The Texas Supreme Court’s recent ruling in Ritchie v. Rupe that the state does not have a common law claim for shareholder oppression is regarded as a blow to the rights of minority shareholders in closely held corporations. The court ruling also found that a state statute dealing with shareholder oppression does not authorize courts to force – which may be a preferred option for shareholders who are subject to oppressive conduct.
But as court’s opinion notes, even without an oppression claim, shareholders may still have options to hold controlling shareholders for oppressive behavior. The same actions that result in oppression claims can also be the basis for other causes of action.
Many claims for shareholder oppression have also included claims for:
- An accounting
- Breach of fiduciary duty
- Breach of contract
- Fraud and constructive fraud
- Fraudulent transfer
- Unjust enrichment
- Quantum meruit
In fact, many reasons for shareholder oppression claims may have an alternative remedy. Shareholders have a statutory right to an accounting, which could remedy the denial of access to corporate books. Other common reasons for shareholder oppression claims involve actions by controlling shareholders who have fiduciary duties or duties of loyalty. Withholding or refusing to declare dividends, misapplying corporate funds and manipulating stock values could result in a claim for breach of fiduciary duty, the court said.
Despite the existence of other potential remedies, the Supreme Court’s ruling did remove a legal option that minority shareholders have relied on in Texas. Shareholders may be able to prevent disputes – or provide clear remedies when they arise – by making sure they have effective shareholder agreements and other governing documents.