## Facts

- Western Rock Company conducted blasting operations at a rock quarry near Jacksboro, Texas, from about August 1965 through May 1966.
- Nearby property owners sued, alleging the blasting damaged their homes and business properties.
- G.L. Stroud was Western Rock’s president and supervised its day-to-day operations, including blasting.
- Stroud and his wife owned 50% of Western Rock’s stock.
- The other 50% was owned by Machine Investment Corporation (MIC), an entity owned and controlled by L.C. Fuller.
- Fuller served on Western Rock’s board of directors and, through MIC, controlled the equipment and assets used in the quarry operation.
- Western Rock did not own the equipment used in the blasting work; it leased essentially all equipment and assets from MIC under terms favorable to MIC if Western Rock ran into financial trouble.
- In early fall 1965, Stroud began receiving complaints from local residents that blasting was causing property damage.
- In November 1965, Stroud learned Western Rock had been sued and also learned the company’s insurance likely would not cover the claimed blasting damages.
- Although Stroud and Fuller were in frequent contact, Stroud did not inform Fuller about the complaints, lawsuit, and coverage problem until January 1966.
- After Fuller learned of the claims and coverage risk, Stroud and Fuller decided Western Rock would continue blasting operations.
- A verdict was later entered against Western Rock for the blasting-related damages.
- After the verdict, Fuller took full control of Western Rock, and the company’s assets were transferred back to MIC, leaving Western Rock without assets to satisfy the judgment.
- The trial court entered judgment not only against Western Rock but also against Stroud and Fuller personally, finding Western Rock functioned as a shell used to carry out damaging activity without meaningful ability to respond in damages.
- Stroud and Fuller appealed the personal judgments.

## Issues

1. Whether the evidence supported disregarding Western Rock’s corporate form and imposing personal liability on Stroud and Fuller because the corporation operated as a sham or alter ego used to carry out the blasting business while avoiding responsibility for resulting damages.
2. Whether Stroud’s operational control and Fuller’s ownership/control of MIC (the lessor of all operating assets) and post-verdict transfer of assets supported personal responsibility for the blasting-related judgment.

## Decision

- The appellate court affirmed the judgment imposing liability on Stroud and Fuller individually, as well as the judgment against Western Rock.
- The court held there was evidence from which the factfinder could conclude Western Rock was not operated as a genuine, independent corporation with assets at risk, but as a device to conduct blasting operations while insulating those in control from paying for resulting harm.
- The court concluded the arrangement in which MIC owned the operating assets, Western Rock held the operating risk, and the assets were returned to MIC after an adverse verdict supported the trial court’s finding that the corporate form should be disregarded in these circumstances.

## Legal Principles

- A court may disregard the corporate fiction and hold individuals liable when the corporation is used as a sham, alter ego, or tool to accomplish an improper purpose, including evading responsibility for foreseeable liabilities.
- In determining whether to impose individual liability, courts may consider evidence of domination and control, lack of meaningful corporate assets or capitalization for the risk undertaken, and transactions that strip the corporation of assets when claims arise or after judgment.
- Corporate officers and controlling participants are not insulated from liability when they actively direct or participate in tortious conduct, or when they use the corporate form to avoid paying for harm caused by the enterprise.

## Conclusion

Western Rock Co. v. Davis holds that, where a blasting operation was carried out through a thinly capitalized corporation that held the operating risk while an insider-controlled entity held and later reclaimed the assets, the trial court could disregard the corporate form and impose personal liability on the individuals who controlled and ran the enterprise, and the appellate court affirmed that result.


Western Rock Co. v. Davis, 432 S.W.2d 555 (1968)