First Hartford Realty Corporation v. Omega Contractors Inc. et al
Filing
302
ORDER denying 263 , 264 , 265 Motions in Limine for reasons set forth in document. Signed by Judge Jane Triche Milazzo on 4/22/14. (ecm) Modified document type on 4/23/2014 (ecm).
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
FIRST HARTFORD REALTY CORP.
CIVIL ACTION
VERSUS
NO. 11‐2294
OMEGA CONTRACTORS INC. ET AL
SECTION "H"(1)
ORDER
Before the Court are three Motions in limine filed by the parties. Defendants, Heath
Polasek and Gene Hodges, seek to exclude evidence of Omega's alleged lack of compliance with
corporate formalities and any evidence related to First Hartford's claim for damages (Docs. 263,
265). Plaintiffs, First Hartford and CVS, seek to exclude evidence of certain conduct by CVS (and
its employees) that may have contributed to the alleged losses (Doc. 264). For the following
reasons all Motion are denied.1
LEGAL STANDARD
"The essential prerequisite of admissibility is relevance." United States v. Hall, 653 F.3d
1002, 1005 (5th Cir. 1981). Evidence is relevant if "it has any tendency to make a fact more or less
probable than it would be without the evidence . . . and the fact is of consequence in determining
the action." Fed. R. Evid. 401. Whether a fact is of consequence is a question governed by the
1
The Court and the parties are intimately familiar with the facts of this case and thus they are not
repeated here. See Docs. 208, 242, 298.
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substantive law applicable to the case. Hall, 653 F.2d at 1005. "A district court 'may exclude
relevant evidence if its probative value is substantially outweighed by a danger of . . . unfair
prejudice, confusing the issues, [or] misleading the jury.'" Wellogix, Inc. v. Accenture, L.L.P., 716
F.3d 867, 882 (5th Cir. 2013) (alterations in original) (quoting Fed. R. Evid. 403). Because Rule 403
"is an extraordinary measure [that] permits a trial court to exclude concededly probative evidence
. . . it should be used sparingly." Shepherd v. Dall. Cnty., 591 F.3d 445, 456–57 (5th Cir. 2009) (first
alteration in original) (internal quotation marks and citation omitted).
LAW AND ANALYSIS
A. Defendants' Motions – Docs. 263, 2652
Defendants' move this Court to exclude all evidence of First Hartford's alleged damages as
well as certain evidence related to Plaintiffs' veil piercing claim on the grounds that it is irrelevant
under Texas law. The Court's prior orders have rejected Defendants' damages argument and the
Court declines to revisit those rulings again. See Doc. 298. Thus, the only issue remaining is
Defendants' argument regarding Plaintiffs' veil piercing claim. In order to resolve this dispute, the
Court must address Texas law on piercing the corporate veil.3
The general Texas rule on veil piercing is found in Section 21.223 of the Texas Business
Organizations Code. Section 21.223 provides that the shareholder of a corporation generally
cannot be held liable for a contractual obligation of a corporation or any matter related to such an
obligation. There is a single exception that exists where the shareholder causes the corporation
2
Defendants' Motions each present identical arguments and thus they will be addressed together.
3
The Court has previously held that Plaintiffs' veil piercing claim is governed by Texas law. See Doc.
208.
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to be used for the purpose of perpetrating an actual fraud for the direct personal benefit of the
shareholder. Tex. Bus. Orgs. Code § 21.223. Thus, as to contractual claims, the only veil piercing
theory available to Plaintiffs is "actual fraud." Both the Texas Supreme Court and the Fifth Circuit
have recognized this reality. Spring St. Partners‐IV, L.P. v. Lam, 730 F.3d 427, 443 (5th Cir. 2013)
(citing SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 451 (Tex.2008)). However,
actual fraud for purposes of Section 21.223 is not the same as the common law tort of fraud.
Actual fraud for the purposes of the statue is "dishonesty of purpose or intent to deceive."
Solutioneers Consulting, Ltd. v. Gulf Greyhound Partners, Ltd., 237 S.W.3d 379, 387 (Tex. App.
2007). Thus, in order to pierce the corporate veil for Plaintiffs' contractual claims, Plaintiffs must
prove that (1) Polasek and/or Hodges caused the corporation to be used for the purpose of
perpetrating an actual fraud; (2) that fraud was perpetrated on Plaintiffs; (3) the fraud was for the
personal benefit of Polasek and Hodges.
Defendants argue that actual fraud is the only way to pierce the corporate veil in Texas.
They are incorrect. In Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986), the Texas Supreme
Court held that the corporate veil could be pierced on the basis of constructive fraud. The Fifth
Circuit recently explained the rule of Castleberry:
[T[he Texas Supreme Court held in Castleberry v. Branscum that [the
corporate veil can be pierced] "when the corporate form has been
used as part of a basically unfair device to achieve an inequitable
result." Further, "constructive fraud is 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." Under the doctrine of
constructive fraud, "[n]either fraud nor an intent to defraud need be
shown as a prerequisite to disregarding the corporate entity; it is
sufficient if recognizing the separate corporate existence would
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bring about an inequitable result." "Examples [of an inequitable
result] are when the corporate structure has been abused to
perpetrate a fraud, evade an existing obligation, achieve or
perpetrate a monopoly, circumvent a statute, protect a crime, or
justify wrong." The Castleberry court also stated that, "t]o prove
there has been a sham to perpetrate a fraud, tort claimants and
contract creditors must show only constructive fraud."
Lam, 730 F.3d at 443 (5th Cir. 2013) (internal citations omitted). Defendants correctly note that
Section 21.223 was enacted after Castleberry, however the Texas Supreme Court has explicitly held
that Castleberry still applies to extra‐contractual claims notwithstanding the enactment of Section
21.223. SSP Partners v. Gladstrong Investments (USA) Corp., 275 S.W.3d 444, 456 (Tex. 2008).
Therefore, as to Plaintiffs' extra‐contractual claims, Plaintiffs may offer evidence of constructive
fraud.
In light of Texas law on veil piercing, Defendants ask the Court to exclude any evidence of
Omega's corporate formalities, including the minutes of shareholder meetings. Defendants argue
that section 21.223 specifically provides that the corporate veil may not be pierced based on a
corporation's failure to observe corporate formalities. Therefore, according to Defendants, all
evidence of corporate formalities is irrelevant. Defendants are partially correct. They correctly
state that the Court may not pierce the corporate veil based on Omega's failure to observe
corporate formalities, however that does not render evidence of shareholder meetings irrelevant.
Plaintiffs intend to offer evidence of shareholder meetings in support of their claim that part of
Defendants' fraud took place in those meetings. Thus, the evidence is relevant to Plaintiffs' veil
piercing claims, and Defendants' Motions to exclude this evidence is denied.
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B. Plaintiffs' Motion – Doc. 264
Plaintiffs move this Court to exclude evidence regarding First Hartford's knowledge of
Omega's alleged insolvency, evidence that First Hartford failed to adequately insure the
construction contracts, and evidence that a CVS employee violated CVS's gifts policy. The Court
finds that the challenged evidence is relevant to the jury's determination of fault in this case.
Furthermore, Plaintiffs have failed to meet their burden to demonstrate that the probative value
of the challenged evidence is substantially outweighed by its prejudicial effect.
Accordingly;
IT IS ORDERED that the Motions are DENIED.
New Orleans, Louisiana, this 22nd day of April, 2014.
____________________________
JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE
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