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Garcia v. Coffman6/17/1997
is subject to liability in tort to the injured person although the fraud or duress occurs in a transaction on behalf of the principal.
In other words, even if Coffman's conduct was on behalf of the corporation, he is liable for "knowingly assisting in the commission of tortious fraud" by the corporation. See Duval County Ranch Co. v. Wooldridge, 674 S.W.2d 332, 337 (Tex. Ct. App. 1984) (corporate officers are liable for their own fraudulent acts even though they are acting for the corporation's benefit). In such circumstances, there is no need to show the usual predicates for piercing the corporate veil.
Second, although piercing-the-corporate-veil doctrine has been used to impose personal liability in situations similar to the present case, see Armada Supply v. S/T Agios Nikolas, 613 F. Supp. 1459, 1471-72 (S.D.N.Y. 1985), such an application of the doctrine may create confusion. In particular, the requirement that there be an improper purpose before the corporate veil can be lifted should not be satisfied by just the fact that the corporation engaged in misconduct. As I understand the purpose of the doctrine, a court should be able to pierce the corporate veil only when the improper conduct was facilitated by the use of the corporate form--rather than, say, a sole proprietorship or a partnership--to conduct business. State Trust & Sav. Bank v. Hermosa Land & Cattle Co., 30 N.M. 566, 577, 240 P. 469, 473 (1925), spoke of application of the doctrine to "cases in which corporate organization was resorted to to accomplish fraud, or to defeat public Justice or to circumvent statutes . . . ." , said: "Where corporate entity is employed as a shield to defraud creditors or otherwise perpetrate frauds, the veil of corporate existence will be drawn aside and liability imposed on its stockholders as though there were no corporate existence." One commentator has summarized the case law by stating that "courts regularly disregard the entity when its separateness is used for illegitimate purposes." Robert B. Thompson, Piercing The Corporate Veil: An Empirical Study, 76 Cornell L. Rev. 1036, 1041 (1991) (emphasis added). If the improper-purpose element can be satisfied whenever the corporation commits fraud, then the doctrine could create unjustifiable results. Conceivably, individual shareholders could be personally liable for corporate fraud of which they are totally innocent; it should be enough that the value of their investment in the corporation would be decreased by the corporation's liability.
My difference with the rest of the panel regarding the appropriate analysis does not, however, affect the result. If anything, reliance on Restatement Section 348 makes affirmance easier.
HARRIS L HARTZ, Chief Judge
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