Sneed v. Webre
465 S.W.3d 169
| Tex. | 2015Background
- Family-owned closely held corporate group: Texas United (parent) wholly owned subsidiary United Salt; ownership and management largely by Webre family members and shared officers.
- United Salt acquired Saltville facility; board approved despite one director (Lloyd Webre) dissenting and cost overruns; independent audit found no fraud; projected profits were substantial but later alleged losses exceeded $7M.
- Lloyd Webre sued derivatively (and individually) alleging officers/managers fraudulently concealed material facts and breached fiduciary duties in connection with the Saltville Acquisition. Texas United and United Salt intervened as indispensable defendants.
- Trial court dismissed for lack of standing (did not specify whether for double-derivative or business-judgment reasons). Court of appeals reversed, finding double-derivative standing and that business-judgment limitations in article 5.14(B)-(H) did not apply to closely held corporations.
- Supreme Court affirmed: (1) business judgment rule still applies to the merits of derivative claims, (2) shareholders of closely held corporations need not plead or prove demand/demand-futility or that directors abused business judgment to obtain standing under article 5.14(L), and (3) Texas recognizes double-derivative standing where a shareholder of a closely held parent sues on behalf of a wholly owned subsidiary.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Role of business-judgment rule for closely held corporations | Business-judgment rule should not bar derivative suits in closely held corps; article 5.14(L) removes those barriers | Business-judgment rule applies to all derivative suits and should operate as a jurisdictional barrier to standing | Business-judgment rule applies to the merits but does not create a standing/jurisdictional barrier for closely held corporations under art. 5.14(L) |
| Must plaintiff plead/prove demand or demand-futility to have standing | Webre: demand/demand-futility not required for closely held corporations under art. 5.14(L) | Defendants: plaintiff must plead/ prove directors acted with fraud/self-interest to divest board control and obtain standing | Held for Webre: Legislature omitted demand and mandatory dismissal provisions for closely held corps; plaintiff need not plead/prove demand or demand-futility for standing |
| Does board’s refusal to sue defeat jurisdiction | Webre: board refusal irrelevant for standing in closely held context | Defendants: board’s business judgment precludes shareholder from litigating derivatively unless wrongdoing shown | Board’s refusal does not defeat subject-matter jurisdiction for closely held corporations; courts may adjudicate notwithstanding board opposition |
| Double-derivative standing (parent shareholder suing for subsidiary) | Webre: as shareholder of sole parent, he has equitable/beneficial ownership of subsidiary and may sue derivatively | Defendants: only actual registered shareholders of the named corporation may sue in its right | Texas recognizes double-derivative standing where a shareholder of a closely held parent has an equitable interest in a wholly owned subsidiary and may sue derivatively on its behalf |
Key Cases Cited
- Cates v. Sparkman, 73 Tex. 619, 11 S.W. 846 (Tex. 1889) (foundational articulation of the business-judgment rule and equitable requirements for shareholder derivative suits)
- Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014) (discusses unique attributes of closely held corporations and statutory regime easing derivative access)
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (U.S. 1991) (explains demand requirement's role in preserving board decision-making in derivative suits)
- Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71 (Tex. 2000) (distinguishes jurisdictional standing from right to relief; informs treatment of Cates’ equity principles)
- Eye Site, Inc. v. Blackburn, 796 S.W.2d 160 (Tex. 1990) (permits sole minority shareholder in close-corporation context to pursue corporate claims)
- Roadside Stations, Inc. v. 7HBF, Ltd., 904 S.W.2d 927 (Tex. App. 1995) (recognizes shareholder’s equitable ownership interest in wholly owned subsidiary for derivative standing)