in Re: GTG Solutions, Inc. ( 2021 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
IN RE § No. 08-20-00182-CV
GTG SOLUTIONS, INC., § AN ORIGINAL PROCEEDING
Relator. § IN MANDAMUS
OPINION
Relator GTG Solutions, Inc. (“GTG”) filed a petition for writ of mandamus, complaining
that the Honorable John L. Pool, judge of the 109th District Court of Winkler County, Texas, erred
in severing GTG’s alter ego claims against Michael and Mary Rylee. Finding no abuse of
discretion, we deny GTG’s petition.
I. FACTUAL BACKGROUND
GTG is in the business of providing septic services at drilling sites. Real Party in Interest,
FLX Energy Services, LLC (“FLX”), contracted for some of those services. When a dispute arose
over several unpaid invoices, FLX filed a declaratory relief claim to establish the amount of any
sums owed. FLX also added a fraud in the inducement claim, contending that GTG represented it
would service the contract locally, when it actually did so from a remote location that increased
the amount charged.
GTG answered and soon thereafter filed a counterclaim against FLX, asserting its own
claims for declaratory relief, breach of contract, quantum meruit, unjust enrichment, breach of
fiduciary duty, conversion of trust funds, and fraud.1 GTG then obtained leave of court to join the
owners of FLX, Michael and Mary Rylee, as third-party defendants. GTG’s claims against the
Rylees are based on an alter ego theory, seeking to hold them individually liable for the
counterclaims GTG has asserted against FLX. And in support of its claims, GTG served multiple
discovery requests upon FLX, some of which seek information about the business operations and
financial records of FLX and its representatives.
FLX and the Rylees filed a motion to sever and abate GTG’s alter ego counterclaims
against the Rylees, which GTG opposed. Following a hearing, the trial court granted the motion
to sever and abate. Thereafter, GTG filed its petition for writ of mandamus claiming that the trial
court abused its discretion by granting the motion.
II. MANDAMUS STANDARD
Mandamus is an extraordinary remedy. In re The Prudential Ins. Co. of America, 148
S.W.3d 124, 135 (Tex. 2004) (orig. proceeding). To obtain mandamus relief, a relator must show
that (1) a trial court has clearly abused its discretion, and (2) the relator has no adequate remedy
by appeal. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992).
1
Each of these theories arise from the following two sentence factual allegation from the counterclaim:
9. On or about April, 2018, GTG and FLX entered an oral contract whereby GTG would provide
septic services on FLX’s rental campers at various sites in Reeves and Loving counties.
10. GTG has provided all the services under the oral contract but FLX has refused to pay for these
services. Specifically, GTG has provided $92,223.64 worth of services for which FLX has failed to
pay.
[Cleaned up].
2
A trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as
to amount to a clear and prejudicial error of law, or if it clearly fails to analyze or apply the law
correctly. Id. at 840; In re CSX Corp., 124 S.W.3d 149, 151 (Tex. 2003) (orig. proceeding) (per
curiam); In re ReadyOne Industries, Inc., 394 S.W.3d 697, 700 (Tex.App.--El Paso 2012, no pet.).
“The mere fact that a trial judge may decide a matter within his discretionary authority in a
different manner than an appellate judge in a similar circumstance does not demonstrate that an
abuse of discretion has occurred.” Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-
42 (Tex. 1985).
The second burden on the relator is to show the lack of an adequate remedy by appeal.
Walker, 827 S.W.2d at 843. An appellate remedy is not “inadequate” merely because it may
involve more expense or delay than obtaining an extraordinary writ. Id. at 842.
III. APPLICABLE LAW
A. Severance of Claims
We sometimes explain our mandamus standard this way: The question is whether the trial
court acted without reference to any guiding rules and principles. Downer, 701 S.W.2d at 241-42.
When considering the severance of claims, those guiding rules and principles are first found in
Rule of Civil Procedure 41 that provides “[a]ny claim against a party may be severed and
proceeded with separately.” TEX.R.CIV.P. 41. And case law informs that severance is proper
when: (1) the controversy involves more than one cause of action; (2) the severed claim is one that
would be the proper subject of an independently asserted lawsuit; and (3) the severed claim is not
so interwoven with the remaining action that the actions involve the same facts and issues. State
v. Morello, 547 S.W.3d 881, 889 (Tex. 2018). The “controlling reasons” for a severance are to do
justice, avoid prejudice, and further convenience. Guaranty Fed. Sav. Bank v. Horseshoe
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Operating Co., 793 S.W.2d 652, 658 (Tex. 1990). Trial courts have broad discretion in deciding
whether to sever claims. F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 693
(Tex. 2007). But certainly, mandamus is an appropriate vehicle to challenge a severance order
granted outside the bounds of that discretion. In re Hoover, Bax & Slovacek, 6 S.W.3d 646, 650
& n.12 (Tex.App.--El Paso 1999, orig. proceeding).
B. Alter Ego Claims
Sometimes referred to as “pierc[ing] the corporate veil,” an alter ego claim seeks to
disregard a corporate entity and hold the entity’s individual owners or officers liable for a claim
against the entity. Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 228 (Tex. 1990). Alter ego “veil-
piercing” is only permissible “when there exists such unity between corporation and individual
that the corporation ceases to be separate and when holding only the corporation liable would
promote injustice.” Id. Or as more recently articulated by this Court:
Use of the limited liability company form ordinarily functions to insulate members
and managers from personal liability for the LLC’s obligations. As applied in this
case, alter-ego liability requires a particular relationship between the LLC and an
individual member in order to disregard the entity form—the LLC must be
organized and operated as a mere tool or business conduit of the individual. Stated
differently, alter-ego liability can be imposed only when there is such unity between
company and individual that the separateness of the LLC has ceased and holding
only the company liable would result in injustice.
Hawxhurst v. Austin’s Boat Tours, No. 08-19-00257-CV, 2020 WL 5094673, at *7 (Tex.App.--
El Paso Aug. 28, 2020, no pet.) (mem. op.) (footnotes omitted), citing TEX.BUS.ORGS.CODE ANN.
§ 101.114 and SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 456 & n.57
(Tex. 2008).
IV. DISCUSSION
GTG’s mandamus petition focuses on the third element of severability--whether the
severed claim is interwoven with the remaining action such that both actions involve the same
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facts and issues. It argues that FLX and the Rylees did not meet that element because the claims
arise out of one set of operative facts. On the other hand, FLX and the Rylees contend that GTG’s
alter ego claims involve separate and distinct facts and issues. We agree that the trial court did not
abuse its discretion in siding with FLX and the Rylees on this question.
GTG’s counterclaim against FLX alleges contractual, quasi-contractual, and extra-
contractual causes of action arising from the non-payment of invoices. By contrast, GTG’s alter
ego counterclaim against the Rylees consists of allegations that they “are individually liable for
the actions of FLX.” GTG acknowledged in its briefing below that “[t]he only issue [in the
counterclaim against the Rylees] is whether the individual owners and officers are individually
liable” for GTG’s claims against FLX. Notably, an action to enforce a judgment based on an alter
ego theory “does not require relitigation of [the underlying] claim.” Am. Star Energy & Minerals
Corp. v. Stowers, 457 S.W.3d 427, 434 (Tex. 2015). The only issues in such an action are (1)
whether an underlying judgment exists, and (2) whether the corporate entity should be disregarded
and the individuals held liable. Id.None of the parties have alleged that there was any oral or written contract between GTG
and the Rylees. While GTG’s counterclaim against FLX will require evidence of elements such
as the existence and terms of the alleged contract, performance and/or breach by both parties, and
the amount of damages, its alter ego counterclaim against the Rylees will require evidence of unity
between FLX and the Rylees and use of the corporate fiction for an illegitimate purpose. In short,
GTG’s claim against the Rylees is essentially a matter of post-judgment collectability that is
separate and distinct from the underlying merits. If a judgment is rendered in GTG’s favor against
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FLX and FLX pays the judgment, there will be no basis for GTG to proceed with an alter ego
claim against the Rylees.2
GTG’s reply brief raises an additional argument under the second prong of the severance
test--whether the severed claim is one that would be the proper subject of an independently asserted
lawsuit. GTG asserts that “alter ego cannot be asserted independently.” Reply Brief at p 4-5.
While this argument was not raised in the trial court, nor GTG’s mandamus petition, we choose to
address it.3
Contrary to GTG’s claim, a judgment creditor may pursue a third party under an alter ego
theory after the judgment creditor’s attempts to collect an underlying judgment against the
principal debtor have proven unsuccessful. A judgment creditor did just that in Matthews Constr.
Co. v. Rosen, when it filed a separate suit asserting alter ego liability against a judgment debtor’s
president and sole shareholder. 796 S.W.2d 692, 693 (Tex. 1990). The court concluded that the
statute of limitations on the alter ego claim was tolled during the pendency of the underlying suit
to establish the debt, which necessarily presupposes that a second suit was proper. Id.; see also
In re Trammel, 246 S.W.3d 815, 822-23 (Tex.App.--Dallas 2008, orig. proceeding) (“Often, a
plaintiff files suit against a director or officer, seeking to hold that director or officer personally
liable for a corporate debt pursuant to section 171.255, after the entry of a judgment against the
corporation.”); McCarroll v. My Sentinel, LLC, No. 14-08-01171-CV, 2009 WL 4667403, at *2
(Tex.App.--Houston [14th Dist.] Dec. 10, 2009, no pet.) (mem. op.) (res judicata did not bar second
2
This also answers GTG’s corollary arguments that the severance undermines judicial economy. GTG fears that two
suits will impose twice the logistical and resource burdens on the parties and courts. But if GTG obtains a judgment,
and if FLX satisfies the judgment, the need for the second suit disappears. By the same token, if GTG fails in obtaining
a judgment, then the parties will not need to waste time and effort to litigate the alter ego claim. Nothing in the record
tells us which way this coin toss will land.
3
Generally, a party may not present an argument for the first time in a reply brief. E.g., Fox v. City of El Paso, 292
S.W.3d 249, 251 (Tex.App.--El Paso 2009, pet. denied).
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suit against directors and officers to collect on a judgment previously obtained against corporation-
debtor); Peterson, Goldman & Villani, Inc. v. Ancor Holdings, LP, 584 S.W.3d 556, 560
(Tex.App.--Fort Worth 2019, pet. denied) (same). So, while courts have sometimes stated that the
mere fact that a corporation operates as an alter ego does not give rise to a separate and independent
cause of action, a party may assert an alter ego theory against a third party in a second suit to
collect a judgment. See Rosen, 796 S.W.2d at 692 n.1.
Accordingly, the record here satisfies each of the three elements needed for severance. The
trial court did not abuse its discretion in severing the alter ego claim from the underlying litigation
between GTG and FTX.4
V. CONCLUSION
The trial court’s severance and abatement order is upheld.
JEFF ALLEY, Justice
August 25, 2021
Before Rodriguez, C.J., Palafox, and Alley, JJ.
4
The order below both severed and abated the alter ego claims. GTG does not separately address or brief the
abatement portion of the order. Consequently, we uphold that portion of the order as well.
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