Court Opinion

ID: 4709951
Source: CourtListenerOpinion
Date Created: 2021-08-09 07:30:09.497808+00
Date Added: 2024-06-11T08:07:00.375028
License: Public Domain

Reversed and Rendered and Memorandum Opinion filed August 5, 2021.

                                     In The

                    Fourteenth Court of Appeals

                             NO. 14-19-00378-CV

                         GREG MUNGAS, Appellant

                                       V.
               ODYSSEY SPACE RESEARCH, LLC, Appellee

                   On Appeal from the 269th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2014-74090

                         MEMORANDUM OPINION

      In this appeal, appellant Greg Mungas challenges the jury’s finding that he
was responsible for the debts of Firestar Engineering, LLC, a company he founded
and solely owned, based on a theory of alter-ego liability. Concluding that the
jury’s alter-ego finding was not supported by legally-sufficient evidence, we
reverse the trial court’s judgment and render a take-nothing judgment in favor of
Mungas on appellee Odyssey Space Research, LLC’s claims against him.
                                    I.     BACKGROUND

       Greg Mungas is the president and the sole owner of Firestar Engineering,
LLC. Between 2011 and 2014, Firestar was developing technologies related to
non-toxic rocket fuel. Firestar and appellee Odyssey Space Research, LLC1,
became entwined in a variety of business dealings, including jointly forming and
investing in business entities for the purpose of developing fuel-system technology
and securing National Aeronautics and Space Administration (NASA) and
Department of Defense contracts.2 Firestar and Odyssey created an entity called
Typhon Labs, LLC, in which both companies possessed an ownership interest, to
set up test facilities for the non-toxic rocket-fuel technology. To get Typhon’s test
labs operational, Firestar borrowed funds from Odyssey, which was memorialized
in three promissory notes from December 2010, April 2011, and June 2011. It is
undisputed that the notes were never repaid.

       In early 2012, Firestar was awarded a Small Business Innovative Research
(“SBIR”) Phase I contract by NASA, in which Odyssey performed certain work as
a “key subcontractor.” Though Odyssey performed all the work required by
September 2012, Firestar did not pay Odyssey until January 2014. NASA awarded
Firestar a SBIR Phase II contract in late 2012, in which Firestar again contracted
with Odyssey to perform some work. The original contract between Firestar and
Odyssey for this SBIR work was signed in January 2013. By March 2014, Odyssey
had completed all the Phase II work and invoiced Firestar for the work, though
       1
           Dave Strack and Brian Rishikof are the two owners of Odyssey Space Research, LLC.
       2
           Strack, Rishikof, and Mungas (as well as several other unrelated individuals) formed a
separate business entity, Innovative Space Propulsion Holdings (ISPH), for the purpose of
developing new fuel-system technology. Typhon Labs, LLC was set up to provide testing
facilities for the ISPH contracts and research. Strack and Rishikof created a separate corporate
entity, O-Star Propulsion, LLC, to invest in ISPH. However, for purposes of this opinion, we do
not fully delve into the complex relationship between the ownership of Odyssey and Firestar and
all the various entities that were created to structure investments and research.

                                               2
Firestar had not made any payment on those invoices. Mungas contacted Strack
and Rishikof and requested “novation” of the contract between Odyssey and
Firestar. He advised Strack and Rishikof that Firestar was struggling financially
and not able to pay its creditors.

       After negotiations, Firestar and Odyssey entered into an agreement on May
9th to address the obligations of Firestar to Odyssey under the SBIR contract for
the Phase II work completed. In addition to an expanded Phase II scope of work,
the agreement called for a joint-checking account to be set up under the control of
Strack and Rishikof. Firestar agreed to direct the entirety of the remaining Phase II
SBIR payments due from NASA to the joint account to ensure that Odyssey would
receive payment for its SBIR work. Following the May 9th agreement, Odyssey
was paid for three of the four invoices submitted to Firestar for Phase II SBIR
work. It is undisputed that Odyssey satisfactorily completed all the Phase II SBIR
work in February 2015. Mungas redirected the final payment from NASA in
February 2015 away from the joint account once work was complete. Odyssey was
never paid on its final invoice for the Phase II SBIR work.

       In December 2014, Odyssey filed suit against Firestar for recovery of the
monies owed to it under the three promissory notes. After Firestar redirected the
final payment for the SBIR work, Odyssey amended its petition to add its claims
for breach of contract, added Mungas as a defendant, and asserted alter-ego
liability against Mungas. The case was tried to a jury in March 2017, resulting in a
verdict in favor of Odyssey and against Firestar. The jury also found that Mungas
was liable for Firestar’s obligations based on a theory of alter-ego liability. The
trial court signed the final judgment on July 7, 2017.3

       3
        Mungas and Firestar filed a motion for new trial in August 2017, which was overruled
by operation of law. See Tex. R. Civ. P. 329b(c). Mungas then filed a Chapter 7 bankruptcy
                                             3
                                     II.    ANALYSIS

       Mungas presents three issues to this court. In issue 1, Mungas argues that he
is not personally liable for the promissory notes executed by Firestar and the
unpaid invoice owed by Firestar. In issue 2, he argues that the jury’s finding that
Mungas was responsible for Firestar’s debts was not supported by legally- or
factually-sufficient evidence. In issue 3, Mungas asserts the trial court erred by
denying Mungas’s motion for judgment notwithstanding the verdict and motion for
new trial. Because issue 1 does not identify any error in the trial court, it presents
nothing for us to review. Canton-Carter v. Baylor Coll. of Med., 271 S.W.3d 928,
931 (Tex. App.—Houston [14th Dist.] 2008, no pet.) (issues on appeal do not meet
requirements of Texas Rules of Appellate Procedure if they do not point out any
error allegedly committed by trial court). We turn to whether the jury’s finding that
Mungas was responsible for Firestar’s debts was supported by legally- and
factually-sufficient evidence.

A.     Standard of review

       When considering a legal-sufficiency challenge, we review the evidence in
the light most favorable to the jury’s finding, crediting favorable evidence if a
reasonable fact finder could do so and disregarding contrary evidence unless a
reasonable fact finder could not. City of Keller v. Wilson, 168 S.W.3d 802, 807,
822, 827 (Tex. 2005). When an appellant challenges the legal sufficiency of a
finding on which it did not have the burden of proof, it must show that there is no
evidence to support the finding. We will sustain a legal-sufficiency point if the
record shows that: (1) there is a complete absence of a vital fact; (2) the court is
barred by the rules of law or evidence from giving weight to the only evidence

proceeding in September 2017, which stayed the proceedings until April 2019. Mungas filed his
notice of appeal in this proceeding less than 30 days after the stay was lifted. See 11 U.S.C.
§ 108(c).
                                              4
offered to prove a vital fact; (3) the evidence offered to prove the vital fact is no
more than a scintilla; or (4) the evidence establishes conclusively the opposite of
the vital fact. Id. at 810. The jury is the sole judge of witness credibility and the
weight to be assigned to a witness’s testimony. Id. at 819.

B.    Statutory standards for individual liability
      Firestar is a limited-liability company. A member or manager of a
limited-liability company is not liable for the company’s debts, obligations, or
liabilities under a judgment, decree, or order of a court except to the extent the
company agreement specifically provides otherwise. See Tex. Bus. Orgs. Code
Ann. § 101.114. However, the principles and law applicable to disregarding the
corporate fiction apply to limited-liability companies. Tex. Bus. Orgs. Code Ann.
§ 101.002(a) (providing that section 21.223 applies to limited-liability companies
and their members).

      A bedrock principle of corporate law is that an individual can incorporate a
business and thereby normally be shielded from personal liability for the
corporation’s contractual obligations as a separate legal entity. See Willis v.
Donnelly, 199 S.W.3d 262, 271 (Tex. 2006). Under the common law, when the
corporation’s affiliate—such as an owner, shareholder, officer, or director—has
used the corporate form “as part of a basically unfair device to achieve an
inequitable result,” courts have been willing to disregard the corporate structure
and have allowed a corporate obligee to hold a corporate affiliate personally liable
for the corporation’s obligations. See, e.g., Castleberry v. Branscum, 721 S.W.2d
270, 271 (Tex. 1986). However, the legislature has taken a “stricter approach to
disregarding the corporate structure.” SSP Partners v. Gladstrong Invs. (USA)
Corp., 275 S.W.3d 444, 455 (Tex. 2008).

      The Business Organizations Code reflects the legislative limits on recovery

                                          5
from an individual based on a corporation’s obligations. See Tex. Bus. Orgs. Code
Ann. §§ 21.223, .224. The Business Organizations Code provides, in relevant part,
that:

              (a) A holder of shares, an owner of any beneficial interest in
        shares, or a subscriber for shares whose subscription has been
        accepted, or any affiliate of such a holder, owner, or subscriber or of
        the corporation, may not be held liable to the corporation or its
        obligees with respect to:
              ....
               (2) any contractual obligation of the corporation or any matter
        relating to or arising from the obligation on the basis that the holder,
        beneficial owner, subscriber, or affiliate 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; or
               (3) any obligation of the corporation on the basis of the failure
        of the corporation to observe any corporate formality, including the
        failure to:
                     (A) comply with this code or the certificate of formation
                     or bylaws of the corporation; or
                     (B) observe any requirement prescribed by this code or
                     the certificate of formation or bylaws of the corporation
                     for acts to be taken by the corporation or its directors or
                     shareholders.
Id. § 21.223(a)(2), (a)(3). Section 21.223(b) provides the following
exception to the statutory protection.
                Subsection (a)(2) does not prevent or limit the liability of a
        holder, beneficial owner, subscriber, or affiliate if the obligee
        demonstrates that the holder, beneficial owner, subscriber, or affiliate
        caused the corporation to be used for the purpose of perpetrating and
        did perpetrate an actual fraud on the obligee primarily for the direct
        personal benefit of the holder, beneficial owner, subscriber, or
        affiliate.

                                           6
Id. § 21.223(b).4 This statute is “exclusive and preempts any other liability
imposed for that obligation under common law or otherwise.” Tex. Bus. Orgs.
Code Ann. § 21.224. “Generally, alter ego will not apply to disregard the corporate
form absent exceptional circumstances.” Nugent v. Estate of Ellickson, 543 S.W.3d
243, 266 (Tex. App.—Houston [14th Dist.] 2018, no pet.).

C.     The jury question is the measure for the sufficiency of the evidence

       Question No. 6—the question on alter-ego liability—submits the standards
set forth in Texas Pattern Jury Charges 108.1 and 108.2, as well as Business
Organizations Code section 21.223. See Tex. Bus. Orgs. Code Ann. § 21.223;
Comm. on Pattern Jury Charges, State Bar of Tex., Texas Pattern Jury Charges:
Business PJC 108.1, 108.2 (2018). The jury was presented with following question
on alter-ego liability:

       Question No. 6

       Is Greg Mungas responsible for the conduct of Firestar?

           Greg Mungas is “responsible” for the conduct of Firestar if:

               a) Firestar was organized and operated as a mere tool or business
                  conduit of Greg Mungas;
               b) there was such unity between Firestar and Greg Mungas that the
                  separateness of Firestar had ceased and holding only Firestar
                  responsible would result in injustice; and
               c) Greg Mungas caused Firestar to be used for the purpose of
                  perpetrating and did perpetrate an actual fraud on Odyssey

       4
           Section 21.225 provides two additional exceptions to section 21.223’s liability
limitation. See Tex. Bus. Orgs. Code Ann. § 21.225. Section 21.223 “does not limit the
obligation of a holder, beneficial owner, subscriber, or affiliate to the obligee of the corporation
if that person: (1) expressly assumes, guarantees, or agrees to be personally liable to the obligee
for the obligation; or (2) is otherwise liable to the obligee for the obligation under this code or
other applicable statute.” Id. The parties do not assert these exceptions apply in this case, and we
do not address them in our analysis.

                                                 7
                   primarily for the direct personal benefit of Greg Mungas.

       In deciding whether there was such unity between Firestar and Greg Mungas
       that the separateness of Firestar had ceased, you are to consider the total
       dealings of Firestar and Greg Mungas, including:
              a) the degree to which Firestar’s property had been kept separate from
                  that of Greg Mungas;
              b) the amount of financial interest, ownership, and control Greg
                 Mungas maintained over Firestar; and
              c) whether Firestar had been used for personal purposes of Greg
                 Mungas.
       Answer “Yes” or “No.”

       The jury answered “Yes” in response to Question 6. Because Mungas did
not object to Question 6, the charge as submitted is the proper measure of the
sufficiency of the evidence.5 See Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex. 2000).

       The jury charge provided three elements that were required in order to
support the imposition of individual liability on the part of Mungas: (1) Firestar
was organized and operated as mere tool or business conduit of Greg Mungas;
(2) there was such unity between Firestar and Greg Mungas that the separateness
of Firestar has ceased and holding only Firestar responsible would result in
injustice; and (3) Greg Mungas caused Firestar to be used for the purpose of
perpetrating and did perpetrate an actual fraud on Odyssey primarily for the direct
personal benefit of Greg Mungas.6 In this appeal, Mungas challenges the

       5
        Mungas did challenge the sufficiency of the evidence to support this question but there
was no objection by any party to the form of the question.
       6
          Mungas complains that Odyssey relies on old case law that has been superseded by
statute. While some precedent including Castleberry v. Branscum has been overruled in part by
the legislature, Castleberry remains precedential in some respects as discussed further herein.
721 S.W.2d 270 (Tex. 1986). Mungas’s cursory dismissal of any case law predating the
legislature’s 1989 amendment to the Business Corporation Act (predecessor statute to Business
Organizations Code) is misplaced. See Act of May 26, 1989, 71st Leg., R.S., ch. 217, § 1, 1989
Tex. Gen. Laws 974, 974–75 (expired January 1, 2010).

                                              8
sufficiency of the evidence supporting the first and third elements. We begin with
the third element.

D.    Evidence of direct personal benefit resulting from fraud

      The jury charge, consistent with statute, required supporting evidence that
Mungas perpetrated an actual fraud on Odyssey primarily for his direct personal
benefit. See Tex. Bus. Orgs. Code Ann. § 21.223; see also Viajes Gerpa, S.A. v.
Fazeli, 522 S.W.3d 524, 532 (Tex. App.—Houston [14th Dist.] 2016, pet. denied).
The term “actual fraud” appearing in the jury charge is not defined. The term as
used in section 21.223(b) is also not defined. In Castleberry v. Branscum, the
supreme court defined actual fraud in the context of piercing the corporate veil as
“involving dishonesty of purpose or intent to deceive.” 721 S.W.2d at 273. This
court and several others have endorsed the Castleberry definition of “dishonesty of
purpose or intent to deceive” for addressing claims of alter-ego liability. See
TecLogistics, Inc. v. Dresser-Rand Group, Inc., 527 S.W.3d 589, 598 (Tex. App.—
Houston [14th Dist.] 2017, no pet.) (“Actual fraud usually involves dishonesty of
purpose or intent to deceive”); Solutioneers Consulting, Ltd. v. Gulf Greyhound
Partners, Ltd., 237 S.W.3d 379, 387 (Tex. App.—Houston [14th Dist.] 2007, no
pet.); TransPecos Banks v. Strobach, 487 S.W.3d 722, 731 (Tex. App.—El Paso
2016, no pet.) (“[R]elying on the language in Castleberry, this Court has, along
with several of our sister courts, recognized that the actual fraud requirement in the
Code involves “dishonesty of purpose or intent to deceive[.]”).

      1. Promissory notes

      We first consider whether Mungas used Firestar to perpetrate an actual fraud
on Odyssey for his direct personal benefit. Odyssey argues that Mungas acted with
“dishonesty of purpose or intent to deceive” because “he was having Firestar
borrow money while he had Firestar paying himself for purported loans.” Odyssey
                                          9
further argues that a reasonable jury could believe that Mungas engaged in those
actions for his own benefit. In response, Mungas argues he did not utilize Firestar
to engage in any fraudulent conduct, nor did he receive any personal benefit with
respect to the promissory notes. In addition, he argues that Odyssey knew it was
dealing with a limited-liability company and did not request a guarantee or
security.

      This court’s precedent is instructive. In Viajes Gerpa, we considered the
legal sufficiency of the evidence supporting an alter-ego theory to pierce the
corporate veil and impose personal liability on an individual. 522 S.W.3d at 533–
35. Underlying the dispute in Viajes Gerpa was a 2007 settlement agreement that
required The Ticket Company and its president, Seyed Fazeli, to remit payments to
the plaintiff and other travel agencies to compensate for a failure to procure tickets
to the World Cup tournament. Id. at 527–28. After The Ticket Company failed to
make its required payments, the plaintiff sued Fazeli and others alleging that Fazeli
was individually liable under section 21.223 for The Ticket Company’s debts
created pursuant to the 2007 settlement agreement. Id. at 529 (citing Tex. Bus.
Orgs. Code Ann. § 21.223). The jury returned a verdict for the plaintiff on its
alter-ego claim, on which the court rendered judgment. Id. at 529–530. On the
defendants’ subsequent motion for new trial, the trial court vacated the judgment
and rendered a take-nothing judgment in favor of Fazeli and The Ticket Company.
Id. at 530.

      In affirming the trial court, we explained: “[T]o support individual liability
under section 21.223, there must be evidence of direct personal benefit to [Fazeli]
resulting from fraud in connection to The Ticket Company and the [settlement
agreement] with [the plaintiff.]” Id. at 534. The evidence showed that Fazeli used
The Ticket Company’s funds to pay his mortgage, and the Company’s banking

                                         10
records reflected regular large cash withdrawals. Id. at 533. Concluding that the
evidence was legally insufficient to support individual liability under section
21.223, we stated that the evidence “reflect[ed] general (mis)handling of corporate
accounts, record keeping, and operations,” but failed to demonstrate that any
fraudulent conduct was related to the 2007 settlement agreement. Id. at 535.

      Similarly, the jury charge—tracking the language of section 21.223—
required supporting evidence in the record of a direct personal benefit to Mungas
resulting from fraud in connection to Odyssey and the promissory notes. Viajes
Gerpa, 522 S.W.3d at 534. Odyssey cites the fact that Mungas made “transfers” to
and from himself in the same year that he borrowed funds from Odyssey. Odyssey
claims this pattern of loans and repayments to avoid tax liability, as well Mungas’s
testimony that he renewed his loans to extend the statute of limitations, reflects a
direct personal benefit to Mungas. However, even if Mungas’s actions in extending
statutes of limitation on his loans to the company conferred a direct personal
benefit to Mungas, Odyssey did not produce any evidence that this benefit was had
in connection with fraud perpetrated on Odyssey. The promissory notes were
executed in favor of Odyssey for the purpose of securing and preparing testing
facilities for Typhon. Mungas testified that all three promissory notes were used
for securing the facilities and equipment. Though Dave Strack of Odyssey testified
that Mungas originally represented that the third promissory note was to be used
for an intellectual-property payment, rather than equipment, Odyssey does not
contend that Firestar or Mungas failed to set up those facilities or secure the
equipment or intellectual property required for Typhon. Though Strack did testify
there were differences of opinion as to the cost of equipment purchased for
Typhon, this testimony does not provide evidence of dishonesty of purpose or

                                        11
intent to deceive.7

       That Mungas renewed loans he made to Firestar during the same year that
Firestar executed the promissory notes to Odyssey is not enough to establish actual
fraud on the part of Mungas in connection with the promissory notes. The evidence
may reflect financial mismanagement of funds, as in Viajes Gerpa, or it may
reflect that Firestar anticipated raising more funds or securing revenue streams that
never came to fruition.8 Regardless, the evidence is not legally sufficient to support
the conclusion that Mungas used Firestar to perpetrate a fraud on Odyssey in
connection with the promissory notes. See Viajes Gerpa, 522 S.W.3d at 535;
Solutioneers Consulting, 237 S.W.3d at 389 (“Moreover, even if we assume
maintaining a personal salary from or ownership interest in Solutioneers—by
misappropriating the Miller sponsorship payment in order to keep Solutioneers
afloat—constitutes a direct personal benefit . . . , we find no evidence in the record
regarding any salary Haynes received from Solutioneers or any evidence
illustrating how Haynes’s conduct surrounding the Miller transaction affected this
salary.”); Menetti v. Chavers, 974 S.W.2d 168, 175 (Tex. App.—San Antonio
1998, no pet.) (“What the evidence abundantly shows is that the Menettis were
careless bookkeepers and perhaps enjoyed the tax advantages of living off their
corporate funds with little effort to preserve the corporate fiction. . . [w]hat the

       7
          Odyssey also argues that Mungas made misrepresentations to Odyssey regarding
Tyhpon’s rent, the cost of a consultant completing work for Typhon, misrepresenting accounts
payable for “various of the entities,” failing to disclose alleged loans from Firestar to Typhon and
presenting invoices to be paid. However, Odyssey generally cites to these misrepresentations to
demonstrate that Mungas was not credible. Odyssey does not contend these misrepresentations
were made in connection to either the promissory notes or the May 9th agreement. Because these
misrepresentations do not relate to the transactions at issue, they are not evidence supporting the
jury’s finding of alter-ego liability in this case.
       8
       Mungas and Strack both testified that one of the main goals in setting up ISPH and
Typhon was to secure a major long-term Defense Advanced Research Projects Agency
(DARPA) subcontract. However, ISPH was ultimately not included in the DARPA contract.

                                                12
record does not show is that the Menettis committed actual fraud against the
Chaverses that would justify piercing the corporate veil.”).

      2. Odyssey’s unpaid SBIR work pursuant to the May 9th agreement

      Turning to Firestar’s breach of the May 9th agreement, there is no dispute
that Firestar did not make the final payment as required by the agreement. Mungas
admitted that he redirected the payment from NASA but asserts there is no
evidence of fraudulent conduct on his part. Firestar paid three of the four invoices
for the Phase II SBIR covered by the May 9th agreement, which Mungas relies on
as evidence that he did not perpetrate an actual fraud on Odyssey by entering into
the May 9th agreement. Because Odyssey had already filed suit on the promissory
notes when the final invoice was due, Mungas argues his withholding of the final
payment was tied to the dispute between the parties.

      Emphasizing that Mungas waited until the Phase II SBIR work was
complete before redirecting the final payment, Odyssey maintains that Mungas
satisfied the fraud requirement by acting “with dishonesty of purpose” by failing to
advise Odyssey that he was going to redirect the final payment. Odyssey further
argues the evidence at trial established that Mungas misdirected the final payment
to Odyssey for his own benefit, to pay himself on loans. However, as discussed
with regard to the promissory notes, Odyssey had the burden to support its
alter-ego claim with evidence of a direct personal benefit to Mungas resulting from
actual fraud in connection to Odyssey and the May 9th agreement. See Viajes
Gerpa, 522 S.W.3d at 534; see also Menetti, 974 S.W.2d at 175; Ocram, Inc. v.
Bartosh, No. 01-11-00793-CV, 2012 WL 4740859, at *3 (Tex. App.—Houston
[1st Dist.] Oct. 4, 2012, no pet.). The transaction at issue is the May 9th agreement,

                                         13
not Mungas’s later actions resulting in Firestar’s breach of contract.9 The only
conduct identified by Odyssey as evidence of actual fraud in connection with the
May 9th agreement was Mungas’s failure to advise Odyssey that he intended to
redirect the payment, which occurred well after the parties entered the agreement.

       The testimony at trial does not reflect that Mungas engaged in any
dishonesty of purpose or intent to deceive in connection with the May 9th
agreement. Mungas approached Strack and Rishikof requesting “novation” of the
contract for SBIR work in March 2014. At the time, Mungas testified that Firestar
had approximately $500,000 to $700,000 in debt. Leading up to the May 9th
agreement, Mungas communicated to Strack and Rishikof that Firestar was not
able to pay existing debt. Mungas described a situation in which Firestar did not
have adequate income streams to pay its expenses. He further described that the
related entities in which Odyssey was involved, Typhon and ISPH, were also
unable to cover their costs and owed significant debt to Firestar. Mungas explained

       9
         There are two transactions involved in this lawsuit: the promissory notes and the May
9th agreement. With respect to the SBIR work, the jury charge included the following question:
       Question No. 2
       Did Firestar fail to comply with the May 9 Agreement?
       A failure to comply must be material. The circumstances to consider in determining
       whether a failure to comply is material include:
              a) the extent to which the injured party will be deprived of the benefit which it
              reasonably expected;
              b) the extent to which the injured party can be adequately compensated for the
              part of that benefit of which it will be deprived;
              c) the extent to which the party failing to perform or to offer to perform will
              suffer forfeiture;
              d) the likelihood that the party failing to perform or to offer to perform will
              cure its failure, taking into account the circumstances including any
              reasonable assurances; and
              e) the extent to which the behavior of the party failing to perform or to offer to
              perform comports with standards of good faith and fair dealing.
       Answer “Yes” or “No.”

                                              14
Firestar’s financial condition in part as attributable to working on “projects that
don’t pay (and have a long history on the books of doing so).” Rishikof also
testified that during the negotiations of the May 9th agreement he was concerned
there was significant likelihood that Odyssey might be unpaid on the expanded
scope of work agreed to in the May 9th agreement. Assuming Firestar breached the
May 9th agreement, any such breach by Firestar standing alone is not enough to
disregard the corporate fiction.

      The record does not reflect that Mungas induced Odyssey into entering an
agreement that Firestar had no intention of honoring. It is undisputed that Firestar
paid Odyssey for all the work it performed under the Phase I SBIR and three of the
four invoices submitted by Odyssey for the Phase II SBIR work. Though many of
the payments due to Odyssey were paid late; this course of dealing does not
support a finding that Mungas used Firestar to perpetrate a fraud on Odyssey. It is
also noteworthy that Odyssey was aware that Firestar was struggling financially
and unable to service its existing debt. Despite this knowledge, Odyssey entered
the May 9th agreement and expanded its scope of work without seeking a personal
guaranty. Cf. TransPecos Banks, 487 S.W.3d at 733 (“The Bank was therefore
aware of the possibility that if Jones defaulted on virtually any of his loans, these
senior deeds would be foreclosed on, which would in turn cause the domino effect
of extinguishing the 2003 junior deed as well, thereby taking away the
Corporation’s only asset.”). Therefore, we conclude the evidence is not legally
sufficient to support the jury’s finding that Mungas used Firestar to perpetrate an
actual fraud on Odyssey in connection with the May 9th agreement. Because we
conclude there is no evidence supporting the third element, we do not address the
parties’ arguments as to the first element—whether Firestar was organized and
operated as mere tool or business conduit of Mungas. Tex. R. App. P. 47.1.

                                         15
      We sustain Mungas’s issue 2. Because we have determined that the evidence
is legally insufficient to support the jury’s “yes” answer in response to Question
No. 6, we do not address Mungas’s factual-sufficiency challenge or issue 3. See
Tex. R. App. P. 47.1.

                                   III.         CONCLUSION

      We reverse the trial court’s judgment and render a take-nothing judgment on
Odyssey’s claims against Mungas.

                                          /s/     Charles A. Spain
                                                  Justice

Panel consists of Justices Hassan, Spain, and Poissant.

                                            16