Lone Star ZiplineLone Star Zipline

Facts

Hill Country Adventures, Inc. (“Hill Country”) owns four outdoor parks in Texas through four wholly owned LLCs. One of them, Lone Star Zipline, LLC (“Lone Star”), operates the longest zipline in the state. Over three seasons the zipline produced eleven injury claims, two of them serious. Hill Country’s board moved the zipline into Lone Star after the second serious claim and kept the other attractions in a separate LLC with $5 million of coverage. Lone Star carries a $300,000 liability policy.

Lone Star has no employees of its own: Hill Country’s staff run the line, Hill Country sets ticket prices, and Lone Star’s bills are paid from Hill Country’s operating account, with monthly “management fee” entries that are never reconciled. Lone Star has an operating agreement and files its franchise tax report, but it has never held a members’ meeting. A sign at the entrance warns riders that they “ride at their own risk.”

Dana, a visitor from Oklahoma, fell forty feet when a brake failed and suffered injuries with damages of about $2 million. She has sued Lone Star and Hill Country.

Call of the question

Can Dana reach Hill Country’s assets? Analyze veil piercing under the common-law factors and the Texas overlay, address the single business enterprise theory, present Hill Country’s best defense, and predict the outcome.

Model answer

Dana has a strong claim to pierce Lone Star’s veil and hold Hill Country liable, because the parent dominated the LLC and used it to park a known risk behind trivial coverage.

The default rule protects Hill Country: a member or parent is not liable for an LLC’s obligations merely because it owns it. Courts disregard the entity only when it is the owner’s alter ego and respecting the form would work a fraud or injustice. The factors come from cases like Jon-T Chemicals and Bridas: common officers and employees, financing by the parent, undercapitalization, failure to observe formalities, commingling of funds, and the parent’s use of the subsidiary’s property as its own. No single factor decides; the totality does. Minton v. Cavaney adds that capital that is trivial relative to the risks of the business is itself a classic ground, especially for tort victims. Texas layers a statute on top: for claims arising from a contract, the plaintiff must also show actual fraud for the owner’s direct benefit (TBOC § 21.223), but Dana’s claim sounds in tort, so the common-law factors govern.

Applied here, nearly every factor points at Hill Country. Lone Star has no employees, no pricing authority and no separate bank account; its bills are paid by the parent through unreconciled “management fees,” which is commingling. Formalities are thin: an operating agreement and a tax filing, but no members’ meetings. Most important, the board moved the single most dangerous attraction into the LLC after two serious injuries and insured it for $300,000 while the rest of the park carries $5 million. That is undercapitalization in Minton’s sense, measured against a known, recurring risk, and it supplies the injustice element: the structure exists to keep the cost of foreseeable injuries away from the owner. Dana is a tort creditor; unlike the seller in Brunswick v. Waxman, she never chose to deal with a shell.

The single business enterprise theory adds nothing. Texas courts have declined to treat affiliated companies as one enterprise for liability absent alter ego domination (Gardemal; SSP Partners), so Dana should not plead it as an independent route to the sister LLCs.

Hill Country’s best response is that Lone Star is a real entity: it has an agreement, files taxes, obtained insurance, and the warning sign put riders on notice. The reply is that formalities are only one factor and the insurance figure is the problem, not the solution; a warning sign does not turn a rider into a contract creditor who bargained for the risk. The facts that would save Hill Country are different ones: a funded capital account, arm’s-length management fees, and coverage proportionate to the zipline’s claim history.

A Texas court would likely pierce the veil as to Hill Country.

Common mistakes

• Treating the existence of an operating agreement and tax filings as decisive; formalities are one factor among many.
• Forgetting that the Texas actual-fraud requirement applies to contract claims, not to Dana’s tort claim.
• Pleading single business enterprise as if it were an independent theory in Texas.
• Skipping the injustice element: domination alone is not enough; explain why respecting the form would be unjust here.