Lee C. Ritchie v. Ann Caldwell Rupe, as Trustee for the Dallas Gordon Rupe, III 1995 Family Trust
443 S.W.3d 856
| Tex. | 2014Background
- Rupe (as trustee for Buddy’s Trust) owned 18% of Rupe Investment Corporation (RIC), a closely held Texas corporation; three family trusts and allied shareholders controlled a majority of voting power.
- After her husband’s death, Rupe sought a buyout; RIC directors (Dennard, Ritchie, Lutes) offered low redemptions, resisted outside sale efforts, and refused to meet prospective purchasers.
- Rupe sued alleging (1) statutory "oppressive" conduct under the receivership statute (former art. 7.05 / Tex. Bus. Orgs. Code §11.404), and (2) breach of fiduciary duties (including an asserted informal fiduciary relationship).
- A jury found for Rupe, valuing her shares at $7.3 million; the trial court ordered RIC to purchase her shares.
- The court of appeals affirmed oppression based on refusal to meet prospective buyers and remanded for valuation adjustments; Texas Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of “oppressive” under the receivership statute | Rupe: directors’ refusal to assist sale and other conduct was oppressive under common tests (reasonable expectations / fair dealing). | Directors: their conduct was exercise of business judgment for the corporation and not oppressive. | "Oppressive" requires abuse of authority with intent to harm one or more shareholders, inconsistent with honest business judgment, and creating serious risk of harm to the corporation; refusal to meet did not meet that test. |
| Available statutory remedy for oppression under former art. 7.05 / §11.404 | Rupe: statute supports equitable remedies including court-ordered buyout (or alternatively receivership/liquidation). | Defendants: remedy limited to rehabilitative receivership the statute authorizes. | The statute authorizes only appointment of a rehabilitative receiver; it does not authorize courts to order a corporation to buy out a shareholder. |
| Recognition of a common-law cause of action for minority shareholder oppression | Rupe and some precedent: courts should recognize a common-law oppression claim to provide flexible equitable remedies (e.g., buyout). | Defendants and majority: creating such a cause of action would expand duties, conflict with statutory scheme, be vague, and disrupt business judgment principles. | Court declines to recognize a new Texas common-law cause of action for "minority shareholder oppression," citing statutory/contractual alternatives and risks of vague standards. |
| Reliance on breach-of-fiduciary-duty verdict to sustain buyout remedy | Rupe: jury found informal fiduciary relationship and breach; buyout could be affirmed on that basis. | Defendants: challenge existence of an informal fiduciary duty and availability of buyout as remedy. | Court did not resolve the fiduciary-duty claim; remanded to court of appeals to address those issues and whether buyout is available for a fiduciary breach. |
Key Cases Cited
- Davis v. Sheerin, 754 S.W.2d 375 (Tex. App.—Houston [1st Dist.] 1988) (discussed broad prior appellate approach finding oppression and recognizing buyout under equity power)
- Patton v. Nicholas, 279 S.W.2d 848 (Tex. 1955) (recognized equitable relief for breaches of trust/breach of fiduciary duty; discussed receivership in equity)
- Texarkana Coll. Bowl, Inc. v. Phillips, 408 S.W.2d 537 (Tex. Civ. App.—Texarkana 1966) (stockholder dissatisfaction not grounds for receivership where conduct consistent with honest exercise of business judgment)
- Balias v. Balias, 748 S.W.2d 253 (Tex. App.—Houston [14th Dist.] 1988) (refused receivership absent emergency; emphasized remedy-of-last-resort nature of receivership)
- Int’l Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567 (Tex. 1963) (directors’ fiduciary duties: uncorrupted business judgment for the corporation)