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concluding that alter-ego and corporate-veil-piercing theories apply in the context of limited liability companies
Summary of this case from ASR 2620-2630 Fountainview, LP v. ASR 2620-2630 Fountainview GP, LLCOpinion
No. 14-10-00299-CV
Opinion filed April 14, 2011.
On Appeal from the 165th District Court, Harris County, Texas, Trial Court Cause No. 2007-15897.
Panel consists of Justices ANDERSON, SEYMORE, and McCALLY.
MEMORANDUM OPINION
Appellee Daniel J. Basurto sued appellant Charles Watkins and several other defendants — Sierra Grill Properties, Inc., Sierra Grill Inc., and Houston Sierra Grill Properties, Ltd. D/B/A The Tavern — for personal injuries resulting from an assault against Basurto committed by bouncers at a bar. After a bench trial, the trial court entered a judgment for money damages solely against Watkins, and the court made findings of facts and conclusions of law.
In two issues, Watkins argues that the evidence is legally and factually insufficient to support the trial court's findings that Watkins was the alter ego of the entities involved in the operation of the bar and that Watkins was individually liable under a theory of negligent hiring and supervision. We reverse the trial court's judgment and render judgment that Basurto take nothing from Watkins.
FACTUAL PROCEDURAL BACKGROUND
Basurto was a frequent patron of a bar and restaurant known as The Tavern. Several business entities were involved in the operation of The Tavern. In particular, 1340 Tavern on Gray, LLC, managed the operations, money, and income of The Tavern, but another entity, Tips Blue Agave, LLC, held the liquor license and employed the staff of The Tavern. Watkins was the registered agent for, and a member of, both entities.
Neither of these entities was a defendant at trial. Due to Watkins's late disclosure of Tips as the employer of The Tavern's staff, Basurto filed a fourth amended petition adding Tips eleven days prior to trial. However, Basurto did not serve the entity, and Tips made no appearance. Basurto sought neither continuance nor sanction related to the late disclosure.
On December 21, 2006, Basurto witnessed and videotaped several employees at The Tavern assaulting a customer. Basurto testified that the bouncers were not happy about him videotaping the incident. He went to The Tavern the following night, and after he picked up some drinks that were not his, he was escorted out of the establishment by a manager and bartender, Josh Guzman. Basurto testified that a manager grabbed his arm and brought him outside to where two bouncers were waiting. The bouncers pulled Basurto's shirt over his head and punched his face and chest. Guzman acknowledged that he pushed Basurto and put his hands on Basurto before the fight began.
Basurto pulled his shirt off so he could see, and he tried to escape the altercation. But when he lost his shirt, he yelled at the bouncers and asked for his shirt. Basurto testified that one of the bouncers ran toward him and hit him in the face. The next thing Basurto knew, he was on the ground being kicked repeatedly in the face, head, and chest while three or four men surrounded him.
Jacob Grove was a bouncer at The Tavern, and he was arriving for work that night when he saw Guzman escorting Basurto out of the bar. Grove testified that Basurto threw a punch at him, and so he picked up Basurto and threw him on the ground. Grove then got on top of Basurto and put his knee into Basurto's chest. Grove testified, "I hit him," and then, "I hit him again, you know, just to try to calm him down. . . . I don't know if it was the first punch, the second punch but, you know, I hit him in the mouth. I got real bad fight bight." Grove explained, "I laid into him. . . . If he's hitting me from the bottom and scratching me, then I am going to lay into him." Basurto suffered from a left orbital fracture, and he required surgery to place a titanium plate underneath the skin of his face.
Grove also testified about an altercation he had sometime after the assault on Basurto when someone scratched Grove's car: "I didn't hit the kid or anything. I just slapped him. . . . [A]ll I did was open-hand slap him." As a result of the latter incident, Grove was fired.
Grove had been previously convicted of evading arrest in a motor vehicle, driving with a suspended license, and possessing marijuana. Guzman had been convicted of some misdemeanors, but the record does not contain evidence of the subject matters of those convictions. Watkins testified that it was not his practice to run background checks when hiring employees, and he did not run background checks on Guzman or Grove. However, he acknowledged, "[I]f I knew somebody with a criminal history, that would definitely influence my judgment to hire them."
At trial, Basurto did not question Guzman on the specifics of those convictions. Basurto questioned Watkins, but Watkins was not aware of Guzman's criminal record. For example:
[Basurto's Counsel]: Do you know Mr. Guzman has been convicted of assault causing bodily injury?
[Watkins]: No idea.
This exchange shows that Watkins was not aware of whether Guzman was convicted of assault, but it is not evidence that Guzman was actually convicted of assault. See Brown v. State, 477 S.W.2d 617, 620 (Tex. Crim. App. 1972) (explaining, in context of proper form of questions to test knowledge of reputation witness, "have you heard" and "did you know" questions are not themselves substantive evidence of prior conduct); Kercho v. State, 948 S.W.2d 34, 37 (Tex. App.-Houston [14th Dist.] 1997, pet. ref'd) ("Questions do not amount to evidence.").
Lucy Anderson, a waitress and bartender at The Tavern, explained that there had been some other fights at The Tavern in 2006, but she did not give details about any of the incidents. Watkins testified that he would be informed about any incidents, such as a fight, at a weekly meeting that occurred on a Monday. He also testified that there was no standard procedure for notifying him about fights, but he was notified the night of the assault of Basurto. He explained that it was "normal procedure" to press charges against patrons who attacked bouncers.
Watkins explained that The Tavern did not require any specific training for bouncers on what to do if combat erupted between a bouncer and a customer. Although he testified that he instructed employees to call police if a customer refused to leave the establishment, he acknowledged, "[H]onest to God, it's a hard thing to get people to do, call police when something hasn't really started yet because it's, like, make them leave." Bryan Jugo, a bouncer at the bar who was also involved in the assault on Basurto, testified that there was no specific training, instruction, or policy about hitting a customer.
Watkins also testified about the business entities involved in The Tavern's operation. Tips had no income other than payments from 1340 Tavern for the subcontracting of Tips employees and the use of the liquor license. Watkins testified that there were good years and bad years, and sometimes there were losses.
The trial court rendered a final judgment in favor of Basurto and entered findings of facts and conclusions of law as follows:
Findings of Facts
1. This was a dispute between Plaintiff Daniel Basurto (hereinafter "Plaintiff") and Defendant owner Charles Watkins of the Tavern on Gray (hereinafter "the Tavern")
2. It was the duty of the court, as the fact finder, to weigh the credibility of witnesses. During the course of trial, through the demeanor of witnesses, it revealed evidence negating the actual words spoken and recorded in the transcript.
3. Any finding of fact that should be characterized as a conclusion of law is deemed a conclusion of law.
4. The Court finds that Plaintiff was a patron to the Tavern on the night of December 22, 2006, and the Tavern was owned and managed by Defendant Charles Watkins. On the evening in question, Plaintiff was viciously assaulted by the staff of the Tavern. As a result of this attack, Plaintiff suffered a left orbital fracture. The Court finds that Plaintiff incurred reasonable and necessary medical expenses as the result of the assault.
5. The Court finds that Charles Watkins is individually liable for the conduct of the staff of the Tavern because he had actual and/or constructive notice of the dangerous propensities of the staff members. Additionally, Mr. Watkins took no steps to perform criminal background checks on the bouncers and provided no training to these individuals. Adequate evidence of prior assaults by his bouncers and his knowledge of assaults was presented to the Court.
6. The court finds that Bouncer Jacob Grove admitted to assault [sic] Plaintiff while he was on the ground during cross examination. Jacob Grove had an extensive criminal history and had been involved in altercations prior to this incident. Charles Watkins was or should have been aware of his violent tendencies.
7. Conclusions of Law
8. The Court concludes that the injuries and consequent damages proximately sustained by Plaintiff were 75% proximately caused by Defendant Charles Watkins, and 25% caused by the Plaintiff.
9. The Court concludes that Defendant Charles Watkins was negligent and failed to do what a reasonably prudent person would have done under the same or similar circumstances.
10. The Court finds that no reasonable prudent person under the same or similar circumstances as those faced by Defendant Charles Watkins would have made the same decisions as Defendant Charles Watkins based on Defendant Charles Watkins' perception of the facts.
11. Additionally, the court finds that Defendant Charles Watkins is the alter-ego of all his business establishments and Defendants by his extensive control.
12. The court concludes that Plaintiff has proven by a preponderance of the evidence the following sums of damages, which if paid now in cash, would fairly and reasonably compensate Plaintiff and such damages were proximately caused by the negligent conduct of Defendants.Physical pain Plaintiff sustained in the past: $20,000.00 Physical pain Plaintiff will sustain in the future: $10,000.00 Mental anguish Plaintiff sustained in the past: $15,000.00 Mental anguish Plaintiff will sustain in the future: $5,000.00 Reasonable and Necessary Past medical bills: $19,000.00 Total: $69,000.00
13. The court finds that Plaintiff shall recover from Defendant Charles Watkins all taxable court costs incurred.
This appeal followed.
ANALYSIS
A. Standard of Review
Under a legal sufficiency review, we must determine whether the evidence would enable a reasonable and fair-minded person to reach the finding under review. City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). A legal sufficiency challenge must be sustained when (1) the record shows a complete absence of evidence of a vital fact, (2) the court is barred from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a mere scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact. Id. at 810; Wiese v. Pro Am Servs., Inc., 317 S.W.3d 857, 860 (Tex. App.-Houston [14th Dist.] 2010, no pet.). We credit favorable evidence if reasonable fact finders could and disregard contrary evidence unless reasonable fact finders could not. Wilson, 168 S.W.3d at 827. We must assume that the fact finder resolved all conflicts in the evidence and made all credibility determinations in favor of the verdict. Id. at 819-20. We also accept as true all facts that are uncontroverted on appeal. See TEX. R. APP. P. 38.1(f) ("In a civil case, the court [of appeals] will accept as true the facts stated [in appellant's statement of facts] unless another party contradicts them."); Davis v. Mangan, No. 14-04-00650-CV, 2005 WL 1692048, at *1 n. 1, *4 (Tex. App.-Houston [14th Dist.] July 21, 2005, no pet.) (mem. op.) (citing TEX. R. APP. P. 38.1(f)) (concluding that the trial court erred in finding that the parties divorced in 1998 because it was uncontested that the parties divorced in 1993).
See also W. Steel Co. v. Altenburg, 206 S.W.3d 121, 124 (Tex. 2006) (citing TEX. R. APP. P. 38.1(f)) (reversing the court of appeals because it evaluated the sufficiency of the evidence for the fact that Western had worker's compensation insurance at the time of Altenburg's injury; Western stated in its appellate brief that it had insurance, and Altenburg did not specifically dispute this fact on appeal)
Generally, when an appealing party seeks to challenge the sufficiency of the evidence for findings of facts entered by a trial court, the party should "direct his attack on the sufficiency of the evidence at specific findings of facts, rather than at the judgment as a whole." Shaw v. Cnty. of Dallas, 251 S.W.3d 165, 169 (Tex. App.-Dallas 2008, pet. denied). Watkins has failed to assign error to specific findings. However, we construe his points of error liberally to fairly and equitably adjudicate his rights. See Tittizer v. Union Gas Corp., 171 S.W.3d 857, 863 (Tex. 2005) (citing TEX. R. APP. P. 38.9); see also TEX. R. APP. P. 38.1(f) ("Issues Presented. . . . The statement of an issue or point will be treated as covering every subsidiary question that is fairly included."). "A challenge to an unidentified finding of fact may be sufficient if we can fairly determine from the argument the specific finding of fact which the appellant challenges." Shaw, 251 S.W.3d at 169.
His issues on appeal are as follows: (1) "Was the evidence presented at trial legally and factually sufficient to disregard the legal separateness between Charles Watkins and either entity involved in the operation of the Tavern?" and (2) "Was the evidence presented at trial legally and factually sufficient to support the trial court's finding that Basurto's injuries were caused in part by Charles Watkins [sic] negligence?"
Basurto does not complain of Watkins's failure to assign error to specific findings of fact.
Accord Mr. W. Fireworks v. Sw. Royalty Inc., No. 11-08-00168-CV, 2010 WL 3064412, at *1 (Tex. App.-Eastland Aug. 5, 2010, no pet.) (mem. op.); In re E.C.M., No. 07-09-00242-CV, 2010 WL 2943091, at *3 (Tex. App.-Amarillo July 28, 2010, no pet.) (mem. op.).
B. Negligent Hiring and Supervision
In his second issue, Watkins argues that the evidence is legally and factually insufficient to support the finding that Watkins owed and breached a duty to Basurto, which caused Basurto's injuries. We hold that the evidence is legally insufficient to support the finding that any breach of duty by Watkins caused Basurto's injuries.
For a claim of negligence, the plaintiff must prove (1) the defendant owed the plaintiff a legal duty, (2) the defendant breached that duty, and (3) the breach proximately caused the plaintiff damages. Zarzana v. Ashley, 218 S.W.3d 152, 158 (Tex. App.-Houston [14th Dist.] 2007, pet. struck). An employer has a general duty to control its employees, id., and to adequately hire, train, and supervise employees to prevent injuries to third parties that are reasonably foreseeable. Castillo v. Gared, Inc., 1 S.W.3d 781, 786 (Tex. App.-Houston [1st Dist.] 1999, pet. denied). If an employer places its employees in a position where it is foreseeable that the employees could cause harm to third parties, the employer must take reasonable steps to prevent that harm, which may include conducting a properly tailored background investigation. Compare Read v. Scott Fetzer Co., 990 S.W.2d 732, 736-37 (Tex. 1998) (holding a general contractor liable when in-home salesperson committed sexual assault after salesperson was hired without a reference or criminal history check, which would have revealed prior inappropriate sexual conduct in the workplace and a conviction for indecency with a child), with Guidry v. Nat'l Freight, Inc., 944 S.W.2d 807, 809-11 (Tex. App.-Austin 1997, no writ) (holding that a trucking company had no duty to check its driver's criminal history for sexual misconduct to ensure long-haul truck drivers would not rape third parties when drivers stopped for a rest).
Because we hold that there was no evidence of causation in this case, we do not decide whether Watkins, as an LLC member who directly participated in hiring employees, individually owed Basurto a duty to competently hire and supervise The Tavern's employees. Generally, a corporate officer is liable for his or her own negligence. Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996). Without piercing the corporate veil, however, a corporate officer is only liable for the breach of a duty of care owed to third parties independent of the business's duty. Id. at 117-18. Texas law is not yet settled on whether the agent of a corporation (or LLC) can be held individually liable for the tort of negligent hiring or supervision — in particular, whether the agent owes a duty to third parties to properly hire or supervise other agents of the principal. Compare Donaldson v. J.D. Transp. Co., No. 04-04-00607-CV, 2005 WL 1458230, at *1, *3 (Tex. App.-San Antonio June 22, 2005, no pet.) (mem. op.) (holding that a supervisor was not individually liable for negligent hiring of an employee because of a lack of proximate cause, but noting that "the parties agree that [the supervisor] owed a duty to [the plaintiff], and that [the supervisor] violated that duty by failing to strictly comply with the federal regulations for hiring commercial truck drivers"), and Portlock v. Perry, 852 S.W.2d 578, 582-83 (Tex. App.-Dallas 1993, writ denied) (holding that the corporation's president was not individually liable for negligent hiring of an employee because of a lack of proximate cause, but noting that the president "may have assumed a duty to hire competent [employees] when he performed the affirmative acts of hiring [the employees]"), with Allen v. Home Depot U.S.A., Inc., No. Civ.A.SA-04-0CA703XR, 2004 WL 2270001, at *1, *3 (W.D. Tex. Oct. 6, 2004) (citing Leitch, 935 S.W.2d 114) (holding that a store manager could not be individually liable to a customer because the manager did not owe a legal duty to the customer to properly supervise other employees responsible for securing a metal rod that injured the customer). See generally RESTATEMENT (THIRD) OF AGENCY § 701 cmt. d (2006) ("[A]n agent whose assigned function within an organization includes the supervision of others may be subject to liability when a failure by the agent to properly supervise breaches a duty that the agent owes to a third party."); Martin Petrin, The Curious Case of Directors' and Officers' Liability for Supervision and Management: Exploring the Intersection of Corporate and Tort Law, 59 AM. U. L. REV. 1661 (2010).
Even if an employer owes a duty to third parties, a plaintiff must establish that the employer's breach was the proximate cause of the plaintiff's injuries. Read, 990 S.W.2d at 737; Zarzana, 218 S.W.3d at 158. To show proximate cause, a plaintiff must establish that (1) the defendant's conduct was a cause-in-fact of the plaintiff's injuries and (2) the plaintiff's injuries were a foreseeable result of the defendant's conduct. Read, 990 S.W.2d at 737. An employer's breach cannot be the proximate cause of a plaintiff's injuries if the employer would have had no reason to know that the employee had a propensity for causing harm. See Barton v. Whataburger, Inc., 276 S.W.3d 456, 463-64 (Tex. App.-Houston [1st Dist.] 2008, pet. denied); Zarzana, 218 S.W.3d at 158; Garrett v. Great W. Distrib. Co. of Amarillo, 129 S.W.3d 797, 803-04 (Tex. App.-Amarillo 2004, pet. denied).
Foreseeability relates to both duty and causation, and sometimes the issues overlap. See Zarzana, 218 S.W.3d at 158-59 (explaining that duty and proximate cause "both hinge on a determination of foreseeability of harm," and holding that the employer conclusively negated duty and causation by demonstrating a lack of foreseeability). For purposes of this case, it may be best understood that (1) duty is lacking when the employer will not place an employee in a position to harm others, and (2) causation is lacking when the employer will place the employee in a position to harm others, but the employer would have no reason to know of the employee's incompetency or propensity for violence. Compare Guidry, 944 S.W.2d at 809-11 (holding that a trucking company had no duty to ensure its employee, a long-haul truck driver, had no history of sexual assault because the employee's subsequent sexual assault was not a foreseeable result of, or related to, the employee's job functions), with Fifth Club, Inc., v. Ramirez, 196 S.W.3d 788, 796-97 (Tex. 2006) (holding that a night club's failure to investigate the background of its security guard was not the proximate cause of a patron's injuries when the guard assaulted the patron; explaining that an investigation would not have revealed a propensity for violence).
Accordingly, if a night club owner would not have known of a violent criminal history of its bouncers prior to the bouncers committing an assault against a club patron, the employer's failure to investigate or supervise cannot be the proximate cause of the patron's injuries. See Fifth Club, Inc., v. Ramirez, 196 S.W.3d 788, 796-97 (Tex. 2006) (holding that an employer night club's failure to investigate and supervise a security guard who assaulted a patron was not the proximate cause of the patron's injuries because there was no evidence that the employer should have known of any unfitness or incompetency prior to the assault); cf. Barton, 276 S.W.3d at 463-64 (holding that the employee's aggravated robbery was a superseding cause not related to the employer's failure to discover the employee's criminal history — namely, failing to pay child support and selling cocaine — because the employee's history did not show a propensity for violence or theft; employee's participation in robbery was not foreseeable).
Here, the trial court found that Watkins should have been aware of the violent tendencies of his employees. In particular, the court found in its findings of facts numbered five and six that (1) Watkins failed to perform background checks on the bouncers, (2) Grove had an extensive criminal history, (3) Grove had been involved in altercations prior to the assault on Basurto, (4) Watkins was or should have been aware of Grove's violent tendencies, (5) The Tavern's bouncers had committed prior assaults, (6) Watkins knew of these assaults, (7) Watkins knew or should have known of the dangerous propensities of his staff, and (8) Watkins failed to provide the bouncers with adequate training. On appeal, Watkins does not specifically challenge findings of facts numbered five and six, but we conclude that the briefing fairly raises a challenge to these findings.
For example, Watkins argues there is no evidence that (1) anyone he hired had a history of violence, (2) Watkins had actual or constructive notice of any potential danger to persons such as Basurto, (3) Watkins had notice of any prior violent incident at The Tavern, (4) Watkins established or knew about any Tavern policies that promoted or condoned violence, or (5) that any policies condoning violence existed. Basurto responded appropriately to the most salient issues, arguing among other points that "Watkins knew or should have known of the fights his doormen were regularly engaged in with customers at that time, yet he failed to discipline the doormen or instigate policies regarding striking customers," and "evidence was presented to the trial court for it to find Watkins had at least constructive knowledge of his doormens' dangerous propensities and his negligence in failing to do anything about it."
Watkins admitted to not running criminal background checks on his bouncers. Thus, there is sufficient evidence to support the trial court's finding on this fact, which constitutes a breach of duty owed to Basurto because The Tavern placed its employees in a position that could be harmful to patrons. Next, Grove admitted to having convictions for evading arrest in a motor vehicle, driving with a suspended license, and possessing marijuana. Thus, there is sufficient evidence to support the trial court's finding that Grove had an extensive criminal history.
However, the trial court did not find, and there is no evidence to support an implied finding, that any of Grove's crimes involved violence. None of the crimes were of a violent nature that would have put Watkins on notice of a propensity for violence. Viewing the evidence in the light most favorable to Basurto and disregarding evidence contrary to the trial court's findings, there is no evidence that Watkins's failure to investigate the bouncers before hiring them proximately caused Basurto's injuries. See Barton, 276 S.W.3d at 463-64 (finding insufficient evidence of causation for negligent hiring when an investigation would have revealed only nonpayment of child support and drug convictions, but the employee subsequently participated in an armed robbery that resulted in the murder of another employee); cf. Read, 990 S.W.2d at 737 (finding causation element of negligent hiring satisfied by evidence that an investigation would have revealed an employee's prior sexual misconduct, and the employee subsequently sexually assaulted a third party).
See TEX. R. CIV. P. 299 ("[W]hen one or more elements [of a ground of recovery] have been found by the trial court, omitted unrequested elements, when supported by evidence, will be supplied by presumption in support of the judgment.").
Further, Grove admitted that he had been involved in "altercations" prior to the assault on Basurto. Thus, there is sufficient evidence to support the trial court's finding on this fact. However, viewing the evidence in the light most favorable to Basurto and disregarding contrary evidence, there was no evidence that Grove had ever, prior to the incident with Basurto, (1) engaged in a physical altercation with any person, (2) struck, hit, kicked, touched, or otherwise physically contacted any person, (3) threatened to strike, hit, kick, touch, or otherwise physically contact any person, or (4) caused or threatened to cause a physical injury to any person. In the absence of any evidence that Grove was unfit for his position as a bouncer prior to the assault of Basurto, we conclude that the evidence was legally insufficient to support the trial court's finding that Watkins was or should have been aware of any violent tendencies of Grove. Accordingly, any failure to supervise Grove was not the proximate cause of Basurto's injuries. See Fifth Club, 196 S.W.3d at 796-97 (holding that a night club's failure to supervise a security guard, who assaulted a patron, was not the proximate cause of the patron's injuries because there was no evidence that the employer should have known of any unfitness or incompetency prior to the assault — the guard's use of profanity against a member of the public would not put the night club on notice that the guard posed a risk to the public).
In particular, we disregard Anderson and Jugo's testimony that Grove had never been involved in a prior fight at The Tavern. We also disregard Grove's testimony that he had not been involved in a physical altercation at The Tavern prior to the assault of Basurto.
Next, a video was played for the trial court that showed at least one of The Tavern's bouncers assaulting a person outside The Tavern on the night prior to the assault of Basurto, and Basurto testified about the video. Thus, there was sufficient evidence to support the trial court's finding that The Tavern's bouncers had committed prior assaults. However, viewing the evidence in the light most favorable to Basurto and disregarding contrary evidence, there was no evidence that (1) any bouncer or manager who assaulted a patron during any prior incident also assaulted Basurto, or (2) any bouncer or manager who assaulted Basurto had previously assaulted any other person. Basurto was only able to identify one bouncer from the video of the prior assault — someone named "Court." There is no suggestion in the record that this person assaulted Basurto. Further, Basurto presented no evidence that Guzman, Grove, Jugo, or anyone else who was involved in the assault of Basurto had previously assaulted another person. Even if a fact finder could reasonably conclude that Watkins should have known of the assault from the prior night, there is no evidence that Watkins should have known that Guzman, Grove, or Jugo was involved in the prior assault or that these employees had violent tendencies. See Garrett, 129 S.W.3d at 803 (holding that alcohol-distributor employer was not liable for negligent hiring and supervision when its employees went to a bar and assaulted a patron even though other unnamed employees had been involved in a fight at the bar on a previous occasion; explaining that "no evidence appears of record suggesting that [the employees involved in this incident] themselves exhibited violent or aggressive tendencies or engaged in fights at any time before the incident in question"). Watkins's failure to supervise employees who assaulted another patron cannot be the proximate cause of Basurto's injuries because there is no evidence that the employees involved in any prior assault also assaulted Basurto.
Basurto testified that although he did not know the names of all of the employees at The Tavern, he could recognize them. But he never identified Guzman, Grove, or Jugo in the video recording, and Basurto never identified Guzman, Grove, Jugo, or Court as one of his attackers.
Finally, there was some evidence that The Tavern's employees were not trained on the subject of using physical force when dealing with a disruptive patron: Jugo testified to this fact. However, viewing the evidence in the light most favorable to Basurto and disregarding contrary evidence, there was still no evidence that training would have prevented Basurto's injuries — Basurto presented no evidence about what training the bouncer's should have received. See Castillo, 1 S.W.3d at 781 (holding that the employer was not required to implement a policy that instructed motel security guards to not enter rooms of patrons, one of whom was raped by a security guard employee; explaining that the appellant presented no evidence to establish industry standards and no evidence that a specific contrary policy advocated by the appellant would be necessary or desirable, or that failure to have such policies constitutes negligence); see also Portlock v. Perry, 852 S.W.2d 578, 582 (Tex. App.-Dallas 1993, writ denied) (holding that a corporate officer had no duty to institute policies or procedures regarding the treatment of patients at a medical center). Further, there was no evidence that The Tavern had any formal or informal policies authorizing bouncers to strike patrons.
In particular, we disregard Watkins's testimony that he instructed the employees to call police if a customer would not leave The Tavern.
For all of these reasons, there is legally insufficient evidence that Watkins's negligent hiring or supervision caused Basurto's injuries. Watkins's second issue is sustained.
C. Alter Ego Doctrine
In his first issue, Watkins argues that the evidence is legally and factually insufficient to support the finding that Watkins was the alter ego of the entities responsible for operating The Tavern. We hold that the evidence is legally insufficient to support this finding. But even if the evidence were sufficient, Watkins would not be liable because the trial court did not assess liability against Watkins under any meritorious theory of liability.
Watkins does not argue that it is relevant to our analysis that 1340 Tavern and Tips — the entities both parties acknowledge on appeal were responsible for the operation and management of The Tavern — were not actually defendants in this case. Accordingly, we do not address whether an individual defendant can be held personally liable, under an alter ego theory, for torts committed by a non-defendant entity.
Generally, members and managers of an LLC are not liable for judgments against the LLC. TEX. BUS. ORGS. CODE ANN. § 101.114 (West Supp. 2009). But courts have applied corporate veil-piercing principles to members of LLCs. See McCarthy v. Wani Venture, A.S., 251 S.W.3d 573, 590-91 (Tex. App.-Houston [1st Dist.] 2007, pet. denied); Pinebrook Props. Ltd. v. Brookhaven Lake Prop. Owners Ass'n, 77 S.W.3d 487, 500 (Tex. App.-Texarkana 2002, pet. denied). Accordingly, a member of an LLC may be held individually liable for debts of the LLC if the LLC is a mere alter ego for the member. See Pinebrook, 77 S.W.3d at 500.
Under this theory, courts will hold an LLC member liable if there exists such unity between the LLC and the member that the LLC ceases to be separate, and holding only the LLC liable would promote injustice. See Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 288 (Tex. 1990) (citing Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex. 1986), superseded on other grounds by TEX. BUS. ORGS. CODE ANN. § 21.223(a)(3) (West Supp. 2009)). To determine whether an LLC is the alter ego of an individual, fact finders must look to the total dealings of the LLC and individual, which may include "the degree to which [company] formalities have been followed and [company] and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the [company], and whether the [company] has been used for personal purposes." Castleberry, 721 S.W.2d at 272 (citing Lucas v. Tex. Indus., Inc., 696 S.W.2d 372, 374 (Tex. 1984); Gentry v. Credit Plan Corp. of Hous., 528 S.W.2d 571, 573-75 (Tex. 1975)). In a tort case, usually "`the financial strength or weakness of the [company] tortfeasor is an important consideration'" because no injustice would result if the company responsible for the plaintiff's injury is capable of paying a judgment upon proof of liability. Stewart Stevenson Servs., Inc. v. Serv-Tech Inc., 879 S.W.2d 89, 110 (Tex. App.-Houston [14th Dist.] 1994, writ denied) (quoting Lucas, 696 S.W.2d at 375). The fact that a company is undercapitalized supports a finding of alter ego. See Lucas, 696 S.W.2d at 375; O'Berry v. McDermott, Inc., 712 S.W.2d 206, 207-08 (Tex. App.-Houston [14th Dist.] 1986, writ ref'd n.r.e.).
Here, there is legally insufficient evidence that unity existed between Watkins and any of the entities that operated The Tavern and that injustice would result if Watkins were not held individually liable. Basurto provided no evidence that Watkins mingled his personal property with any property of the companies or that Watkins used any company for personal purposes. The record shows that Watkins had some ownership interests in 1340 Tavern and Tips, but the extent of ownership is not in the evidence. Watkins, indeed, exercised extensive control over The Tavern's operation, but mere control is insufficient to impose liability. See Lucas, 696 S.W.2d at 374 ("There must be something more than mere unity of financial interest, ownership and control for a court to treat the subsidiary as the alter ego of the parent and make the parent liable for the subsidiary's tort.").
Basurto also provided no evidence that company formalities were not followed, but we need not decide today whether the failure to follow formalities remains a factor to be considered when piercing the veil of an LLC. See TEX. BUS. ORGS. CODE ANN. § 21.223(a)(3) (explaining that a corporate shareholder may not be held liable on the basis of failing to follow corporate formalities); Pinebrook, 77 S.W.3d at 500-01 (holding that the failure to follow formalities was not evidence of alter ego for an LLC).
On appeal, Basurto cites to a tax return for 1340 Tavern, which was attached as an exhibit to a motion for summary judgment, to show that Watkins had a 51% interest in 1340 Tavern. This document was not an exhibit at trial, and there was no evidence before the trial court to support Watkins's exact ownership interest.
Basurto argues that the entities could not have satisfied his judgment, but he failed to present any evidence to support this argument. The only evidence that Basurto presented about any entity's financial strength or weakness was through Watkins's testimony. But Watkins's admission at trial that Tips had "good years and bad years" does not constitute some evidence of undercapitalization or that an injustice would result if Watkins were not held individually liable. Viewing the evidence in the light most favorable to Basurto and disregarding contrary evidence, Basurto introduced no evidence to show that Tips could not satisfy a judgment.
In particular, we disregard Watkins's testimony that Tips had substantial assets in the form of money in bank accounts, liquor, and the liquor license, and we disregard his testimony that Tips had paid roughly $250,000 in liquor taxes one year.
Again on appeal, Basurto cites to 1340 Tavern's tax return to show that 1340 Tavern had ordinary business income of roughly $47,000 in 2006. This document was not an exhibit at trial, and there was no evidence before the trial court to support any amount of income or loss claimed for any of the entities involved in The Tavern's operation. Basurto also asserts on appeal that "Tips did not have insurance and could not satisfy a substantial judgment." Although Basurto's counsel argued in closing that Tips lacked insurance, Watkins correctly noted in his reply brief that no evidence was introduced on this issue during the trial.
Further, Basurto argued to the trial court that Watkins failed to timely disclose Tips as the entity that employed The Tavern's employees, and as a result, Tips was not made a party to the litigation prior to the running of the statute of limitations. This argument does not support a finding of alter ego. The injustice that the alter ego doctrine serves to remedy is that of a corporation's lack of ability to pay a judgment that it rightfully should pay. See Stewart Stevenson, 879 S.W.2d at 100. Basurto had other available avenues to obtain relief for any discovery abuses by Watkins. See TEX. R. CIV. P. 193.6; TEX. R. CIV. P. 215.2.
Accordingly, there is legally insufficient evidence to support the trial court's finding of alter ego. Additionally, we note the trial court's finding that Watkins was the alter ego of his business entities does not itself support a claim for damages — there must be a meritorious underlying cause of action against those entities. See Wilson v. Davis, 305 S.W.3d 57, 68 (Tex. App.-Houston [1st Dist.] 2009, no pet.) ("Piercing the corporate veil is not a cause of action, but is instead a means of imposing liability for an underlying cause of action."). Here, the trial court's factual findings support only one theory of recovery: negligent hiring and supervision. Because we have already concluded that there is legally insufficient evidence of the causation element of negligent hiring and supervision, there is no remaining underlying cause of action that would support a finding of liability against Watkins even if there were legally sufficient evidence of alter ego. See TEX. R. CIV. P. 299 ("The judgment may not be supported upon appeal by a presumed finding upon any ground of recovery or defense, no element of which has been included in the findings of fact. . . .").
Watkins's first issue is sustained.
CONCLUSION
We conclude there is legally insufficient evidence that (1) Watkins's negligence caused Basurto's injuries and (2) Watkins is the alter ego of The Tavern's business entities. Thus, we reverse the trial court's judgment and render judgment that Basurto take nothing from Watkins.