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Shareholder Oppression in Texas: 5 Claims to Consider

Shareholder Oppression in Texas: 5 Claims to Consider
Hendershot, Cannon & Hisey, P.C.

If you’re in Texas and are considering a potential agreement as a minority shareholder, the need to consult a knowledgeable attorney cannot be understated, particularly in Texas’ current legal landscape. With the landmark 2014 Texas Supreme Court decision in Ritchie v. Rupe still quite fresh, a minority ownership position offers fewer available remedies than those investors with minority interests in Texas businesses previously enjoyed.

The severe restrictions imposed by Texas’ highest court in this case substantially altered how all courts across the state apply the oppression doctrine. In short, the ruling:

  • Rejected the common law cause of action for oppression;
  • Restricted ability of minority shareholders to prove claims with tests of “reasonable expectations” or “fair dealing” as defined by the majority’s “burdensome, harsh, or wrongful conduct,” which so often resulted in compulsory buy-outs and fair prices;
  • Adopted requirements that redefined abuse of authority to include an intent harm;
  • Held that the only remedy for oppression under the Texas Business Organizations Code 11.404 was rehabilitative receivership

Although the Court severely limited the reach of the oppression doctrine, all is not lost in the post-Ritchie v. Rupe world – minority owners aggrieved by the majority’s conduct still have rights, as well as options for bringing individual claims to resolve their disputes or derivative actions on behalf of the company. The Court noted that in its ruling, citing “the adequacy of remedies that already exist.”

Strategies for Bringing Shareholder Oppression Actions in Texas

As Houston-based business law and litigation attorneys who have been serving Texas for over 26 years, our legal team at Hendershot, Cannon & Hisey, P.C. remembers the Texas of times gone by, at least in terms shareholder oppression and Ritchie v. Rupe. In the years since that ruling, we have refined the strategies we use to assist minority shareholders in closely held companies as they battle back to protect their rights and interests, emerge from squeeze-outs and free-outs, fight corporate misconduct, and – ultimately bring actions which enforce legal obligations they’re owed and address personal losses.

Those strategies are tailored to each and every case, and to the unique issues and goals of our clients. However, there are still several important claims to consider. These include:

  1. Breach of fiduciary duty – Characterizing the majority’s actions as a breach of fiduciary duty owed to the business may allow owners with minority interests to:
    • Seek damages or equitable remedies based on the majority’s improper benefit (i.e. a disgorgement of profits, court-ordered dividends, injunctive relief, etc.); and
    • Recover directly for the breach of fiduciary duty to the entity by relying on derivative lawsuits.
  2. Prove an informal fiduciary duty was owed to the minority shareholder by the majority on the basis of a special, pre-existing relationship of trust and confidence, which may allow individual breach of fiduciary claims and legal or equitable remedy such as a buyout.
  3. Establish the majority’s conduct as grounds for receivership to preserve and manage the company’s affairs, or court-ordered “winding up” to termination company obligations prior to liquidation.
  4. Establish the majority’s conduct constituted a contractual breach between the minority shareholder and the company or the majority, which is one of many reasons to protect yourself proactively by entering into a partner or shareholder agreement.
  5. Establish the majority’s conduct as fraudulent, which in some cases may provide options to pursue claims for inducement, fraudulent transfer or transactions involving stock, or state or federal securities fraud.

Proactive and Responsive Representation for Partners & Shareholders in Texas

Whether you’re looking to proactively protect your rights and interests at the outset of any arrangement through carefully crafted and enforceable shareholders agreements, buy-sell agreements, governing documents, and other agreements, or need responsive representation to explore your available options following oppressive conduct by the majority, you can be confident about placing your trust in our Texas trial attorneys at Hendershot, Cannon & Hisey, P.C. As recognized industry leaders in business law, our team leverages over 150 years of collective experience to provide the comprehensive, customized representation you need – in the post-Ritchie world and whatever may come.

To speak with an attorney about any potential matter in Houston or the state of Texas, call (713) 909-7323 or contact us online.

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