Texas Supreme Court: No Common Law Shareholder Oppression
The Texas Supreme Court has declined to recognize a common-law cause of action for minority shareholder impression. The decision, issued on Friday, June 20, has been widely anticipated and could have a significant impact on shareholder-related business law and business litigation matters in Texas.
In Ritchie v. Rupe, a minority shareholder in a closely held corporation accused the other shareholders of engaging in oppressive actions for refusing to buy her shares for fair value or meet with prospective buyers. A jury had sided with the minority shareholder, and as a remedy, the trial court ordered the corporation to buy the minority shareholder's shares for $7.3 million. The Court of Appeals for the Fifth District upheld the decision.
But in a 6-3 decision, the Supreme Court reversed course. It found that the majority shareholders had not engaged in oppressive conduct and that a court-ordered buyout was not authorized by state law. It also went one step further. The court declined to recognize a common-law cause of action for minority shareholder oppression in Texas.
As we discussed in "Does Texas Recognize a Common Law Shareholder Oppression Claim?" the Texas Supreme court has addressed similar issues before, but not since 1955. State statutes do deal with shareholder oppression, and in 1988, the First Court of Appeals that Texas courts can use equitable powers to recognize shareholder oppression outside of the statute as a cause of action under the common law. The latest ruling addresses uncertainty in the law about a common law cause of action for minority shareholder oppression.
The ruling, while a significant change to shareholder oppression law in Texas, does not end the underlying case. The trial court did not address an argument that the shareholders, in this case, had violated an informal fiduciary duty. It remanded the case to the trial court for proceedings on that claim.