In a somewhat unusual commercial trucking case, the Texas Supreme Court has instructed the Corpus Christi Court of Appeals to correct its and the trial court’s erroneous interpretation of the term “employee” and other errors that contributed to a nuclear verdict in the trial court.
JNM Express, LLC, ANCA Transport, Inc., and Omega Freight Logistics, LLC, Jorge Marin, and Silvia Morin v. Lauro Lozano Jr. and Irene Lozano (No. 21-0853) arose from a collision between two tractor-trailers in 2015. Lauro Lozano, the driver of one of the trucks, was seriously injured when he fell asleep at the wheel and crashed into the other truck. Lozano was driving a truck owned by JNM and leased to ANCA. Both entities are wholly owned by Jorge Marin and share equipment and drivers. Jorge and Sylvia jointly own Omega, a brokerage company that matches truck loads with shippers but neither owns trucks nor employs drivers. The Marins also jointly manage each company. Plaintiff and his wife sued JNM, ANCA, Omega, and the Marins for negligence and gross negligence, alleging that Lauro, who was driving in violation of federal hours-of-service regulations, was directed by Jorge Marin to falsify his logbook to make it appear that he had taken the required off-duty hours. Lauro alleged that he went along with it in fear for his job. They further alleged that the accident occurred because Jorge Marin pressured Lauro to drive in an overtired state.
After a trial, the jury found that Lauro was an employee of all three companies, and that the companies’ negligence and gross negligence proximately caused the accident. The jury awarded Lauro $3.9 in damages for past and future physical pain and mental anguish, loss of earning capacity, disfigurement, and physical impairment, as well as $184,000 in medical expenses paid by insurance. It also awarded $1.1 million to Lauro’s wife for past and future loss of household services and past and future loss of consortium. Having found each party grossly negligent, it further awarded $25 million in punitive damages against each of the companies (for a total of $75 million) and pierced the corporate veil as to the Morins. The trial court entered judgment on the verdict and held all five defendants jointly and severally liable for the actual damages and the Marins jointly and severally liable for the punitive damages award, though it did cap the amount at $2.9 million as required by Chapter 41, CPRC. At the end of the day, the court entered judgment for $13.7 million. Defendants appealed to the Corpus Christi Court of Appeals, which affirmed except as to the trial court’s ruling the Marins jointly and severally liable for the punitive damages awards against the companies.
In a per curiam opinion without argument, SCOTX reversed and remanded to the court of appeals for further proceedings. While Defendants asserted numerous errors, the Court determined that much of the case rested on whether Lauro was an “employee.” If so, his negligence could be imputed to his employer(s) and Defendants could not get a comparative-negligence instruction allowing the jury to assign a percentage of fault to Lauro (who made the ultimate decision to drive when he was overtired). Defendants alleged that the trial court and court of appeals erroneously defined “employer” and “employee” in the jury charge by using definitions from FMCSA regulations, not the Texas common-law definitions. Under the proper common-law definitions, Defendants assert, Lauro was not their employee. Plaintiffs, on the other hand, argued that Defendants’ did not preserve their objections to the definitions as to each Defendant except Omega. The Court disposed of this argument by pointing out that Defendants, beginning with their response to the petition, repeatedly asserted that Lauro was not an employee but an independent contractor. All of this put the trial court on notice of the objection. The court of appeals, however, “because of [its] mistaken view of preservation, [] has not yet considered the merits of whether the trial court correctly used the federal regulations’ definitions in the jury charge.” If they shouldn’t have been so used, the court of appeals must address whether JNM and ANCA were “employers” under state law.
The answer to this question, the Court went on, would have a significant impact on the case because (1) it would determine whether Defendants were entitled to a comparative-negligence charge, and (2) it would determine whether the court of appeals needed to address whether Defendants owed a tort duty to its own driver under the federal regulations, not just to the public. The Court declined to get into those questions at this point, leaving them to the court of appeals.
SCOTX did dispose of two other issues, however, First, it held that “the evidence is legally insufficient for a finding that Mr. Lozano was Omega’s employee under either the federal or common law definitions of ‘employee.’” Federal regulations eliminate the distinction between independent contractors and employees for purposes of the regulations, as long as they are operators, mechanics, or freight handlers. As a brokerage company, Omega no drivers, mechanics, or freight handlers, and the only evidence supporting the jury’s finding of an employment relationship was an erroneous crash report. Further, Lauro couldn’t explain in his deposition why he sued Omega and admitted he didn’t work for them. The court of appeals seems to have papered over this problem by reasoning that since Omega had a choice of drivers to assign to this particular load but assigned Lauro, it somehow “employed him.” SCOTX rather brusquely dismissed this reasoning and struck Omega from the case altogether.
Second, the Court held that Silvia Marin shouldn’t be in the case, either. It determined that the court of appeals’ finding that the Marins were “alter egos” of the three companies was simply wrong. A finding of “alter ego” depends on whether “holding only the corporation liable would result in injustice” (citation omitted). This means the owners’ abuse of the corporate form is so egregious (such as fraud, evasion of existing obligations, circumvention of statutes, monopolization, or criminal conduct) as to render a plaintiff a “victim to a basically unfair device by which a corporate entity has been used to achieve an inequitable result” (citation omitted). Here the court of appeals did not address the injustice prong at all, but even if it had, Plaintiffs didn’t offer any evidence to support such a finding. The corporate veil should not have been pierced in this case and alter ego theory must be dropped from the case. That would drop Silvia Marin as well, and the Court rendered a take-nothing judgment in her favor.
Given the significant size of the verdict and the legal questions surrounding the federal regulations’ broader definitions of “employer” and “employee” than common law affords, we think it more likely than not that this case will be back before SCOTX before too long.
