Tryco Enterprises Inc., Sharon C. Dixon, James Dixon, Crown Staffing, Inc. and Troy Keith Dixon v. James A. Robinson ( 2012 )

Opinion issued September 13, 2012
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-10-00710-CV
————————————
TRYCO ENTERPRISES, INC., SHARON C. DIXON, JAMES DIXON,
CROWN STAFFING, INC., AND TROY KEITH DIXON, Appellants
V.
JAMES A. ROBINSON, Appellee
On Appeal from 189th District Court
Harris County, Texas
Trial Court Cause No. 2004-49672
OPINION
This is an action brought by appellee, James A. Robinson, to enforce the
judgment entered in his favor in Robinson v. Texas Workforce Commission and
Tryco Enterprises, Inc., No. 2000-32376, in the 113th District Court of Harris
County, Texas (“the FLSA suit”). Appellants, Tryco Enterprises, Inc. (“Tryco”),
Sharon C. Dixon, James Dixon, Crown Staffing, Inc. (“Crown Staffing”), and Troy
Keith Dixon, appeal the judgment of the trial court holding them jointly and
severally liable for the amounts owed to Robinson by Tryco in the FLSA suit and
permitting enforcement of that judgment against the assets of all appellants.
In three issues, appellants argue that the trial court erred: (1) in piercing the
corporate veil when it held them jointly and severally liable for using the corporate
form to avoid paying the judgment in the FLSA suit; (2) in admitting the prior
testimony of a witness given in the trial of the FLSA suit without a showing that
the witness was unavailable to testify; and (3) in holding Sharon and James Dixon
personally liable for the previous judgment against Tryco in the FLSA suit under
Texas Tax Code section 171.255.
We reverse the judgment of the trial court as to Troy Keith Dixon and render
judgment that Robinson take nothing by his claims against him. We affirm the
judgment as to Tryco, Sharon Dixon, James Dixon, and Crown Staffing.
Background
The Dixons owned and operated Tryco, a temporary staffing company, as
their family business. Sharon and James Dixon served as vice president and
president, respectively, of the company, and their son Troy worked there as an
employee. From 1996 to 2000, Tryco employed Robinson as a van driver. In
2
2000, after leaving Tryco, Robinson sued Tryco in the FLSA suit. He alleged that
Tryco and the Dixons had violated the Fair Labor Standards Act (“FLSA”) by
failing to pay him substantial amounts of money for time worked in excess of forty
hours per week and that the Dixons had fired him for refusing to return copies of
travel logs that he had made to substantiate his claims. The regulatory scheme
under which Robinson sued provides, in relevant part, that an employer who
violates the provisions of the FLSA may be held accountable for such violations by
an action for damages, attorney’s fees, and costs in any federal or state court. See
29 U.S.C.S. §§ 201–19 (LexisNexis 2010).
On August 13, 2003, after a trial on the merits of his FLSA claim, a jury
returned a verdict in favor of Robinson.
Nine days later, on August 22, 2003, Tryco forfeited its corporate privileges
for failure to pay its franchise tax.
On September 11, 2003, the trial court signed a judgment against Tryco on
the verdict in the FLSA suit for statutory damages, including $58,349 for unpaid
overtime wages, $58,349 for willful violation of the FLSA, $16,558.75 in
attorney’s fees, $457 in court costs, and $603 in expenses, for a total of
$134,316.75, plus prejudgment interest of $30,853.06.
One year later, on September 10, 2004, Robinson sued appellants in this
action to enforce the judgment in the FLSA suit, alleging that Tryco forfeited its
3
corporate charter and fraudulently transferred its assets to avoid paying the
judgment awarded to him. Robinson alleged that, prior to August 22, 2003—the
date on which Tryco forfeited its corporate charter—Sharon and James Dixon
transferred the employees and assets of Tryco to Crown Staffing, which they had
also formed and for which they also served as vice president and president,
“effectively leaving Tryco Enterprises Inc. as an empty shell and defrauding its
creditors.” He contended that the Dixons’ transfer of employees and assets from
Tryco to Crown Staffing “was a fraud against the rights of James Robinson,
Defendant Judgment Debtors creditor, because the transfer was made with the
intent to hinder, delay, or defraud Plaintiff and similarly situated creditors.”
On March 23, 2006, the instant action was called to trial. During the
ensuing bench trial, Robinson began to present evidence regarding piercing of
Tryco’s corporate veil. Appellants objected on grounds of lack of notice and
surprise. The court ordered a sixty-day recess to allow Robinson to amend his
pleadings to allege alter ego and piercing of the corporate veil.
In his second amended pleading, filed on March 27, 2006, Robinson asserted
an alter ego theory of liability for the judgment in the FLSA suit, alleging that
Tryco and its officers, the Dixons, organized and operated Crown Staffing, through
their son Troy, as a mere tool or business conduit and that “James Dixon was the
true owner/manager of both Tryco Enterprises, Inc. and Crown Staffing, Inc.”
4
Robinson argued, alternatively, that Sharon and James Dixon organized and
operated both Tryco and Crown Staffing as part of a single business enterprise and
that James Dixon was the true owner/manager of both Tryco and Crown Staffing.
Robinson asked that the trial court find James and Sharon Dixon individually liable
“because they were officers of Defendant Tryco Enterprises, Inc. who forfeited
corporate privileges on August 22, 2003 prior to the Judgment of September 11,
2003.” He stated that “[f]orfeiture of corporate privileges results in liability for
corporate officers” under Tax Code section 171.255(a).
On September 27, 2006, trial of this action to enforce the judgment in the
FLSA suit resumed. Prior to the taking of testimony, Robinson presented to the
court the following exhibits: (1) the September 11, 2003 judgment in the FLSA
suit and an abstract of that judgment dated January 4, 2004; (2) a Tryco business
card for Birt Edison, which showed that Tryco was a “temporary help service” and
that Edison was its Industrial Office Manager and which provided contact
information for Tryco; (3) the tax forfeiture of Tryco’s corporate privileges dated
August 22, 2003, certifying that Tryco’s managerial officers were James Dixon,
VP, and Sharon C. Dixon, P/S/T; and (4) a determination of forfeiture of Tryco’s
corporate charter by the office of the Texas Secretary of State, dated August 22,
2003, stating that Tryco had forfeited its corporate privileges and had not revived
them within 120 days, that the Comptroller of Public Accounts had determined that
5
Tryco “does not have assets from which a judgment for any tax, penalty, or court
costs imposed under Chapter 171 of the [Texas Tax] Code may be satisfied,” and
that “[i]t is therefore ordered that [the] charter or certificate of authority of the
referenced entity be forfeited without judicial ascertainment and that the proper
entry be made upon the permanent files and records of such entity to show such
forfeiture as of the date hereof.”
The judgment in the FLSA suit, the abstract of that judgment, and Edison’s
Tryco business card were offered and admitted into evidence without objection.
Before the close of evidence, the trial court took judicial notice of Tryco’s tax
forfeiture and James and Sharon Dixon’s status as managerial officers of Tryco.1
As his first witness, Robinson called former Tryco and Crown Staffing
manager Birthol Edison by reading into the record the testimony given by Edison
in the FLSA suit. Appellants’ counsel objected to the admission of this testimony
as hearsay. Robinson’s counsel replied that Edison was Tryco’s corporate
representative, that the same counsel had represented each of the parties in the
FLSA suit, and that Edison had been subject to cross-examination in that
proceeding; therefore, his testimony was admissible as an admission of a party
opponent. Robinson’s counsel also pointed out that Edison’s testimony in the
1
See TEX. R. EVID. 201 (providing for judicial notice of adjudicative facts “capable
of accurate and ready determination by resort to sources whose accuracy cannot
reasonably be questioned”); TEX. R. EVID. 803(8) (public records as exception to
hearsay rule).
6
FLSA suit had been given in open court, and appellants’ counsel agreed that
Edison was Tryco’s corporate representative in that proceeding. The trial court
conditionally admitted the testimony subject to appellants’ submitting briefing
showing why Edison’s testimony from the FLSA suit was not admissible. The
court permitted Robinson to read the testimony into the record over appellants’
general objection that it was hearsay, and it offered appellants’ counsel the
opportunity to make specific objections during the reading. Counsel made no
further objections to the testimony and permitted the testimony to be read.
Appellants’ counsel did, however, object to Robinson’s subsequent testimony on
the same matters on the ground that Edison’s testimony on that subject was already
in evidence.
Edison testified that, prior to December 2001, he worked as a manager at
Tryco, where his immediate supervisor was Stacy Wilson, one of Tryco’s vice
presidents. Wilson reported to Tryco’s president, James Dixon. At the time of his
testimony in the FLSA suit, Edison worked for Crown Staffing as its industrial
manager. His immediate supervisor was still Wilson, then one of Crown Staffing’s
vice presidents. Wilson reported to Crown Staffing’s president, James Dixon, who
had also been Tryco’s president. Edison also testified that Crown Staffing used the
same telephone numbers and the same business location as Tryco and that, at
Crown Staffing, he provided staffing for several of the same companies as he had
7
at Tryco. At the close of Edison’s testimony, Robinson’s counsel pointed out that,
at the time of the FLSA suit, Edison worked for Crown Staffing and that he
testified as a representative of Crown Staffing as well as Tryco. Appellants’
counsel did not object to the characterization of Edison as a representative of either
Tryco or Crown Staffing.
Robinson also testified in the instant proceeding to enforce the judgment
from the FLSA suit. He testified that, after his employment with Tryco ended, he
called one of Tryco’s telephone numbers and spoke with one of his former Tryco
coworkers. About six to seven weeks later, Robinson went to the location where
Tryco had operated its business and saw that the name of the business at that
location had been changed to Crown Staffing. At this location, he saw the same
two vans he had driven for Tryco, and he also saw many of the same people who
had worked for Tryco as well as a few new people. Robinson testified that, other
than the new name of the company and a few new employees, nothing about the
business location had changed. He also testified that Tryco was the Dixons’ family
business, that James Dixon was Troy Dixon’s father, and that Troy had been an
employee of Tryco and was currently Crown Staffing’s manager.
At the close of the evidence, Robinson agreed with appellants’ counsel and
the trial court that he had abandoned his fraudulent transfer claims, leaving only
his claims that (1) Sharon and James Dixon were liable to him for Tryco’s
8
judgment debt from the FLSA suit under an alter ego or single business enterprise
theory because, as officers of Tryco, they had forfeited that corporation’s charter
and transferred its employees to Crown Staffing, using the corporate fiction of
Crown Staffing as a mere conduit of fraud to avoid Tryco’s liabilities, and (2) as
officers of Tryco, Sharon and James Dixon were liable for the debts of Tryco,
including the judgment in his favor in the FLSA suit, under Tax Code section
171.255, which provides for the personal liability of corporate officers for debts of
the corporation incurred after forfeiture of its charter.2
On July 15, 2010, following a hearing, the trial court entered final judgment
against appellants, holding them jointly and severally liable for the amounts
awarded to Robinson against Tryco in the judgment rendered in the FLSA suit.
Hearsay
In their second issue, appellants contend that the trial court erred by
admitting Edison’s recorded testimony from the FLSA suit. They contend that
Edison’s prior testimony was inadmissible under Texas Rule of Evidence 801
because it was hearsay. See TEX. R. EVID. 801(d) (defining hearsay). They further
argue that the testimony did not fall within an exception to the hearsay rule under
Texas Rules of Evidence 804(a) and (b)(1) because Robinson failed to present any
evidence that Edison was unavailable, that he had made a good-faith effort to
2
TEX. TAX CODE ANN. § 171.255 (Vernon 2008).
9
locate Edison, or that appellants had an opportunity and similar motive to cross-
examine Edison in the FLSA suit, as required for testimony from a former
proceeding to qualify as an exception to the hearsay rule. See TEX. R. EVID.
804(a), (b)(1) (governing admissibility of former testimony from unavailable
witness). Robinson responds that Edison’s testimony was not hearsay but instead
constituted an admission by a party-opponent, which is excluded from the
definition of hearsay and, therefore, need not satisfy the requirements for
admission as an exception to the hearsay rule.
Appellants’ hearsay objection was not preserved and, therefore, presents no
ground for reversing the trial court’s admission of Edison’s testimony. Texas Rule
of Appellate Procedure 33.1 requires that, as a prerequisite to presenting a
complaint on appeal, the record must show that “the complaint was made to the
trial court by a timely request, objection, or motion that . . . stated the grounds for
the ruling that the complaining party sought from the trial court with sufficient
specificity to make the trial court aware of the complaint” and that “the trial
court . . . ruled on the . . . objection . . . either expressly or implicitly; or . . . refused
to rule . . . , and the complaining party objected to the refusal.” TEX. R. APP. P.
33.1.
Likewise, Rule of Evidence 103 provides that “error may not be predicated
upon a ruling which admits or excludes evidence unless . . . a timely objection or
10
motion to strike appears of record, stating the specific ground of objection, if the
specific ground was not apparent from the context.” TEX. R. EVID. 103. Thus, to
preserve error for appeal, the party must have made a timely, specific objection at
the earliest possible opportunity. See Oyster Creek Fin. Corp. v. Richwood Invs.
II, Inc., 176 S.W.3d 307, 316 (Tex. App.—Houston [1st Dist.] 2004, pet. denied).
(holding that where attorney did not seek “definitive ruling” on admissibility of
evidence of conviction before voir dire, complaint that he was unable to question
prospective jurors about bias was not preserved). “An objection is sufficient to
preserve error for appeal if it allows the trial judge to make an informed ruling and
the other party to remedy the defect, if he can.” Campbell v. State, 85 S.W.3d 176,
185 (Tex. 2002) (quoting McDaniel v. Yarbrough, 898 S.W.2d 251, 252 (Tex.
1995)); see also McKinney v. Nat’l Union Fire Ins. Co., 772 S.W.2d 72, 74 (Tex.
1989) (stating that specific objection enables trial court to understand precise
grounds and make informed ruling and affords offering party opportunity to
remedy defect, if possible); Lake v. Premier Transp., 246 S.W.3d 167, 174 (Tex.
App.—Tyler 2007, no pet.) (observing that specific and timely objection is
necessary to preserve argument for appellate review and stating, “To be considered
timely, an objection must be specific enough to enable the trial court to understand
the precise nature of the error alleged and interposed at such a point in the
11
proceedings so as to enable the trial court the opportunity to cure the error alleged,
if any”).
Here, appellants’ counsel made only a general hearsay objection to the
admission of Edison’s testimony from the FLSA suit. He did not object with
specificity, despite the trial court’s invitation to him to do so; nor did he obtain a
definitive adverse ruling while the trial court was in a proper position to change its
conditional ruling of admissibility and Robinson was in a position to offer other
testimony or to subpoena Edison to testify. See Campbell, 85 S.W.3d at 185.
Thus, appellants did not preserve their hearsay objection, and that objection
presents no ground for disregarding Edison’s testimony. See TEX. R. EVID. 103;
TEX. R. APP. P. 33.1; Campbell, 85 S.W.3d at 185.
Moreover, even if appellants had preserved this complaint for appellate
review, they have failed to establish that Edison’s testimony in the FLSA suit
constituted inadmissible hearsay in the instant enforcement action.
In general, “‘[h]earsay’ is a statement, other than one made by the declarant
while testifying at the trial or hearing, offered in evidence to prove the truth of the
matter asserted.” TEX. R. EVID. 801(d). Hearsay is inadmissible as evidence
unless provided by statute or rules, including the hearsay exception rules. TEX. R.
EVID. 802. However, inadmissible hearsay admitted without objection is not
denied probative value merely because it is hearsay. Id.
12
Under Rules 804(a) and (b)(1), prior testimony is admissible as an exception
to the hearsay rule if the proponent proves that the declarant was “unavailable” as
defined in subsection 804(a); that a good-faith effort was made to locate and
present the witness; and that the party against whom the testimony is offered, or
one with a similar interest, had an opportunity to cross-examine the witness. See
TEX. R. EVID. 804(a), (b)(1). However, if the declarant’s statement is not hearsay,
no hearsay exception is needed to admit the statement, and Rule 804(b)(1) is
irrelevant. Oyster Creek Fin. Corp., 176 S.W.3d at 316–17.
Under Rule 801(e)(2), the admission-by-party-opponent exclusion from the
definition of hearsay, statements by a party opponent are not hearsay if they are
offered against a party and are the party’s own statements in either an individual or
a representative capacity. TEX. R. EVID. 801(e)(2); Oyster Creek Fin. Corp., 176
S.W.3d at 317; Worley v. Butler, 809 S.W.2d 242, 245 (Tex. App.—Corpus Christi
1990, no writ). Specifically, “[a] statement is not hearsay if . . . [t]he statement is
offered against a party and is . . . a statement by the party’s agent or servant
concerning a matter within the scope of the agency or employment, made during
the existence of the relationship . . . .” TEX. R. EVID. 801(e)(2)(D). To show that a
statement is an admission by a party-opponent under Rule 801(e)(2)(D), the
existence of the agency or employment relationship must be established, but there
is no requirement that the agency relationship be established with independent
13
corroborating evidence. See, e.g., Tucker’s Beverages, Inc. v. Fopay, 145 S.W.3d
765, 768–69 (Tex. App.—Texarkana 2004, no pet.).
Any statement, including former testimony, may be admitted under one of
the admission-by-party-opponent exclusions, regardless of the witness’s
availability. Oyster Creek Fin. Corp., 176 S.W.3d at 317 (holding that former
testimony was not hearsay because it was admission by party opponent, and,
therefore, Rules of Evidence did not require trial court to have found witness
unavailable as preliminary condition to admitting his testimony). Moreover, if the
record discloses any legitimate basis for the trial court’s evidentiary ruling, we
uphold the ruling. Id.
Here, Edison testified in the FLSA suit as a managing employee and
corporate representative of both Crown Staffing and, prior to that, Tryco. Edison
stated that Crown Staffing continued the same business of providing temporary
staff as Tryco at the same location using the same employees under the same
managers. Edison’s Tryco business card further confirms that Edison was
previously employed as an industrial manager at Tryco; and Robinson’s testimony
confirms that Edison was employed in a managerial position at Crown Staffing at
the same location at the time he gave his testimony in the FLSA suit. Robinson’s
counsel also characterized Edison as a representative of both Tryco and Crown
Staffing, and appellants’ counsel did not object to this characterization. We
14
conclude that the excerpt of Edison’s testimony from the FLSA suit admitted in the
instant enforcement action was thus “a statement by the party’s agent or servant
concerning a matter within the scope of the agency or employment, made during
the existence of the relationship.” See TEX. R. EVID. 801(e)(2)(D).
We hold that Edison’s recorded testimony from the FLSA suit, the judgment
from which Robinson seeks to enforce in this action, was properly admitted under
Rule 801(e)(2)(D) as the admission of a party-opponent, and, thus, appellants’
hearsay objection is irrelevant. See Oyster Creek Fin. Corp., 176 S.W.3d at 316–
17.
We overrule appellants’ second issue and turn to the merits of the appeal.
Liability Under Former Article 2.21 of the Texas Business Corporations Act
In their first issue, appellants argue that the trial court erred in piercing the
corporate veil under a single business enterprise or alter ego theory and finding
appellants jointly and severally liable for the judgment against Tryco in the FLSA
suit. With respect to this issue, appellants contend (1) the Texas Supreme Court
has abolished the single business enterprise theory as a means of piercing the
corporate veil; (2) Robinson presented no evidence to support an alter ego theory
for piercing the corporate veil; and (3) Robinson abandoned his fraudulent transfer
theory and pled no other theory to support piercing the corporate veil.
15
Robinson argues that appellants are jointly and severally liable to him under
a single business enterprise theory or alter ego theory for the judgment in the
FLSA suit because the Dixons used the corporate forms of Tryco and Crown
Staffing as a mere conduit of fraud to avoid paying the judgment awarded to him
against Tryco. He contends appellants’ actions—forfeiting Tryco’s corporate
charter for non-payment of franchise taxes after the verdict was delivered in the
FLSA suit and before the judgment was entered, transferring Tryco’s assets to
Crown Staffing on that same day, and leaving Tryco without assets to pay the
judgment—justify piercing the corporate veil and holding appellants jointly and
severally liable for the judgment in the FLSA suit under former article 2.21 of the
Texas Business Corporations Act, now section 21.223 of the Texas Business
Organizations Code,3 because appellants used the corporate fiction to perpetrate a
fraud.
Business Organizations Code section 21.223, like its predecessor, article
2.21, provides that an owner of a corporation, such as Tryco, may be held liable to
3
Article 2.21 expired effective January 1, 2010. Article 2.21(a) has been codified
in substantially the same form in Texas Business Organizations Code section
21.223. See SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 456
& n.57 (Tex. 2008) (discussing former article 2.21 and stating, “Sections A and B
of this article, after a legislative reorganization of the statutes governing business
entities effective January 1, 2006, were recodified in substantially similar form in
TEX. BUS. ORGS. CODE § 2.223, and §§ 21.224–.225, respectively”) (citing Act of
May 29, 2003, 78th Leg., R.S., ch. 182, §§ 1–2, 2003 Tex. Gen. Laws 267, 427,
595).
16
the corporation or its obligees—such as judgment creditors—for any contractual
obligation of the corporation or matter arising from a contractual obligation of the
corporation—such as, here, the judgment arising from Tryco’s breach of its
statutory and contractual obligation to pay Robinson wages in compliance with the
FLSA—if the owner “was the alter ego of the corporation” and “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 . . . owner”—
here, the fraud of incorporating Crown Staffing, forfeiting Tryco’s corporate
charter, and transferring Tryco’s assets to Crown Staffing to avoid execution of
Robinson’s judgment against Tryco. TEX. BUS. ORGS. CODE § 21.223(a)(2), (b)
(Vernon Supp. 2010); see also SSP Partners v. Gladstrong Invs. (USA) Corp., 275
S.W.3d 444, 456 & n.57 (Tex. 2008) (quoting terms of former article 2.21 and
discussing its legislative history).
Section 21.223 provides, in relevant part:
(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
17
constructive fraud, a sham to perpetrate a fraud, or
similar theory;
....
(b) 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.
TEX. BUS. ORGS. CODE ANN. § 21.223(a)(2), (b). “Actual fraud” as defined by
article 2.21 “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.) (holding, in context of article 2.21, that
owner of corporation that solicited corporate sponsorship for clients was not its
owner’s alter ego absent evidence that owner enjoyed direct personal benefits
resulting from fraud).
“The corporate form normally insulates shareholders, officers, and directors
from liability for corporate obligations . . . .” Castleberry v. Branscum, 721
S.W.2d 270, 271 (Tex. 1986); see SSP Partners, 275 S.W.3d at 451 n.29.
However, the corporate veil may be pierced on an alter ego theory “where a
corporation is organized and operated as a mere tool or business conduit of
another . . . .” Castleberry, 721 S.W.2d at 272. “Alter ego applies when there is
such unity between corporation and individual that the separateness of the
18
corporation has ceased and holding only the corporation liable would result in
injustice.” Id. “It is shown from the total dealings of the corporation and the
individual, including the degree to which corporate formalities have been followed
and corporate and individual property have been kept separately, the amount of
financial interest, ownership and control the individual maintains over the
corporation, and whether the corporation has been used for personal purposes.” Id.
Parties are not, however, jointly liable for a corporation’s obligations
“merely because they were part of a single business enterprise,” i.e., “merely
because of centralized control, mutual purposes, and shared finances.” SSP
Partners, 275 S.W.3d. at 452, 455. Rather, “[d]isregarding the corporate structure
involves two considerations”: (1) “the relationship between [the] two entities” and
(2) “whether the entities’ use of limited liability was illegitimate.” Id. at 455.
To pierce the corporate veil and impose liability under an alter ego theory of
liability pursuant to SSP Partners, a plaintiff must show: (1) that the persons or
entities on whom he seeks to impose liability are alter egos of the debtor, and
(2) that the corporate fiction was used for an illegitimate purpose, in satisfaction of
the requirements of article 2.21—now Business Organizations Code section
21.223(a) and (b).4 See id. at 456 & n. 57.
4
In Castleberry v. Branscum, the supreme court had held that a showing of
constructive fraud was enough to demonstrate an illegitimate use of the limited
liability afforded to corporations under a single business enterprise theory of
19
We address both prongs of the test with respect to this case.
A. Appellants as Alter Egos of Each Other
To satisfy the first consideration in piercing the corporate veil—whether the
persons or entities sought to be charged with liability are alter egos of the primary
debtor—the relationship between corporate entities can be assessed using factors
such as:
 whether the entities shared a common business name, common
offices, common employees, or centralized accounting;
 whether one entity paid the wages of the other entity’s employees;
 whether one entity’s employees rendered services on behalf of the
other entity;
 whether one entity made undocumented transfers of funds to the other
entity; and
 whether the allocation of profits and losses between the entities is
unclear.
Id. at 450–51.
liability. 721 S.W.2d 270, 271 (Tex. 1986); see also SSP Partners, 275 S.W.3d at
455. In SSP Partners, the court narrowed its prior holding, recognizing that
Castleberry had been superseded by article 2.21, which “takes a stricter approach
to disregarding the corporate structure.” 275 S.W.3d at 455. It held that “the
single business enterprise liability theory is fundamentally inconsistent with the
approach taken by the Legislature in article 2.21.” Id. at 456. In sum, the court
held that the mere fact that two corporations share “centralized control, mutual
purposes, and shared finances” is not enough to pierce the corporate veil and hold
the officers liable. Id. at 451, 455. Rather, a party must also show that the
corporate form was used to perpetrate a fraud under article 2.21, now Business
Organizations Code section 21.223. Id. at 455–56.
20
Here, there is uncontroverted evidence, from Edison, Robinson, and the
public records of which the trial court took judicial notice, that James and Sharon
Dixon were owners and officers of Tryco. Rather than paying Tryco’s corporate
franchise tax, which was due and unpaid at the time the verdict was reached and
the judgment entered in the FLSA suit, the Dixons forfeited Tryco’s corporate
charter. The same day they forfeited the corporate charter—after the verdict was
returned, but before the judgment was entered on it—James and Sharon Dixon
transferred Tryco’s assets to Crown Staffing, which they had previously
incorporated. Crown Staffing had the same officers as Tryco, including James
Dixon, its president; it took over the offices of Tryco at the same location; it used
the same telephone numbers as Tryco; it shared common employees with Tryco; it
performed the same temporary staffing services for essentially the same
companies; and it was managed by the same managers.
Furthermore, the evidence showed that James and Sharon Dixon exercised
absolute ownership and control over both corporations, maintained a very
significant personal financial interest in both corporations, and used them for
personal purposes. Specifically, they neglected the corporate formality of paying
Tryco’s franchise tax and transferred all of Tryco’s assets to Crown Staffing for the
purpose of avoiding payment of the judgment in the FLSA suit.
21
The foregoing un-refuted evidence establishes that Tryco and Crown
Staffing were both alter egos of Sharon and James Dixon and part of a single
business enterprise for purposes of piercing the corporate veil under former
Business Corporations Act article 2.21 and under the current provision, Business
Organizations Code section 21.223. We hold, therefore, that Robinson satisfied
the first prong of the test for finding these appellants jointly and severally liable for
the judgment in the FLSA suit.
B. Use of the Corporate Fiction to Perpetrate a Fraud
The foregoing factors “are almost entirely irrelevant” to the second
consideration in determining personal liability under section 21.223—whether the
use of limited liability was illegitimate. Id. at 455. That determination is made
“based on a careful evaluation of the policies supporting the principle of limited
liability.” Id. Therefore, we must look to SSP Partners and Castleberry to see
whether the corporate fiction was used as a means of “perpetrat[ing] an actual
fraud on the obligee [Robinson] primarily for the direct personal benefit of
the . . . owner[s]” of Tryco and Crown Staffing, the Dixons. TEX. BUS. ORGS.
CODE ANN. § 21.223(b).
The supreme court observed in SSP Partners that courts “disregard the
corporate fiction, even though corporate formalities have been observed and
corporate and individual property have been kept separately, when the corporate
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form has been used as part of a basically unfair device to achieve an inequitable
result.” 275 S.W.3d at 454. Specifically, courts disregard the corporate fiction
(1) when the fiction is used as a means of perpetrating fraud;
(2) where a corporation is organized and operated as a mere tool or
business conduit of another corporation;
(3) where the corporate fiction is resorted to as a means of evading
an existing legal obligation;
(4) where the corporate fiction is employed to achieve or perpetrate
monopoly;
(5) where the corporate fiction is used to circumvent a statue; and
(6) where the corporate fiction is relied upon as a protection of
crime or to justify wrong.
Id. (quoting Castleberry, 721 S.W.2d at 271–72). “Because disregarding the
corporate fiction is an equitable doctrine, Texas takes a flexible fact-specific
approach focusing on equity” in determining whether the corporate veil should be
pierced. Castleberry, 721 S.W.2d at 273; see also Wilson v. Davis, 305 S.W.3d 57,
69 (Tex. App.—Houston [1st Dist.] 2009, no pet.).
We conclude, on the basis of the evidence in this case, that five of the
criteria for piercing the corporate form and finding appellants jointly and severally
liable for the judgment against Tryco in the FLSA suit are satisfied: (1) the
corporate fiction was used with respect to both Tryco and Crown Staffing as a
means of defrauding Robinson by depriving Tryco of assets to pay the judgment
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awarded against it in the FLSA suit; (2) Crown Staffing was organized and
operated as a mere tool or business conduit of Tryco’s and James and Sharon
Dixon’s temporary staffing business; (3) the Dixons forfeited Tryco’s charter,
organized Crown Staffing, and transferred Tryco’s assets to it as a means of
evading Tryco’s legal obligation to pay the judgment in the FLSA suit; (4) the
corporate fiction was used to circumvent the consequences to James and Sharon
Dixon of Tryco’s violation of a federal statute, the FLSA, by transferring the assets
of Tryco, which were subject to Robinson’s judgment lien, to Crown Staffing,
leaving Tryco without assets to pay the judgment in the FLSA suit; and (5) the
corporate fiction was thereby relied upon by appellants to justify a wrong. Thus,
the evidence supports an affirmative finding that the corporate fiction was used
illegitimately by James and Sharon Dixon, Tryco, and Crown Staffing in violation
of the second prong of the test for piercing the corporate veil and imposing liability
under article 2.21 or Business Organizations Code section 21.223.
We hold that Robinson has produced evidence sufficient to establish that
Crown Staffing was used as the mere tool or business conduit of Tryco and of
James and Sharon Dixon for the purpose of perpetrating a fraud by avoiding
payment of the judgment entered against Tryco in the FLSA suit. Thus, Robinson
has borne his burden of producing proof sufficient to justify piercing the corporate
veil under article 2.21 or Business Organizations Code section 21.223 and holding
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Tryco, James and Sharon Dixon, and Crown Staffing personally liable to him as
alter egos of each other for payment of the judgment.
We also hold, however, that Robinson has failed to show by more than a
scintilla of evidence that Troy Dixon owned or controlled either Tryco or Crown
Staffing or used the corporate fiction illegitimately; therefore, Robinson has not
proved Troy Dixon’s personal liability to him under section 21.223.
We overrule appellants’ first issue as to James and Sharon Dixon, Tryco,
and Crown Staffing, and we sustain it as to Troy Dixon.5
5
In their third issue, appellants argue that Robinson’s suit to enforce the judgment
in the FLSA suit is predicated on the claim that James and Sharon Dixon
perpetrated a fraud that violated Tax Code section 171.255 by forfeiting Tryco’s
charter before the judgment was entered. Appellants argue that the Dixons’
actions were not illegal or wrongful under section 171.255 and that, therefore, they
cannot be personally liable to Robinson under either that section of the Tax Code
or Business Organizations Code section 21.223. Because our holding with respect
to appellants’ first issue is dispositive, we find it unnecessary to reach appellants’
third issue.
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Conclusion
We reverse the judgment of the trial court as to appellant Troy Keith Dixon
and render judgment that Robinson take nothing by his claims against him. We
affirm the judgment as to appellants Tryco Enterprises, Inc., Sharon C. Dixon,
James Dixon, and Crown Staffing, Inc.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Higley, and Massengale.
Justice Keyes, concurring.
Justice Massengale, concurring in part and dissenting in part.
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