Argo Data Resource Corp. v. Shagrithaya
2012 Tex. App. LEXIS 7272
| Tex. App. | 2012Background
- Shagrithaya, the sole minority shareholder of ARGO Data Resource Corp., sues jointly and severally against ARGO and Max Martin, the sole majority shareholder, after a jury verdict and trial court judgment ordering an $85 million dividend as equitable relief for oppression.
- ARGO was closely held; Martin held 53% and Shagrithaya 47% with two-director board sharing equal votes, including tie-breaking by a third director if needed.
- From formation in 1980, the founders funded ARGO with $1,000, each held leadership roles, and salaries were equal for a long period before compensation became contentious.
- The company operated with deliberate non-dividend policy for two decades, later issuing modest dividends and allowing compensation growth for both founders.
- In 2006–2007, disputes over compensation, buyout negotiations, and alleged self-dealing prompted Shagrithaya to file suit. The trial court awarded an $85 million dividend and other relief; the appellate court reverses.
- The dispute centers on whether Shagrithaya’s minority status was oppressed by Martin’s actions and whether the evidence supports an equitable remedy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether minority oppression was proven as a matter of law | Shagrithaya asserts eleven acts show oppression. | Martin/ARGO argue acts either employment matters or lacked harm to shareholder rights. | No oppression; findings insufficient or unharmful; reversal of oppression ruling. |
| Whether the $85 million dividend was proper equitable relief | Equitable relief warranted to respond to oppression and fraud. | Dividends require no such broad remedy; evidence insufficient. | Reversed; dividend award vacated; take-nothing for oppression/fraud claims. |
| Whether Martin’s apparent implied contract to pay equal compensation is enforceable | There was an implied contract for equal annual compensation. | No meeting of the minds; indefinite terms; not enforceable. | Judgment reversed; no enforceable implied contract claim. |
| Whether damages for derivative claims were supported | ARB/ARGO asserted fiduciary breach damaged company; derivative damages awarded. | Evidence insufficient of harm or improper benefit; some damages improper. | Derivative claims reversed; Martin prevailing on fiduciary duty claim. |
| Whether fraud and other individual claims supported relief | Fraud based on withholding buyout intent; other acts; sought damages. | No injury proven; self-dealing alleged but no coercive harm shown. | Fraud/no injury; oppression/related remedies not supported; take-nothing on individual claims. |
Key Cases Cited
- Kroger Tex. Ltd. P’ship v. Suberu, 216 S.W.3d 788 (Tex. 2006) (legal sufficiency standards for evidence review)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (legal-sufficiency and factual-sufficiency standards; de novo review for legal questions)
- Patton v. Nicholas, 154 Tex. 385, 279 S.W.2d 848 (Tex. 1955) (general standards for oppression and board control)
- Rupe v. Davis, 339 S.W.3d 275 (Tex.App.-Dallas 2011) (definition and standards for oppression in closely held corp.)
- Willis v. Bydalek, 997 S.W.2d 798 (Tex.App.-Houston [1st Dist.] 1999) (oppression analysis; business judgment and shareholder expectations)
- M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704 (Tex. 2001) (fraud elements requiring actual injury)
- Gibney v. Culver, 2008 WL 1822767 (Tex.App.-Corpus Christi 2008) (oppression in closely held corp.; reliance on earnings and dividends)
- Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998) (injury and contract principles in damages)