Court Opinion

ID: 9734454
Source: CourtListenerOpinion
Date Created: 2023-08-26 17:35:19.387326+00
Date Added: 2024-06-11T18:26:48.776624
License: Public Domain

TERRY JENNINGS, Justice,
dissenting.
Because the majority errs in concluding that the evidence is legally sufficient to support the jury’s finding that appellant, Marcie McCarthy, primarily for her own direct personal benefit, caused Triple M Supply, LLC (“TMS”) to be used to perpetrate an actual fraud, and did perpetrate an actual fraud upon appellee, Wani Venture, A.S., as successor in interest to Nor-gips USA, Inc. (collectively “Norgips”), I respectfully dissent.
In her fourth issue, McCarthy argues that the trial court erred in entering judgment against her because there is no evidence that she was a substantial factor in causing Norgips’s injury, that she caused TMS to be used to perpetrate a fraud, and that a fraud was committed “primarily for her own direct personal benefit.” In sum, she contends that there is no evidence that she “knew of any alleged ‘fraudulent scheme,’ much less being a substantial factor, in bringing about the injury to Nor-gips, or that money [she] received was related to any fraudulent scheme.”
Standard of Review
We must sustain a legal sufficiency or “no-evidence” challenge if the record shows one of the following: (1) a complete absence of evidence of a vital fact, (2) rules of law or evidence bar the court from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex.2005). Evidence does not exceed a scintilla if it does no more than create a mere surmise or suspicion that a fact exists. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex.2004). If the evidence at trial would enable reasonable and fair-minded people to differ in their conclusions, then jurors must be allowed to do so. City of Keller, 168 S.W.3d at 822. In conducting a legal sufficiency review of the evidence, a court must consider all of the evidence in the light most favorable to the verdict and indulge every reasonable inference that would support it. Id.
As further explained by the Texas Supreme Court,
The evidence presented, viewed in the light most favorable to the prevailing party, must be such as to permit the logical inference [that the jury must reach]. There must necessarily be a logical connection, direct or inferential, between the evidence offered and the fact to be proved. However, we must also bear in mind the difference between materiality of the evidence and the issue of evidentiary sufficiency. Simply because a piece or pieces of evidence are material in the sense that they make a “fact that is of consequence to the determination of the action more ... or less probable,” does not render the evidence legally sufficient.
Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 24-25 (Tex.1994) (citations omitted). As Professor McCormick emphasized, “a brick is not a wall.” Id. (quoting Charles T. McCormick, HaNdboox of the Law of Evidence § 152 (West ed.1954)).
Actual Fraud
Generally, under Texas law, shareholders are not liable for the debts of a corporation; however, Texas courts will pierce the corporate veil to prevent fraud or to achieve equity. Castleberry v. Branscum, 721 S.W.2d 270, 271-72 (Tex.1987). In particular, courts will disregard the corporate fiction when individuals exploit the *593corporate form as a sham to perpetrate a fraud. Id. at 272. In response to Castle-berry, the Texas Legislature amended article 2.21 of the Texas Business Corporations Act in 1989 to establish “a clear legislative standard under which the liability of a shareholder for the obligations of a corporation is to be determined in the context of contractual obligations and all matters relating thereto.” Tex. Bus. Corp. Act Ann. art 2.21, Comment of Bar Committee-1996 (Vernon 2003).
Under article 2.21A, a shareholder has no obligation to the obligees of a corporation regarding any contractual obligation of the corporation on the basis of actual or constructive fraud or a sham to perpetrate a fraud, “unless the obligee demonstrates that the [shareholder] ... caused the corporation to be used for the purpose of perpetuating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the [shareholder].... ” Id. art. 2.21A(2) (emphasis added). Actual fraud occurs when:
a. a party conceals or fails to disclose a material fact within the knowledge of that party,
b. the party knows that the other party is ignorant of the fact and does not have an equal opportunity to discover the truth,
c. the party intends to induce the other party to take some action by concealing or failing to disclose the fact, and
d. the other party suffers injury as a result of acting without knowledge of the undisclosed fact.
Bradford v. Vento, 48 S.W.3d 749, 754-55 (Tex.2001). The test for cause in fact is whether an “act or omission was a substantial factor in bringing about injury,” without which the harm would not have occurred. Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 477 (Tex.1995).
In accordance with article 2.21A(2) and case law, the trial court instructed the jury on actual fraud and to answer the following question:
Did Marcella McCarthy cause Triple M Supply, LLC to be used to perpetrate an actual fraud, and did perpetrate an actual fraud upon Norgips, primarily for her own direct personal benefit?
For purposes of this question, you are instructed that to “cause” is to be a substantial factor in bringing about an injury that would otherwise not have occurred. There can be more than one cause.
The jury answered this question, “Yes.”
Thus, Norgips had the burden to prove that McCarthy actually did in fact cause TMS to be used to defraud Norgips primarily for her own direct personal benefit. Here, however, there is no evidence that McCarthy did anything or omitted to do anything to actually cause TMS to be used to perpetrate an actual fraud, and did perpetrate an actual fraud, upon Norgips. Nor is there any evidence that she did any such thing “primarily for her own direct personal benefit.”
Norgips argues that the evidence is legally sufficient to support the jury’s finding essentially because McCarthy (1) provided $391,000 as seed money to start up TMS as proposed by her boyfriend, Michael Moschella, and his brother, Anthony Moschella; (2) admitted that “[d]uring the maiden year for [TMS],” she took an active role in the business,” was vice president, and, held a one-third interest in it; (3) accepted “both pay checks and benefits from the third party employee leasing company as salary” and checks from JTM Supply and TMS as her “director’s fee” or “officer’s draw”; (4) “went to dinner with Michael and Steve Klubak in Florida”; (5) knew that TMS was paying the debts of other companies; (6) accepted checks from *594TMS “as payment on secured debt owed by JTM”; (7) claimed that Anthony Mos-chella stated that “he could do whatever he wanted with the money in any of the companies’ accounts”; (8) although she “reduced her hands-on activities,” she “condoned through her silence and inaction, Anthony’s total disregard of his representation to the State of Texas and Norgips that [TMS] had been organized to conduct ‘lawful business’ (9) “did not combine the power of her third ownership with the third ownership of her boyfriend Michael, to take control of the company and conduct its business lawfully”; (10) did not hire an accountant, invoke her rights to see a complete set of company books and records, resign as vice president, or assign or give away her interest in TMS; and (11) she “got her money back” and was made whole at the expense of TMS. In sum, “she took the route that she thought was the best way to protect her own initial contribution of $391,000, her fees, her salary, and her benefits.”
However, none of this evidence, taken separately or together, supports a logical inference that McCarthy in fact caused TMS to be used to perpetrate an actual fraud, and did perpetrate an actual fraud, upon Norgips, primarily for her own direct personal benefit. In fact, Norgips concedes in its briefing to this Court that McCarthy “would not admit that she knew anything about Norgips or TMS’s transfer of funds in the year 2000.” Although Nor-gips asserts that the jury was free to disbelieve her denial of knowledge, it directs us to no evidence in the record that supports an inference that she in fact had knowledge of Anthony Moschella’s dealings with Norgips.
The majority acknowledges that McCarthy testified that her involvement in the daily affairs of TMS actually ceased in late 1999 or early 2000, she did not regularly attend board meetings, and was unaware of TMS’s purchase agreement with Nor-gips until Norgips filed the instant suit. It also notes that she received her last officer’s check in April 2000, before TMS received delivery of Norgips’s wallboard.
Nevertheless, the majority holds that the evidence is legally sufficient to support the jury’s finding. It notes that McCarthy had contributed $391,000 to TMS as a start-up business; accepted interest payments on her loan and was ultimately fully repaid, at the expense of Norgips and other creditors; was an “equal participant and director in most of the entities that participated in defrauding Norgips”; received health insurance, a salary, officers’ draws, and interest payments as compensation from TMS; and knew that TMS “was paying the debts of other companies.” Most importantly, the majority asserts that McCarthy was “aware of the fraudulent business practices of Anthony Mos-chella, including using one entity to pay another’s bills.” The majority concludes that the fraudulent operation of TMS “simply would not have been possible without McCarthy’s contributions” and faults her for doing nothing to stop the practices of Anthony Moschella.
When the majority makes the concluso-ry statement that McCarthy “was aware of the fraudulent business practices of Anthony Moschella,” the only evidence in the record of her knowledge of his activities is that, as testified to by McCarthy herself, she “[d]idn’t like the way Tony did things.” She was asked, “what was the source of the clash between you that led to your leaving the office?” McCarthy answered, “the interest checks were paid to me and I would question him about why one company was paying interest that another company owed the debt and he would just shrug me off. He wouldn’t give me answers and stuff like that.” She did know that TMS was paying JTM’s debt; howev*595er, McCarthy also testified that she took issue with the fact that Anthony Moschella said he could run the business the way he wanted to and “[n]o matter what I said or did I couldn’t get results from him for anything.” However, although the majority characterizes this testimony as knowledge of “the fraudulent business practices of Anthony Moschella,” McCarthy actually testified that she was not even aware of the fact that TMS placed an order with Norgips for sheet rock until after this lawsuit was filed. Nothing in the record contradicts her testimony or otherwise shows that she had any knowledge of the Moschella brothers’ actions in regard to Norgips.
The bottom line is that none of the evidence relied upon by Norgips and the majority supports an inference that McCarthy actually did anything whatsoever to intentionally or knowingly cause TMS to be used to perpetrate an actual fraud, and did perpetrate an actual fraud upon Norgips, primarily for her own direct personal benefit. As argued by McCarthy, there is simply no evidence that she caused TMS to be used to perpetrate a fraud, that a fraud was committed “primarily for her own direct personal benefit,” or that any omission by her was a substantial factor in bringing about Nor-gips’s injury.
Simply because Norgips presented many pieces of evidence that might be considered material does not mean that the evidence is legally sufficient to support the jury’s findings. See Moriel, 879 S.W.2d at 24-25. There is simply no evidence in the record that McCarthy actually exploited the corporate form of TMS as a sham to perpetrate a fraud upon Norgips for her own personal gain. Thus, although the majority has a lot of scattered bricks, it has no wall. See id.
Accordingly, I would sustain McCarthy’s fourth issue, reverse the judgment of the trial court, and render judgment in favor of McCarthy.