Menetti v. Chavers

• Decision Date: 22 April 1998
• Docket Number: No. 04-97-00253-CV,04-97-00253-CV
• Citation: 974 S.W.2d 168
• Parties: Vincent MENETTI and Felecia Menetti, Individually, Appellants, v. Hilario CHAVERS and Arnitta Chavers, Appellees.
• Court: Texas Court of Appeals

Page 168

974 S.W.2d 168

Vincent MENETTI and Felecia Menetti, Individually, Appellants, v. Hilario CHAVERS and Arnitta Chavers, Appellees.

No. 04-97-00253-CV.

Court of Appeals of Texas San Antonio.

April 22, 1998.

David R. DeWall, Law Office of David DeWall, San Antonio, for Appellants.

Hilario and Arnitta Chavers, San Antonio, pro se.

Before HARDBERGER, C.J., and RICKHOFF and DUNCAN, JJ.

OPINION

HARDBERGER, Chief Justice.

INTRODUCTION

This is an appeal by individual shareholders from a default judgment against their corporation, Menetti & Co., Inc., and from jury findings that impose individual liability on the shareholders. Vincent and Felecia Menetti assert, inter alia, that the trial court denied them the opportunity to present a defense as to their individual liability claims arising from faulty construction of an addition to the Chaverses' home. The Menettis also claim that they were denied the opportunity to challenge a claim that they were their corporation's alter ego. Appellees, the Chaverses, assert that the Menettis lack standing to assert the bulk of their claims. We hold that the trial court erred in finding the Menettis individually liable for the acts of their corporation because there was legally insufficient evidence to show actual fraud. Therefore, we reverse the judgment and render a decision in favor of the Menettis.

FACTS

The Chaverses sued Menetti & Co., Inc., and the Menettis individually for damages arising from faulty construction of an addition to the Chaverses' home. They sued under several theories: DTPA, fraud, breach of contract, negligence, and piercing the corporate veil. ¹ They also included claims that the corporation had violated the Texas Tax Code.

Prior to trial, the attorney hired to represent the Menettis and their corporation requested and was granted leave to withdraw his representation. Sometime after that, the Chaverses moved to show authority, requesting that the trial judge order the corporation to retain the services of an attorney by a "date certain" or have its pleadings stricken. See Dell Dev. Corp. v. Best Indus. Uniform Supply Co., Inc., 743 S.W.2d 302, 303 (Tex.App.--Houston [14th Dist.] 1987, writ denied) (corporation may not represent itself in court). After a hearing at which the Menettis did not appear, the judge issued an order that the corporation retain an attorney within three days of the entry of the order or have its pleadings stricken. The corporation did not appeal this order, and the corporation did not comply within the time period (it did retain a lawyer several months before trial). Although an order decreeing the corporation's pleadings stricken was never entered, this was assumed to have occurred, de facto, in later proceedings.

Trial began on November 6. On November 7, in response to a motion by the Chaverses, the trial judge entered a default judgment against the corporation. Apparently, the judgment had two bases: first, the trial court accepted that the corporation's pleadings had been de facto stricken, based on the prior order that the corporation appear with counsel. Second, the trial court held that the corporation could not defend itself in court because it was behind on its franchise taxes and was thus not a corporation in good standing. The corporation's lawyer asked if the corporation could defend if the taxes were paid the following day; the trial judge refused the request.

At trial, the Menettis presented a defense on damages only. The jury charge instructed the jury that all issues of liability had been found against the defendant corporation and asked the jurors to determine damages. However, the charge also asked the jury to determine the alter ego, sham corporation, denuding, and Trust Fund Doctrine issues as questions of fact. All questions were answered in favor of the Chaverses, and the jury awarded them $137,000. The trial judge reduced this amount to $97,000. After their motion for new trial was refused, the Menettis filed an appeal with this court in the corporation's name. They later asked the court to dismiss the appeal, and they filed a second appeal as individuals.

In eight points of error, the Menettis claim that (1) the trial court erred in refusing to allow the Menettis, individually, to assert defenses on liability or alter ego issues; ² (2) the trial court erred in entering judgment against the Menettis, because alter ego was not properly established; ³ (3) the trial court erred in entering judgment on the DTPA claims; ⁴ (4) the trial court erred in entering judgment against the Menettis based on negligence, because there is no negligent breach of contract cause of action; (5) the trial court erred in basing a judgment on denuding, because there was no or insufficient evidence to support the finding; (6) the trial court erred in basing its judgment against the Menettis on any violation of the Trust Fund Doctrine, because such a finding was based on insufficient evidence; (7) the trial court erred in admitting hearsay testimony; and (8) the trial court denied the Menettis their due process right to a fair trial under the state and federal constitutions.

LIABILITY

Standing

We first address the Chaverses' claim that the Menettis do not have standing to assert most of the claims brought in this appeal. The Chaverses assert that, because the Menettis have appealed as individuals, rather than as a corporation, they do not having standing to bring claims as to the merits of the judgment against the corporation. This contention requires us to consider carefully the nature of the suit brought against the corporation and its individual shareholders and the actions taken by the trial court.

Standing to sue exists when a party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy. Sierra Club v. Morton, 405 U.S. 727, 731, 92 S.Ct. 1361, 1364, 31 L.Ed.2d 636 (1972). On appeal, a party may only complain of error that injuriously affects that party. ⁵ Pierson v. Houston Indep. Sch. Dist., 698 S.W.2d 377, 381 (Tex.App.--Houston [14th Dist] 1985, writ ref'd n.r.e.); see also Buchele v. Woods, 528 S.W.2d 95, 98 (Tex.Civ.App.--Tyler 1975, no writ) ("while it is normally true that a party of record is entitled to appellate review, there is the additional requirement that a party's own interest must be prejudiced by the decision before he has standing to appeal").

The Chaverses' petition raised both liability claims and claims that would allow them to pierce the corporate veil. In a sense, these are joint claims. The liability of the Menettis individually necessarily depends on a finding of liability against the corporation. However, a finding of liability against the corporation does not necessarily amount to a finding of liability against the Menettis individually. The corporate structure is designed to shield shareholders from just such liability. See Equinox Enterprises, Inc. v. Associated Media, Inc., 730 S.W.2d 872, 877 (Tex.App.--Dallas 1987, no writ) (stating that alter ego is a theory under which individual liability may be imposed when it would not otherwise exist). In other words, the Menettis, as individuals, could not be held liable for the acts of the corporation if the corporate veil were not pierced. Thus, the default against the corporation on the liability issues does not injure or prejudice the Menettis so as to give them standing to complain of that default judgment. ⁶ See Shults v. State, 682 S.W.2d 260, 260 (Tex.1984) (suggesting that individual shareholders do not have standing to appeal on behalf of their corporations); see also Thomas v. Thomas, 917 S.W.2d 425, 431 n. 3 (Tex.App.--Waco 1996, no writ). The Menettis are only injured when the corporation's veil is pierced, and that is the only issue about which the Menettis have standing to complain.

Right to Defend Liability Issues

The same reasoning supports our holding that, once the default judgment was entered against the corporation, liability was established, and the Menettis had no right to present a defense on the existence of liability for the underlying claim.

A strongly analogous case is Karl & Kelly Co., Inc. v. McLerran, 646 S.W.2d 174 (Tex.1983). In that case, the plaintiffs sued both the corporation and its officers as individuals. Karl & Kelly, 646 S.W.2d at 174. However, the plaintiffs' petition raised no claims that the corporate veil should be pierced. Id. at 175. The trial court ordered a default judgment against all defendants after the defendants failed to appear at trial. Id. at 174. The individual officers complained that they could not be held liable for corporate acts in the absence of a veil-piercing allegation and proof of that allegation. Id. at 175. The supreme court agreed. The contract that was the subject of the suit had been entered into between the plaintiffs and the corporation. Id. Unless the court pierced the corporate veil, the individual officers could not be held liable for corporate acts. Id; see also United Salt Corp. v. McKee, 96 N.M. 65, 628 P.2d 310, 313 (1981) (corporate defendant was not prejudiced by finding of liability against employees as long as corporate defendant was allowed to contest negligent entrustment, respondeat superior, and damages).

Karl & Kelly is highly instructive. Because individual liability is impossible without some piercing of the corporate veil, the Menettis were not injured by the default judgment against the corporation. In fact, under the reasoning in Karl & Kelly, absent a piercing of the veil, the Menettis did not commit the complained-of acts: "[S]ince the contract was with the corporation and not with [the individual defendants], any representations made by [the individual defendants] were made as agents of the corporation.... [T]here is no evidence in the record before us that Karl and Kelly Company was the alter ego of either [individual defendant]. The courts below erred in rendering a...