In yet another appeal of a nuclear verdict, the Texas Supreme Court recently remanded a $13.7 million verdict on the basis that the trial court may have used the wrong definition of “employee” and insufficient evidence supported piercing the veil of 3 separate corporations.

In JNM Express, LLC, ANCA Transport, Inc., Omega Freight Logistics, LLC, Jorge Marin, and Silvia Marin v. Lauro Lozano Jr. and Irene Lozano, Mr. Lozano, an independent contractor truck driver, sued three related corporations alleging each was his employer. Each corporation had common ownership by Jorge and Silvia Marin, and each corporation was a non-subscriber under the Texas Workers Compensation Act.

In 2015, Mr. Lorenzo was driving a commercial truck from Texas to Maryland when he fell asleep and crashed into another commercial truck. Mr. Lozano was severely injured and was hospitalized for approximately one month to recover from his injuries. Mr. Lozano and his wife sued 3 corporations and the Marins, alleging that Mr. Lozano had been driving in violation of federal hours-of-service regulations on the trip.  Mr. Lozano alleged that he alerted Mr. Marin to this problem at the time Mr. Marin asked him to make the trip, but Mr. Marin instructed him to falsify his logbook to make it reflect that he had taken the required off-duty hours. Mr. Lozano further alleged that he complied with this directive out of concern that he would otherwise lose his job. The Lozanos asserted claims of negligence and gross negligence against the corporations and Marins.

At trial, the jury found Mr. Lozano was an employee of all 3 companies and that the negligence of the companies proximately caused the incident. The jury awarded damages totaling $75 million and pierced the corporate veil of the companies. The court later reduced the judgment in accordance with the punitive damage cap under Texas law to approximately $13.7 million.

Three issues were presented to the Texas Supreme Court.  First, whether the Federal Motor Carrier Safety Regulations’ definition or Texas’s common-law definition of “employee” should have been given to the jury. Second, whether one of the corporate defendants, a trucking logistics company owned by the Marins, was Mr. Lozano’s employer. And, third, whether the Lozanos submitted sufficient evidence to pierce the corporate veil.

The Federal Motor Carrier Safety Regulations broadly define “employee” as,

any individual, other than an employer, who is employed by an employer and who in the course of his or her employment directly affects commercial motor vehicle safety. Such term includes a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle), a mechanic, and a freight handler.

As the Court noted, this definition “eliminates the common law employee/independent contractor distinction” in order “to discourage motor carriers from using the independent contractor relationship to avoid liability exposure at the expense of the public.”

In contrast, under Texas common-law,

the test to determine whether a worker is an employee rather than an independent contractor is whether the employer has the right to control the progress, details, and methods of operations of the work.

The Supreme Court held that the appellate court failed to determine whether the trial court correctly used the Federal definition in the jury charge, and therefore remanded the case to the appellate to make that determination. The Court noted that if the Federal definition does not apply, it might entitle the corporate defendants to a comparative liability charge that could completely absolve them of responsibility.

As to the trucking logistics company, the Supreme Court held that insufficient evidence supported the verdict that Mr. Lozano was an employee of that company even if the Federal definition of “employee” was used.

Finally, the Supreme Court addressed piercing of the corporate veil. The Court repeated that,

Alter ego applies when there is such unity between corporation and individual that the separateness of the corporation has ceased and holding only the corporation liable would result in injustice.

According to the Court, injustice requires more than subjective perception of unfairness.  Instead, injustice requires evidence of “the kinds of abuse . . . that the corporate structure should not shield,” like “fraud, evasion of existing obligations, circumvention of statutes, monopolization, criminal conduct, and the like.”  As the Lozanos did not provide legally sufficient evidence of these kinds of abuse, the Court held further proceedings should not include alter ego considerations.

The Court’s holding is yet another in a growing line of Texas appellate and Supreme Court opinions that significantly reduce or eliminate nuclear verdicts at the trial court level.

The attorneys in our Austin and Dallas office are available to answer any questions you may have this opinion or Texas law. Please contact us at info@gstexlaw.com.

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