By Chris Bankler

The Texas Business Court continues to show it will enforce statutory limits on entity liability and scrutinize early pleadings under Rule 91a. Judge Brian Stagner’s opinion in Lensabl hits three issues that frequently arise: (1) veil piercing, (2) attempts to impose personal contract liability on an owner, and (3) fraud based on pre-closing representations.

The Court dismissed the veil-piercing and contract claims, but allowed the fraud claim to go forward. The opinion includes several helpful clarifications of Texas law.

Background: A $29 Million Deal That Never Funded

Lensabl, a web-based eyewear company, negotiated a transaction in which RBH SPE One, LLC, would purchase 49% of the company for nearly $29 million, with an option to acquire a majority stake later. RBH signed as purchaser, and RBH Holdings served as guarantor. Neither entity performed.

Lensabl sued not only the entities, but the individual Byrnes family members, and others, asserting:

• breach of contract
• veil piercing
• negligent misrepresentation
• fraud
• principal/agent liability

The Byrnes Defendants moved to dismiss the veil-piercing claim and the individual claims against Robert Byrnes.

Veil Piercing: Texas’ Statutory Standard

Lensabl attempted an alter-ego theory based on undercapitalization, failure to follow formalities, “family control,” and allegations that the LLCs were a mere façade.

Judge Stagner determined that Lensabal could not sue the individuals and other entities under Texas law, explaining, “Texas law…substantially limits the circumstances under which a member or manager of an LLC may be held personally liable.”

Under the Texas Business Organizations Code, Sections §§ 21.223 and 101.114, a plaintiff must plead:

1. actual fraud,
2. committed by the individual,
3. primarily for the individual’s direct personal benefit.

The Texas Business Court emphasized that “members and managers of a limited liability company are generally shielded from personal liability” and that this protection applies unless the governing documents say otherwise.

Judge Stagner rejected Lensabl’s Delaware-style alter-ego allegations—undercapitalization, insolvency, failure to observe corporate formalities, and “family façade” control—as legally irrelevant under Texas law, explaining that “the standard for disregarding the corporate form is substantially higher” and requires compliance with Sections 21.223 and 101.114. Those statutes permit piercing only when a member “perpetrate[s] an actual fraud…primarily for the direct personal benefit” of that individual, a protection the Texas Supreme Court has held “exclusive” and preemptive of broader common-law theories. As the Court put it, allegations of undercapitalization and failure to follow formalities are “legally insufficient,” especially because the statute expressly prohibits imposing liability “on the basis of the failure…to observe any corporate formality.”

Applying those requirements, the Court found that Lensabl did not allege actual fraud by any of the Byrnes family defendants (other than the separate fraud claim against Mr. Byrnes) and did not plead “how any” of them stood to gain “primarily for [his or her] direct personal benefit.” Judge Stagner concluded that Lensabl had pleaded “a Delaware-style veil-piercing theory” even though “Texas law applies,” and because the petition “does not satisfy the narrow standard for veil-piercing under Texas law,” the claim was dismissed with prejudice. The message is unmistakable: veil piercing in Texas is a statutory remedy, not an equitable catch-all, and plaintiffs must plead actual fraud plus personal benefit—or they are out at the Rule 91a stage.

Individual Contract Liability: No Contract, No Claim

Lensabl separately alleged that Robert Byrnes “agreed during negotiations” to transfer assets into the purchasing entities. Judge Stagner found this insufficient, because:

• Mr. Byrnes did not sign the transaction agreement;
• The petition did not allege any other enforceable contract;
• There were no terms, consideration, formation facts, or performance allegations.

The opinion makes the pleading standard clear: “These allegations are insufficient to establish the existence of a contract between Lensabl and Mr. Byrnes personally.” This is a helpful reminder: negotiation-stage assurances do not create personal liability absent an actual, well-pleaded contract.

Fraud Claim: Sparse, but Sufficient to Proceed

The only challenged claim that survived was Lensabl’s common-law fraud claim against Mr. Byrnes. The Court held that, even though concise, the allegations met Texas’s notice-pleading standard.

Among other allegations, Lensabl claimed:

• Mr. Byrnes represented that he and his entities were adequately capitalized;
• The CFO allegedly warned him that these representations were false;
• Mr. Byrnes instructed the company to sign the agreement anyway;
• Lensabl relied on the assurances and passed up other opportunities.

Judge Stagner found these enough to move forward: “While the allegations are sparse, they are sufficient…to give fair notice of the claim and its factual basis.”

Key Takeaways

1. Texas veil-piercing is narrow, statutory, and strictly enforced.
   Plaintiffs must plead actual fraud and personal benefit. Failure to follow formalities or undercapitalization is meaningless under § 21.223.
2. Owners are not personally bound by company contracts without an actual contract. Negotiation assurances do not equal personal liability.
3. Fraud claims tied to specific representations will survive, even when other theories fail. Where a plaintiff pleads who said what, why it was false, and how it caused harm, Texas courts will allow the claim to proceed.

Conclusion

Lensabl is another example of the Texas Business Court enforcing Texas’ strong statutory protections for LLC owners, rejecting Delaware-style veil-piercing concepts, and demanding concrete facts before allowing personal liability claims to proceed. But it also confirms that when owners personally make representations about capitalization and allegedly know those statements are false, fraud remains a viable and potent theory.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information, please contact Chris Bankler or a member of the Trial & Appellate Litigation practice.

Meet Chris

Chris Bankler focuses on the resolution of disputes for businesses and financial institutions. He counsels clients through the process of complex business litigation, including general business disputes, fraud claims, breach of fiduciary duty cases, and complex business bankruptcy litigation. He has served as litigation counsel in more than 100 cases in state and federal courts, as well as FINRA and AAA arbitrations.