The Texas Supreme Court’s 2014 decision in Ritchie v. Rupe completely changed the landscape of Texas laws regarding minority shareholder rights by rejecting the shareholder oppression cause of action. Prior to that ruling, minority shareholders could bring a claim that would prove oppressive conduct by demonstrating their “reasonable expectations” had been substantially defeated, or the majority shareholder’s actions amounted to “burdensome, harsh, or wrongful conduct.” Successful shareholder oppression claims nearly always resulted in a compulsory buy-out remedy that compelled the majority shareholder to pay a fair price of the minority’s stock ownership.
What this Supreme Court ruling means to shareholders is - a minority shareholder who wants a degree of control over future exit opportunities should negotiate those opportunities in a shareholders agreement. Because privately held companies are often forged through relationships between friends or families, shareholders often overlook the need to create shareholder agreements that can protect them when things don’t go as planned. As such, minority shareholders often become susceptible to "squeeze-outs" and "freeze-outs" which are tactics majority owners commonly use to diminish the value of a minority shareholder’s interest in the business.
Without a Shareholder Oppression Claim - What options do Minority Shareholders have then after Richie V. Rupe?
Be that as it may, even without an option for an oppression claim shareholder's may still be held accountable for oppressive behavior through alternative remedies. The Court's opinion noted 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.
Similarconduct that contributed to oppression claims can also be the basis for other causes of action including:
- An accounting
- Breach of fiduciary duty
- Breach of contract
- Fraud and constructive fraud
- Fraudulent transfer
- Unjust enrichment
- Quantum meruit
Our Law Firm Fights Shareholder Oppression
As recognized industry leaders in business law with over 200 years of combined experience, our attorneys at Hendershot, Cannon, Martin & Hisey, P.C. provide the comprehensive counsel shareholders need to protect their interests. This includes assistance when forming a corporation and developing shareholder agreements and other governing documents to prevent disputes and provide remedies when they arise, as well as exploring creative avenues when minority shareholders have borne the brunt of oppressive conduct from controlling shareholders.
If you have questions regarding your particular situation and how our legal team can help, call (713) 909-7323 to speak with a member of our legal team.
Editor’s Note: On August 24, 2017, we updated and expanded the content on this blog for an enhanced reader experience.