If you own a business, of work for a business, there are many things you do that may make you personally liable, even if you were just doing your job. If you ever took a history class, you may remember Nuremberg trials where a number of officers of Nazi Germany were tried for their acts, and their big defense was that as military officers, they were simply following order, and in fact they were required to follow those orders. Did you know that this concept is not limited to war crimes, and even before SOX legislation came about, its been the law in Texas that Corporate Officers are primarily liable for their own torts. This principle works even to jurisdictional issues. For example, say you are a resident of New Jersey and have no connection to Texas, but the company you work for does business in Texas. You signed the contract on behalf of your company. One of your customers accuses your company of fraud, and files a lawsuit, and sues you individually! You cant believe it! How can you be personally liable in Texas for your company, when you have no connection with Texas. Sadly, you can be. Here’s what the Courts have said:
“A nonresident who acts in an official capacity on behalf of a corporation may be subject to specific jurisdiction if he engaged in tortious or fraudulent conduct, directed at Texas, for which he may be held personally liable. This is because a corporate officer is primarily liable for his own torts. If a corporate officer had direct, personal participation in the wrongdoing and was central to the wrongful corporate activity, he may not escape liability. It is the general rule in Texas that corporate agents are individually liable for fraudulent or tortious acts committed while in the service of their corporation, and a corporate officer need not have committed an intentional tort to be haled into Texas courts. Instead, the plaintiff must establish that the officer committed fraudulent or tortious acts for which he may be held individually liable. In other words, a corporate officer’s status as an employee does not somehow insulate him from jurisdiction, and will not grant him blanket protection from jurisdiction simply because his alleged acts were done in a corporate capacity. If the evidence suggests that the nonresident officer participated in tortious or fraudulent activities, which were directed at Texas and for which he may be held personally liable, there may be sufficient grounds to exercise specific jurisdiction over him”
Doane v. Cooke, 2008 Tex. App. LEXIS 8597, *1
So what does this mean? It means that for small businesses, the corporate form may not offer them the protections they think they have. For employees of large corporations, they may be liable personally when simply following their bosses instructions. Hopefully the company attorneys also defend them, but if found liable, that goes on their personal record! Imagine you are an executive of an Indian company, and your customer in Texas is unhappy about something and sues your company and you. This was a one time deal to you, and you don’t care. You don’t expect them to come after you in India, and even if they do, you are confident they wont get anywhere…after all you know how Indian legal system works. They may not see any results for decades! They file the lawsuit in Texas and include a tort of fraud. You ignore the lawsuit, there is a default judgement, and next time you are on vacation in US, planning to visit Disney World in Florida, you may be in for a nasty surprise. You apply for a visa and it may be rejected because you have a fraud conviction. You already have a visa, and you arrive and the USCIS agent may deny entry, or worse, depending on the specific statute you were sued under.
Have more questions? Contact us. Subscribe to our news letter and follow us if you would like to get the rest of the series.
Sanjay R Chadha Law PLLC offers legal services to clients in India and USA. We have licensed attorneys in both countries with experience in business litigation, business transactions, technology and cybersecurity issues, contracts, administrative law and appellate law. We offer value centric services for our clients and also provide paymaster services for international transactions.