Veil Piercing: Texas’ Narrow Statutory Standard

Lensabl's veil-piercing theory alleges the RBH entities were undercapitalized and insolvent, ignored corporate formalities, and served as a facade for Byrnes family business. Describing the allegations as “conclusory” and “patterned after Delaware veil-piercing principles,” the Court rejected them as legally insufficient under Texas law.

As the Court explained, under Texas Business Organizations Code Sections 101.002 and 21.223, a member or manager of an LLC may be held liable for a matter arising from the LLC's contractual obligation only if the individual “perpetrate[s] an actual fraud...primarily for [their own] direct personal benefit.” Here, however, Lensabl failed to sufficiently allege that any of the Byrnes defendants — other than perhaps Robert Byrnes — committed actual fraud, nor that any Byrnes Defendant acted primarily for their own personal benefit. Because Lensabl's pleading lacked allegations meeting these statutory requirements, the Business Court concluded that it failed to satisfy the narrow standard for veil-piercing under Texas law. 

Key Takeaways

1. The standard for disregarding the corporate form is “substantially higher” under Texas law than under Delaware law.
2. “Delaware-style” veil-piercing theories, relying solely upon a failure to satisfy corporate formality, inadequate capitalization, and other equity-based allegations, likely fall short under Texas law.
3. Specific allegations, tracking Texas Business Organizations Code Sections 101.002 and 21.223 concerning the conduct of a member or manager of an LLC, should be pled when seeking to pierce the veil or otherwise impose individual liability for a contractual obligation of the LLC.