Opinion
22-1085
06-28-2024
Mary Alice Keyes and Sean Leo Nadeau, Petitioners, v. David Weller and IntegriTech Advisors, LLC, Respondents
Argued January 31, 2024
On Petition for Review from the Court of Appeals for the Third District of Texas
Debra H. Lehrmann Justice
In this case, the plaintiffs bring fraud claims against two individual members of a limited liability company based on their alleged misrepresentations made while acting as agents of the company. Under well-settled Texas common law, individuals are personally liable for torts they commit as corporate agents. We are asked what effect, if any, Texas Business Organizations Code Section 21.223 has on that common-law principle when the corporate agent who allegedly commits a tort, like each of the defendants in this case, also owns an interest in the company. Section 21.223 shields corporate shareholders, as well as members of a limited liability company, from liability "to the corporation or its obligees with respect to . . . any contractual obligation of the corporation or any matter relating to or arising from the obligation on the basis that the [shareholder] 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." Tex. Bus. Orgs. Code § 21.223(a)(2). An exception to this limitation on liability exists when the shareholder "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 [shareholder]." Id. § 21.223(b).
The defendants argue that Section 21.223 shields them from liability because they were acting as agents of the company and there is no evidence that they were seeking a direct personal benefit. The court of appeals rejected that argument and reversed the trial court's summary judgment for the defendants on the fraud claims, remanding those claims to the trial court for further proceedings. We hold that Section 21.223 does not limit an individual's liability under the common law for tortious acts allegedly committed while acting as a corporate officer or agent, even when the individual is also a shareholder or member. Accordingly, we agree with the court of appeals and affirm its judgment.
Because this case involves an appeal of a summary judgment, we recount the facts in the light most favorable to the nonmovants. Energen Res. Corp. v. Wallace, 642 S.W.3d 502, 509 (Tex. 2022).
Tex. Bus. Orgs. Code § 21.223(a)(2) (emphasis added).
David Weller provides aviation consulting services through IntegriTech Advisors, LLC, of which he is the sole member. In September 2017, Weller began discussing a potential employment relationship with MonoCoque Diversified Interests, LLC, which is in the business of buying, selling, and leasing airplane parts. MonoCoque is wholly owned by Mary Alice Keyes and Sean Leo Nadeau. Both also serve as agents of the company.
Weller met with Keyes and Nadeau numerous times over several months to discuss employment terms. In early January 2018, the parties exchanged emails outlining the agreed terms, including Weller's salary, an additional $50,000 training fee payable quarterly to IntegriTech, and various payments based on a percentage of MonoCoque's revenues and investments that Weller generated. The compensation included a payment of two percent of MonoCoque's company-wide gross revenue (capped at $15 million) during Weller's employment. Keyes and Nadeau represented to Weller that the revenue payments would be made quarterly and were nondiscretionary. In reliance on the representations regarding compensation, Weller declined other pending employment opportunities, accepted MonoCoque's offer, and began working for MonoCoque on January 13, 2018.
A few weeks later, MonoCoque presented Weller with a "term sheet" containing confidentiality, noncompete, and nonsolicitation provisions, as well as an alternative dispute resolution agreement. The term sheet included a compensation provision listing Weller's salary and a "[d]iscretionary incentive bonus of a maximum of two percent (2%) of gross sales revenue based upon level of activity attributed to Weller to achieve said sale." Weller did not sign the documents. Over the next few months, the parties exchanged revised drafts of the various documents but could not reach an agreement and thus never executed them.
In April 2018, Weller inquired about the past-due revenue payments and training stipend for the first quarter. Keyes denied that MonoCoque was obligated to make the revenue payments because Weller had not executed the above-mentioned agreements. Weller then met with Keyes, Nadeau, and MonoCoque's lawyer. At that meeting, Keyes and Nadeau told Weller that MonoCoque had never intended to make the revenue payments on a quarterly basis, but they stated that MonoCoque would pay the first-quarter training stipend and indicated that it would make the revenue payments at some later date. MonoCoque subsequently paid Weller the training stipend.
On May 29, Weller resigned. Keyes then sent Weller a letter stating that "no more funds are due to you by [MonoCoque]" because the parties had "never reached any agreement regarding terms of employment." Weller responded with an invoice demanding a prorated portion of the second-quarter training stipend and estimated amounts for the unpaid revenue interest. MonoCoque, through its lawyer, responded with a letter stating that because Weller "would never agree to any terms of employment," he "remained an employee at-will with no provision made for any future payments" after his departure from the company. The letter further stated that MonoCoque "never agreed to pay [Weller] 'revenue incentive' or 'training' compensation" and owed him no further payment.
Weller and IntegriTech sued MonoCoque, Keyes, and Nadeau, asserting a breach-of-contract claim against MonoCoque and asserting various fraud claims and a Texas Securities Act claim against all three defendants. The plaintiffs alleged that Keyes and Nadeau made fraudulent misrepresentations and omissions regarding MonoCoque's obligation to compensate Weller to induce him to provide employment and consulting services and that he justifiably relied on those misrepresentations. The plaintiffs further alleged that Keyes and Nadeau were individually liable for their own fraudulent and tortious conduct that they engaged in as agents of MonoCoque. MonoCoque brought several counterclaims.
The defendants filed a motion for partial summary judgment, arguing that Section 21.223 of the Texas Business Organizations Code bars the claims against Keyes and Nadeau individually because the complained-of acts were performed in their capacities as authorized agents of MonoCoque. The trial court granted the motion and severed the subject claims into a separate action, resulting in a final judgment for Keyes and Nadeau on all claims asserted against them individually. Weller and IntegriTech appealed that judgment.
The defendants also filed a separate motion for partial summary judgment on the ground that the fraud claims, except fraudulent inducement, are barred by the economic-loss rule. The trial court denied that motion, and it is not before us.
684 S.W.3d 496, 501 (Tex. App.-Austin 2022) (quoting Bates Energy Oil & Gas v. Complete Oilfield Servs., 361 F.Supp.3d 633, 667 (W.D. Tex. 2019)).
Weller and IntegriTech did not complain on appeal about the portion of the judgment disposing of the Texas Securities Act claim.
Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex. 2006); see also 3 Ira P. Hildebrand, The Law of Texas Corporations § 924 (1942) ("One of the business reasons for organizing a corporation is to escape personal liability on the part of the stockholders for the obligations of the company."); Byron F. Egan, Egan on Entities § 2.4.1 (4th ed. 2023) ("In corporate law, it is fundamental that shareholders, officers, and directors are ordinarily protected from personal liability arising from the activities of the corporation.").
The court of appeals reversed, holding that Section 21.223's limitations on corporate owners' liability apply when claimants seek to hold such owners liable for corporate obligations by piercing the corporate veil, but that the statute does not abrogate longstanding common law that "individuals are directly liable for their own tortious conduct-even if committed in the course and scope of their employment." 684 S.W.3d 496, 499 (Tex. App.-Austin 2022) (citing Miller v. Keyser, 90 S.W.3d 712, 717-18 (Tex. 2002)). In so holding, the court noted that the majority of appellate courts to address the issue have reached the same conclusion. Id. at 501 (collecting cases). A minority of courts, however, have held that Section 21.223 can apply regardless of whether the individual defendant's liability is premised on a veil-piercing theory or direct liability for his own tortious conduct as an agent for the company. See, e.g., TecLogistics, Inc. v. Dresser-Rand Grp., 527 S.W.3d 589, 598 (Tex. App.-Houston [14th Dist.] 2017, no pet.) (holding that Section 21.223 applied where the defendant shareholder "was the human agent through which [the company] committed actual fraud against" its contractual obligee). We granted Keyes and Nadeau's petition for review to address this split.
II. Discussion
We begin with a discussion of the development of the law regarding personal liability for corporate obligations and the related but distinct issue of personal liability for tortious conduct in which an individual engages as a corporate agent.
A. Piercing the Corporate Veil
Under longstanding Texas common law, corporate shareholders, officers, and directors are generally shielded from liability for corporate obligations. Willis v. Donnelly, 199 S.W.3d 262, 271 (Tex. 2006). But "courts will disregard the corporate fiction"-i.e., pierce the corporate veil-and hold such agents individually liable for those corporate obligations when the agents "abuse the corporate privilege." Id. A veil-piercing doctrine is not a substantive cause of action but "a method to impose personal liability on shareholders and corporate officers who would otherwise be shielded from liability for corporate debts." Shandong Yinguang Chem. Indus. Joint Stock Co. v. Potter, 607 F.3d 1029, 1035 (5th Cir. 2010) (applying Texas law); see also Cox v. S. Garrett, L.L.C., 245 S.W.3d 574, 582 (Tex. App.-Houston [1st Dist.] 2007, no pet.).
Two oft-invoked common-law veil-piercing theories are (1) alter ego, which is triggered "when there is such unity between corporation and individual that the separateness of the corporation has ceased"; and (2) when the corporate form is used as "a sham to perpetrate a fraud." Castleberry v. Branscum, 721 S.W.2d 270, 271 (Tex. 1986). As to the latter, in Castleberry this Court concluded that to prove there has been a sham to perpetrate a fraud, and thereby pierce the corporate veil, a claimant need not show "actual fraud" (defined as "dishonesty of purpose or intent to deceive") but may show "only constructive fraud." Id. at 273. That holding corresponded with the Court's "flexible fact-specific approach" to veil piercing "focusing on equity." Id.
We described "constructive fraud" as "the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure public interests." Castleberry, 721 S.W.2d at 273.
Lucas v. Tex. Indus., Inc., 696 S.W.2d 372, 374 (Tex. 1984) (quoting First Nat'l Bank in Canyon v. Gamble, 132 S.W.2d 100, 103 (Tex. 1939)).
The Legislature responded in 1989 by amending Article 2.21 of the Texas Business Corporation Act-the predecessor to the Business Organizations Code provisions at issue-which took "a stricter approach to disregarding the corporate structure." SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 455 (Tex. 2008). Article 2.21 insulated shareholders from liability with respect to "any contractual obligation of the corporation on the basis of actual or constructive fraud, or a sham to perpetrate a fraud, unless [the shareholder] 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 [shareholder]." Act of May 16, 1989, 71st Leg., R.S., ch. 217, § 1, 1989 Tex. Gen. Laws 974, 974 (amended 1993, 1997; recodified 2003). The statute also wholly foreclosed shareholder liability based on the corporation's failure to observe any corporate formality. Id. at 974-75. Excepted from the liability limitations were corporate obligations for which the shareholder had expressly assumed personal liability or was otherwise liable by statute. Id. at 975.
We use "shareholder" to encompass the statute's applicability to "[a] holder of shares, an owner of any beneficial interest in shares, or a subscriber for shares whose subscription has been accepted." Tex. Bus. Orgs. Code § 21.223(a).
Sagebrush Sales Co. v. Strauss, 605 S.W.2d 857, 860 (Tex. 1980) (citing Torregrossa v. Szelc, 603 S.W.2d 803 (Tex. 1980); Bell Oil & Gas Co. v. Allied Chem. Corp., 431 S.W.2d 336 (Tex. 1968); Drye v. Eagle Rock Ranch, Inc., 364 S.W.2d 196 (Tex. 1962); Pace Corp. v. Jackson, 284 S.W.2d 340 (Tex. 1955)).
Over the years, Article 2.21's provisions have been amended, expanded, and recodified, and they are now housed in Sections 21.223, 21.224, and 21.225 of the Business Organizations Code. Though the provisions themselves reference only corporations, they apply to limited liability companies as well. The current version of Section 21.223 provides in pertinent part:
The provisions apply to a limited liability company and its "members, owners, assignees, affiliates, and subscribers." Tex. Bus. Orgs. Code § 101.002(a). Further, "a reference to 'shares' includes 'membership interests';" "a reference to 'holder,' 'owner,' or 'shareholder' includes a 'member' and an 'assignee';" "a reference to 'corporation' or 'corporate' includes a 'limited liability company';" and "a reference to 'directors' includes 'managers' of a manager-managed limited liability company and 'members' of a member-managed limited liability company." Id. § 101.002(b)(1)-(4).
Leitch v. Hornsby, 935 S.W.2d 114, 117 (Tex. 1996); Tri v. J.T.T., 162 S.W.3d 552, 562-63 (Tex. 2005).
(a) A holder of shares, an owner of any beneficial interest in shares, or a subscriber for shares . . . 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 . . . .
(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 § 21.223(a)(2)-(3), (b). Section 21.224 confirms that liability for an obligation limited by Section 21.223 "is exclusive and preempts any other liability imposed for that obligation under common law or otherwise." Id. § 21.224. Section 21.225 carries forward the original statute's exceptions for liability expressly assumed or imposed by statute. Id. § 21.225.
B. Liability of Corporate Agents for Tortious Conduct
Independent of the "vicarious" liability that may be imposed on corporate shareholders and officers based on veil-piercing theories, we have also long held that corporate agents are "personally liable for [their] own fraudulent or tortious acts" "even though they were acting on behalf of the corporation." Miller, 90 S.W.3d at 717 (citing Weitzel v. Barnes, 691 S.W.2d 598, 601 (Tex. 1985); Leyendecker & Assocs. v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984)); see also Walker v. F.D.I.C., 970 F.2d 114, 122 (5th Cir. 1992) (applying Texas law) ("If a corporate officer knowingly participates in a tortious act, there is no need to pierce the corporate veil in order to impose personal liability."). Leyendecker, for example, involved a dispute between a subdivision developer and the Wechters, to whom the developer sold a townhouse. 683 S.W.2d at 371. The Wechters sued the developer under the Deceptive Trade Practices Act and asserted a libel claim against both the developer and its employee, Chris Hilliard, premised on Hilliard's sending a letter to multiple recipients falsely accusing the Wechters of having asked the developer to make fraudulent insurance claims. Id. at 371-72. The trial court rendered judgment holding the developer and Hilliard jointly and severally liable for damages on the libel claim. Id. at 372. In this Court, Hilliard argued that he could not be held liable for a tort committed while acting within the scope of his employment. Id. at 375. We rejected that argument, holding that "[a] corporation's employee is personally liable for tortious acts which he directs or participates in during his employment." Id.
In the negligence context, a corporate officer's or agent's "individual liability arises only when the officer or agent owes an independent duty of reasonable care to the injured party apart from the employer's duty." Leitch v. Hornsby, 935 S.W.2d 114, 117 (Tex. 1996). For example, an employee who negligently causes a car accident while driving within the scope of his employment is subject to liability along with the employer. Id.
Holloway v. Skinner, 898 S.W.2d 793, 796 (Tex. 1995).
Reaffirming this principle in Miller, we also cited with approval a Restatement provision on agency that provides: "An agent who fraudulently makes representations, uses duress, or knowingly assists in the commission of tortious fraud or duress by his principal or by others is subject to liability in tort to the injured person although the fraud or duress occurs in a transaction on behalf of the principal." Restatement (Second) of Agency § 348 (Am. L. Inst. 1958), cited in Miller, 90 S.W.3d at 717 n.29. And just two terms ago, we yet again made clear that "the fact that an individual was acting in a corporate capacity," i.e., "acting as an agent, employee, or representative of a corporation," "does not prevent the individual from being held personally-or 'individually'-liable for the harm caused by those acts." Transcor Astra Grp. S.A. v. Petrobras Am., Inc., 650 S.W.3d 462, 478 (Tex. 2022), cert. denied, 143 S.Ct. 2493 (2023).
Keyes and Nadeau note that Miller involved an analysis of a corporate owner's liability under a separate statute, the DTPA. Nevertheless, Miller expressly recognized the "longstanding rule that a corporate agent is personally liable for his own fraudulent or tortious acts." 90 S.W.3d at 717.
In re First Rsrv. Mgmt., L.P., 671 S.W.3d 653, 660-61 (Tex. 2023).
C. Scope of Statutory Protections
Here, we are asked what effect, if any, the provisions of the Business Organizations Code discussed above have on this longstanding common-law principle. On this issue, the courts of appeals and federal district courts are divided. As noted, a majority have held, consistent with the court of appeals' decision in this case, that Section 21.223 applies only "to veil piercing theories (for both contract and related tort claims), . . . not to direct liability claims for an individual's own tortious conduct." Bates Energy Oil & Gas v. Complete Oilfield Servs., 361 F.Supp.3d 633, 672-73 (W.D. Tex. 2019). Others hold, however, that the statute applies to liability for all tort claims if the claims arise from or relate to a corporate obligation. E.g., TecLogistics, 527 S.W.3d at 591. Under that reasoning, shareholder liability for such claims-even if arising from the shareholder's own tortious conduct-is barred unless the shareholder "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." Tex. Bus. Orgs. Code § 21.223(b). For the reasons discussed below, we hold that Section 21.223 does not apply to, and thus does not limit liability for, claims against corporate shareholders and officers premised on their alleged tortious conduct as agents of the company.
See also 684 S.W.3d at 501; Texienne Oncology Ctrs., PLLC v. Chon, No. 09-19-00356-CV, 2021 WL 4994622, at *7 (Tex. App.-Beaumont Oct. 28, 2021, pet. denied); Clements v. HLF Funding, No. 05-19-01295-CV, 2021 WL 3196962, at *10 (Tex. App.-Dallas July 28, 2021, pet. denied); Spicer v. Maxus Healthcare Partners, 616 S.W.3d 59, 117-19 (Tex. App.-Fort Worth 2020, no pet.); Kingston v. Helm, 82 S.W.3d 755, 764-67 (Tex. App.-Corpus Christi- Edinburg 2002, pet. denied); In re Technicool Sys., Inc., 594 B.R. 663, 671-72 (Bankr.S.D.Tex. 2018).
Tex. Bus. Orgs. Code § 21.223(a)(2). Though Section 21.223 refers to "corporations," defined in Chapter 21 as "a domestic for-profit corporation subject to this chapter," id. § 21.002(5), various provisions in the Business Organizations Code make these terms applicable to other types of business organizations. See, e.g., id. § 101.002(a).
See also Tex.-Ohio Gas, Inc. v. Mecom, 28 S.W.3d 129, 137 (Tex. App.-Texarkana 2000, no pet.); R.P. Small Corp. v. Land Dep't, Inc., 505 F.Supp.3d 681, 698-99 (S.D. Tex. 2020); Saeed v. Bennett-Fouch Assocs., No. 3:11-CV-01134-F, 2012 WL 13026741, at *3 (N.D. Tex. Aug. 26, 2012).
Id. § 21.223(b) (providing that subsection (a)(2) does not apply if the plaintiff "demonstrates that the [shareholder] . . . 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 [shareholder]"). Section 21.223 also does not apply if the defendant "expressly assumes, guarantees, or agrees to be personally liable" or "is otherwise liable to the obligee for the obligation under this code or other applicable statute," id. § 21.225, exceptions not discussed by the parties.
A shareholder or LLC member is not a corporate agent or representative merely by virtue of being a shareholder or member. But often, particularly in small businesses, shareholders and members also serve as officers or managers of the company. It is those shareholders and members who may act as corporate agents and, in doing so, are not protected by Section 21.223 for their own tortious conduct as agents.
Id. § 21.224.
We begin with familiar principles of statutory interpretation, which require us to look to the statute's plain language and to analyze that language contextually and in light of the statute as a whole. CHCA Woman's Hosp. L.P. v. Lidji, 403 S.W.3d 228, 231-32 (Tex. 2013). According to the statute's language, the following questions determine whether the general nonliability rule of Section 21.223(a)(2) applies: (1) is the plaintiff a corporation or LLC or its obligee, and is the defendant a shareholder in the entity or an affiliate of such a shareholder or of the entity; and (2) does the plaintiff's claim (a) seek to recover for a contractual obligation of the entity or a matter relating to or arising from such an obligation and (b) seek to hold the defendant liable for that recovery on the basis of alter ego, actual or constructive fraud, a sham to perpetrate a fraud, or other similar theory? See Tex. Bus. Orgs. Code § 21.223(a)(2). If all these requirements are met, the nonliability rule applies unless the plaintiff establishes the exception in Section 21.223(b).
Again, we use "shareholder" to encompass the statute's applicability to "[a] holder of shares, an owner of any beneficial interest in shares, or a subscriber for shares whose subscription has been accepted," Tex. Bus. Orgs. Code § 21.223(a), as well as a member of a limited liability company, id. § 101.002(a).
Section 21.225, which contains additional exceptions from the liability limits in Sections 21.223 and 21.224 when a person assumes, guarantees, or agrees to be personally liable for the obligation or is otherwise statutorily liable, is not at issue here. Id. § 21.225.
Id.
Another part of statutory context is statutory history-"the statutes repealed or amended by the statute under consideration." Brown v. City of Houston, 660 S.W.3d 749, 755 (Tex. 2023); see id. ("Statutory history concerns how the law changed, which can help clarify what the law means." (emphasis omitted)). When Article 2.21 was amended in 1989, close on the heels of Castleberry's emphasis on a "flexible" approach to veil piercing, 721 S.W.2d at 273, it applied only to efforts to impose liability on shareholders with respect to "any contractual obligation of the corporation" based on "actual or constructive fraud," "a sham to perpetrate a fraud," or "failure of the corporation to observe any corporate formality." Act of May 16, 1989, 71st Leg., R.S., ch. 217, § 1, 1989 Tex. Gen. Laws 974, 974. The statute thus acted directly on specific veil-piercing theories that, at common law, were methods to impose shareholder liability for corporate contractual obligations despite shareholders' general protection with respect to such obligations. And it contained the same exceptions to the liability restriction that remain in the current version: (1) the holder used the corporation to perpetrate an actual fraud on the obligee primarily for the holder's direct personal benefit; (2) the holder expressly assumed personal liability for the obligation; and (3) the holder was otherwise liable by statute. Id.
In 1993, the Act was amended to incorporate additional veil-piercing theories, adding "alter ego" and the catch-all "or other similar theory" to the list of enumerated bases on which shareholder liability for corporate contractual obligations was restricted. Act of May 10, 1993, 73d Leg., R.S., ch. 215, § 2.05, 1993 Tex. Gen. Laws 418, 446. In 1997, the Legislature amended the Act to apply not just to liability for "any contractual obligation of the corporation" but also to liability for "any matter relating to or arising from the obligation." Act of May 16, 1997, 75th Leg., R.S., ch. 375, § 7, 1997 Tex. Gen. Laws 1516, 1522. The Legislature also added "affiliate[s]" of the shareholder and the corporation to the class of persons protected by the statute. Id.
The 1993 amendment also added the preemption provision, stating that when liability is limited by the statute, such liability "is exclusive and preempts any other liability imposed [for the covered obligation] under common law or otherwise."
Tex. Bus. Orgs. Code § 101.002(a). Section 101.002's extension of Section 21.223 to limited liability companies is "subject to Section 101.114," which provides that "[e]xcept 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." Id. § 101.114. The officer defendants in this case do not invoke Section 101.114 or analyze the scope of its protection.
The statutory history and language confirm that the statute's focus has always been, and continues to be, on the liability of shareholders for matters relating to corporate contractual obligations- not the liability of corporate agents for their own misconduct. Tex. Bus. Orgs. Code § 21.223(a)(2) (protecting shareholders from liability with respect to "any contractual obligation of the corporation or any matter relating to or arising from the obligation" (emphases added)). Further, the statute applies to shareholder liability for those obligations "on the basis that the holder . . . 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." Id. The statute simply does not address the individual liability of corporate agents for their own tortious acts. And again, we have repeatedly and recently confirmed that corporate agents may be held liable for such conduct. Transcor, 650 S.W.3d at 479.
Because Weller and IntegriTech do not seek to hold a shareholder directly liable for his conduct as a shareholder, we need not address the applicability of Section 21.223(a)(2) in such cases. In particular, we do not decide whether this statute applies to non-veil-piercing theories of liability or whether a particular direct-liability tort claim would impose liability "with respect to . . . [a] contractual obligation of the corporation or [a] matter relating to or arising from the obligation." Tex. Bus. Orgs. Code § 21.223(a)(2).
Although the Code defines "affiliate" as "a person who controls, is controlled by, or is under common control with another person," id. § 1.002, the officers and employees of a corporation are not the "affiliates" of a corporation. When acting in their corporate capacity, officers and employees are the corporation. Just as a corporation cannot tortiously interfere with itself, Holloway, 898 S.W.2d at 796, nor can a corporation "affiliate" with itself.
In sum, we do not understand Section 21.223 to shield a corporate agent who commits tortious conduct from direct liability "merely because the officer or agent also possesses an ownership interest in the corporation." Kingston, 82 S.W.3d at 765. Accordingly, we hold that Section 21.223 has no effect on the independent common-law principle that corporate agents who direct or engage in tortious conduct are personally liable for that conduct.
D. Application
In this case, Weller and IntegriTech allege that Keyes and Nadeau personally made false "representations and commitments . . . regarding incentive compensation for revenue generated" by Weller and "allowed Weller to commence with his employment knowing that he believed the pre-employment terms to be in effect because they had told him that this was so." Further, Keyes and Nadeau allegedly "accepted the benefit of Weller's knowledge and connections knowing that they did not intend to perform on the agreement." Whether the record supports those allegations is beyond the scope of Keyes and Nadeau's motion for partial summary judgment and thus beyond the scope of our review. McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993) (holding that a motion for summary judgment "must stand or fall on the grounds expressly presented in the motion").
Rather, the only ground on which summary judgment was sought on the fraud claims was that Section 21.223 bars the claims against Keyes and Nadeau individually because all the alleged acts and omissions "were performed in their capacities as authorized agents" of MonoCoque. In turn, Keyes and Nadeau maintain that they are protected from liability absent evidence that they acted "primarily for the[ir] direct personal benefit." Tex. Bus. Orgs. Code § 21.223(b) (excepting from the statute's protections a shareholder or affiliate who "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").
As discussed, the undisputed fact that Keyes and Nadeau made the alleged misrepresentations in their "corporate capacity" does not insulate them from liability under the common law. Transcor, 650 S.W.3d at 479. And Section 21.223 does not limit the liability of corporate agents for their own fraudulent or tortious conduct merely because they are also shareholders or members. Accordingly, the absence of evidence that Keyes and Nadeau perpetrated a fraud for their "direct personal benefit" is not fatal to the plaintiffs' claims, which involve acts allegedly committed as corporate agents, not as owners.
Our holding does not mean that Weller and IntegriTech should prevail on their fraud claims or even that the record evidence is sufficient to raise a genuine issue of material fact on the elements of those claims; again, those issues are beyond the scope of our review. However, it does mean that Keyes and Nadeau are not entitled to summary judgment on the only ground they asserted.
III. Conclusion
We hold that the trial court erred in granting summary judgment on the fraud claims against Keyes and Nadeau and that the court of appeals correctly reversed that judgment. Accordingly, we affirm the court of appeals' judgment and remand the case to the trial court.
Justice Brett Busby, concurring.
I agree with the Court that Section 21.223 of the Texas Business Organizations Code does not limit the direct liability of a shareholder for his own tortious acts committed as a corporate officer or agent. I therefore join its opinion.
The Court quite properly does not address under what circumstances Section 21.223 would limit the direct liability of a shareholder for tortious acts not committed as a corporate officer or agent-an issue neither briefed by the parties nor before us in this case. I write to observe that courts and counsel must consult the statutory text and parts of the Court's opinion to guide a proper analysis of that issue in future cases.
For example, the Court explains that Section 21.223 was enacted and expanded to limit the use of common-law veil-piercing theories that rendered shareholders vicariously liable for corporate debts. Ante at 7-9, 14-17. If a shareholder invokes this statute to limit his direct liability for his own tortious acts, then a relevant question will be one the Court expressly does not decide here: whether the statute, in light of its language and history, "applies to non-veil-piercing theories of liability." Id. at 16 n.15.
In addition, and independent of the answer to that question, it is important to keep in mind that the statute's plain text gives no significance to the defendant's role-that is, the capacity in which he acts-when committing the tort alleged. As the Court explains, the statute's application initially turns on whether the defendant is "[a] holder of shares," not whether the defendant acts as a holder rather than as a corporate officer, employee, or other agent. Tex. Bus. Orgs. Code § 21.223(a); ante at 13-14. Because the statute does not say anything at all about which "hat" the defendant shareholder wears, his role or capacity has no relevance in determining whether the statute applies.
Instead, one important limitation on the statute's scope is that it applies only if the plaintiff seeks to hold the shareholder defendant liable for a "contractual obligation of the corporation or any matter relating to or arising from the obligation." Tex. Bus. Orgs. Code § 21.223(a)(2); ante at 14. Thus, as the Court holds, the statute limits a defendant's liability relating to a corporate contractual obligation but not the defendant's liability for his own individual misconduct. Ante at 16-17. Accordingly, when a shareholder invokes this statute to limit his liability, another relevant question will be-as the Court's opinion and Justice Bland's concurrence note-whether that particular liability relates to a corporate contractual obligation or is simply direct liability for his own tortious acts Id. at 16-17 & n15; see also post at 5 (Bland, J, concurring).
With these additional observations, I join the opinion of the Court.
Justice Bland, joined by Justice Blacklock, Justice Huddle, and Justice Young, concurring.
Business Organizations Code Section 21.223 limits shareholder liability for a corporation's contractual obligations or "any matter relating to . . . the obligation on the basis that the [shareholder] . . . 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."1 Relying on this limitation, the trial court granted summary judgment in favor of limited liability company officers who allegedly committed fraud during conversations with the plaintiff about his potential employment. The court of appeals reversed, limiting Section 21.223 to "traditional veil piercing theories."2
As the Court clarifies today, summary judgment was improper because the officer defendants adduced no evidence demonstrating that the statements made to the plaintiff about company employment were in an owner's role rather than as corporate officers acting on behalf of the company. I join the Court's opinion and write to emphasize this distinction. Section 21.223 remains a shield against a suit seeking to impose liability based on shareholder conduct for matters relating to a corporate contractual obligation unless the shareholder directly benefits from the transaction.
"A bedrock principle of corporate law is that an individual can incorporate a business and thereby normally shield himself from personal liability for the corporation's contractual obligations."3 The corporate form is not a veil but armor. It protects owners, officers, and employees alike from the obligations of the corporation. Disregarding the corporate entity, while possible, is "an exception to the general rule which forbids disregarding corporate existence."4 As we have repeatedly cautioned, the law imposes individual liability only in "extraordinary circumstances."5
We have reinforced the strength of the corporate form against a variety of attempts to circumvent it. A claim that sounds in negligence against a corporation does not impose individual liability on a corporate agent unless the law imposes a duty of care on the agent arising independently from corporate conduct.6 A corporate agent is not liable for tortious interference with the corporation's contract because "a party cannot tortiously interfere with its own contract," unless the agent acts "so contrary to the corporation's best interests that his actions could only have been motivated by personal interests."7 Nor will a parent corporation assume the liabilities of a subsidiary, even when the parent appoints or shares directors.8
Though exceptions to the corporate form's protections developed over time at common law, robust statutory protection for shareholders has displaced that common law. Business Organizations Code Section 21.223 shields shareholders and their affiliates from liability for "any contractual obligation of the corporation or any matter relating to or arising from the obligation" on the basis of alter ego, actual or constructive fraud, sham to perpetrate fraud, "or other similar theory."9A caveat to that protection arises when the shareholder or affiliate commits actual-not constructive-fraud primarily for the shareholder's direct personal benefit.10 Otherwise, Section 21.223's shield "is exclusive and preempts any other liability imposed for that obligation under common law or otherwise."11
Section 21.223 thus significantly curtails claims against shareholders aimed at directly imposing shareholder liability for the company's obligations or for matters relating to those obligations. The statute vitiates some common-law exceptions that developed over time in disregard of the corporation as an independent entity. In Willis v. Donnelly, interpreting an earlier version of Section 21.223, we rejected shareholder liability on a theory that the shareholders had accepted benefits under a corporate contract upon ratifying it.12 "To impose liability against the [shareholders] under a common law theory . . . would contravene the statutory imperative that, absent actual fraud [primarily for the direct personal benefit of the shareholder] . . . a shareholder may not be held liable for contractual obligations of the corporation."13 Because the jury in Willis did not find fraud, Section 21.223 protected the shareholders from liability for the corporation's obligations.
Section 21.223's protection extends to "a limited liability company and the company's members, owners, assignees, affiliates, and subscribers."14 Notably excluded from Section 21.223 and the limited liability company statute incorporating shareholder protection are corporate officers, employees, and agents of the corporation.15 As the Court properly holds, without a firm grasp of a business organization's governing documents and the scope of the authority granted to those who act on behalf of the corporation, Section 21.223 does not limit liability for officers, employees, and agents who otherwise could be held individually liable for fraud at common law.
When a defendant holds roles both as a shareholder and an officer of a corporation, as the defendants in this case do, the statute shields the shareholder, who has a corporate identity distinct from that of the officer. The Court's opinion appropriately distinguishes the role of the shareholder from that of a corporate officer and concludes that Section 21.223, standing alone, does not shield conduct unrelated to the shareholder role.
Section 21.223, however, is not without vitality. Conduct done not as a corporate officer but instead as an owner of an organization remains shielded from lawsuits seeking to impose liability for corporate obligations if that conduct falls within Section 21.223's purview. Shareholders exercise a panoply of rights derived from shareholder agreements and from the Business Organizations Code, including, for example, establishing and amending a shareholder agreement, voting in directors, and voting on fundamental actions. When a shareholder acts pursuant to the rights or obligations of ownership, the shareholder is not acting as an agent of the corporation.
Id. § 21.359.
Id. § 21.364. One of the first considerations in examining the scope of liability is the type of business organization involved and its governing documents-e.g., a limited liability company, a limited partnership, a corporation, a close corporation-as the Code distinguishes the rights and responsibilities among them in nuanced ways. The officer defendants identified the organization involved as a limited liability company but did not proffer any governing documents.
As the Court notes, in this case we have no occasion to decide the scope of Section 21.223 when a shareholder invokes it in a suit seeking to impose shareholder liability for a corporate obligation premised on shareholder conduct. The courts that have interpreted Section 21.223 thus far mostly have considered its effect on persons who hold dual roles as both shareholders and officers. Nothing in the Court's opinion, or in the lower court opinions addressing actions of shareholder-officers, should be taken as an indication that common-law theories of liability eclipse the protections Section 21.223 affords shareholders from claims seeking to impose liability for a corporate obligation based on shareholder conduct. Whether a shareholder could ever be liable for a matter relating to a contractual obligation of the company in the absence of a showing of the shareholder's direct personal benefit is doubtful, as the statute broadly covers not just "alter ego" but also "actual or constructive fraud, a sham to perpetrate a fraud, or other similar theory."
E.g., TecLogistics, Inc. v. Dresser-Rand Grp., Inc., 527 S.W.3d 589, 596-97 (Tex. App.-Houston [14th Dist.] 2017, no pet.) (concluding Section 21.223 bars corporation's "owner and president" from liability for fraud); Kingston v. Helm, 82 S.W.3d 755, 766 (Tex. App.-Corpus Christi-Edinburg 2002, pet. denied) (determining that the "fact that [the defendant] is a shareholder or an owner or an officer of [the corporation] is not relevant to the question of whether he can be held individually liable for his own tortious conduct").
A defendant's ownership interest in a business organization is not alone sufficient to conclude Section 21.223 applies. But if the defendant establishes that the conduct alleged is shareholder conduct, not an act of the corporation itself, then the defendant may invoke Section 21.223, subject to the specific parameters governing the type of business organization involved.
These parameters in some cases may limit Section 21.223's reach. For example, shareholders of a close corporation may be subject to liabilities imposed on directors for managerial acts when the corporation does not appoint officers and directors. See id. §§ 21.727, 21.729. The Business Organizations Code comprises numerous interlocking puzzle pieces. Invocation of one statute is nearly always informed by others defining the entity involved and the scope of various rights and obligations of the entity's owners and managers.
The present case is before us on summary judgment, and the sole question is whether Mary Alice Keyes and Sean Leo Nadeau are entitled to invoke Section 21.223 as a defense to David Weller's fraud claims. In their motion for summary judgment, Keyes and Nadeau assert that the statute applies because they made all representations in their "corporate capacities" or "capacities as authorized agents of [MonoCoque Diversified Interests, LLC]." Thus, they concede that they, at least in some sense, acted on behalf of the company, not as its owners.
Keyes and Nadeau adduced no evidence regarding MonoCoque's corporate structure. They adduced no evidence of their roles at MonoCoque, nor evidence that they made the statements that Weller alleges constituted fraud as members of the company entitled to a Section 21.223 defense. By their own telling, some evidence exists that the statements were made as officers or agents of MonoCoque. Because Keyes and Nadeau did not meet their burden to show that the statutory defense applies as a matter of law, summary judgment was inappropriate. Accordingly, I join the Court's opinion and concur in its judgment.
Beyond the motion for summary judgment's characterization of the capacity as one of agency, the unsigned term sheet the defendants attached to their motion identifies Keyes as the signatory for MonoCoque, in her capacity as "Operating Executive."