*1 parties plaintiffs provides all propriately — clarity at a alike—-with
and defendants the stakes are in the trial in which
point acute, it pressure is
high and the in the trial the effort invested
rewards the merits. Promot- disposition
with a on adjudication of cases on merits
ing the long on technicalities has been
rather than Because the Court goal of this Court. overriding princi-
today departs from this straying plain language from the
ple 272,1 dissent. respectfully
Rule al., Petitioners, RITCHIE,
Lee et C. RUPE,
Ann As Trustee for Caldwell Rupe, III
the Dallas Gordon Trust,
Family Respondent.
No. 11-0447.
Supreme Court of Texas.
Argued Feb. 2013.
Decided June
Rehearing Denied Oct. *4 Stahl,
Eric Thomas Law Offices Branson, P.C., Dallas, TX, Frank L. Cruz, M.D., Amicus Curiae Erwin. Fahy, John shareholders, Richard Whitaker Chalk corporation’s other who were PLLC, Worth, directors, Swindle & Schwartz Fort also on the board of engaged in Baird, Whitaker, Crews, Rex S. “oppressive” Schiller & actions and breached fiducia- Whitaker, P.C., Temple, Wayne ry by, among duties things, refusing Martin other Whitaker, buy her Whitaker Chalk Swindle & shares for fair value or meet PLLC, Worth, TX, prospective Schwartz Fort buyers. for Ami- outside The di- Fahy, Wayne cus John rectors essentially Curiae R. Whitaker admit to this conduct and Rex Whitaker. but they simply insist were doing what was best for the corporation. For the Mattick, Bavousett Attorney Carol part, jury most sided with the Law, Antonio, TX, San for Amicus Curiae shareholder, and the trial court ordered Mattick, Bavousett. Carol the buy out her shares for Miller, Elizabeth Stone Attorney and million. The court of appeals agreed $7.3 Law, Waco, TX, Professor of for Amicus the directors’ refusal to meet with Miller, Curiae Elizabeth S. prospective purchasers was “oppressive” Steinberg, Marc I. SMU Dedman School upheld buy-out order. We hold Law, Dallas, TX, for Amicus Curiae *5 that this conduct “oppressive” was not un- Steinberg, Marc Ragazzo, Robert A. Alan der the statute on which the minority Bromberg, Joseph R. K. Leahy, Bruce A. relies, event, any and in McGovern, Gary Rosin, S. and David Si- statute does not authorize courts to order mon Sokolow. corporation buy out a minority share- holder’s Moving beyond interests. Kelly, Peter M. Kelly, Durham & Pit- claims, statutory we recognize decline to tard, L.L.P., Houston, TX, for Amicus Cu- create a Texas common-law cause of action riae Lawyers Texas Trial Association. “minority shareholder oppression.” Davis, Amy Elaine Katherine Khristine We thus reverse the appeals’ court of Elrich, LLP, Sargent Hermes Bates Hilar- judgment. Because the court appeals Casada, P.C., ee A. Cowles & Thompson, upheld based on the oppres- Gilbreath, Robert B. Parnell, Hawkins sion claim and did not reach the breach-of- LLP, Dallas, Young TX, Thackston & claim, fiduciary-duty we remand the case Petitioner. to the court of appeals. Kutnick, Brett LLP, David Hankinson Aldous, Firm, Charla G. Aldous Law Jef- I. PC, frey Levinger, S. Levinger Steven E. Background
Aldous, LLP, Forshey Dallas, & Prostok TX, for Respondent. (RIC) Rupe Investment Corporation is a closely Texas held corporation.1 Before Justice BOYD opinion delivered the arose, dispute this RIC’s board of di- Court, HECHT, in which Chief Justice rectors had four members: Paula Den- GREEN, JOHNSON, Justice Justice nard, board; who chaired the Dallas Gor- LEHRMANN, Justice and Justice Rupe, (Buddy), don III who was Dennard’s joined. DEVINE brother; Ritchie, Lee who presi- served as case,
In RIC; shareholder in a Lutes, dent of and Dennis an attor- alleged ney RIC, Dennard, whose clients included "closely 1. A publicly held” if it has stock is not traded. See Tex. Bus. Orgs.Code§ thirty-five fewer than shareholders and its 21.563. family. began and her Paula Dennard and Bud- considering a lawsuit to reform Gor- don’s dy Rupe Guy were the descendants of Trust to add RIC’s as a beneficiary. founder, and Ritchie is the descendant of Buddy died 2002. His 18% interest in early one its owners. Three different placed RIC had been in a trust for the family collectively approxi- trusts owned Rupe benefit of and their son (Buddy’s mately voting 72% of RIC’s stock.2 Den- Trust), naming Rupe as trustee.3 nard, Ritchie, and Lutes served as trustees view, Rupe’s Dennard, Ritchie, and Lutes of those trusts and collectively thus con- immediately became “hostile” her towards majority trolled a voting power. RIC’s and feared that she would sue to reform Ritchie, Ritchie Gordon’s Trust. At family point, and his also owned an addi- one with Dennard’s and approval, Lutes’s tional 10% of the shares of- directly, increas- appoint fered to Rupe replace Buddy on ing voting the combined power to 82%. directors, RIC’s board of but if she Buddy remaining directly. owned the 18% agree would not to against file suit Gor- agreement. There was no shareholders’ declined, don’s Rupe Trust. and instead Rupe joined Ann the family when she . asked Ritchie if RIC would be interested Buddy married Rupe was Bud- in buying out her shares. Ritchie replied wife, dy’s second and their marriage and not; that RIC could at that time because son, Guy, the birth of their place took after subsidiaries, one of RIC’s Hutton Commu- father, the death of Buddy’s Dennard and nications, was going through a financial Gordon. Gordon’s will created Gordon’s thereafter, crisis. Soon Rupe’s attorney Trust, wife, which named Gordon’s Lutes, his chil- sent a letter to requesting op- (Dennard Buddy), dren portunity Dennard’s to review and copy corpo- RIC’s *6 three rate children as beneficiaries. documents4 and Buddy directing Rupe and Ritchie Rupe family members wanted their son to be not to com- added as municate directly with Trust, Rupe regarding a beneficiary of Gordon’s but Den- of any RIC other business matters. refused, nard and her children and this created some friction between Rupe and RIC, behalf of Lutes later offered to On Dennard. According Rupe, to Dennard redeem Rupe’s shares for million. With $1 treated Rupe “as an outsider” from the offer, this he Rupe told “any further very beginning, and told her that she discussions regarding possible stock re- would “never get any money in this fami- demption would be pointless until the Hut- ly.” Buddy’s With encouragement, Rupe ton finally Communications situation is re- suit, trusts, filing 2. Since the repeatedly this one of the provided RIC some documents or Trust, Ruby's known as has been terminated response requests. access in to these Never- amongst and its shares distributed theless, Dennard's trial, correspondence in Rupe’s and at step-sister, three children and her Robin attorneys contended' that RIC was not as Rupe. forthcoming with its books and rec- fiduciary ords as their duties and the Texas Rupe brought capacity this lawsuit in her as Organizations Business require. Code The Trust, Buddy’s trustee for the actual owner of jury agreed, appeals but the court of deter- voting gener- the 18% shares in RIC. We will legally mined that the evidence was insuffi- shares,” ally Rupe refer "Rupe's to and to support finding, Rupe cient to has however, meaning Rupe capaci- in her trustee challenged holding not in this Court. See ty by Buddy's and the shares owned Trust. 304-05. We therefore omit details, personally through 4. Either judgment preserves or her these and our various ' attorneys, Rupe requested appeals’ unchallenged holding RIC documents on on this court several occasions. The record indicates that issue. solved,” January not in encouraged Rupe Rupe and he to sent a note to Ritchie, they “ultimately” he asking redeem the shares until dates when could attorney de- meet with After Rupe’s prospective purchasers. increased in value. redemption offer. Because conferring clined with Lutes and an outside at- law, torney expertise sales exceeded million and it with in securities Rit- RIC’s $150 million, reply Rupe declining assets in excess of he chie sent a to to had $50 an attempt participate meetings. considered it “absurd” and “to in such Ritchie stat- that, advantage [Rupe].” party take ed because RIC would not be a to the sale of her shares to an outside Rupe subsequently terminated her rela- buyer, “it inappropriate would be for me tionship attorney personally with her any other officer or director of [RIC] requested redemption a new offer from your meet prospects with or otherwise Ritchie. Ritchie reiterated that he did not participate any relating activities time, her shares at that selling recommend your proposed pre- sale of stock.” Stasen but agreed he to raise issue an pared marketing provided materials and upcoming meeting. board After the board potential buyers, them to but he did meeting, Ritchie made new offer of because, in selling succeed the stock in his $1,760,947,which he said was based on a opinion, “everybody wanted to be able to formula that previously RIC had used to meet Lee Ritchie and talk to the execu- and, event, any value RIC’s shares was ... part diligence.” tives of their due “the highest cash offer that directors RIC Although he determined that the book val- they jeopard- believed could make without million, Rupe’s ue of stock was he $3.9 izing the company and its other sharehold- discounted that to million because of $3.4 Rupe ers.” declined the offer and decided the directors’ refusal meet prospec- try to sell her shares to an outside view, however, buyers. tive In his it would party. attorney She hired a new and a “incredibly be difficult” to Rupe’s market broker, Stasen, George to market her shares meetings, without such and the Rupe’s request, shares. At Dennard and likelihood of selling the shares was “zero.” Ritchie met with Stasen March 2005. Stasen, The meeting go July did not well. who Rupe against filed this suit *7 “hostile,” Dennard, Ritchie, Lutes, RIC,5 described the in- meeting as alleg- ing formed Dennard and Ritchie that he felt they engaged “oppressive” that con- financial performance “very, RIC’s was duct and fiduciary breached duties to her. very unsatisfactory” Rupe requested and accused them of an accounting and valua- trial, mismanagement. Stasen admitted at tion and an requiring pur- order RIC to however, or, that only he had a limited under- chase her shares at fair market value standing of the company alternatively, at the time. appointing liqui- receiver to Nevertheless, throughout late Rit- jury Rupe’s date RIC. The found in favor chie and Lutes essentially worked with Stasen and on all of her claims and found Rupe’s attorney latest to draft confiden- Rupe’s that the fair value of stock was $7.3 tiality agreements to allow Stasen to dis- million. The trial court judg- rendered verdict, close some of jury’s RIC’s confidential business ment on the concluding that Dennard, Ritchie, Lutes, information Rupe’s prospective outside and RIC had “en- purchasers. gaged oppressive the rights conduct to Dennard, Ritchie, Rupe originally sued rectors and as trustees of the trusts that capacities, Lutes in their individual but later owned RIC’s shares. capacities added them in their as RIC di- [Buddy’s likely that is to continue Trust] of II. future,” equitable that “the most
in the Oppressive Actions Under the remedy” require for this was to Receivership Statute shares, and that Rupe’s RIC to redeem remedy liqui- was “less drastic” than begin by We determining meaning a receiv- dating company appointing “oppressive” as the Legislature used er. Based on these conclusions and that word in the Texas receivership stat- jury’s findings, the trial court ordered RIC statute, ute. This former article 7.05 of million. purchase Rupe’s shares for $7.3 Act, the Texas Business Corporations Dennard, Ritchie, Lutes, and appeal- RIC successor, its section 11.404 of the Texas ed. Code, Business Organizations authorize that their appeals The court appoint Texas courts to a receiver to reha- Rupe’s prospective refusal to meet with bilitate a domestic under cer- purchasers oppressive constituted conduct Orgs. tain circumstances.6 See Tex. Bus. as a Having matter law. reached Although Rupe 11.404. sought ap- Code conclusion, it did not consider whether oth- pointment liquidate receiver to RIC Dennard, Ritchie, er actions and Lutes it,7 only rather than rehabilitate sought alleged. had oppressive, Rupe were as an alternative to other upheld The the trial court’s order court remedies, did not obtain that relief in the shares, requiring purchase Rupe’s RIC to judgment, request and does not that relief the trial court had but concluded appeal, on she relies on by instructing jury erred not to dis- this statute as count the shares’ value to account for their authority trial court’s marketability lack of and control. 389 ordering buy out her RIC shares. (Tex.App.-Dallas 5.W.3d Former article 7.05 authorizes courts to 2011). finding The court thus affirmed the appoint a rehabilitative receiver when it is conduct but reversed as to “necessary” to do so “to conserve the as- million re- purchase price, and $7.3 sets and business of the and to trial court manded case to the interest,” damage parties avoid but new determination of the shares’ fair val- requirements if “all other of law are Dennard, Ritchie, ue. peti- and Lutes review, complied with” and “all other remedies tioned this Court for which we granted. equity, available either at law or in includ- 30, 1955, R.S., Leg., governing 6. See Act of Mar. 54th statute when the trial court ren- 7.05, art. *8 ch. 290-91, 1955 Tex. Gen. Laws judgment in dered its this case. See Tex. Bus. 3, 1961, by May amended Act of 57th Orgs.Code language § 402.001-.005. The of R.S., 169, 1, Laws, Leg., ch. 1961 Tex. Gen. identical, pur- the two statutes is not but for 319, (formerly 319 TEX. BUS. CORP. ACT poses of this case their differences are not 1, 7.05), 2010, 13, expired May art. Act of Jan. material. 2, 2003, R.S., 182, Leg., § ch. Tex. 78th (current Gen. Laws 267 version at Tex. Bus. 7. Former article 7.05 and current Section 11.404) [herein, Orgs. § former article Code appointment of a 11.404 authorize the Act, Corporations The Business now 7.05]. corporation. receiver rehabilitate a Under expired, large part was in recodified in the circumstances, different sections of the other Organizations Act Texas Business Code. See of appoint a receiver statutes authorize courts to 13, 2003, R.S., Leg., § May ch. 82nd liquidate corporation’s property and busi- a Although Gen. Laws section Tex. 11.402, Orgs.Code § § ness. See Tex. Bus. governs 11.404 current actions for rehabilita- 11.405; former Tex. Bus. Act art. 7.06. Corp. receivership, tive former article 7.05 was the Construing “Oppressive” of a receiver A. Cases ing appointment spe- the for corporation, assets of the are deter- cific previously This not construed Court has to be by inadequate.” mined the court 7.05 former article or current section 7.05(A); see also Tex. Former art. Bus. Initially, appeals 11.404. Texas courts of 11.404(b). addition, In when ORGs.Code In quite narrowly. construed the statute party seeking receivership is a the share- Bowl, College Phillips, Texarkana Inc. v. of the the corporation, party holder must ap the court reversed trial court order also establish: pointing oppressive a receiver based on actions, that a dis holding “stockholder’s (a) that is corporation the insolvent or corporate satisfaction is management danger in of insolvency; imminent or by grounds Article 7.05 made [former]
(b) that the
are
directors
deadlocked
receivership,”
for a
and the shareholder
management
corporate
af-
was not
to a
on
receivership
entitled
based
fairs and the shareholders are un-
acts that were “not inconsistent with the
deadlock,
able to break the
and that
judgment
honest exercise of business
irreparable injury
by
board of
discretion
directors.”
being
or is
suffered
threatened
(Tex.Civ.App.-Texarkana
thereof; or
reason
writ).
1966, no
The court
incorporat
thus
(c) that the
acts
directors or those
ed the concept
judgment
of the “business
in control
are ille-
analysis
rule” into its
of whether actions
gal, oppressive
fraudulent;
or
or
were
under the
See
statute.
id.;
Schmitz,
see also
re
(d) that
being
assets are
(Tex.2009)
451, 457,
(addressing
457 n.
wasted;
misapplied
or
or
“business
law
Texas
(e) that the shareholders are deadlocked
exercise”).
requires a
board
directors to
failed,
voting
and have
power,
later,
Twenty-two years
another court of
period
includes at
least two
appeals
a trial court’s
of a
affirmed
denial
dates,
meeting
consecutive annual
receiver,
petition
appointment
of a
elect successors to directors whose
that,
holding
light
re
statute’s
terms have
expired
would have
“
quirement that
‘all other
avail
remedies
expired upon
qualifi-
the election and
equity1
able either at
or in
inade
law
are
cation of their successors.
quate,” the
court “properly required
trial
7.05(A)(1)
added);
(emphasis
Former art.
emergency
an
which to
on
base the relief
11.404(a)(1).
also
see
Tex. Bus. ORGS.Code
Balias,
sought.”
Balias
(c),
Rupe relies on subpart
and asserts
257 (Tex.App.-Houston [14th Dist.]
Ritchie’s,
Dennard’s,
and Lutes’s ac-
denied).
writ
Phillips
Both
and Balias
Thus,
tions were “oppressive.”
we must
involved
held
like
closely
corporations
Legislature
determine what
meant RIC, but
court
cor
neither
held that such
it
“oppressive”
when
used the term
in this
porations were entitled to any special
statute,
refusal
whether the
to meet with
statute,
treatment
the receivership
under
Rupe’s potential buyers fits within
distinguish
which does not
between
meaning, and what remedies the statute
types
corporations.8
and other
See
*9
id.;
for such
provides
Phillips,
actions.
865 year, ap- That same another court of jority’s conduct substantially defeats peals appellate became the first Texas expectations objectively court to affirm a based on the viewed were both reasonable under oppressive-actions statute’s provision. the circumstances and were central to (Tex. Sheerin, v. Davis S.W.2d 375 the minority shareholder’s decision to 1988, App.-Houston writ [1st de- Dist.] venture,” join the nied). Davis, In has since become (cid:127) an Oregon court’s oppres- collection of issue, opinion the seminal Texas on the “ definitions, sion which included ‘bur- closely 45% owner of a corporation, densome, conduct,’ harsh and wrongful Sheerin, company’s president sued the ‘a lack probity and fair dealing in owner, Davis, 55% alleging that Davis en- the affairs of a company preju- gaged oppressive conduct and breached members,’ dice of some of its or ‘a fiduciary duties owed to Sheerin and the departure visible from the standards company. jury agreed Id. at 377. The dealing, of fair and a violation of fair Sheerin, appointed and the trial court play on which every shareholder who a rehabilitative receiver and ordered Davis entrusts money his to a company is buy out Sheerin’s interest. Id. at 378. ” entitled rely.’ Although the court of appeals acknowl- Id. at 381-82. These two gen- edged that the statute does not expressly standards — erally referred to as the “reasonable ex- buy-out authorize a order and that no Tex- pectations” test and the dealing” “fair previously as court had forced sharehold- test —have throughout since echoed er in the Texas buy-out absence of a oppressive-actions 378-79, cases.9 agreement, id. at it concluded that courts, “Texas under their general equity case, present the trial court used power, may [buyout] decree a in an appro- the fair dealing test to “oppressive” define priate case where less harsh remedies are jury. On appeal, the court of inadequate to protect rights appeals concluded that the directors’ refus- parties.” Id. at 380. al to meet with Rupe’s potential purchas- determining When what “op- constitutes ers was under both tests: it pressive” statute, action under substantially defeated Rupe’s reasonable Davis court concluded that take “[c]ourts expectations and constituted a “visible de- especially an broad view of the application parture from the dealing standards fair of oppressive conduct to a closely-held cor- and a violation of fair play on which each poration, oppression may where more easi- rely.” is entitled to found,” 381, ly be id. at and then recited addition, S.W.3d at 297. In the court re- two oppression: standards for jected application judg- the business
(cid:127) rule, a New York court’s op- reasoning definition of ment applies that the rule
pression occurring only “when the ma- derivative suits and protect 2006, denied); them here because former article (Tex.App.-Tyler pet. 7.05 and Cotten apply equally section Bancshares, Inc., 11.404 to all v. 187 S.W.3d Weatherford forms, publicly whether held or trad- 687, 2006, (Tex.App.-Fort pet. 699-701 Worth ed, without distinction. denied); Servs., Gillen, Pinnacle Data Inc. 188, (Tex.App.-Texarkana 104 S.W.3d Katoli, Kohannim v. 440 S.W.3d 2003, pet.); Bydalek, no Willis v. 997 S.W.2d 798, 2013, (Tex.App.-El pet. Paso de- (Tex.App.-Houston [1st Dist.] nied); Korikel, Boehringer v. denied). pet. (Tex.App.-Houston [1st Dist.] no pet.); Griffith, Redmon v. *10 866 liability. Organizations
directors from individual Id. at the Business And Code. al- 295-96. The court thus affirmed the trial though “oppress,” it has used the terms Dennard, Ritchie, finding court’s in “oppressive,” “oppression” or a handful in engaged oppressive Lutes had conduct. statutes, they of other in- Texas do not Id. at 309. clude a either.10 In definition the absence definition, statutory of a give we words “Oppressive” Meaning B. The Under their common meaning. City Dali. v. Receivership Statute Abbott, (Tex.2010). 380, 304 S.W.3d 393 The construction of former arti Dictionary of “oppression” definitions in- 7.05, statute, any cle like ques other is a unjustly clude act or an instance of “[t]he courts, tion of law for the and we review “[cjoercion exercising authority power,” or appeal’s court of determination of this contract,” illegal to enter into an and— question Energy Corp. de novo. Atmos v. reflective of addressing case law claims Allen, (Tex. Cities 353 S.W.3d like Rupe’s claim this “[u]nfair case— 2011). “Our task is to effectuate Leg treatment of (esp. intent,” Allen, islature’s expressed In re corporation) by a close the directors or (Tex.2012); 366 S.W.3d it is not to those in control of the corporation.” impose personal our policy choices or “to (9th ed.2009). Dictionary Black’s Law second-guess the policy choices that inform As Legislature’s these definitions and the our statutes or to weigh effectiveness demonstrate, other uses of the term “op- of their results.” Iliff, 339 S.W.3d Iliff pressive” is a broad term that can mean (Tex.2011) (quoting McIntyre v. Ra different things in different contexts. Un- mirez, (Tex.2003)). statutes, der the other government regu- a statute, We focus on the words of the lation, bail, subpoena, the amount of “[l]egislative because intent is best re military authority, use of or official a fran- vealed in legislative language.” In re Of agreement, chise and a debt collector’s Gen., Att’y fice of actions can all be “oppressive.”11 Gener- (Tex.2013). ally, these statutes indicate that “oppres- begin by We noting Legis that the sive” actions involve an power abuse of lature has never “oppres defined the term the rights harms or interests of anoth- sive” in Corporations the Business person Act or er or persons and disserves the See, (pro- § § Tex. Bus & (prohibiting military 2.614 432.138 officers from Com.Code viding payment required toward, in the manner "cruelty or or maltreat- by government regulation is sufficient of, order”); any subject person ment to his Id. discharge buyer’s obligation "unless the 665.052(4) § (public may officers be removed regulation discriminatory, oppressive or office”); "oppression Tex. Occ.Code (same predatory.”); § Id. 2A.404 for lease (auto § agree- 2301.455 dealer’s franchise payments); Tex. Civ. Prac. & Rem.Code considering, ment be terminated inter 22.024(2) (court § may compel journalist alia, adhesion, “oppression, parties’ and the if, alia, testify subpoena inter "the is not over- bargaining power”); relative Tex. Penal Code broad, unreasonable, oppressive”); or Tex. § (objective prevent 1.02 of Penal Code is to 5(b)(1) Code Of Crim. Proc. art. 38.11 Sec. "arbitrary persons or treatment of "overbroad, (subpoena may not be unreason- accused, convicted”); suspected, or Id. able, ("The oppressive”); Id. art. 17.15 (defining oppression” 39.03 "official as "in- power require bail is not to be so used as tentionally” inflicting various harm on oth- oppression.”); make it an instrument of Tex. ers). 392.302(1) (listing conduct Fin.Code "may oppress, which a debt collector ha- supra 11. See authorities cited note 10. rass, person”); or abuse a Tex. Gov't Code *11 (and, authorized. power applies corporations for which the is to all purpose under statute, determining test whether the current any But the “domestic entity”) necessarily something oppressive will regard without to the number of its share- next, vary one context to the from marketability holders or the of its shares. multiple meanings, the term has de- thus Nothing See id. in the language suggests the pending on circumstances. provides special that this statute a right or remedy unique minority to [statutory] an undefined “[W]hen closely corporations. See id. We multiple meanings, term has common the must thus construe the statute in a man- the con definition most consistent within ner that is meaningful and workable not applies.” text of the statute’s scheme only for the peculiarities minority of share- $1,760. Currency, State v. 00 in U.S. closely holders held corporation; but (Tex.2013) (per S.W.3d cu- also for shareholders and owners of other riam). meaning “op To determine the business entities. statute, our pressive” receivership the statutory construc approach text-based to Second, the statute places signif requires study language tion us to availability icant restrictions on the of a issue, within the specific provision at (1) receivership: the receivership must be whole, context the statute as a endeav “necessary ... to conserve the assets and word, clause,- oring give every effect to business of the avoid Gen., Att’y and sentence. In re Office of (2) damage interest,” to parties at “all 629; Fitzgerald 422 S.W.3d at v. Advanced other requirements law com [must be] Spine Sys., Fixation with,” (3) plied “all other remedies (Tex.1999). therefore examine not We equity” available either at law or in must language oppression provi 7.05(A) be “inadequate.” Former art. language sion but also the and context of added); Orgs. (emphasis see also Tex. Bus. statute, receivership including the entire 11.404(b). § requirements These Code specific grounds the other on which it au Legislature’s demonstrate the intent that receivership general thorizes a and the receivership replaces manag —which requirements apply of the spe to all ers thé shareholders chose with the grounds. cific managers courts’ chosen a “harsh” —is Requirements 1. General for Receiv- readily that is not available. See ership Balias, fact, at 257. requiring receivership termination of the “oppressive” The term in former article immediately after the condition that ne 7.05 occurs within a statute that authorizes remedied, cessitated the receiver is appoint courts to a receiver to take over a Legislature expressed has its intent that corporation’s governance, those displacing fix receivership temporary be for exi legally empowered who are otherwise gent circumstances. See former art. manage corporation. Within this con- 7.05(B); Orgs.Code text, see also Tex. Bus. aspects receivership two of this stat- 11.404(c). First, agree thus with the Bali- ute are relevant. both We particularly that, qualify type court as the former article 7.05 and current section as “oppressive” justify 11.404 are not limited to held cor- actions that a rehabili 7.05; porations. receivership; complained-of See former art. tative ac Tex. Bus. exigent, Legislature 11.404. The has tions must create circumstances ORGS.Code Balias, corporation. See adopted single standard for rehabilitative receivership based on actions S.W.2d *12 in exclusively siderations identified statute Receivership
2. for Other Grounds relating gas). concerned matters to oil and general statute’s three addition to the “Illegal, Oppressive, or Fraudu- requirements, a who seeks a lent” Actions receivership under rehabilitative former prove at article 7.05 must also least one of we Finally, consider the stat one specific grounds, five of which is the specific provision, requires ute’s a or fraudulent” “illegal, oppressive actions finding that or those in the “directors con Rupe relies. provision on which See for- of corporation” engaged “illegal, trol the in 7.05(A)(1)(c); mer see art. also Tex. Bus. oppressive, or actions. fraudulent” This Orgs.Code 11.404(a)(1)(C). § The other requirement provides two more essential (1) specific grounds corpora- four are the First, pieces guidance. receivership of un danger tion is insolvent or imminent of provision der this must be based on the (2) insolvent; becoming an unbreakable corporation’s actions of the “directors or corporation’s deadlock among manag- corporation.” those in control See causing threatening irreparable ers is or 7.05(A)(1)(c); former art. see also Tex. Bus. (3) injury corporation; a deadlock Orgs.Code 11.404(a)(1)(C) § (“governing among prevents the shareholders the elec- Directors, persons”).12 or acting those management; tion of the corporation’s or directors, fiduciary duty owe a to the cor (4) corporation’s being assets are mis- actions, poration in their directorial applied or Former wasted. art. duty the dedication of “includes [their] (d), 7.05(A)(1)(a),(b), (e); see also Tex. Bus. uncorrupted judgment business for the Orgs.Code (E). 11.404(a)(1)(A),(B), (D), § corporation.” sole benefit of the Int’l pose These are all a situations serious v. Holloway, Bankers Ins. Co. Life well-being threat to the of the corporation. (Tex.1963); S.W.2d see also Gear “illegal, oppressive, We must construe or Indus., Intern., Inc., hart Inc. v. Smith actions, when alleged (5th Cir.1984) (de fraudulent” as a 741 F.2d ground receivership, for in a manner con- scribing corporate director’s fiduciary types care). obedience, sistent with these loyalty, situations. duties of and due R.R. Comm’n Tex. Tex. Since the permits receivership Citizens statute Water, & Future Clean for the “oppressive” actions of those Safe (Tex.2011) who (construing duty-bound according are act “public only public interest” to reference their business “uncorrupted resources, public interest in natural the sole the corporation,” benefit of safety, meaning interest traffic when other of “oppressive” con- must accommo (when Ordinarily, corporation’s corpo- must be man- of a directors Orgs. aged directors) by by managed a board of directors. Tex. Bus. ration is a board of 21.401(a). (when Organiza- § The Business of its shareholders is Code shareholders). exceptions, managed by tions Code allows certain includ- its See former Orgs.Code ing 7.05(A)(1)(c); agreement when the shareholders’ or the art. Tex Bus. 11.404(a)(1)(C). instance, governing corpora- of a documents "close In either howev- er, provide tion” persons managing for the elimination of the board or entities the cor- poration capacity of directors in or one or favor more act in directors and 21.101(a)(2), 21.713(2). managers. §§ Id. are treated as directors under the Code. Tex. circumstances, Orgs.Code 21.106(a)-(b), corporations may Under §§ these Bus. 21.725- .726(a); managed directly be (managing shareholders. See see id. 21.727 id. also 21.714(b)(1), (2). Thus, 21.101(a)(2), §§ subject liability imposed for- on management-related mer current article 7.05 and section 11.404 directors for conduct re- law). receivership quired by authorize based on the conduct judg grouped exercise of that business words a list given date the should be words, In other a director meaning,” ment. because related Riverside Nat’l Bank v. judg duty-bound Lewis, 169,174 exercise business (Tex.1980), n. 2 corpora the sole ment for benefit of the similarly meaning that “the particu *13 tion, not for the individual and benefit of lar in a statute may words be ascertained shareholders, we the term cannot construe by reference to other words associated in a that “oppressive” ignores manner that with them in the same statute.” City of See, e.g., Holloway, 368 S.W.2d at duty. Boerne, City v. San Antonio of (describing corporate officers’ and (Tex.2003). Thus, 29 the meaning that duty directors’ to maximize re corporate Legislature the contemplated for the term shares); corporation’s turns and value of with, “oppressive” must be consistent Ctr., Inc., v. Hous. Nw. Med. 680 Hughes to, though not in meanings identical the (Tex.App.-Houston [1st S.W.2d accompanying tended for the terms “ille n.r.e.) (observing writ refd Dist.] gal” and “fraudulent.” corporate that officers and directors owe Illegal and fraudulent actions in corpo- and collective shareholders its interest”). management rate share duty only “a to act in their best considerable simi- reject appeals’ therefore the court in some We of larities and circumstances over- conclusion that the business rule judgment lap generally is itself “illegal,” and —fraud application in “has no this case.” may subject liability. the actor to criminal Instead, at 296. with the agree S.W.3d we (fraud), Code, e.g., Tex. ch. 32 Penal College Bowl conclusion Texarkana court’s (insurance fraud), ch. (perjury ch. 37 only if that conduct is it is falsification). and other Fraudulent and “inconsistent with the honest exercise of illegal in this pose danger actions context judgment by the business and discretion itself. Fraudulent of directors.”13 Coll. board Texarkana by a illegal corporation’s actions directors Bowl, 539; Willis, 408 S.W.2d at see also may disregard in result the at 802-03. Orgs.Code form, see, e.g., Tex. Bus. 21.223(b); may § vitiate the corporation’s
Second, Legislature grouped the interests, Schlumberger contractual see categories three in together of conduct Swanson, Carp. Tech. provision the that are statute —actions (Tex.1997); and in an “fraudulent,” even result actions “illegal,” are involuntary judicial termination of the cor- that are former “oppressive.” actions See Orgs.Code 7.05(A)(1)(c); poration, see art. see also Tex. Bus. Bus. ORGS. Tex. (5). 11.404(a)(1)(C). 11.301(a)(2), § We must It is a “familiar construe Code principle statutory “oppressive”—in construction that third of these terms — statute, judg- language 13. The dissent states that "the tent with of the business necessary if authorizes relief "to con- fundamentally ment rule is odds with property serve the and business of the domes- oppression remedies.” Post at damage entity par- tic ties,” avoid interested But our task is not to construe the entirely is consistent with it receivership statute in a is con- manner that grounds surrounding for relief under the stat- reme- sistent "shareholder ute, insolvency, which focus on deadlock dies,” phrase any that cannot be found business, management of the and misuse prior opinion. Texas Our task is to construe property i.e., conduct of business — in a the statute manner that is consistent with interests of the See threatens the business. Legislature. statutory language 7.05(A)(1)(a),(b), (d), (e); enacted former art. Bus. Tex. Orgs.Code 11.404(a)(1)(A), (B), (D), (E). entirely The business rule consis- severity mercy with the of of a are not at the manner consistent business concepts. these business’s directors.15 Meaning “Oppressive” 4. The considerations, light of these we con- Considering language and dealing” clude neither the “fair test statute, context of the we have identified expectations” nor the “reasonable test suf- at least three characteristics of “actions” ficiently captures Legislature’s intend- “oppressive”: that the statute refers to as meaning ed “oppressive” actions for- (1) harsh, justify the actions temporary mer article dealing” 7.05.16 As to the “fair (2) receivership; of a rehabilitative test, agree probity we that a “lack of exigent the actions are severe and create *14 dealing” departure fair and “a visible from (3) circumstances; and the actions are in dealing the standards of fair and viola- [a] duty consistent with the to exer directors’ play” may aspects tion of fair be of actions cise their honest business for the “oppressive,” agree that are we and that corporation. benefit of the The term’s “burdensome, the actions must be harsh common meaning usage and its in other wrongful.” and And as to the “reasonable statutes add a fourth characteristic: test, expectations” agree oppres- we unjust actions involve an exercise abuse sive actions will defeat the reasonable ex- of power rights that harms the or interests pectations that were central to the share- persons subject of to authority the actor’s join holder’s decision to the venture. But and disserves the purpose for which the in of the light language and context of the power is authorized.14 Actions that uni statute and the term’s common meaning formly affect all shareholders typically will uses, other satisfy accept and we cannot a defini- aspect of the term’s mean because, ing collectively, the shareholders tion that would oppression find on either of 10; supra 14. See authorities Legislature's cited note see end-run around the detailed Const, XV, procedures and (providing § also Tex. rules for derivative actions. art. office): judges oppression removal of in (oppression by Penal Code pub- "Legisla- Tex. 39.03 16.The dissent contends that official); Traders, Quinn, acquiesced” long-standing lic ture has in "the Inc. v. Nafta (Jefferson, C.J., oppression definition of (Tex.2011) that has existed at 5.W.3d the common-law in Texas and a host of oth- Lehrmann, joined by Wainwright JJ. con- jurisdictions,” post er develop- curring) (observing duty legisla- of courts and primarily ment of which it attributes to New protect litigants "crippling ture to from bur- courts, post York respect at 897. With to oppressive discovery imposes”); dens State v. contention, the first we note that this Court Sw., Bottling Coca Cola Co. of consistently rely "legisla- has refused to on (Tex.App.-San Antonio writ acquiescence” statutory tive as a doctrine of n.r.e.) (observing ref'd that state antitrust stat- contrary construction when it runs trusts, designed "suppress utes are to secure plain language of the statute. Pret- trade, arising competition the benefits from Bd., v. Motor Vehicle zer prevent monopolies, protect people (Tex.2004) (rejecting argument based possible tyranny oppression from the legislative acquiescence on because "neither wealth”) (citing Monopolies, combined Etc. legislative judicial ratification nor deference (1971)). 54 Am.Jur.2d 452 interpretation an to administrative can work plain statutory a contradiction lan- Thus, "oppressive” actions that are under second, guage.”). respect With to we ordinarily give statute will not rise to meaningful have discussed above the differ- words, derivative suits. In other sharehold- relating ences between New York’s statute conduct, ers not use a claim under the applies only provision receivership corporations, statute as an and Texas’s stat- alone, Moreover, disapprove purchaser.18 these bases and we fled the evidence support that have.17 does not appeals finding they the court of decisions abused their authority with the intent to all of the indicators of the Considering RIC, Rupe’s harm interests in that their or. intent, that a Legislature’s we conclude decision created a serious risk of harm to managers directors or en- corporation’s evidence, RIC. In the absence of such we actions under former gage “oppressive” conclude their refusal to meet with they 7.05 and section 11.404 when article prospective buyers was not “oppressive” authority abuse their over the that term is used in the receivership stat- with the intent to harm the interests of ute. shareholders, one or more of the Undoubtedly, the directors’ refusal comport manner that does not with the . meet with prospective purchasers placed judg-
honest exercise
their business
Rupe in a
prevented
difficult situation that
ment,
by doing
so create a serious risk
her
selling
from
her shares as quickly as
corporation.
harm to the
she wanted and for their full value. But
Application
Rupe
difficulty in—and sometimes even the im-
Applying
Legislature’s
intend
possibility
selling one’s shares is a
*15
of—
meaning,
ed
we
that the refusal
conclude
characteristic intrinsic to ownership*of a
Dennard, Ritchie,
by
and Lutes to meet
closely
corporation,
held
the shares of
n with
Rupe’s potential buyers
does not con
publicly
which are not
traded. Sharehold-
“oppressive”
stitute an
action for which
corporations may.
ers of
ad-
relief
arti
Rupe
obtain
under former
and
by
dress
resolve such difficulties
en-
Dennard, Ritchie,
cle 7.05.
and Lutes had tering
agreements
into shareholder
that
contractual, statutory,
duty
no
or other
refusal,
buy-sell,
contain
first
redemp-
buyers.
meet
prospective
Rupe
does
provisions
tion
that reflect
their mutual
they sought
not
received
dispute
and
expectations
agreements.
and
In the ab-
attorney
the advice of an outside
who had
however,
agreements,
sence of such
former
expertise
making
in securities law before
article
appointment
7.05 authorizes the
decision,
they
partici
and
declined to
only
specific
a receiver
for
conduct—in this
pate
meetings
doing
case,
in the
because
so
allegedly oppressive
actions—and
against
would increase the risk of suit
by
appeals
RIC conduct relied on
the court of
and its directors in the event of a dissatis-
here does not meet that standard.19
ute,
applies
by
to all domestic business
facts
one who offers or sells a
material
security);
(imposing
entities.
17 C.F.R.
240.10b-5
law).
liability
similar
under federal
Katoli,
Kohannim v.
19. Because
is the
time
Court has
this
first
this
811-13;
24;
Boehringer,
at
404 S.W.3d at
meaning
"oppres
addressed the
of the term
Redmon,
234; Gotten,
202 S.W.3d at
statute,
receivership
in the
sive”
we would
Data,
699-701;
Pinnacle
ordinarily
remanding
consider
the case for a
196; Willis,
801;
S.W.3d at
997 S.W.2d af
legal
new trial under the new
standard that
Davis,
C.
the requirements a claimant must sat-
isfy to obtain
remedy:
Although
appeals
the court of
re
(cid:127)
the appointment of a receiver must
exclusively
lied
on the directors’ decision
necessary
be
“to conserve the assets
potential buyers
to meet with
and business of the
shares,
Rupe’s
Rupe asserted that other
damage
parties
to avoid
at inter-
Dennard,
Ritchie,
actions
and Lutes
est,”
also constituted “oppressive” conduct un
(cid:127)
requirements
“all other
of law are
der former article 7.05.
needWe
not con
with,”
complied
any
sider whether
or all of these other
(cid:127) “all other remedies available either
however,
actions were oppressive,
because
equity
at law or in
... are deter-
that,
were,
we
they
hold
even if
the statute
mined by the court
to be inade-
does not
buy-out
authorize the
quate.”
obtained,
Rupe sought
Rupe
The court
appeals
relied on the stat-
request
did not
the rehabilitative-receiver
ute’s
requirement
third
finding that all
—a
ship remedy that the statute does authori
other remedies available
equi-
at law or in
ze.20
ty
inadequate
are
hold that the statute
—to
article
single
Former
7.05 creates a
appointment
authorizes not
of a
cause of action with a single remedy: an receiver
any
but also
appropriate
other
action for appointment
a rehabilitative
equitable relief.
Former
art.
11.404(b).
statutory
provide
ticle
to
a different
§
7.05
ORGS.CODE
buyout,
remedy,
regard
any
without
to
a
buy-out
affirming
the trial court’s
cause of action.
common-law
order,
appeals
the
of
relied on this
court
Nicholas,
in Patton v.
154
decision
Court’s
appeals
The court of
also re
(1955).
385, 279
But Pat-
Tex.
S.W.2d
support
availability
lied
to
of
on Davis
involved neither a
for
ton
claim
buy-out
a
order under the statute.
a
of stock.
Id.
buyout
nor
court-ordered
Davis,
286-87 (citing
S.W.3d at
Rather,
849-59.
held in Pat-
at
Court
378-80).
at
Davis likewise relied on Pat
in effect
receivership
ton that the
statute
ton. Both courts’ reliance on Patton
2293,30
time,
did
at
former article
not
reject
holding
and we
misplaced,
displace
appoint
to
a
power
Texas courts’
former article
Davis that
7.05 authorizes
equitable remedy
as an
for exist-
receiver
equi
to
“general
Texas courts
invoke their
ing
(there, breach of
causes of action
ty
to award a
power”
of stock as a
trust)
in “extreme” circum-
for
actions under
Id. at
Former article
(rather
stances.
856-57.31
than under
statute
a common-law
2293, like
former article 7.05
current
equitable
cause of action for which
reme
11.404, expressly preserved
available).
section
Davis,
dies are otherwise
Cf.
availability
equitable
of
an
receivership as
379;
see also
Data
ARGO
remedy for a cause of
that invokes
action
249,
v.
Corp. Shagrithaya,
Res.
equitable powers.
(“The
the courts’
See former
filed)
2012,
(Tex.App.-Dallas
pet.
2293,
4;
7.05(A)(3);
para.
art.
former art.
an
statute authorizes
court to fashion
11.404(a)(3).
Orgs.Code
§
Tex. Bus.
Our
equitable remedy if the
actions of those
recognition in
the statutory
Patton that
illegal,
control of
are
oppres
fraudulent.”).
sive,
receivership
displace
action
did
Although
Legis
or
grant
Texas courts’ historical
re-
power
made
range
lature has
a broad
of equitable
ceivership
equitable remedy
as an
under a
remedies available for
other
violations of
action, see,
common-law cause of
does not sup-
statutory
action
causes of
Tex.
fiduciary duty
tion of the statute.
It
this Court
asks
nature of breach of
indicate
statute,
ignore the words of the
which author-
wrong
Court
that the
viewed the
as a breach
"appoint
ize
...
courts to
a receiver
if
fiduciary duty
corpo-
by
of the formal
owed
...
legal
equitable
all other available
rate
corporation.
officers
directors to the
inadequate,”
...
remedies
are
id.
Patton,
(citing
See
877 24.008(a)(3), § & it has not Bus. Com.Code III. Legislature provided so here. The a done A Common-law Cause Action for remedy for actions under single oppressive Oppression? Shareholder article 7.05: of a reha- appointment
former bilitative receiver.32 This Court has never a recognized
common-law “minority cause of action for shareholder oppression.” Although the Statutory Oppressive Conclusion on D. appeals’ courts of in opinions this case and Actions Davis both addressed in only actions for Ritchie, by hold that We the decision oppressive receivership actions under the Dennard, and Lutes not to meet with statute, parties other and Texas courts does not Rupe’s prospective buyers consti- have relied on opinions these to recognize “oppressive” tute action under former arti- a common-law claim “shareholder op 7.05, appeals and the erred in cle court of pression” any not based on statutory aut concluding otherwise. also hold that We hority.33 When asked oral argument of a rehabilitative receiver is appointment identify the source of the directors’ alleged only remedy the that former article 7.05 case, duty in Rupe’s attorney asserted authorizes for actions. Be- only that the duty “flows from the statute” cause the trial court’s does not and “derives from the word receiver, we need not consider appoint the statute.” Rupe’s plead But because Rupe other conduct alleged ings the was and assert briefs also a common-law claim “oppressive.” oppression, for shareholder we must point We need not this case decide in whether a a rehabilitative receiver "to conserve properly appoint trial court could a rehabili- property the and business the domestic tative receiver and authorize or order the entity damage par- avoid to interested implement buyout receiver to of a share- Orgs.Code 11.404(b)(1). § ties." Tex Bus. An 11.406, holder's interests. Under section authorizing requiring order a receiver powers receiver has "the and duties that are buy out a shareholder’s interests would be appointing stated the order the receiver” only proper authorized under the statute (as time), that order be amended over buyout if damage the both "avoid would powers provided by and "the and duties other partly]" and [an] interested “conserve the Orgs. applicable laws to receivers.” Tex. Bus. property entity.” and business domestic 11.406(a)(4), (5). § primary The "other Code buyout help If the would shareholder but applicable subject laws” their to receivers corporation, authorizing hurt the an order power "to the control of court” and to likely receiver to would effectuate court,” by actions "authorized Tex. Bus. & comply authorizing not with the statute 64.031, provides that "the Com.Code appointment. ques- We need resolve this equity govern relating rules all matters here, however, Rupe tion because did not duties, appointment, powers, liabili- authorizing seek or obtain an order a rehabili- powers of a ties receiver and to the of a court purchase tative receiver to cause RIC to her Thus, regarding a receiver.” Id. 64.004. fact, Rupe shares. did not seek a rehabili- authority receiver has conferred "[a] tative receiver at all. him,” but, appointing the Court’s order "[tjhe comply order itself must with the stat- Servs., Cardiac Inc. v. authorizing appointment.” parte ute such Ex Perfusion Hughes, (Tex.App.-Dal- 202 (Tex. 1981) (be- Hodges, 625 S.W.2d filed); Boehringer, pet. las statute did court cause not authorize to em- 233; 32-33; Redmon, 202 S.W.3d at power supplement receiver to or issue court 699-701; Cotten, Gonzalez, orders, party’s comply S.W.3d at failure to receiv- 5; Servs., S.W.3d at 392 n. Pinnacle Data contempt). er’s order could not be basis for 192; Willis, ap- 11.404 Section authorizes courts to S.W.3d at S.W.2d at 803. *21 878 U.S.A.,
decide recognize whether to such a com- See Drilling, Nabors Inc. v. Esco to, 401, (Tex.2009); of action mon-law cause under Texas law. 288 S.W.3d 410 Hum Gravel, Gomez, ble Sand & Inc. v. deciding When whether to rec (Tex.2004); Thapar v. ognize “a new cause of action and the Zezulka, (Tex. 994 S.W.2d accompanying expansion duty,” of this 1999); W.C.W., Bird v. 868 S.W.2d “performfs] something Court akin to a (Tex.1994); Beard, v. Graff analysis cost-benefit to assure that this (Tex.1993). 918, 920-21 Carefully consid expansion liability justified.” is Roberts ering these factors within the context of Williamson, (Tex. case, this recognize we decline to a new 2003). The analysis complex, is requiring common-law “minority cause action for consideration of a number non-disposi- oppression” held including, tive factors but not limited to: corporations. (cid:127) likelihood, foreseeability, mag- and Foreseeability, Likelihood, A. and nitude of the injury, risk of Magnitude Injury of Potential (cid:127) the existence and adequacy of other definition, By “closely held” cor risk, protections against the poration is owned a small number of (cid:127) magnitude of the burden of guard- shareholders whose shares are publicly not ing against injury and the conse- Often, traded.35 these enjoy shareholders quences of placing that burden on the personal relationships as friends or family persons question, and members in addition to their business relat (cid:127) the consequences imposing the new Sometimes, ionship.36 they enter into duty, including shareholder agreements to define things (cid:127) whether public policies Texas’s are like respective management their and vot served or disserved ing powers, apportionment of losses (cid:127) duty whether the new may upset dividends, profits, payment legislative balancing-of-interests, their rights buy or sell their shares other, from or to each the corporation, or (cid:127) the extent duty to which the new an party. outside Occasionally, things
provides clear standards of conduct don’t planned: work out as die, so as to deter undesirable conduct struggle, businesses relationships without impeding desirable change, When, conduct disputes arise. as in or unduly restricting case, freedoms. there is no agree- shareholders’ Organizations Moll, 34.The Texas Business e.g., Douglas Code Majority K. Rule distinguishes Isn’t What It “closely corpora- Oppres- between Used to Be: Shareholder held Corporations, sion in Texas Close 63 Tex. B.J. corporations.” tions” and "close The Code (2000) [hereafter, "Moll, Majority "closely corporation” defines a held as a cor- ("A ”] Rule close is a business (i.e., poration privately pub- owned organization typified by a small number of traded) licly by fewer than 35 shareholders. stockholders, the absence of a market for the Orgs.Code 21.563(a); See Tex. Bus. see also stock, corporation’s and substantial share- LLCs). (closely §id. By 101.463 con- participation management holder in the trast, the corporations Code allows all to elect corporation.”). operate corporation" by as a “close so providing appropriate corporate in the docu- ("[C]lose corporation 36. See id. investors are 21.563(a), 21.701, §§ ments. See id. 21.705- by family personal often linked or other rela- .707. tionships familiarity that result in a between participants.”). *22 ment, who lack both Our minority shareholders review of the case law and other authorities also convinces us that it is voting power may and both rights contractual likely foreseeable and that some directors disputes over how those have no control majority closely shareholders of held group are resolved. As a of law school corporations engage will in such actions as amicus curiae37 in professors appearing with a meaningful degree of frequency and observed, minority this case minority shareholders' typically will in closely corporations held have “no statu- suffer injury some as a result. Although tory right to exit the venture and receive a injury usually merely is economic in capital” partners part- return of like a nature, it can be quite substantial from the do, nership “usually ability have no minority perspective, shareholder’s as it sell their shares” like shareholders completely often undermines their sole or do; thus, publicly they if held primary motivation engaging with the rights, they fail to contract for shareholder business.39 We thus conclude that n willbe “uniquely subject potential abuse likelihood, foreseeability, magnitude by majority controlling or shareholder or by harm sustained minority shareholders group.” Unhappy with the situation and due to the of power by abuse those in it, change they unable to are often unable held, closely control of a corporation is to extract themselves from the business significant, and Texas law should ensure relationship, at least without financial loss. appropriately remedies exist to ad- dress such harm when underlying ac- corpo- Those in control of a wrongful. tions are “squeeze-out” ration use various or “freeze-out” to deprive minority tactics Adequacy B. Existence and of Other benefits, misappropriate shareholders of Protections themselves, those benefits for or to induce Our conclusion that the risks re minority relinquish shareholders to their quire analysis. does not end our ownership for than less it is otherwise See, e.g., Drilling, Nabors 288 S.W.3d at types worth. The of conduct most com- 411 (observing foreseeability that the mere monly associated with such tactics include injury justify of an is not sufficient to (1) corporate denial of access to books and duty). creation of a new must We next (2) records, of, withholding payment or the adequacy consider of remedies that (8) declare, dividends, declining to termi- already exist. particularly This is true minority nation of a employ- shareholder’s addressing when we are corporations and (4) ment, misapplication funds the relationships among partici those who and diversion of corporate opportunities them, pate in which we have consistently (5) for personal purposes, manipu- recognized largely governed are matters lation of Empire stock values.38 statute and contract. See 39.See, Moll, Ragazzo, Steinberg, e.g., Douglas 37. Robert A. Marc I. K. Reasonable Ex- Bromberg, Joseph Leahy, Alan R. pectations Implied-in-Fact K. Bruce A. Contracts: Is the McGovern, Rosin, Needed?, Gary S. and David Simon Oppression Shareholder Doctrine Sokolow. (2001) (observing B.C. L.Rev. paid, when dividends are not "a See, Moll, Rule, discharged employ- shareholder who is from Majority (listing at 436 ment and removed from the board of di- “squeeze-out” common or tac- “freeze-out” tics); (list- effectively Rogers, supra any is denied return on his note at 599-600 rectors cases). investment"). ing typical conduct or her Orgs.Code Co., Grocery corporations. Mills v. Alston S.W. 505 See Tex Bus. writ) (“A O, §§ (Tex.App.1891, (subchapter no 21.701-.732 Close Cor- immediately porations), P, a statute cre- (subchapter creature of 21.751-.763 Ju- it, authorizing ating proceedings for its Proceedings Relating dicial to Close Cor- *23 organization.”); Capital Calvert Sw. porations). judicial addition 247, 255 Corp., (Tex.Civ.App.- 441 S.W.2d proceedings that other share- n.r.e.) (“[T]he Austin d writ ref char- holders can bring, shareholders close ter corporation of a creates contractual corporations are authorized to institute corporation relations the its between and proceedings to enforce a close corporation shareholders, between not the sharehold- provision, appoint provisional director, a themselves.”). ers In addition to statutory appoint § or a Id. custodian. 21.752. In protections, and contractual we will also such proceedings, courts must enforce consider other common-law remedies that close provisions regardless of currently against protect exist to the kinds adequate whether there is an might of justify conduct that otherwise a may by injunction, law and enforce them remedy. new common-law specific performance, damages, appoint- provisional custodian,
ment of
director or
existing
As we consider
statutory
appointment
specific
receiver for
a
cor-
remedies,
mindful
principle
we are
of the
assets,
porate
appointment
a rehabilita-
that,
Legislature
when the
has enacted a
receiver,
tive
appointment
liquidat-
of a
scheme,
comprehensive statutory
we will
receiver,
ing
among
things.
other
Id.
refrain
imposing
from
additional claims or §
Legislature
21.756. And the
has afford-
procedures
may upset
Legisla
that
the
ed businesses
elect
operate
that
to
policies
ture’s careful balance of
and in
corporations
greater
close
even
contractu-
Liberty
terests.
Mut. Ins. Co. v.
Orgs.
al liberty.
generally
See
Tex. Bus.
Adcock,
(Tex.2013)
412 S.W.3d
§§
seq.;
§
1.001 et
id.
21.701-.732.
Code
(noting that the Texas Workers’ Compen Although RIC’s founders and sharehold-
comprehensive
sation Act “is a
statutory
ers did not
a
corpora-
declare RIC close
scheme,
precludes
and therefore
ap
the
tion
advantage
and take
unique
this
plication
procedures
and
claims
scheme,
statutory
must
they
we
note that
Act.”).40
the
contained within
We thus
so,
could have done
and
doing so could
begin
by noting
in in
case
provided
have
themselves with remedies
Organizations
Business
Code permits cor
to resolve the
dispute.
current
porations to declare themselves to be
closely
Even
when a
held
corporations,”
“close
which allows them to
take
two
does not elect to
as a
advantage
subchapters
operate
corpo-
“close
ration,”
Code
the special
Legislature
dedicated to
has
spe-
needs of
enacted
corporations
such
cial
exempts them from
rules to allow its shareholders to more
many
that govern
easily
of the rules
other
a
types
bring
derivative suit on behalf of
Gravel,
(Tex.2003)
40. See also
Sand &
(declining
impose
Humble
Inc. v.
715-16
to
Gomez,
(Tex.2004)
duty
employers
new common-law
on
who
("The
comprehensive regulato-
drug testing
existence of á
conduct in-house
because "the
ry
against
protect
weighs
scheme
comprehensive statutory
regulato-
to
harm
DOT's
scheme,
against imposing
duty
ry
common
coupled
authority granted
law
ac-
Officer],
complish the same result if the
signif-
scheme af-
to the [Medical Review
affords
significant protections.”);
fords
protection
employees
Mission
icant
Pe-
who are the
Carriers,
Solomon,
tests.”).
subject
drug
troleum
Inc. v.
of random
Orgs.Code
corporation.41
covery directly to that shareholder.42 See
Tex. Bus.
21.563(c).
§id.
Shareholders
21.563.
can
corporation,
example,
bring a de-
course,
Of
pre-
also
having
rivative action
vent and
prove
without
resolve common disputes by en-
tering into a
agreement
shareholders’
they “fairly
adequately represents
govern their
respective rights and obli-
interests
of’
corporation,
id.
gations.
Importantly,
Legislature
has
21.552(2),
having
without
to make a “de-
granted corporate founders and owners
upon
corporation,
mand”
as in other
broad freedom to dictate for themselves
actions,
derivative
and without
fear of a
duties,
the rights,
procedures
stay or dismissal based on actions of other
govern their relationship with each other
*24
corporate actors in response to a demand.
See,
corporation.
and with the
e.g., id.
21.563(b), 21.553-55,
§§
See id.
21.558-59.
21.052-.059, 21.101-.110,
§§
21.210, 21.401-
justice requires,
And when
the
may
court
Again,
.408.
we note that although RIC’s
treat a derivative action on behalf of a
owners did not enter into a shareholders’
closely
held
“as a direct action
agreement,
they certainly could have done
brought by the shareholder
for the share-
so,
by doing so could have avoided the
benefit,”
holder’s own
any
and award
re-
dispute.43
current
supra
41. See
note 34.
Nor can we assume that the absence of
applicable
provisions
contractual
ill-
indicates
may
recovery
preparedness
42. The court
also award the
part
"to
on the
of business owners.
necessary
the
if
protect
to
reasonably
the
Owners
flexibility
choose
interests of creditors or other
predictability.
shareholders of
over
Minority shareholders
corporation.”
the
Orgs.Code
Tex. Bus.
may reasonably choose to create mechanisms
21.563(c).
impede
would allow them to
the will of
majority
buyout
they
or demand a
because
43. The dissent concedes that shareholder and
minority
do not want other
owners to have
buy-sell agreements are a
ability
more
the same
opera-
"ideal[ ]”
to interfere with the
deciding
means for
disputes.
tion of the business or to threaten the finan-
at
it
people
Post
894. But
contends that
enter
cial health of the business with an ill-timed
"ill-prepared”
buyout.
businesses
and im-
demand for
plies
step
pick up
that the law should
in
Finally,
to
if
accepted
even we
the dissent’s
accept
premise.
premise,
slack. We
buy-out remedy
cannot
the dissent fa-
(whether
generally
Courts
granted
endeavor to afford citizens
expansive
vors
under an
broad
in
reading
freedoms
their choices about how
receivership
to
of the
statute or the cre-
manage
action)
their own business endeavors. There
new
ation of a
common-law
of
cause
justifications
are numerous
has not been
well-established
limited to circumstances where
approach,
for this
not the least of
buy-sell agreement.
which is
there is no shareholder or
Services,
simply
that courts are
ill-suited
example,
task of
In Cardiac
for
Perfusion
second-guessing
appeals
business decisions made
buyout minority
court of
affirmed a
of
people
typically
business
who
have a more
shares in direct contravention of the terms of
long-term perspective,
parties’ buy-out
access to more
agreement.
exten-
information,
Illinois,
greater
sive
experience in the
at 204-05.
where the statute on
industry,
practices general-
if
business
expressly
which the dissent relies
authorizes a
See,
ly, and
non-public
more interest in the outcome.
corporations
based on
Posner,
actions,
Theory
Eric A.
A
Contract Law
courts likewise have
Error,
Under
applied
Conditions Radical Judicial
buyouts
prices
the statute to force
at
(2000) (“[Cjourts
Nw. U.L.Rev.
have
calculated under the statute rather than the
understanding
simplest
trouble
parties express agreement
buy-
of busi-
and to force
relationships.
surprising.
ness
contrary
This is not
par-
outs with terms that are
Judges
generalists,
they usually
must be
express
exiting
but
ties’
See,
terms for
the business.
backgrounds
particular
e.g., Gingrich Midkiff,
have narrow
in a
App
field
2014 IL
law.”).
120332-U,
(5th)
(affirming
WL
matter,
a final preliminary
corporation’s
And as
we
cess to the
books and rec-
note that various common-law
causes
Legislature
pro-
ords. Our
has expressly
already
action
to address
exist
misconduct
tected a corporate
right
shareholder’s
by corporate
Rely
directors and officers.
records,
provided pen-
examine
ing on the same actions that
their
support
rights,
alties for a violation of those
claims,
minority
Texas
share
applicable
identified
defenses
an action
holders have also asserted causes
action
rights.
enforce those
See Tex. Bus.
(1)
(2)
for:
an accounting,
breach of fidu Orgs.Code
(examination
§§ 21.218
of rec-
(3)
(4)
contract,
ciary duty,
breach of
fraud
(annual
ords), 21.219
and interim state-
(5)
(6)
fraud,
conversion,
and constructive
corporation),
(penalty
ments of
21.220
(7)
(8)
transfer,
conspiracy,
fraudulent
un
list),
prepare
failure to
voting
(pen-
21.222
(9)
enrichment,
just
quantum
meruit.
alty
examination),
permit
refusal
24;
e.g., Boehringer, 404
S.W.3d
list),
(inspection
21.354
voting
21.372
262;
Shagrithaya, 380 S.W.3d at
Allen v.
(shareholder
list).
meeting
These statuto-
L.L.C.,
Energy
Devon
Holdings,
367 ry rights
adequately protect
and remedies
365 (Tex.App.-Houston [1st
corpo-
shareholder’s access to
2012, judgm’t
by agr.);
Dist.]
set aside
records,
rate
and we need not create a new
*25
267,
Wimberly,
Strebel v.
274 commonlaw
supplement
cause of action to
2012,
(Tex.App.-Houston
pet.
[1st Dist.]
protection.44
that
filed);
Inc.,
Adams v. StaxxRing,
Withholding
Refusing
641,
or
to De-
(Tex.App.-Dallas
denied); Redmon,
clare
231;
Dividends
pet.
202 S.W.3d at
DeWoody
Rippley,
v.
A
second common complaint
those
(Tex.App.-Fort
writ);
Worth
no
alleging
oppression
shareholder
relates to
Davis,
A
complaint
common
alleging
they
those
can
right
enforce that
as a
shareholder
See,
is the denial of ac-
against
debt
the corporation.
e.g.,
judgment
buy-
in case where court calculated
45. The declaration of dividends for some but
price
out
under statute rather than valuation
not all classes of stock could also form the
agreement
formula in shareholder
and where
complaint,
basis for such a
but we have not
impose
agree-
court declined to
seen this kind of claim in Texas cases. When
non-compete
ment’s
limitation on withdraw-
a Texas
has more than one class
shareholders).
ing
expelled
or
shares,
corporation’s
certificate of for-
specify
preferences,
mation must
limita-
Ritchie, Dennard,
44. The dissent accuses
tions,
rights
and relative
of the shares. Tex.
withholding corporate
Lutes of
records from
3.007(b)(4).
Orgs.Code
Bus.
Rupe,
appeals
but
court of
held that there
was no
Rupe
evidence of such actions and
did
appeal
holding.
(Tex.
Amsler,
rupted
S.W.
business
for the sole
Cavitt
ben-
dism’d)
corporation”).
writ
efit of the
Civ.App.-Austin
When directors
(“[W]hen
declared,
fiduciary
a dividend is
it becomes breach their
by improperly
duties
dividends,
owing by
withholding
failing
a debt
to declare
stockholders.”). Our review of the cases
one or more shareholders can sue the di-
doubt the
rectors for
gives
adequacy
us no reason to
breach of those
on
duties
behalf
particular
the corporation through
of this
to address
a derivative
Orgs.Code
action.
situation.
See
Tex.
Bus.
§§ 21.551-.563.47
regard to the failure to declare
With
higher
dividends and the failure to declare
This
first
Court
addressed this kind of a
dividends,
generally
Texas statutes
do not
claim in the
context of a
held corpo-
nearly .sixty years
dictate when directors must declare divi-
ration
ago
Patton.
dends or how much the dividends must
Patton
corpo-
demonstrates that when a
decisions made in violation of a director’s
rate director
duty
solely
violates the
to act
duties to the corporation and its share-
for the
benefit of the
and re-
collectively,
holders
but
no
exists
other,
fuses to declare dividends for some
for decisions
comply
with those
improper purpose,
duties,
the director breaches
they
even if
result
in incidental
*27
fiduciary
corporation,
duties to the
and the
harm to minority
a
shareholder’s individu-
minority shareholders are entitled to re-
al interests. But even when a corporate
”
50.
liquidating
The trial court had awarded
remedy
a
majority
bilitation’
as
for the
share-
receivership,
rejected
remedy
and we
as
fiduciary duty,
holder’s breach of
rather than
too severe.
Id. at 859. We noted that al-
appointing
liquidating
a
receiver under the
though
pro-
the statutes in effect at the time
added).
(emphasis
statute.
Id. at 857
As
only
vided
liquidation,
for dissolution and
above,
holding
discussed
this
related to Texas
Legislature
recently passed
had
not-yet-
power
grant
courts’
to
types
different
of re-
Act,
Corporation
effective Business
which fa-
ceiverships
equitable
as
existing
remedies for
vored rehabilitative receivership
liqui-
over
Patton,
causes of action—in
breach of fiducia-
dation when the business was solvent. Id. at
ry duty
receivership
not whether the
—and
Citing precedents
in which we
statutory
statutes created new
remedies other
recognize minority
to
right
"seem[ed]
to
receivership.
than
See id.
receivership
gross
in cases of
or fraudulent
mismanagement, although
particular
without
contrary
51. Patton is thus
to the dissent’s
liquidation
reference to whether
something
majority
assertion that
follow,”
that,
shareholders can sim-
else is to
we concluded
in the
cases,
ply
could,
refuse to declare dividends for
"more extreme”
their own
Texas courts
general
personal
equity power, appoint
under their
benefit rather than in
the best inter-
receiver "for the
purpose
less drastic
corporation.
of 'reha-
est of the
See ante at 883.
controller’s dividend decision itself does
shareholders under most circumstances.53
give
remedy,
to a
rise
is not This case does not present any extreme or
typically the end of the inquiry. Allega-
unusual circumstances
that would justify
tions that directors or controlling share-
the imposition of additional duties and
are manipulating
“op-
holders
dividends to
remedies.
minority
press”
typically
Employment
Termination of
arise when
only
the accused not
withhold
dividends but also use some method to
A third
complaint
common
corporation’s profits
distribute the
exclu-
those alleging minority shareholder op
sively
frequently, by
inflat-
themselves —
pression relates to the termination of the
Boehring-
ing
their own salaries.
minority shareholder’s
employment with
er,
(addressing
We therefore
existing
conclude that
tury,
general
State,
duties and
rule
applicable
remedies
corpo-
rate dividend
most American
payments
jurisdictions,
declarations and
has been
adequate
offer
protections
for minority
that absent a specific agreement
52. Shareholders can utilize a shareholders'
determine
the best interest of the
agreement to set the
by examining
terms
an officer’s or
majority
the interest of its
salary
employment,
pre-
shareholder^).
Skinner,
director’s
thus
Holloway
See
venting
the officers and
(Tex.1995)
directors from mak-
(holding
that cor-
ing those decisions for themselves. See Tex.
porate
majority
officer and
shareholder could
21.101(a)(4), 21.714(b)(9).
Orgs.Code
§§
Bus.
acting
be held liable for
"in a manner that
expense
served his interests at the
of the other
shareholders” because his interests and the
"typical
53. The dissent contends that
acts of
corporation’s
necessarily aligned).
were not
minority oppression (refusing
pay
divi-
dividends,
dends,
pay
paying majority
Refusal to
paying majority shareholders outside
process,
shareholders outside the dividend
process,
making
the dividend
fire-sale
offers)
making
buyout
certainly
fire-sale
offers
usually operate to
benefit
*28
instance,
corporation,
can harm
corporation
by
the
for
hardly
and
ever harm it.” Post
lowering the value of its stock. As
support
at 893. But the
Patton
dissent offers no
for
demonstrates,
very
itself
the
proposition,
conduct the dis-
agree
broad
and we do not
sent claims does not harm
the
assumption.
this is a valid
The dissent
(and
give
given
fact can
rise
has
rise in the
corporation’s
confuses the
interests with the
past)
breach-of-fiduciaiy-duty
to a
claim
majority
individual interests of its
sharehold-
against
corporate
engaged
the
controller who
duty
ers. But a
officer or director’s
is to the
such conduct to benefit himself at the ex-
and its shareholders
collectively,
pense
corporation.
any
not
of the
279
individual shareholder or
S.W.2d at 853
shareholders,
(holding majority
subgroup of
even if
shareholder liable when he
that sub-
group represents majority
ownership.
used "his control of the board for the mali-
the
See,
Redmon,
233; Somers,
purpose
preventing
202
...
S.W.3d at
cious
dividends and
11; Lindley,
295 S.W.3d at
lowering
349
at
otherwise
...
S.W.3d
value
of the stock
124; Hoggett,
shareholders]”).
971
[minority
S.W.2d at 488. We do not
(Tex.2002) (“At-will
contrary, employment may be terminated
employment is an im-
will,
employer
employee
or the
at
portant
longstanding
and
doctrine in Tex-
cause,
cause,
good
for
bad
or no cause at
as, and we have
impose
been reluctant
Montgomery Cnty. Hosp.
all.”
Dist. v. new common-law duties that would alter or
(Tex.1998).
Brown,
965 S.W.2d
(cita-
conflict with the at-will relationship.”
policy
We need not address the
reasons
omitted)).
tions
for our commitment
employment
to at-will
which,
may
There
be situations in
de-
here,
in detail
but we note that we have
spite the absence of an
consistently recognized
employment agree-
it benefits
employees, by allowing
ment,
both
them to
key employee
termination of a
change employers freely
they
deem improper,
legitimate
for no
business pur-
best,
employers,
and
by allowing them to pose, intended to benefit the directors or
make employment
they
decision as
deem individual
expense
shareholders at the
best,
second-guessing by
without
courts
shareholder,
and harmful to
juries.
e.g., Marsh
Inc. v.
USA
corporation.
Though the ultimate de-
Cook,
(Tex.2011) (“A
depend
termination will
on the facts of a
person’s right
any
to use
own labor in
his
case,
given
such a decision could violate
employment
lawful
is ... one of the first
fiduciary
directors’
duties to exercise
highest
rights.”) (quoting
of civil
Int'l
their “uncorrupted
business
Printing Pressmen & Assistants’ Union
the sole benefit of the corporation” and to
Smith,
N. Am. v.
145 Tex.
“usurping]
refrain from
corporate oppor-
(1947));
S.W.2d
Corp.
Chevron
tunities for personal gain.” Holloway, 368
Redmon,
(Tex.1987)
577;
Indus.,
see also Gearhart
(“Employers
right
should have the
887
minority
of
complaint
misappropriation
A fourth common
officer’s
of corporate as-
sets).
misapplication
circumstances,
shareholders involves the
And in limited
as we
discussed,’
corporate
corporate
funds and diversion of
have
may
sue
directly
As to this
we
for
opportunities.
complaint,
a rehabilitative receivership.
duty
loyalty
7.05(A)(1);
need
note
See former art.
Tex. Bus. ORGS.
11.404(a)(1).
corpora-
officers and directors owe to the
Code
specifically prohibits
tion
them from mis-
potential
Because the
harm here is to
assets for their
applying corporate
person-
corporation
and the shareholders col-
or
gain
wrongfully diverting corporate
al
lectively, this misconduct does
weigh
not
in
See,
opportunities
e.g.,
to themselves.
recognizing
favor of
an additional common-
(“A
Holloway,
corporate
business in a manner that suits an individ-
begin by
We
considering
type
ual shareholder’s interests when those in-
actions that would qualify
“oppressive”
are
aligned
terests
with the interests
under a common-law cause of action.
corporation’s
of the
and the
deciding whether to recognize a new com-
collectively.
action,
mon-law
cause
we must consider
recognize
We
that our conclusion leaves
duty
whether the new
provide
would
clear
“gap”
protection
in the
that
the law
standards that would deter the undesirable
minority shareholders,
affords to individual
deterring
conduct without
desirable con-
acknowledge
and we
that we could fill the
unduly
duct or
restricting freedoms. See
gap by imposing a
duty
common-law
on
410;
Nabors Drilling, 288 S.W.3d at
Go-
directors in
held corporations not
mez,
Ultimately,
imposed,
because the
standard is so
other shareholders of the cor-
vague
subject
many
and
to so
poration,
different
and
relationships
business
in
circumstances,
meanings
See,
in different
Medien,
we general.
e.g., Strickland v.
conclude that creating
indepen-
(Tex.2013)
new and
(listing
185
a
legal
dent
“oppressive”
remedies for
ac- myriad of unintentional consequences that
tions is simply
jurisprudence.
bad
Al- might attend liability for compensating
though we do not foreclose the possibility
damages
emotional
arising from the loss of
proper
that a
might justify
recog-
case
our
pet).
Imposing on directors and officers
nition of a new common-law cause of action a
duty
common-law
not to act “oppressive-
“gap”
protection
to address a
for minor-
ly” against individual shareholders is the
shareholders,
ity
any
theory
such
of liabili-
of,
equivalent
to,
or at
least
akin
ty will need to be based on a standard that
imposing on
and
directors
officers a fidu-
is far more
meaning
concrete than the
ciary duty to individual shareholders. We
“oppressive.”
previously
have not
recognized a formal
addition,
shareholders,
fiduciary duty
even if we
to individual
were to utilize
Legislature’s
meaning
intended
and we believe that better judgment coun-
“oppressive,”
term
our consideration of the
against doing
sels
so.62
60.See,
Storm,
e.g., Timothy J.
Remedies
rule.
It is difficult to counsel a
for
Oppression
Non-Controlling Shareholders
proceed
owner who
be reluctant to
Closely-Held Corporations:
in Illinois
An Idea
litigation in the face of an uncertain result.
It
Gone,
Whose Time Has
33
U. Chi. L.J.
Loy.
majority
also is difficult to counsel the
share-
379, 383-84,
(2002) (observing
435
that ”[a]l-
holder as
acceptable, par-
to what conduct is
though entire treatises have been written on
ticularly
dispute
after a shareholder
devel-
subject minority
oppres-
ops.”).
sion,
elusive,”
precise
definition remains
that “much of the relevant case law defines
Brownlee,
Hunter J.
The Share-
not,
oppression
by
by
more
it
what
than
Agreement:
holders’
A Contractual Alternative
is,”
what it
proponents
that
”[e]ven
Dissolution,
Oppression
to
As A Ground
for
view
recognizes
the non-
(1994)
(noting
Stetson
L.Rev.
controlling
expecta-
shareholder’s reasonable
expectations”
vague
“reasonable
is a
standard
'just vague
tions admit that these are often
subject
greater obscurity
when some
")
understandings.’
and half-articulated
(quot-
shareholders received their shares
inheri-
O’Neal,
ing Hodge
Corporations:
F.
Close
Ex-
gift).
tance or
isting Legislation
Reform,
and Recommended
(1978));
33 Bus. Law.
Miller,
Sandra K.
See, e.g.,
Mark J. Loewenstein & William
Minority
How Should U.K. and U.S.
Trader,
Wang,
Corporation
K.S.
The
as Insider
Prejudicial
Unfairly
Shareholder Remedies (2005) ("The very
30 Del. J.
L.
Oppressive
Reformed?,
Corp.
Conduct Be
36 Am.
(1999) ("A
fiduciary duty
idea that a
has a
vague
Bus. L.J.
reason-
troubling.
expectations approach
able
individual shareholders is
The
raises
cor-
concerns
practitioners
poration
any particular
only through
can act
because
its board of
directors, officers,
predict
case it is difficult to
employees,
how a court will
and other
public policies
impose rights
we consider
re
Finally,
obligations on the
judiciary
govern
garding
parties
the role of the
parties
when the
should be
society.
previously
ment and in
As we
free to dictate their
rights
own
and obli-
noted,
consistently recognized
we have
gations vis-a-vis each other and the busi-
are
corporate relationships
largely
ness. This
prerogative
Court has the
*33
by
matters
statute and contract.
governed
superimpose a common-law cause of action
century ago,
than a
this
ex
More
Court
upon
statutory
though
framework —
pressed our reluctance to allow courts to
not to alter or contravene
statutory
management
“control or interfere in the
framework —but we
power
exercise that
or internal
of an in
affairs
sparingly, careful not
upset
the Legisla-
Cates,
corporated company.”
at
S.W.
policies,
tive balance of
when
848-49; see
also Kroese Gen. Steel Cast
by
genuine
warranted
need.
(3d Cir.1950)
ings Carp., 179 F.2d
331;
D’Unger, 207 S.W.3d at
O’Bryant, 18
(“Courts
rightly
are
reluctant to interfere
216; Austin,
401;
967 S.W.2d at
management
with the
of a business con
Twyman,
see also
tion. and the the case to that court for further proceed- found, fiduciary that an informal ings relation- consistent opinion. with this Dennard, ship existed between her and Justice GUZMAN filed a
Ritchie, dissenting Lutes.63 In ap- the court of opinion, which Justice WILLETT and Dennard, Ritchie, peals, and Lutes chal- Justice joined. BROWN lenged whether such a relationship existed Dennard, Ritchie, and whether and Lutes GUZMAN, joined Justice by joined by any breached fiduciary they duties if did BROWN, Justice WILLETT and Justice They exist. also argued that a court-or- dissenting. dered is not available a remedy states, Thirty-seven Texas, including Rupe’s breach-of-fiduciary-duty claim. *34 have allowing statutes appoint court to Because the court appeals based its some form of receiver closely over a held solely decision finding on the corporation for shareholder oppression. conduct, we remand this case to the court Today, Texas becomes the first of these of appeals may Dennard, so that it resolve jurisdictions with a unequivo- statute that Ritchie, and Lutes’s challenges Rupe’s cally prefers lesser remedies to effectively breach-of-fiduciary-duty claim. The court preclude those despite over- remedies — appeals previously found that the evi- whelming that, authority observing support dence does not jury’s valuation contrary, if many jurisdictions not all allow Thus, of Rupe’s shares. if the court of these lesser remedies.1 jurisdic- But even appeals Rupe may concludes that recover tions with statutes that are silent on lesser claim, on her breach-of-fiduciary-duty remedies interpreted have their statutes to the buyout order is available as a impliedly allow them. departure This remedy, it will need to remand the case to plain from the language of the statute the trial court for a redetermination of the negates protections the law and Texas value of Rupe’s shares and whether the appeals courts of have long afforded to buyout equitable is in light of the newly minority shareholders.2 determined value and the impact that a buyout price Historically, at that legislatures will have on recog- RIC and have its other nized minority shareholders. shareholders are par-
ticularly -vulnerable to by majority abuse shareholders and are thus entitled to sig- Y. nificant protections. protection, Without Conclusion shareholder oppression can significantly For the reasons expressed, we reverse destroy devalue or minority sharehold- the court appeals’ judgment and remand er’s investment.3 As colloquial one anec- above, 63. As noted an fiduciary duty informal 3.The minority investment of moral, social, closely arise corporations from "a held domestic or is crucial because of key purely personal role relationship corporations play held trust and con- fidence,” Forbes, economy. According American generally its existence ques- is largest privately America’s 224 compa- tion of jury. fact for the Cathey, See nies $1.61 alone accounted for trillion in reve- (quoting S.W.3d at 330-31 Associated Indent. jobs nue and over 4.5 million in 2013. An- 287). Corp., 964 S.W.2d at DeCarlo, Murphy drea & Scott America’s Largest Companies Private FORBES 1. See Part II.A. infra (Dec. 18, 2013), http://www.forbes.com/sites/ andreamurphy/2013/12/18/americas-largest- 2. See Part II.A. infra private-companies-2013/. Closely held cor- “ declares, dote are 51 ... ‘[t]here shares sufficient evidence that the majority share- $250,000. that are worth There are 49 holders and made bargain of- ”4 are not shares that worth a-’ Over stock, fers to her warned her that century ago, half a when Texas enacted its it would be only purchaser of her statute, oppression stock, we warned corporate withheld information from her, stock interest is far from “[a] refused to meet with prospective pur- ‘change left on the Ignoring counter.’”5 shares, chasers of her and paid personal observation, prescient our today expenses Court of majority shareholder with largely relegates minority stock interests Indeed, funds. the chairman of “change left on the counter” we corporation’s board of directors admit- they might feared become. This radical ted at trial that refusing to meet with departure precedents from settled and ex- prospective purchasers was oppressive. pectations primarily the result of the Because the extinguishes Court meaning- effectively Court rewriting the statute to protections ful for minority shareholders abolish the lesser remedies the statute and renders a take nothing judgment on a prefers well as the Court’s strict defini- claim, oppression valid shareholder I re- tion of any that will render spectfully dissent.
recovery highly unlikely. today The Court Background I. oppression
defines as a decision that corporation harms the and was not deter- The structure of closely held corpora- mined the honest exercise of business minority tions situates po-' shareholders in judgment. typical minority But acts of sitions uniquely vulnerable to abuse. Hol- oppression (refusing pay to Hill, (5th 460, Cir.2000). lis v. 232 F.3d 467 dividends, paying majority shareholders Typically, a board of by directors elected process, outside the dividend making and majority of the voting interest of the offers) usually fire-sale operate to shareholders oversees corporation, the benefit the corporation hardly ever operates through officers that re- harm it.6 The ultimate effect of this hold- port to the board. TEX. BUS. ORGS. ing is negate very to foundations of 21.401(a). 3.103(b), §§ Generally, CODE protection legislatures and U.S. courts minority these right shareholders have no have long minority afforded to sharehold- to participate management in the in closely corporations. ers held corporation, and the directors often elect Here, minority shareholder pre- themselves as corporation. officers of the vailed on fiduciary her As an amicus brief by submitted several duty claims at trial presenting legally professors faculty of Texas law 6.See, porations significant category private are a Ragaz- Amicus Letter of Robert A. companies, organizations zo, which include such Steinberg, Bromberg, Marc. I. Alan R. partnerships proprietorships. and sole McGovern, Joseph Leahy, Gary K. Bruce A. S. Rosin, 4-5, & David Simon Sokolow at Rit- Murdock, 4. Charles W. The Evolution of Ef- 11-0447, Rupe, Supreme chie v. No. Court of Minority Remedies Shareholders and fective Texas, 2013; 15, Patton, Jan. 279 S.W.2d at Shares, Impact Upon Minority Its Valuation of (finding damage 853 no evidence of to a cor- (1990) (quot- 65 Notre Dame L.Rev. poration majority when shareholder refused Co., ing Humphrys v. Winous 165 Ohio St. shareholder). pay minority dividends to (1956)). 133 N.E.2d Nicholas, 5. Patton v. 154 Tex. (1955). demonstrates, majority
schools7 share- holder to exit the and receive a power holders have the to freeze out the return her frequently, investment. And minority by denying them only buyers minority shares of a employment failing pay dividends.8 closely are the remaining majority magnify The shareholders can might shareholders —who engaging be impact the economic of the freeze out oppressive they conduct from which by using scheme per- funds to ultimately profit. could sonally benefit denying themselves and Ideally, minority shareholders would minority shareholders access to corporate buy-sell reach agreements or shareholder commonly information —conduct referred majority with the pur- shareholders before majority to as “freeze out.”9 And the chasing minority disputes shares. When ultimately shareholders can offer to re- arise, readily shareholders could turn to minority deem the shareholder’s stock at a their agreements as the basis for their bargain price10 referred to as a —often rights needing without to resort to the law “squeeze out.” to determine the duties owed. But as one minority partner- Unlike shareholders in observed, commentator has a rela- “[f]rom ships public corporations, minority standpoint, people tional enter closely-held shareholders in held corporations they businesses the same manner as uniquely subject are to this enter marriage: optimistically and ill-pre- inability freely conduct because of their pared.” exposes height- This case exit partnership, the venture. In a a mi- vulnerability ened oppression minority nority shareholder has a statutory right to shareholders face: the sharehold- partnership withdraw from the and receive husband, er inherited her shares from her *36 either her proceeds share of the if the acquired who his shares as a member of a remaining partners terminate the partner- family owned business that foresaw no ship or a fair value of her shares if need for agreements. shareholder the remaining partners part- continue the Orgs. Giving due nership. plight consideration to the Tex. Bus. Code 152.501(b)(1), 152.601(1). shareholders, §§ Likewise, minority thirty-one states dissatisfied minority shareholders in a have statutes that permit even the harsh publicly held corporation may allowing sell their appoint courts to on open shares market. But liquidate there is receiver to a corporation based statutory right no for a on oppression.12 share- Another four Ragazzo, supra 7. note protection 6. is needed. have Commentators argued also that close owners are 8. Id. at 4-5. unsophisticated legal often in business and matters such that the need for contractual 9. Id. (internal protection rarely recognized.” ci- omitted)). tations 10. Id. at 5. Murdock, 426; 10-2A-1430; supra note see also 12. Ala.Code 4-27- § § Ark.Code Moll, 1430; Douglas 7-114-301; Minority Oppression K. & the § Colo.Rev.Stat. Conn. Gen. (or Not) 33-896; 14-2-940; Liability Company: Learning Limited § § Stat. Ga.Code Idaho 30-1-1430; Corporation History, Close 40 Wake For- 805 III. Comp from § Code Stat. (2005) ("Because 5/12.55; 490.1430; close est L.Rev.. § Md.Code, Iowa Code 3-413; frequently by owners are linked Corps. Comp. § & Ass’ns Mich. Laws 450.1489; 79-4-14.30; family personal relationships, § or other there Mo. § Miss.Code 351.494; 35-1-938; atmosphere is often an initial mutual trust § § Ann. Stat. Mont.Code 21-2985; that diminishes the sense contractual § Neb.Rev.Stat. N.H.Rev.Stat. “persistent owners) for un- descendant of liquidation states allow one of RIC’s early “unfairly prejudicial” con- fairness” or (an and Dennis Lutes attorney for RIC language has broader duct.13 One state family) and Dennard’s feared she would is appropriate.14 for when dissolution sue to reform the trust and add her and Thus, thirty-six appear states all to al- Buddy’s son as a beneficiary. Dennard low or similar liquidation serves as directors, chair of board RIC’s Douglas K. Moll & conduct.15 See also and with her children controls over 70% of Closely Robert A. Ragazzo, The Law of voting RIC’s stock. Ritchie serves as Corporations Fig. Robert (2012); Held 7.1 president, board, RIC’s is oh the and to- Thompson, B. The Shareholder’s Cause of gether with his family just owns under Oppression, Action 48 Bus. Law. voting 10%' of RIC’s stock. And Lutes 709 n. (1993). vice-president serves as secretary Here, Ann Rupe family. married into the RIC and is on the board. Together, Den- sister, Dennard, Paula in- Her husband’s children, nard and her Ritchie and his “never Rupe get formed she would family, and Lutes control approximately any money family.” in this her Rupe and voting 79% of RIC’s shares three of husband, Buddy, to add their wanted son the'board’s four positions. The trial court beneficiary as a family trust Dennard, Ritchie, found that and Lutes Rupe Corpora- owned 47% of Investment every voted the same for shareholder vote (RIC),16 tion but Dennard and her children for the entire time relevant to this lawsuit. Buddy passed away, Rupe refused. When death, Buddy Before his was RIC’s fourth son)17 her acquired (together with an 18% director. approximately RIC’s sales were interest claims that Den- Rupe RIC.18 (a colleagues nard and her Lee Ritchie million $152 14.30; 14A:12-7; (1976). § § Fiduciary duty 293-A: NJ. Stat. N.M. protections are 53-16-16; II.E, § N.Y. Bus. discussed in Part Corp. Law Stat. infra. 1104-a; 60.661; § § 15 Pa. Stat. Or.Rev.Stat. ' 1981; 7-1.2-1314; § § R.I. Gen. Buddy Rupe 16. The father of Laws and Paula Den- 33-14-300; § S.D. Codified S.C.Code Laws family" nard established the trust to benefit his 47-1A-1430; 48-24-301; wife, Tenn.Code Utah Dennard), (Büddy his two children 16-10a-1430; 11A, *37 § Code time, Vt. Stat. tit. and Dennard's three At the children. 14.30; 13.1-747; § § Va.Code Wash. Rev.Code Buddy adopted had one child. The father did 14.300; 31D-14-Í430; § § 23B. W. VaUode voting adopted not wish to leave to an shares 180.1430; Wyo. § § Wis. Stat. 17-16- Stat. Buddy incapable child and believed to be having Accordingly, family children. the provided Buddy’s, trust inheritance of 10.06.628; §
13. Alaska Corp.Code Stat. Cal. RIC dividends would revert to Dennard and 1800; 302A.751; § § N.D. Cent. Minn.Stat. Buddy's her three children on death. 10-19.1-115. Code voting 17. Almost all of RIC’s shares were 55-14-30(2)(ii) (au- 14. See N.C. Gen.Stat. trusts, by including owned the of the 18% thorizing liquidation "reasonably necessary if voting Rupe shares attributable to and her protection rights for the or interests of reference, opinion son. For ease of will (cid:127) shareholder”). complaining the refer to the beneficial interest owners of the possible. trust when impose special fiduciary Several states also majority closely duties on family Barth, 18. In accordance with the terms of the corporations. held v. Barth trust, 16, (Ind.1995); supra Buddy's see note RIC divi- Crosby N.E.2d n. 6 $50,000 Beam, per year dends of from his shares 47 Ohio St.3d 548 N.E.2d (1989); family trust reverted to Dennard and her Springside Nursing Wilkes v. Home, Inc., 370 Mass. 353 N.E.2d children. death, Buddy’s prices After Ritchie offered to the per-share paid previous RIC to if Rupe minority to board she would shareholders. appoint RIC’s to not sue agree another stockholder offer, Rupe Unsatisfied with the re- RIC, Rupe ac- included trust. tained investment banker Stasen George her cepted. Subsequently, when home parties. to market her stock to third facing and she encoun- was foreclosure met, Dennard, they of her When several a tax asked if problem, Rupe tered RIC children, and Ritchie greeted Stasen “a purchase her shares. Ritchie re- would fashion,” very hostile and Ritchie refused to sponded prefer delay that RIC would request poten- to any Stasen’s meet with any purchase offer to her because shares third-party buyers. required tial They of its attempting one subsidiaries was to Rupe any potential execute buyer to financing. obtain new confidentiality agreements that were Rupe’s subject negotiation Lutes later offered to redeem to granted million, discretion replied approve disap- shares for that RIC sole Rupe $1 prove requested disclosure of million offer was “absurd” information. $1 designed advantage and was to take of her. According Stasen, potential buyers Dennard, Ritchie, then and Lutes elected laughed they at him because not be could daughter Dennard’s Gretchen to take Bud- expected “make a decision on invest- an seat on the dy’s board. ment this limited from information without closely meeting executives” of a held Ritchie later pur- offered for RIC to like RIC. Stasen explained Rupe’s approximately chase shares “[tjhere way was no I (or share) could ever sell $5,987 million per be $1.7 [bjecause ... anything there wasn’t seven-year over a paid period. making enough information in the package and offer, Ritchie warned that RIC would everybody wanted to be able to Lee meet be the stock. purchaser of her Rit- Ritchie and talk to the executives chie admitted at trial this value was calcu- companies.” Importantly admit- Dennard using lated the book value of RIC’s share- ted that she disagreed at trial with Rit- equity, holder and Ritchie and Lutes both potential chie’s refusal to meet with third- conceded that book value was not neces- party buyers, she would want to meet sarily representative of market value.19 president of a RIC’s calculation also deducted 50% of the investing, before of Rit- request Stasen’s value major book of one of its subsidiar- reasonable, chie refusing was such a ies,20 and further reduced value of request “oppressive be would to a Rupe’s stock separately 46.3%.21Ritchie shareholder.” informed Dennard on the that based same *38 $5,987 he valued Rupe’s per date shares at Dennard, Lutes, Ritchie, Rupe sued and share, Dennard’s a possessed RIC, shares book claiming shareholder oppression and $7,032 value of per gift share for tax pur- fiduciary breach of duty. Rupe sought a And poses. purchase or, these offers to buyout court-ordered of her al- shares Rupe’s markedly shares were lower than ternatively, appointment of receiver a example, For building began 19. RIC listed an office before the date on which RIC assessed sale $1.8 for million but established its Rupe’s value of book shares. $124,000 depreciation. book value at due to particular used this 21.RIC discount when subsidiary RIC Hutton Communications years. buying previous certain back stock in crisis, in a was financial Hutton’s but chief financial officer its testified that turnaround liquidate Among things, receivership to RIC. other is only remedy for oppres- (1) eight-day after an trial that: sion is jury necessarily found flawed—which affects Dennard, Ritchie, Lutes, the soundness of the engaged remaining and RIC Court’s (2) conduct; holdings. in to RIC failed inspect
allow and relevant Rupe copy The oppression shareholder statute not (3) records; per- and Dennard paid books only addresses but also prefers legal lesser from expenses corporate sonal RIC’s and equitable remedies than receiver- (4) funds; Dennard, Ritchie, and Lutes ship extinguish does not them. Be- —it Rupe position offered a on the if she board remedies, cause courts may impose lesser agree would to not sue shareholder of the long-standing definition of oppression (5) RIC; Dennard, Ritchie, and Lutes en- that has existed at common law in Texas in gaged oppressive conduct in their re- (to and a jurisdictions host other demption Rupe offers and treatment of the Legislature acquiesced) has ap- should regard inspection and copying Further, ply. judgment business rule is (6) records; Dennard, Ritchie, fundamentally incongruent "with the con- fiduciary and Lutes breached their duties cept minority oppression shareholder (7) Rupe; the fair value of Rupe’s (such because that oppression as buying shares was million.22 The trial court $7.3 bargain price) shares for a typi- judgment entered of Rupe favor cally corporation. benefits the And the Dennard, Ritchie, ordered and Lutes to oppression contemplates statute use of Rupe’s cause RIC to redeem shares for lesser remedies in situations op- where appeals agreed million. The court of $7.3 pression exists but does not harm the cor- that the conduct amounted to shareholder poration indicating the business —further oppression stock was the judgment rule should not apply. Neither appropriate remedy most but remanded does judgment the business rule have a for a redetermination of the stock’s value place minority shareholder claims for in light marketability of the lack of fiduciary duty. breach of I address each 275, 299, control. 339 point in turn.
II. Discussion Remedy A. today The Court holds that At because the heart of case the pre- is oppression statute ex- version of the oppression codified Texas pressly statute, remedy addresses the of receiver- former provi- article 7.05. That ship, no remedy other is sion requires seeking a shareholder a re- available. And because the of re- habilitative receivership to establish that harsh, ceivership comparably the Court the directors’ “illegal, oppressive, acts are imposes stringent 30, 1955, definition of oppres- or fraudulent.” Act of Mar. 54th by R.S., sion incorporating judg- 7.05(A)(1), the business Leg., ch. art. 1955 Tex. 239, 290-91, ment rule. The logic applying Court’s Gen. Laws amended Act of 3, 1961, R.S., 169, 1, the business rule in May Leg., this context 57th ch. (hereinafter presumably apply minority would also 1961 Tex. Gen. Laws 7.05”). fiduciary shareholder claims for breach of Additionally, “former art. a court *39 (1) duty. But the initial holding may only appoint Court’s a receiver: when the 30, appeals $1.7 22. RIC’s million offer was calculated uti- 2006. The court of affirmed June 30, date, lizing jury's a valuation date of June 2003. The the valuation which is at issue not jury Rupe’s assessed the appeal. value of shares as of in this 898 necessary jurisdictions it “to conserve the Other oppres-
court deems
similar
uniformly interpreted
sion statutes have
assets and business of the
and
them
allowing
as
other lesser remedies.
interest,”
damage
parties
to avoid
The Texas
statute
oppression
has its roots
(2)
of law
requirements
and
if “all other
Corporation
the Illinois Business
Act of
with” and “all other
complied
are
remedies
1933,23
which formed
basis for the
equity,
either at law or in
includ-
available
Corporation
Model Business
Act.24Courts
a
ing
appointment
spe-
receiver for
oppression
states with
statutes similar
cific
of the
are deter-
corporation,
assets
have
eight
legal
ours
discussed
and
by
inadequate.”
mined
the court
to be
equitable
remedies less drastic than
re-
short,
Former
a court
art. 7.05.
(1)
habilitative receivership:
appointment
(1)
appoint a
receiver when:
directors
agent
periodically report
of a fiscal
(2)
conduct;
engage
oppressive
such
(2)
court;
jurisdiction
by
retention
(8)
corporation;
conduct harms the
(3)
court;
accounting
allegedly
an
legal
equitable
lesser
remedies will not
(4)
funds;
misappropriated
injunction
an
suffice.
(such
oppressive
reducing
for
conduct
(5)
bonuses);
excessive salaries or
order-
plain
But the
language
of the
(6)
(7)
dividend;
ing a
ordering
buyout;
prefers
statute
other remedies —it
does
permitting minority shareholders to pur-
extinguish them. Former article
pro-
7.05
(8)
stock;
chase additional
awarding
receivership only
vides for
if “all other
damages
by oppressive
caused
conduct.
remedies available either at
or in equi-
law
See, e.g., Baker v.
Body
Commercial
ty ...
are determined
the court to be Builders, Inc.,
614,
387,
264 Or.
507 P.2d
inadequate.” Former art. 7.05. If no oth-
(1973);
Co.,
Fix v. Fix Material
er remedies are available under the statute
Inc.,
351,
(Mo.Ct.App.
357 n. 3
law,
holds,
or common
as the Court
1976).
Ironically,
the courts that have
oppression statute would have no need to
recognized these remedies
attribute
express preference
for their use. Such a
creation of two of them (continuing the ex-
holding violates our fundamental canon of
jurisdiction
ercise of
and ordering a divi-
any
construction to not
statutory
render
dend)
very
though
to this
Court-even
language meaningless.
See Columbia
extinguishes
today.
Court
them
See Bak-
Colinas,
Hogue,
Med. Ctr.
Las
Inc. v.
er,
(citing
ute or superfluous.”). And in Several courts with statutes similar to so, doing very pur- the Court defeats the specifically ours have pro- addressed the pose Legislature’s carefully chosen priety of a as a oppres- words. Unsurprisingly, sion25 the seminal Texas Davis, 277, (1977) 23. Cent. Corp., Standard Ins. Co. v. 278 Or. 564 P.2d Life (1957) ("The ("[T]his I11.2d 141 N.E.2d appropriate is an cause for relief in concept ground conduct as a requirement majority the form of a that [the equity appears dissolution of a in act."). purchase plaintiffs’ stock at a shareholder] for the first time in the 1933 price.”). Oregon fair has since amended its expressly buyouts statute to allow and other Murdock, supra note at 455. remedies,- noting that the listed remedies legal "shall not be exclusive of other Sylvester, 25. See Balvik v. 411 N.W.2d (N.D.1987); Delaney Georgia-Pacific
899 agreed adopted has likewise the view that a dissolution case on the issue statute does not authority recognizing provide remedy in the availabili- the exclusive this for ty oppression injured under our stat- shareholders and that of the courts preference equitable powers that for the use have expresses appropri- ute to fashion legal equitable of lesser remedies. ate remedies where the majority share- Sheerin, 375, 880 Davis v. fiduciary holders have breached their duty 1988, minority by writ to the (Tex.App.-Houston engaging oppressive [1st Dist.] denied) (“Texas courts, general under their conduct.”28 may [buyout] decree a in an
equity power, Commentators are in accord with the case_”). appropriate ap- Texas courts of host jurisdictions recognize that courts peals agreed.26 have And several courts in retain authority implement lesser jurisdictions oppression other whose stat- legal equitable remedies for share- remedy utes address no other than disso- oppression. holder As one commentator buyouts appropri- lution have found to be observed, oppression has because most oppression.27 ate remedies for statutes are based on the Model Business Act, relief, Importantly, Corporation I am aware of no state that partic- “alternative ularly buy-outs shareholders, their interpreted oppres- minority has is most, all, foreclosing statute as all remedies if jurisdic- sion available except receivership, leading as the Court does to- tions.”29 And scholars on share- Indeed, day. supreme other state courts holder have observed buy- for the outs “are the precedent remedy have cited Court’s most common have proposition corporation.”30 states dissension within a close “[m]ost justice. power This includes the to fashion an equitable may remedies the court im- (citations equitable quotation 60.952(2) (3). result.” pose.” Or.Rev.Stat. — Plastics, omitted)); Cop- marks Alaska Inc. v. 270, (Alaska 1980); pock, 621 P.2d 274-75 Stafford, 26. Christians v. No. 14-99- Son, Inc., McCauley McCauley v. 00038-CV, 1591000, (Tex. Tom & 104 2000 WL at *2 523, 232, 26, 2000, (N.M.Ct.App. N.M. 724 P.2d 243 App.-Houston Oct. no [14th Dist.] 1986); 269, Moffitt, Sauer v. 363 N.W.2d 274- ("[A] pet.) (mem.op.) eq- court order an (Iowa Ct.App;1984). 75 'buy-out' party’s uitable aof shares majority when acts of the Co., 241, party individually right 28. Masinter v. WEBCO 164 W.Va. sues both in his own 433, Patton, (1980) (citing corpo- S.E.2d 439-40 and as a shareholder on behalf of the 853); ration.”); Marine, Kelley, see also Rowen v. Le Inc. v. No. Advance Iowa, 639, 01-90-00645-CV, 114463, Mars Mut. Ins. Co. 282 N.W.2d 1991 WL at *2 (Iowa 1979) ("Wherever 27, 1991, a situation exists (Tex.App.-Houston Dist.] June [1st contrary principles equity to the writ) ("Courts is (mem.op.) power no have scope and which can be redressed within equitable remedy buy-out by order the of a action, judicial equity a court of will devise majority according situation, though to meet the no case.”); particular facts see also Balias given (quota- similar relief has been before.” Balias, Inc., 253, (Tex. Patton, omitted) (citing tion marks denied) App.-Houston writ [14th Dist.] 857)). S.W.2d at (affirming appointment trial court’s denial of of a receiver where shareholder failed to dem- Murdock, supra onstrate that other remedies would have been note at 464. inadequate). Moll, Douglas Oppression K. Shareholder Norman, Discounts, Dates,
27. See Maddox v.
206 Mont.
and “Fair Value”:
Of
(1983) ("[A]
sitting
Dastardly
Corporation, 54
P.2d
court
Deeds in the Close
(2004) (quoting
equity
empowered
ques-
to determine the
Duke L.J.
309 n. 56
1 F.
Hodge
Thompson,
complete
tions involved in a case and do
O’Neal & Robert B.
O’Neal’s
*41
ignoring
plain language
But
of the
the intent to harm the interests of one
great weight
statute and the
of authority
shareholders,
or more of the
in a man-
against
holding, today
its
Texas becomes
ner that does
comport
not
with the hon-
jurisdiction
the first
to hold that an op-
est exercise of their
judgment,
business
pression statute abolishes the remedies it
by doing
so create a serious risk of
expressly prefers.
harm to the corporation.
tion as a ‘drastic’ generally works ration itself. to the disadvantage minority sharehold- ers.” Because the Court concludes that The oppression Texas statute and the receivership is the remedy under the court of appeals cases construing it did not oppression' statute and that it is drastic or develop in a vacuum. The developing harsh, it adopts a novel and strict defini- body of law Texas beyond indicates tion of oppression: why the Court’s restrictive definition of
when
or managers]
[directors
abuse
oppression is unwarranted.
many
Like
their authority over the corporation
states,
other
Texas’s statute was similar to
(3d
at 1-97
compelling
such as
Corporations
buyout
dividends or a
Close
ed.2002));
("The
see also id. at 308-09
most
replaces
because it
the shareholders' chosen
remedy
oppression
common
buy-
for
...
managers
is a
managers.
with court-chosen
oppressed
903;
out of the
stockholdings.
Balias,
investor’s
S.W.3d at
cases.39 panoply legal eq- Because of the *43 can other expectations
But the reasonable
test
uitable remedies Texas and
courts
sharehold-
have
poor
recognized
oppression,
be a
fit when
these two
here,
er,
oppression
firmly
such as the one
inherited her
definitions of
are
estab-
indicating
had no in-
in
(perhaps
jurisprudence
shares
she
lished
Texas and national
all).40
flexibility
at
Due to
expectations
vestment
allow courts
craft
circumstances,
varying types
oppres-
such
New York courts de-
remedies for the
veloped
finding oppression
a test for
if the
sion.43 There is no valid basis to overturn
majority
jurisprudence,
conduct of the
becomes “burden-
this mountain of
leave Tex-
some,
wrongful.” Gimpel
step
jurisdictions
harsh and
v.
as out of
with other
Bolstein,
45,
ours,
125 Misc.2d
477 N.Y.S.2d whose statutes are similar
1014,1020 (N.Y.Sup.Ct.1984). High
corpora-
courts
chill investment
in
held
Maine, Mississippi, Oregon,
Is-
Rhode
tions.
See,
Katoli,
treicheme,
233,
365,
e.g.,
Md.App.
Kohannim v.
S.W.3d
440
165
885 A.2d
798,
2013,
denied);
Club,
(2005);
(Tex.App.-El
pet.
811
Paso
378
Colt v. Mt. Princeton Trout
Konkel,
18,
(Tex.
Inc.,
1115,
Boehringerv.
404 S.W.3d
25
(Colo.App.2003);
78 P.3d
1118
2013,
Morrow,
652369,
*5;
App.-Houston
pet.); Argo
[1st
no
Jorgensen
Dist.]
WL
at
2002
v.
Corp.
Shagrithaya,
Works, Inc.,
761,
Data Res.
v.
380 S.W.3d Water
218 Wis.2d
582
249,
2012,
filed);
(Tex.App.-Dallas
pet.
98,
265
(Wisc.Ct.App.1998);
N.W.2d
107
Whale
Trockman,
07-11-0364-CV,
re
No.
WL
Docter,
511,
2012
(Mo.Ct.
Art Co. v.
743 S.W.2d
514
554999,
21,
(Tex.App.-Amarillo
at *2
Feb.
App.1987).
2012,
Guerra,
pet.) (mem.op.);
no
Guerra v.
04-10-00271-CV,
3715051,
No.
WL
2011
at
811;
Kohannim,
440
at
S.W.3d
2011,
24,
(Tex.App.-San
Aug.
*6
Antonio
no
25;
Boehringer,
Shagrithaya,
404 S.W.3d at
Culver,
pet.) (mem.op.); Gibney v.
No. 13-06-
265; Trockman,
[T]he
recognizes
ple,
that decisions about such
the directors here offered at most $1.7
by majority-controlled
jury
matters
board million for shares the
valued at trial
part
minority
can be
of a
shareholder
million. If this value were the fair
$7.3
("interested
responds
judg-
ingless
parties”
44. The Court
that the business
and "all other
remedies”). Third,
congruent
portion
legal
equitable
ment rule is
with the
and
statute,
oppression
noting
gap
pro-
the statute leaves a
the
that it is "to
distortion of
under the common
property
of the
tection
law.
conserve the
and business
do-
entity
damage
mestic
and avoid
to interested
Grato,
parties.”
N.J.Super.
v.
272
for breach of fiduciary duty. 279 S.W.2d
Fiduciary Duty
E. Breach of
(“[W]e
at 853
find no evidence ...
that
Thus,
corporation]
damaged.”).
[the
was
if
oppression
Shareholder
was
only
not the
today
Court is correct
minority
cause of
in
proceeding.
action
Rupe
shareholders
only bring fiduciary
also sued for breach of fiduciary duty.
49. The Court
protection
observes that
in
oppressed minority
to the
share-
shareholders
closely
corporations
held
that elect to be close
holder.
corporations
fairly
do not have to
and ade-
quately represent
corpora-
the interests of the
51.The
Court mischaracterizes
Patton
905;
Orgs.Code
tion. 443 S.W.3d at
Tex. Bus.
standing
proposition
improper
for the
that an
remedy
21.552. But this offers no
for mi-
minority
refusal
declare dividends entitled
nority
corporations
shareholders
in
like RIC
directly
shareholders
to relief "either
corporation
that have not elected close
status.
corporation
through
a derivative action.”
Rodd Electrotype
867 Mass.
Finally,
the business
rule
*47
505,
(1975).
N.E.2d
515
apply
fiduciary duty
should not
to these
observed,
As the Fifth
has
recognized
Circuit
claims. When we
a claim for
“recognition
Patton,
of special
fiduciary
fiduciary duty
rules of
breach of
in
duty applicable
corporations
to close
has majority
harming
shareholder was
the mi-
Firm, P.C.,
544,
449,
Empresarial Cempresa
52. See Centro
S.A. v.
131 N.M.
40 P.3d
456-
Móvil,
C.V.,
269,
Godwin,
Am.
S.A.B. de
17 N.Y.3d
929
(N.M.Ct.App.2001); Lazenby
57
v.
40
3,
995,
(2011);
N.Y.S.2d
952 N.E.2d
1001
487,
489,
(1979).
N.C.App.
253 S.E.2d
492
Co.,
U.S.
Spring
Bank N.A. v. Cold
Granite
802
363,
(Minn.2011); McLaughlin
N.W.2d
381
Redmon,
237;
202 S.W.3d at
Wil-
Schenk,
146,
(Utah 2009);
220 P.3d
155
31;
lis,
Reliar,
118 S.W.3d at
Pabich v.
71
Barth,
(Ind.1995);
fiduciary duty; Ritchie, and Application F. fiduciary Lutes breached their duty; and (7) the Rupe’s fair value of shares was $7.3 Oppression million, not discounted for lack of marketa- Rupe prevailed at trial on her sharehold- bility or control. The trial court entered claims, oppression fiduciary duty er that compelled compelled and the trial court million $7.8 Rupe’s shares for million. $7-3 buyout. appeals The court of held there assessing Before whether sufficient evi- was sufficient evidence of op- verdict, (and supports dence one must as- pression therefore did not reach the sess whether the issues), proper. submission was fiduciary duty but million $7.3 In addition to submitting buyout failed to abroad-form account for the question oppression,54 on the trial court marketability shares’ lack of and control. jury asked the to resolve disputed facts. jury at 302. charge The de- This proper. equitable submission was If oppression fined as: (and remedies still exist the statute speci- burdensome, wrongful harsh and con- should), they fies the trial court must know duct, probity dealing a lack of and fair what conduct constitutes oppression in or- company the affairs of the to the preju- der to fashion the least harsh re- members, dice of some of its or a visible quested rectify oppression. For departure from the standards of fair example, majority if a shareholder either dealing, and a violation of play fair on refused to pay dividends or issued a bar- every shareholder who entrusts gain buyout offer jury simply and the an- money company her to a is entitled to “yes” swered to the broad-form question, rely. sitting equity the trial court would not addressed, previously As this definition is compel know whether to a dividend or a appropriate more here than the reasonable buyout. Because the statute . expectations Rupe definition because in- remedies, expressly prefers equitable I be- herited her shares and expec- thus had no lieve the trial court’s special submission of tations making when a decision to invest. *48 issues to the jury appropriate. here was Dennard, Ritchie, jury The found that Lutes, engaged and RIC all in oppressive Having determined the trial court’s sub- jury conduct. The affirmatively proper, also an- mission was I álso believe there is (1) swered special legally submissions that: Den- supporting sufficient evidence paid nard personal expenses findings oppression. from in- Rupe RIC Because (2) funds; Dennard, Ritchie, shares, corporate her herited is defined burdensome, harsh, Lutes offered Rupe position on the board or con- wrongful Specifically,’the jury you 54. Rupe Corpora- was asked: "Do Investment engaged oppres- find that the Defendants tion?" rights [Rupe] sive conduct as a
duct.55 There is evidence of the following becomes what appropriate. is conduct the jury oppressive: found to be Rupe primarily requested buyout (1) making inferior offers of million and $1 alternatively requested if dissolution (2) million; warning Rupe that RIC $1.7 buyout inadequate. was Dissolution is un- stock; would be the purchaser of her doubtedly harsher than buyout. See (3) refusing to meet prospective pur- with Robert A. Ragazzo, Toward a Delaware shares; (4) chasers of Rupe’s and Dennard Common Law Closely Held Corpora- paying personal expenses from tions, (1999) U.L.Q. Wash. funds.56 Regarding purchase, the offers to (“[The buyout] is less harsh than dissolu- Ritchie thought Rupe testified he was tion and often gives parties both they what entitled to a “fair offer.” And the $1.7 most.”). want But the statute does not million valuation reflected discounts be- allow for dissolution based oppression. on yond applied previous those redemp- Thus, Former art. 7.05. there is no need minority tions of Regarding shares. to compare the buyout harshness of a to a refusal to prospective meet with purchas- remedy Rupe requested.57 never ers, (1) Dennard admitted: disagreed she with Ritchie’s refusal to meet pro- with I agree Because with the ap- court of (2) spective purchasers; she would want to peals that it was error for the trial court to meet with the president of a closely held instruct the jury to not discount the value (8) investing; before the re- Rupe’s stock for its lack of marketability quest for Ritchie to meet prospective status, minority I judg- would affirm its (4) reasonable; purchasers was such a remanding ment for a redetermination of refusal would be “oppressive minority to a buyout. amount of the 339 S.W.3d at shareholder.” agreed Lutes also it 302. Appellate Under Rule of Procedure would be Rupe reasonable for expect 44.1(b), a new trial be ordered on a help RIC would her sell her stock separable part proceeding, of a sepa- but a possible,” “[t]o extent and that “[i]t rate trial on unliquidated damages is im- would have been possible” for Ritchie to Tex.R.App. proper liability if is contested. have met with potential purchasers. Ac- 44.1(b). Here, P. the amount of the buy- cordingly, there is some evidence to sup- equitable out is an remedy rather than a port jury’s findings oppression. measure of unliquidated damages, and a Remedy retrial on the buyout amount of the alone Having separable concluded there is legally suffi- without par- unfairness to the cient evidence of oppression, question ties.58 supra
55. See
accompanying
notes 40-42 and
rehabilitative receiver.
ap-
And the court of
peals
text.
actually
alleged
assessed the
harshness
and determined the trial court
Despite
having
never
employ-
been an RIC
light
did not abuse its discretion in
of RIC’s
ee, Dennard receives health insurance from
$152
$55
million net sales and
million in
RIC,
$2,500
month,
per
receives
and receives
assets.
III. Conclusion DELAY, Appellant Thomas Dale sum, agree proper I cannot that a oppression construction of the shareholder The Texas. STATE of extinguishes statute is that the statute very prefers. remedies it Uni- expressly No. PD-1465-13. formly, beyond courts in Texas have Court of Appeals Criminal Texas. held that remedies at less harsh law and available, equity are such as a court-or- Oct. buyout. dered the time-honored Under oppression, definitions of there is some majority
evidence that burdensome, harsh, engaged
here (1)
wrongful making conduct inferior (2) offers;
buyout warning Rupe that RIC stock;
would be the of her purchaser
(3) (4) information; withholding corporate
refusing prospective purchas- to meet with (5) shares; Rupe’s paying
ers of Den- personal
nard’s with expenses
funds. RIC’s chairman even admitted that
refusing prospective to meet purchas- oppressive.
ers was But because the valu-
ation of failed to Rupe’s shares account for control, marketability
their lack of or I
would affirm of the court of
appeals, which remanded the trial court
for a redetermination amount
buyout. judg- Because the Court renders
ment Rupe nothing take on her valid claim, I respectful-
ly dissent. control, here,
ciary duty ketability calculation still failed to account shares’ lack of for the mar-