Texas Judiciary Online - HTML Opinion

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Opinion issued June 28, = 2007

In = The

Court of=20 Appeals

For=20 The

First=20 District of Texas

NO. 01-04-00921-CV

__________

MARCIE M.=20 MCCARTHY, Appellant

WANI VENTURE, A.S.,

SUCCESSOR IN=20 INTEREST TO

NORGIPS USA,=20 INC., Appellee

On = Appeal=20 from the 129th District Court

Harris County, Texas

Trial Court=20 Cause No. 2001-21419

DISSENTING=20 OPINION

Because = the majority=20 errs in concluding that the evidence is legally sufficient to = support the=20 jury's finding that appellant, Marcie=20 McCarthy, = primarily = for her=20 own direct personal benefit, caused Triple M Supply, LLC ("TMS") = to be=20 used to perpetrate an actual fraud, and did perpetrate an actual = fraud=20 upon appellee, Wani Venture, A.S., as successor in interest to = Norgips=20 USA, Inc. (collectively "Norgips"), I = respectfully=20 dissent.

In her=20 fourth issue, McCarthy argues that the trial court erred in = entering=20 judgment against her because there is no evidence that she was a=20 substantial factor in causing Norgips's injury, that she caused = TMS to be=20 used to perpetrate a fraud, and that a fraud was committed = "primarily for=20 her own direct personal benefit." In sum, she contends that there = is no=20 evidence that she "knew of any alleged 'fraudulent scheme,' much = less=20 being a substantial factor, in bringing about the injury to = Norgips, or=20 that money [she] received was related to any fraudulent scheme."=20

Standard of=20 Review

We must = sustain a=20 legal sufficiency or "no-evidence" challenge if the record shows = one of=20 the following: (1) a complete absence of evidence of a vital fact, = (2)=20 rules of law or evidence bar the court from giving weight to the = only=20 evidence offered to prove a vital fact, (3) the evidence offered = to prove=20 a vital fact is no more than a scintilla, or (4) the evidence = establishes=20 conclusively the opposite of the vital fact. City of Keller v. = Wilson, 168 S.W.3d 802, 810 (Tex. 2005). Evidence does not = exceed a=20 scintilla if it does no more than create a mere surmise or = suspicion that=20 a fact exists. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, = 601=20 (Tex. 2004). If the evidence at trial would enable reasonable and=20 fair-minded people to differ in their conclusions, then jurors = must be=20 allowed to do so. City of Keller, 168 S.W.3d at 822. In=20 conducting a legal sufficiency review of the evidence, a court = must=20 consider all of the evidence in the light most favorable to the = verdict=20 and indulge every reasonable inference that would support it.=20 Id.

As further=20 explained by the Texas Supreme Court,

The=20 evidence presented, viewed in the light most favorable to the = prevailing=20 party, must be such as to permit the logical inference [that the = jury must=20 reach]. There must necessarily be a logical connection, direct or=20 inferential, between the evidence offered and the fact to be = proved.=20 However, we must also bear in mind the difference between = materiality of=20 the evidence and the issue of evidentiary sufficiency. Simply = because a=20 piece or pieces of evidence are material in the sense that they = make a=20 "fact that is of consequence to the determination of the action=20 more . . . or less probable," does not render the = evidence=20 legally sufficient.

Transp.=20 Ins. Co. v. Moriel, 879 S.W.2d 10, 24-25 (Tex. 1994) = (citations=20 omitted). As Professor McCormick emphasized, "a brick is not a = wall."=20 Id. (quoting Charles T. McCormick, Handbook of the Law of = Evidence =A7 152 (West ed. 1954)).

Actual=20 Fraud

Generally,=20 under Texas law, shareholders are not liable for the debts of a=20 corporation; however, Texas courts will pierce the corporate veil = to=20 prevent fraud or to achieve equity. Castleberry v. = Branscum, 721=20 S.W.2d 270, 271-72 (Tex. 1987). In particular, courts will = disregard the=20 corporate fiction when individuals exploit the corporate form as a = sham to=20 perpetrate a fraud. Id. at 272. In response to=20 Castleberry, the Texas Legislature amended article 2.21 = of the=20 Texas Business Corporations Act in 1989 to establish "a clear = legislative=20 standard under which the liability of a shareholder for the = obligations of=20 a corporation is to be determined in the context of contractual=20 obligations and all matters relating thereto." Tex. Bus. Corp. Act = Ann.=20 art 2.21, Comment of Bar Committee--1996 (Vernon 2003). =

Under=20 article 2.21A, a shareholder has no obligation to the obligees of = a=20 corporation regarding any contractual obligation of the = corporation on the=20 basis of actual or constructive fraud or a sham to perpetrate a = fraud,=20 "unless the obligee demonstrates that the [shareholder] . . . = caused=20 the corporation to be used for the purpose of perpetuating = and did=20 perpetrate an actual fraud on the obligee primarily for the direct = personal benefit of the [shareholder] . . . ." Id. art. = 2.21A(2)=20 (emphasis added). Actual fraud occurs when: a. a = party=20 conceals or fails to disclose a material fact within the knowledge = of that=20 party,

b. the=20 party knows that the other party is ignorant of the fact and does = not have=20 an equal opportunity to discover the truth,

c. the=20 party intends to induce the other party to take some action by = concealing=20 or failing to disclose the fact, and

d. the=20 other party suffers injury as a result of acting without knowledge = of the=20 undisclosed fact.

Bradford v.=20 Vento, 48 S.W.3d 749, 754-55 (Tex. 2001). The test for cause = in fact=20 is whether an "act or omission was a substantial factor in = bringing about=20 injury," without which the harm would not have occurred. Doe = v. Boys=20 Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 477 (Tex. = 1995).=20

In=20 accordance with article = 2.21A(2) and=20 case law, the trial court instructed the jury on actual fraud and = to=20 answer the following question:

Did=20 Marcella McCarthy cause Triple M Supply, LLC to be used to = perpetrate an=20 actual fraud, and did perpetrate an actual fraud upon Norgips, = primarily=20 for her own direct personal benefit?

For=20 purposes of this question, you are instructed that to "cause" is = to be a=20 substantial factor in bringing about an injury that would = otherwise not=20 have occurred. There can be more than one cause. =

The jury=20 answered this question, "Yes."

Thus,=20 Norgips had the burden to prove that McCarthy actually did in fact = cause=20 TMS to be used to defraud Norgips primarily for her own direct = personal=20 benefit. Here, however, there is no evidence that McCarthy = did = anything or=20 omitted to do anything to actually cause TMS to be used to = perpetrate an=20 actual fraud, and did perpetrate an actual fraud, upon Norgips. = Nor is=20 there any evidence that she did any such thing "primarily for her = own=20 direct personal benefit."

Norgips=20 argues that the evidence is legally sufficient to support the = jury's=20 finding essentially because McCarthy (1) provided $391,000 as seed = money=20 to start up TMS as proposed by her boyfriend, Michael Moschella, = and his=20 brother, Anthony Moschella; (2) admitted that "[d]uring the maiden = year=20 for [TMS]," she took an active role in the business," was vice = president,=20 and, held a one-third interest in it; (3) accepted "both pay = checks and=20 benefits from the third party employee leasing company as salary" = and=20 checks from JTM Supply and TMS as her "director's fee" or = "officer's=20 draw"; (4) "went to dinner with Michael and Steve Klubak in = Florida"; (5)=20 knew that TMS was paying the debts of other companies; (6) = accepted checks=20 from TMS "as payment on secured debt owed by JTM"; (7) claimed = that=20 Anthony Moschella stated that "he could do whatever he wanted with = the=20 money in any of the companies' accounts"; (8) although she = "reduced her=20 hands-on activities," she "condoned through her silence and = inaction,=20 Anthony's total disregard of his representation to the State of = Texas and=20 Norgips that [TMS] had been organized to conduct 'lawful = business'"; (9)=20 "did not combine the power of her third ownership with the third = ownership=20 of her boyfriend Michael, to take control of the company and = conduct its=20 business lawfully"; (10) did not hire an accountant, invoke her = rights to=20 see a complete set of company books and records, resign as vice = president,=20 or assign or give away her interest in TMS; and (11) she "got her = money=20 back" and was made whole at the expense of TMS. In sum, "she took = the=20 route that she thought was the best way to protect her own initial = contribution of $391,000, her fees, her salary, and her benefits." =

However,=20 none of this evidence, taken separately or together, supports a = logical=20 inference that McCarthy = in fact=20 caused TMS to be used to perpetrate an actual fraud, and did = perpetrate an=20 actual fraud, upon Norgips, primarily for her own direct personal=20 benefit. In fact, = Norgips=20 concedes in its briefing to this Court that McCarthy "would not = admit that=20 she knew anything about Norgips or TMS's transfer of funds in the = year=20 2000." Although Norgips asserts that the jury was free to = disbelieve her=20 denial of knowledge, it directs us to no evidence in the record = that=20 supports an inference that she in fact had knowledge of = Anthony=20 Moschella's = dealings with=20 Norgips.

The = majority=20 acknowledges that McCarthy testified that her involvement in the = daily=20 affairs of TMS actually ceased in late 1999 or early 2000, she did = not=20 regularly attend board meetings, and was unaware of TMS's purchase = agreement with Norgips until Norgips filed the instant suit. It = also notes=20 that she received her last officer's check in April 2000, before = TMS=20 received delivery of Norgips's wallboard.

Nevertheless, the=20 majority holds that the evidence is legally sufficient to support = the=20 jury's finding. It notes that McCarthy had contributed $391,000 to = TMS as=20 a start-up business; accepted interest payments on her loan and = was=20 ultimately fully repaid, at the expense of Norgips and other = creditors;=20 was an "equal participant and director in most of the entities = that=20 participated in defrauding Norgips"; received health insurance, a = salary,=20 officers' draws, and interest payments as compensation from TMS; = and knew=20 that TMS "was paying the debts of other companies." Most = importantly, the=20 majority asserts that McCathy was "aware of the fraudulent = business=20 practices of Anthony Moschella, including using one entity to pay=20 another's bills." The majority concludes that the fraudulent = operation of=20 TMS "simply would not have been possible without McCarthy's = contributions"=20 and faults her for doing nothing to stop the practices of Anthony=20 Moschella.

When the=20 majority makes the conclusory statement that McCarthy "was aware = of the=20 fraudulent business practices of Anthony Moschella," the only = evidence in=20 the record of her knowledge of his activities is that, as = testified to by=20 McCarthy herself, she "[d]idn't like the way Tony did things." She = was=20 asked, "what was the source of the clash between you that led to = your=20 leaving the office?" McCarthy answered, "the interest checks were = paid to=20 me and I would question him about why one company was paying = interest that=20 another company owed the debt and he would just shrug me off. He = wouldn't=20 give me answers and stuff like that." She did know that TMS was = paying=20 JTM's debt; however, McCarthy also testified that she took issue = with the=20 fact that Anthony Moschella said he could run the business the way = he=20 wanted to and "[n]o matter what I said or did I couldn't get = results from=20 him for anything." However, although the majority characterizes = this=20 testimony as knowledge of "the fraudulent business practices of = Anthony=20 Moschella," McCarthy actually testified that she was not even = aware of the=20 fact that TMS placed an order with Norgips for sheet rock until = after this=20 lawsuit was filed. Nothing in the record contradicts her testimony = or=20 otherwise shows that she had any knowledge of the Moschella = brothers'=20 actions in regard to Norgips.

The bottom = line is=20 that none of the evidence relied upon by Norgips and the majority = supports=20 an inference that McCarthy = actually=20 did anything whatsoever to intentionally or knowingly cause TMS to = be used=20 to perpetrate an actual fraud, and did perpetrate an actual fraud = upon=20 Norgips, primarily for her own direct personal benefit. = As argued = by=20 McCarthy, there is simply no evidence that she caused TMS to be = used to=20 perpetrate a fraud, that a fraud was committed "primarily for her = own=20 direct personal benefit," or that any omission by her was a = substantial=20 factor in bringing about Norgips's injury.

Simply = because=20 Norgips presented many pieces of evidence that might be considered = material does not mean that the evidence is legally sufficient to = support=20 the jury's findings. See Moriel, 879 S.W.2d at 24-25. = There is=20 simply no evidence in the record that McCarthy actually exploited = the=20 corporate form of TMS as a sham to perpetrate a fraud upon Norgips = for her=20 own personal gain. Thus, although the majority has a lot of = scattered=20 bricks, it has no wall. See id.

Accordingly, I would=20 sustain McCarthy's fourth issue, reverse the judgment of the trial = court,=20 and render judgment in favor of McCarthy.

Terry=20 Jennings

Justice

Panel=20 consists of Justices Jennings, Hanks, and Higley.

Justice=20 Jennings, = dissenting.

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