Law School Case Brief
Ritchie v. Rupe - 443 S.W.3d 856 (Tex. 2014)
The term "oppressive" in former Tex. Bus. Corp. Act Ann. art. 7.05 (recodified as Tex. Bus. Orgs. Code Ann. § 11.404) occurs within a statute that authorizes courts to appoint a receiver to take over a corporation's governance, displacing those who are otherwise legally empowered to manage the corporation. The Legislature has adopted a single standard for rehabilitative receivership based on oppressive actions that applies to all corporations (and, under the current statute, any domestic entity) without regard to the number of its shareholders or the marketability of its shares. Nothing in the language suggests that this statute provides a special right or remedy unique to minority shareholders in closely held corporations. The statute thus must be construed in a manner that is meaningful and workable not only for the peculiarities of minority shareholders in a closely held corporation, but also for shareholders and owners of other business entities.
Basing her claims on Tex. Bus. Corp. Act Ann. art. 7.05 (recodified as Tex. Bus. Orgs. Code Ann. § 11.404), a minority shareholder in a closely held corporation alleged that the corporation's other shareholders, who were also on the board of directors, engaged in "oppressive" actions and breached fiduciary duties by, among other things, refusing to buy her shares for fair value or meet with prospective outside buyers. The directors essentially admitted to this conduct but insisted that they were simply doing what was best for the corporation. For the most part, the jury sided with the minority shareholder, and the trial court ordered the corporation to buy out her shares for $7.3 million. The court of appeals agreed that the directors' refusal to meet with prospective purchasers was "oppressive" and upheld the buy-out order.
Under Tex. Bus. Corp. Act Ann. art. 7.05 (recodified as Tex. Bus. Orgs. Code Ann. § 11.404), was the directors’ refusal to meet with prospective purchasers “oppressive,” thereby justifying the buy-out order?
The Court held that the corporate directors did not engage in oppressive actions under former Tex. Bus. Corp. Act Ann. art. 7.05 (recodified as Tex. Bus. Orgs. Code Ann. § 11.404) by refusing to meet with potential buyers of a minority shareholder's stock, which they had no duty to do, because the evidence did not show that they intended harm to the minority shareholder or created a serious risk of harm to the corporation. Moreover, the aforementioned statute did not authorize a buy-out remedy but provided only for a rehabilitative receivership, which was not requested. The Court averred that because extensive statutory, contractual, and common-law protections already were available, no common-law cause of action for minority shareholder oppression in closely held corporations could be recognized.
Access the full text case
Not a Lexis+ subscriber? Try it out for free.
Be Sure You're Prepared for Class