, Inc. v. Culpepper, 802 S.W.2d at 228. Thus, in order for Mancorp to prevail upon its alter ego theory, it had to prove 1) unity between the corporation and Mr. Culpepper, and 2) that holding only the corporation liable would promote injustice. On original submission, we discussed only the legal sufficiency of the evidence showing the first element. On further consideration, we hold that the evidence set out in detail by the supreme court and by Justice O'Connor is factually sufficient to warrant the jury's finding of the first element, the required unity between the corporation and Mr. Culpepper. 802 S.W.2d at 228-30; 781 S.W.2d at 629-30. Thus, we overrule Mr. Culpepper's cross-points of error, to that extent.

Because, on original submission, we found no evidence of the required unity between the corporation and the individual, we did not discuss the second element. We now focus on the other issue raised by Mr. Culpepper's cross-points, whether the evidence is factually sufficient to show that holding only the corporation liable would promote injustice.

The "injustice" to be avoided in alter ego cases is that of leaving the plaintiff with an uncollectible judgment against the corporation, while allowing its alter ego to go free. Torregrossa v. Szelc, 603 S.W.2d 803, 804-805 (Tex.1980); Roy E. Thomas Const. Co. v. Arbs, 692 S.W.2d 926, 937-39 (Tex.App.--Fort Worth 1985), writ ref'd n.r.e. per curiam, 700 S.W.2d 919 (Tex.1985). In reversing our judgment, the supreme court held that these facts constitute legally sufficient evidence of injustice. It wrote:

Based on this evidence, a jury could reasonably infer that injustice would result if Culpepper was not held personally liable because Mancorp relied on Culpepper's misleading representations to the effect that he was backing the project. Moreover, the evidence of the mortgage company's foreclosure of the project and the fact that two of the project's creditors were unpaid could have led the jury to reasonably infer that Mancorp might go unpaid by Culpepper Properties, Inc., and this would result in injustice.

802 S.W.2d at 229. We must now decide whether there was factually sufficient evidence to support the jury's finding that holding only the corporation liable would result in injustice. Id. at 229 n. 3.

The trial judge rendered judgment for Mancorp in the amount of $221,273.10 (the unpaid part of the contract price minus the offset), plus prejudgment interest of approximately $28,000, and attorney's fees of $69,000. This totals approximately $318,000.00. We have examined the record for evidence showing that Mancorp might go unpaid by Culpepper Properties, Inc. The only such evidence cited by Mancorp is that the construction lender foreclosed on the project and two project creditors were unpaid at the time of trial. This evidence, however, does not show that Culpepper Properties, Inc. could not pay the judgment.

Uncontroverted evidence showed that Culpepper Properties, Inc. was current in its monthly payments on its construction loan when the loan term expired, but it was unable to either sell the building or find a new lender. One reason Culpepper Properties, Inc. could not sell or refinance the building was that it leaked water and required other repairs; these were the repairs for which the jury awarded Culpepper Properties, Inc. an offset of $289,376.90. The construction loan was for $11,150,000.00, more than 35 times the amount of the judgment rendered for Mancorp. The foreclosure shows that Culpepper Properties, Inc. was either unable or unwilling to pay a debt totalling millions of dollars. It does not show that Culpepper Properties, Inc. was unable to pay a debt of $318,000.00. Moreover, Mancorp's brief states that the corporation "failed to pay Mancorp although it apparently had the funds to do so at one time," a fact noted on original submission. 781 S.W.2d at 630. Mr. Culpepper testified without contradiction that the only reason Culpepper Properties, Inc. refused to pay was that Mancorp did not properly perform the contract. No evidence showed Culpepper Properties, Inc. was undercapitalized. See Lucas v. Texas Indus., Inc., 696 S.W.2d 372, 376 (Tex.1984).

Nor does the evidence about the two unpaid contractors show the corporation's inability to pay this judgment. No evidence shows the amount of either of these debts. John Culpepper testified that the debt to one of the two contractors had been "basically settled." That contractor was a nursery, and he testified that "we signed a note at the bank with them for payment." This was not rebutted, impeached, or contradicted. This shows that the corporation was still able and willing to borrow money to pay its debts. The other contractor was a boring and tunneling company; there was no evidence of the amount owed to it or why it had not been paid. Thus, the existence of that unpaid debt does not show that the corporation could not pay this judgment. Finally, John Culpepper testified approximately $20,000.00 was owed...