Court Opinion

ID: 3169911
Source: CourtListenerOpinion
Date Created: 2016-01-15 17:52:51.149318+00
Date Added: 2024-06-11T12:16:12.241830
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                       NO. 03-14-00116-CV

                      Steve Key; Pat Curry; PJC Properties, L.L.C.; and
                     PJC Central Texas Freight Lines, L.L.C., Appellants

                                                  v.

            Daniel R. Richards, as Receiver for Centex Freight Lines, L.L.C. and
                                 Prudence Adams, Appellees

            FROM THE COUNTY COURT AT LAW NO. 1 OF TRAVIS COUNTY,
       NO. C-1-CV-12-000159, HONORABLE J. DAVID PHILLIPS, JUDGE PRESIDING

                             MEMORANDUM OPINION

               Steve Key, Pat Curry, PJC Properties, L.L.C. (PJC Properties), and PJC Central Texas

Freight Lines, L.L.C. (PJC Centex), appeal the trial court’s final judgment awarding damages and

equitable relief on appellees’ fraudulent-transfer and veil-piercing claims. Appellants argue that the

trial court improperly applied the veil-piercing doctrine to impose individual liability on Key and

Curry, that the evidence was insufficient to support the jury’s fraudulent-transfer finding, and that

appellees’ claims were barred by the applicable statute of limitations. We will affirm the judgment.

               After unsuccessful attempts to collect on a judgment that she obtained against

Centex Freight Lines, L.L.C. (Centex) in a lawsuit alleging sexual harassment and retaliatory

discharge, Prudence Adams and court-appointed receiver for Centex, Daniel R. Richards, filed this

lawsuit alleging appellants’ fraudulent transfer of Centex’s assets to its owners’ alter-ego company,
PJC Properties,1 for the unlawful purpose of evading payment of the judgment. The challenged

transaction was a foreclosure and sale of Centex’s assets to PJC Properties after default on a loan

purportedly secured by all of Centex’s assets. The jury found that the asset transfer was fraudulent

under the Uniform Fraudulent Transfer Act (UFTA) because PJC Properties did not have an

enforceable security interest in the assets and that, therefore, Centex did not receive “reasonably

equivalent value” in exchange for the assets. See Tex. Bus. & Com. Code § 24.006(a). The jury also

found that Key, Curry, and PJC Properties were “responsible” for the unfair conduct of Centex,

PJC Properties, and PJC Centex and that holding only Centex responsible for liability on the Adams

judgment would result in injustice. Accordingly, the trial court awarded Adams damages in the full

amount of her prior judgment jointly and severally against Key, Curry, and PJC Properties as well

as attorney’s fees and awarded the receiver possession and title of all assets owned or held by

Centex as of the date of the Adams judgment.

Fraudulent-transfer finding

               Appellants contend that there was legally and factually insufficient evidence to

support the jury’s finding in Question 1 that the transfer of Centex’s assets to PJC Properties was

fraudulent as to Adams. Specifically, they complain that the evidence was insufficient to support

the necessary finding that PJC Properties did not have an enforceable security interest in Centex’s

assets. See id. Appellants argue that appellees’ claim about the security interest was based merely

       1
          Curry owns 99% of PJC Properties, and Key owns the remaining 1%. PJC Properties
wholly owns PJC Centex. According to its company agreement and IRS records, Centex (no longer
an active entity) was wholly owned by Walkabout Transportation, LLC, which, in turn, was wholly
owned by Curry (although Key testified in his deposition that Walkabout was owned 41% by Key,
49% by PJC Properties, and 10% by an individual not party to this suit).

                                                 2
on suspicion rather than evidence, based on attempts at trial to characterize the “primary evidence”

(in the form of a signed promissory note, dated before the Adams judgment, in which Centex gave

PJC Properties a security interest in its assets) as a sham document that had been backdated.

                After reviewing the record, we conclude that there was sufficient evidence to support

the jury’s finding. Evidence at trial included the following: responses to post-judgment discovery

after the first trial in which Key stated that there was no property of Centex that had been pledged

as security for a debt and no documents referring to any liabilities of Centex or assets securing

any debts; two UCC financing statements noting a purported security interest in certain trucks

and in all of Centex’s property that were filed, respectively, just before the initial lawsuit and the

day after the jury reached its verdict in the first lawsuit; Key’s testimony in his May, 2011 deposition

that the only documents of which he was aware or had ever seen identifying PJC Properties as a

secured lender were the two financing statements;2 the inability of Lynn Maxwell and Curry, the

two individuals who maintain business records of PJC Properties, to produce a promissory note

or security agreement or to identify their existence or location during their depositions; and

inconsistency between the terms of the promissory note that appellants eventually produced (dated

2007) requiring annual payments and Key’s deposition testimony indicating that the loan required

monthly payments. The jury was free to believe evidence such as this, disbelieve trial testimony

and documentary evidence to the contrary, and conclude that the purported security interest was a

sham. See City of Keller v. Wilson, 168 S.W.3d 802, 807, 827-28 (Tex. 2005) (in legal-sufficiency

       2
         The financing statements could not have created a security interest because they are not
signed by the debtor as required by the UCC. See Tex. Bus. & Com. Code § 9.203(b)(3)(A).

                                                   3
review, we must view evidence in light most favorable to verdict, crediting favorable evidence if

reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not);

Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (in factual-sufficiency review, we may set aside

verdict only if evidence that supports jury finding is so weak as to be clearly wrong and manifestly

unjust). We overrule appellants’ third issue.

Piercing the corporate veil

               Appellants also argue that the trial court improperly pierced the corporate veil to

impose individual liability against Key and Curry. We begin our discussion of this issue by noting

the longstanding common law in Texas recognizing that courts may disregard the corporate structure

and hold a corporate agent responsible for corporate liabilities “when the corporate form has

been used as part of a basically unfair device to achieve an inequitable result.” SSP Partners v.

Gladstrong Investments (USA) Corp., 275 S.W.3d 444, 454 (Tex. 2008) (noting that Texas law has

long permitted corporate structure to be disregarded on showing of constructive fraud, citing

Castleberry v. Branscum, 721 S.W.2d 270, 271-72 (Tex. 1986), and that legislature’s amendments

to former Business Corporations Act began requiring actual fraud to disregard structure for

corporation’s contractual obligations); see also Shook v. Walden, 368 S.W.3d 604, 614 (Tex.

App.—Austin 2012, pet. denied) (noting that “Texas courts . . . have uniformly held (or at least

assumed) that an LLC’s veil could be pierced under extra-statutory equitable principles, although

the Texas Supreme Court has yet to definitively address that question”); McCarthy v. Wani Venture,

A.S., 251 S.W.3d 573, 590 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) (noting that, despite

LLC statute providing that members are not individually liable for obligations of LLC, “Texas courts

                                                 4
and other jurisdictions . . . have applied to LLCs the same state law principles for piercing the

corporate veil that they have applied to corporations.”).

               Secondly, we note the well-established rule in Texas that—independently of the

equitable doctrine of veil-piercing—an entity’s agent is personally liable for his own fraudulent or

tortious acts. See Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002); Leyendecker & Assocs., Inc.

v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984); JJJJ Walker, LLC v. Yollick, 447 S.W.3d 453, 470

(Tex. App.—Houston [14th Dist.] 2014, pet. filed); Sanchez v. Mulvaney, 274 S.W.3d 708, 712

(Tex. App.—San Antonio 2008, no pet.). Thus, the corporate veil “is not required to be pierced” in

an action seeking to hold a corporate agent individually liable for his tortious or fraudulent acts.

Sanchez, 274 S.W.3d at 712 (drawing distinction between contract claims, for which plaintiff may

pierce LLC’s veil upon showing of actual fraud, and tort claims, for which LLC member is

individually liable for own tortious acts); see also Shook, 368 S.W.3d at 621 (noting that case

law and legislature have long recognized distinction “between the perceived relative equities of

veil-piercing claimants who are asserting tort theories of recovery versus those suing in contract”).

               Here, the relevant jury questions and instructions (Questions 2 and 3) inquiring

whether appellants were “responsible” for the conduct of PJC Properties and Centex defined

“responsible” as, among other illustrations, “transferr[ing] the assets . . . to avoid a judgment or

debt” or “us[ing] the entity as a means of evading an existing legal obligation.”3 We conclude that

       3
         Questions 2 and 3, respectively, inquired whether each Curry and Key were “responsible
for [Centex LLC, PJC Properties, or PJC Centex’s] conduct” and provided a separate “yes” or “no”
answer line with respect to each entity. The instructions provided the following definitions of being
“responsible” for an entity’s conduct:

                                                 5
the jury’s affirmative finding in Question 1 that a fraudulent transfer occurred, combined with an

affirmative finding to Questions 2 and 3 finding Key and Curry responsible for such tortious conduct,

support imposing individual liability on Key and Curry. See Walker v. Anderson, 232 S.W.3d 899,

918 (Tex. App.—Dallas 2007, no pet.) (fraudulent transfer of assets is tort); In re Texas Am.

Express, Inc., 190 S.W.3d 720, 725 (Tex. App.—Dallas 2005, orig. proceeding) (same). While the

instructions in Questions 2 and 3 tracked language in veil-piercing case law, see, e.g., SSP Partners,
275 S.W.3d at 451, it was not necessary for the trial court to employ the equitable doctrine to impose

individual liability on Key and Curry in light of the jury’s findings and on this record; Key and

Curry are individually liable for their own tortious conduct in participating in and directing the

wrongdoing.4 See Walker, 232 S.W.3d at 918.

        [Defendant] used the entity as a sham to perpetrate a fraud, and holding only the
        entity responsible would result in injustice, or

        [Defendant] used the entity as a means of evading an existing legal obligation, and
        holding only the entity responsible would result in injustice, or

        [Defendant] used the entity as a means of circumventing a statute, and holding only
        the entity responsible would result in injustice, or

        [Defendant] used the entity to protect a crime or to justify a wrong, and holding only
        the entity responsible would result in injustice, or

        [Defendant] transferred the assets of Centex Freight Lines, LLC to PJC Central Texas
        Freight Lines, LLC to avoid a judgment or debt and holding only Centex Freight
        Lines, LLC, PJC Properties, LLC or PJC Central Texas Freight Lines, LLC
        responsible would result in injustice.
        4
           We acknowledge that the legislature has broadly insulated LLC members from liability for
an LLC’s obligations, see Tex. Bus. Orgs. Code § 101.114 (“Except as and to the extent the company
agreement specifically provides otherwise, a member or manager is not liable for a debt, obligation,
or liability of a limited liability company, including a debt, obligation, or liability under a judgment,
decree, or order of a court.”); however, without clear direction from the Supreme Court holding that

                                                   6
               In this same issue, appellants complain about the jury charge’s “insufficient guidance”

on the issue of veil-piercing in Questions 2 and 3, arguing that each question (a) erroneously listed

all three of the entities involved in this lawsuit (Centex, PJC Properties, and PJC Centex) when

asking whether Key and Curry were “responsible” for the entities’ conduct and (b) improperly

defined what “responsible for the conduct” means by taking a “kitchen sink” approach in listing

several improper theories of veil-piercing. With respect to each challenged question’s containing

multiple entities in asking whether defendants were responsible for their respective conduct,

appellants did not specifically object to the instructions on this basis and have, therefore, waived

any alleged error. See Tex. R. App. P. 33.1; Tex. R. Civ. P. 274.

               With respect to the instructions’ allegedly improper “kitchen sink” definition of

“responsible conduct,” we conclude that the trial court did not abuse its discretion, both because of

our conclusion that application of the veil-piercing doctrine was not necessary to impose individual

liability on appellants and because, in any case, the definitions were supported by applicable case

law. See Texas Dep’t of Human Servs. v. E.B., 802 S.W.2d 647, 649 (Tex. 1990) (op. on reh’g) (jury

charge is reviewed for abuse of discretion, which occurs only if trial court acts without reference to

any guiding principles); Connell Chevrolet Co., Inc. v. Leak, 967 S.W.2d 888, 894 (Tex.

App.—Austin 1998, no pet.) (“If the charge resolves the controlling issues raised by the pleadings

and any evidence in a feasible manner that does not confuse the jury, no error occurs.”). The court’s

instructions were derived from applicable case law and are accurate statements of the law. See

the legislature has thereby abrogated longstanding common law recognizing that corporate agents
are liable for their own tortious conduct and may even be liable for an entity’s liabilities based on
the equitable principles of veil piercing, we refuse to hold that section 101.114 shields Key and
Curry from their tortious fraudulent transfer under the circumstances in this case.

                                                  7
SSP Partners, 275 S.W.3d at 451 (citing Castleberry for first four examples court provided in

instructions of circumstances under which veil-piercing may be justified); Noorani Gas &

Convenience, Inc. v. State, No. 03-06-00463-CV, 2008 WL 1827605, *18-19 (Tex. App.—Austin

Apr. 24, 2008, no pet.) (mem. op.) (supporting fifth example in instructions by noting that “[c]ourts

have consistently pierced the corporate veil when an indebted corporation transfers assets to another

corporation to avoid a judgment or debt”); see also Klein v. Sporting Goods, Inc., 772 S.W.2d 173,

176 (Tex. App.—Houston [14th Dist.] 1989, writ denied) (holding evidence legally and factually

sufficient to pierce veil and support jury finding of constructive fraud where evidence showed that

defendant formed new entity that was “merely a continuation” of previous entity and foreclosed on

secured debt to avoid unsecured creditors).

               Lastly in this same issue, appellants contend that the evidence was legally and

factually insufficient to support imposing individual liability on them for the fraudulent transfer.

See Wilson, 168 S.W.3d at 827 (outlining legal-sufficiency standard of review); Cain, 709 S.W.2d

at 176 (outlining factual-sufficiency standard of review). Our review of the entire record leads us

to conclude that the evidence is legally and factually sufficient to support the jury’s findings and

the court’s judgment imposing individual liability on Key and Curry. Evidence demonstrating

appellants’ ownership and control of the various entities (e.g., Key was the president of Centex at

the relevant times and oversaw its day-to-day operations, while Curry wholly owned Centex and 99%

of PJC Properties and was responsible for its management, which allegedly included making a loan

to Centex); the relationship between the timing of occurrences such as: the prior Adams lawsuit, the

UCC filings, the purported foreclosure by PJC Properties, the formation of PJC Centex (which

included the carry over of the same employees, offices, and business operations of Centex without

                                                 8
interruption), and the eventual production of documents purportedly creating a secured loan; Curry

and Key’s use of the same attorney to represent both creditor (PJC Properties) and debtor (Centex)

in the purported foreclosure and UCC filings; and the admitted purpose of the purported foreclosure

to prevent Adams from collecting on her judgment all support the jury’s findings and trial court’s

conclusions, which are not contrary to the overwhelming weight of the evidence. Accordingly, we

overrule appellants’ first issue.

Damages

                In their second issue, appellants contend that the judgment is “irreconcilably flawed”

because it provides for a “double recovery” by awarding Adams damages in the amount of

$157,280.93 against them jointly and severally while also granting the receiver equitable relief in

the form of possession and title to all of Centex’s assets as of the date of the Adams judgment.5 Cf.

Tex. Bus. & Com. Code § 24.008 (listing remedies under UFTA to include avoidance of fraudulent

transfer, attachment of assets, injunction against further disposition of assets, appointment of

receiver, and “any other relief the circumstances may require”). However, appellants have waived

the complaint by not making it to the trial court. See Tex. R. App. P. 33.1; Major Help Ctr., Inc. v.

Ivy, Crews & Elliott, P.C., No. 03-99-00285-CV, 2000 WL 298282, at *5 (Tex. App.—Austin 2000,

no pet.) (mem. op.) (defendant waives issue of double recovery if not raised before trial court); see

also Eagle Fabricators, Inc. v. Rakowitz, 344 S.W.3d 414, 423 (Tex. App.—Houston [14th Dist.]

2011, no pet.) (defendant who fails to raise issue of improper measure of damages waives error).

        5
         We note that the judgment does not award Adams any assets or other property of Centex
but awards such property only to the receiver.

                                                  9
                In the same issue, appellants also contend that there was legally and factually

insufficient evidence of the amount of damages awarded to Adams and that she did not request and

obtain necessary jury findings to support the award. See Tex. Bus. & Com. Code § 24.009 (when

fraudulent transfer is voidable by creditor under section 24.008, creditor may recover judgment

for value of asset transferred or amount necessary to satisfy creditor’s claim, whichever is less).

However, appellants have failed to preserve this issue as well. See Cecil v. Smith, 804 S.W.2d 509,

510-11 (Tex. 1991) (challenges to legal sufficiency of evidence must be preserved by: motion for

instructed verdict, motion for judgment notwithstanding verdict, objection to submission of issue

to jury, motion to disregard jury’s answer to vital fact issue, or motion for new trial specifically

raising complaint); Tex. R. Civ. P. 324(b)(2) (challenges to factual sufficiency of evidence must be

raised in motion for new trial). Accordingly, we overrule appellants’ second issue.

Statute of limitations

                In their last issue, appellants contend that appellees’ UFTA claims were barred by a

one-year statute of limitations instead of the four-year period that appellees claim applies. See Tex.

Bus. & Com. Code § 24.010(a)(2), (3) (cause of action for fraudulent transfer is extinguished unless

brought within four years if brought under section 24.006(a) or within one year if brought under

section 24.006(b)). We agree with appellees, who brought their claim under section 24.006(a) as a

“reasonably equivalent value” claim, not as an “insider” claim under section 24.006(b).6 The mere

       6
           The respective sections defining actionable fraudulent transfers provide:

       (a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor
       whose claim arose before the transfer was made or the obligation was incurred if the
       debtor made the transfer or incurred the obligation without receiving a reasonably

                                                 10
fact that Key and Curry may have been insiders does not transform appellees’ claim from one

alleging that the transfer or obligation at issue was made without the debtor (Centex) receiving

equivalent value in exchange, see id. § 24.006(a), into one alleging that the transfer was made to an

insider for an antecedent debt, see id. § 24.006(b). The jury was asked, in Question 1, whether the

transfer of Centex’s assets to PJC Properties was fraudulent as to Adams, and the definition of a

fraudulent transfer contained therein tracked the language of subsection (a). Accordingly, appellees’

claims were not barred by limitations, and we overrule appellants’ fourth issue.

               Having overruled all of appellants’ issues, we affirm the judgment.

                                              __________________________________________

                                              David Puryear, Justice

Before Justices Puryear, Pemberton, and Bourland
 Concurring Opinion by Justice Pemberton

Affirmed

Filed: January 13, 2016

       equivalent value in exchange for the transfer or obligation and the debtor was
       insolvent at that time or the debtor became insolvent as a result of the transfer or
       obligation.

       (b) A transfer made by a debtor is fraudulent as to a creditor whose claim arose
       before the transfer was made if the transfer was made to an insider for an antecedent
       debt, the debtor was insolvent at that time, and the insider had reasonable cause to
       believe that the debtor was insolvent.

Tex. Bus. & Com. Code § 24.006 (emphases added).

                                                 11