Stanley Shook// Terry Walden and Joy Walden v. Terry Walden and Joy Walden// Stanley Shook, Patrick Jaehne and S&J Endeavors, L.L.C.
368 S.W.3d 604
| Tex. App. | 2012Background
- Walden and S & J Endeavors, LLC entered into a Land Contract and a Construction Contract for a Bastrop County Lot and home construction.
- S & J was an LLC formed in 2002 with two members/managers: Shook and Jaehne; Jaehne managed daily operations and executed contracts; Shook was a passive investor and invested ~$200,000.
- Disputes arose over work quality, delays in title transfer, and Jaehne’s use of title as leverage; title was actually held by Jaehne personally at times.
- Walden suite alleged tort and contract theories; jury found S & J, Jaehne, and Shook liable on several theories but awarded zero actual damages.
- District court considered piercing the LLC’s veil via alter-ego, single-business-enterprise, and sham theories to impose S & J’s contractual liabilities on Shook; liquidated damages under §5.079 were denied for the Land Contract.
- Texas appellate court analyzed whether pre-2011 veil-piercing law for corporations should apply to LLCs, concluding that statutory standards for corporations should govern LLC veil-piercing when applicable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the sole-entity piercing findings support Shook’s liability | Walden argues alter-ego and sham findings justify liability on Shook. | Shook contends no proof of actual fraud for direct personal benefit; single-business-enterprise is invalid. | Single-business-enterprise not valid; liability hinges on alter-ego/sham with actual-fraud requirement. |
| Whether veil piercing of an LLC requires actual fraud for direct personal benefit | Walden urges Castleberry-like equity applies; no strict actual-fraud requirement for LLCs. | Shook argues statutory corporate standards (actual fraud for direct benefit) apply to LLCs. | Court adopts the statutory framework for corporations as applied to LLCs; piercing requires actual fraud with direct personal benefit when applicable. |
| Whether the district court erred in applying alter-ego/sham to impose S & J’s contractual obligations on Shook without sufficient proof of actual fraud for direct benefit | Walden asserts sufficient evidence and jury findings support piercing. | Shook asserts lack of evidence of actual fraud and no direct personal benefit. | Court holds insufficient proof of actual fraud for Shook's direct personal benefit; judgment against Shook reversed. |
| Whether the Land Contract constitutes an executory contract under §5.079 for liquidated damages | Walden contends Land Contract is executory and triggers §5.079 liquidated damages. | Shook/Jaehne argue Land Contract is not an executory contract under subchapter D. | Land Contract not an executory contract under §5.079; damages under §5.079 denied. |
| Whether Shook’s liability could be sustained on remaining grounds after faltering on actual-fraud element | Walden relies on alter-ego/sham to sustain liability. | Shook argues failings on actual-fraud element remove basis for liability. | Because actual-fraud element lacking, liability against Shook is defeated; partial relief affirmed for other issues. |
Key Cases Cited
- Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986) (flexible, equity-based veil-piercing; constructive fraud suffices)
- SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444 (Tex. 2008) (limits corporate veil-piercing; more stringent on direct personal benefit)
- Pinebrook Props., Ltd. v. Brookhaven Lake Prop. Owners Ass’n, 77 S.W.3d 487 (Tex. App.—Texarkana 2002) (applies veil-piercing to LLCs; discusses alter-ego principles)
- McCarthy v. Wani Venture, A.S., 251 S.W.3d 573 (Tex. App.—Houston [1st Dist.] 2007) (applies corporate veil-piercing concepts to LLCs)
- Taurus IP, LLC v. DaimlerChrysler Corp., 534 F. Supp. 2d 849 (W.D. Wis. 2008) (Texas LLC veil-piercing not requiring actual fraud under Castleberry framework)
- Kenneco Energy, Inc. v. Johnson, 962 S.W.2d 507 (Tex. 1998) (prejudgment interest framework; legislative-policy context for equity)
- Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549 (Tex. 1985) (predecessor to modern prejudgment-interest equity principles)