# IN THE SUPREME COURT O F TEX AS

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. R IT C H IE 

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# . , P E T IT IO N E R 

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# A N N 

# C A L D W E L L 

# R U P E 

# , A S 

# T R U S T E E F O R T H E 

# D A L L A S 

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# , I I I 1 9 9 5

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# T R U S T 

# , R E S P O N D E N T

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## O N 

## P E T I T I O N F O R 

## R E V I E W F R O M T H E 

## C O U R T O F 

## A P P E A L S F O R T H E 

## F I F T H 

## D I S T R I C T O F 

## T E X A S



### 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4



## J U S T I C E 

## G U Z M A N 

## , joined by joined by J U S T I C E 

## W I L L E T T 

## and J U S T I C E 

## B R O W N 

## , dissenting. Thirty -seve n states, including Texas, have statutes allowing a court to appoint some form of

rec eiver over a closely held corpor ation for share holder oppression. Today , Texas become s the first
of these jurisdictions with a statute that unequivoca lly pref ers lesser reme dies to eff

ectively prec lude
those reme dies—despite overw helming author i t y o b s erving that, to the contra ry , many if not all jurisdictions allow these lesser reme dies. But even jurisdictio n s wi t h statutes that are silent on 1


## lesser reme dies have interpre ted their statutes to impliedly allow them. This depar ture from the plain lang uag e of the statute neg ates protec tions the law and Texas c ourts of appea ls have long aff orded to minority

share holders. 2

S e e i n f r a P a r t I I

. A

. 1

S e e i n f r a P a r t I I

. A

. 2

## Historically , leg islatures have rec og nized that m i n ority share holders are particula rly
vulnera ble to abuse by majority share holders and are thus entitled to signific ant protec tions. Wit hout protec tion, shareholder

oppression ca

n signific antly

devalue or destroy the m inority share holder’s
investment. As one col l o q u i al an ecdote decla res, “‘[t] here are 51 share s
. . . that are worth 3 

## $250,000. There are 49 share s that are not wo rt h a ___.’” Over half a centur y ag o, when Texas 4



## enact ed its share holder oppression statute, we war ned that “[a] minority stock interest is far from
‘cha ng e left on the counter .’” I g noring our presc ient observa tion, the Court today larg ely rele g ates 5 

## minority stock interests to the “cha ng e left on the counter ” we fea red they might become

. This
radic al depar

ture from settled prec edents and expectations is p ri m ar i l y the result of the Court
eff ectively rew riting the statute to abolish the lesser re m ed i es the statute pref ers as well as the
Court’s strict definition of oppression that will rende r any rec overy highly unlikely

. The Court today
define s oppression as a decision that harms the corpor ation and was not deter mined in the honest
exercise of business judgme nt. But ty pical acts of minority share holder oppression (re fusing to pay dividends, pay ing majority share holders outside the dividend proce ss, and making fire- sale buy out

T h e i n v e s t m e n t o f m i n o r i t y s h a r e h o l d e r s i n c l o s e l y h e l d c o r p o r a t i o n s i s c r u c i a l b e c a u s e o f t h e k e y r o l e c l o s e l y 3 h e l d c o r p o r a t i o n s p l a y i n t h e A m e r i c a n e c o n o m y . A c c o r d i n g t o F o r b e s , A m e r i c a ’ s 2 2 4 l a r g e s t p r i v a t e l y h e l d c o m p a n i e s a l o n e a c c o u n t e d f

o r $ 1

. 6 1 t r i l l i o n i n r e v e n u e a n d o v e r 4

. 5 m i l l i o n j o b s i n 2 0 1 3

. A n d r e a M u r p h y & S c o t t D e C a r l o , A m e r i c a ’ s L a r

g e s t P r i v a t e C o m p a n i e s 2 0 1 3 , F O R B E S ( D e c
. 1 8 , 2 0 1 3 ) , h t t p : / / w w w . f o r b e s
. c o m / s i t e s / a n d r e a m u r p h y / 2 0 1 3 / 1 2 / 1 8 / a m e r i c a s - l a r g e s t

- p r i v a t e - c o m p a n i e s - 2 0 1 3 /

. C l o s e l y h e l d c o r p o r a t i o n s a r e a s i g n i f i c a n t c a t e g o r y o f

p r i v a t e c o m p a n i e s , w h i c h i n c l u d e s u c h o r g a n i z a t i o n s a s p a r t n e r s h i p s a n d s o l e p r o p r i e t o r s h i p s
.

C h a r l e s W

. M u r d o c k , T h e E v o l u t i o n o

f E f f e c t i v e R e m e d i e s f

o r M i n o r i t

y S h a r e h o l d e r s a n d I t s I m p a c t U p o n 4 V a l u a t i o n o

f M i n o r i t

y S h a r e s , 6 5 N O T R E D A M E L

. R E V
. 4 2 5 , 4 2 5 ( 1 9 9 0 ) ( q u o t i n g H u m p h r y s v
. W i n o u s C o
. , 1 3 3 N

. E

. 2 d 7 8 0 , 7 8 3 ( O h i o 1 9 5 6 ) )

.

P a t t o n v
. N i c h o l a s , 2 7 9 S

. W

. 2 d 8 4 8 , 8 5 4 ( T e x . 1 9 5 5 )

. 5


### 2

## offe rs) usually opera te to benef it the corpor ation and hardly ever harm it. The ultimate eff ect of this 6 

## holding is to neg ate the very foundations of protec tion the leg isla t u re s and U.S. courts have long
aff orded to minority

share holders in closely

held cor porations.
Her e, the minority share holder preva iled on her oppression and fiduciar y duty claims at trial by prese nting le g a ll y s u f

f ic ie n t e v id ence that the majority share holders and corpor ation made barg ain
offe rs to buy out her stock, war ned her that it would be the o n l y p u rcha ser of her stock, withheld
corpor ate information from her, ref used to meet with prospec tive purcha sers of her share s, and paid
persona l expenses of a majority share holder with cor p o rate funds. I ndeed, the chair man of the
corpor ation’s board of direc tors admitted at trial that ref using to meet with prospec tive purcha sers

was oppressive. Be cause the Court exti ng uishes meaning ful protec tions for minority share holders
and rende rs a take nothing judgme nt on a valid share holder oppression claim, I respe ctfully dissent. I. Background
T h e structure of closely held corpor ations situates minor it y s h a r e h o ld e r s in p o s it io n s u

n iq u e ly
vulnera b l e t o abuse. Hollis v. Hill , 232 F.3d 460, 467 (5th Cir. 2000). Ty pically , a board of
direc tors elec ted by a majority of the voting interest of the share holders overse es the corpor ation , which opera tes throug h office rs that repor t to the board. T E X


## . B U S


## . O R G S


## . C O D E 

## § § 3.103(b), 21.401(a)

. Gene rally , these mi norit y share holders have no rig ht to participa te i n the m anag ement of the corpor ation, and the direc tors often elec t themselves as o ff i ce rs o f the corpor ation. As an

S e e , e
. g
. , A m i c u s L e t t e r o f R o b e r t A

. R a g a z z o , M a r c
. I

. S t e i n b e r g , A l a n R

. B r o m b e r g , J o s e p h K

. L e a h y , B r u c e 6 A

. M c G o v e r n , G a r y S

. R o s i n , & D a v i d S i m o n S o k o l o w a t 4

– 5 , R i t c h i e v
. R u p e , N o
. 1 1

- 0 4 4 7 , S u p r e m e C o u r t o f T e x a s , J a n
. 1 5 , 2 0 1 3 ; P a t t o n , 2 7 9 S

. W

. 2 d a t 8 5 3 ( f i n d i n g n o e v i d e n c e o f d a m a g e t o a c o r p o r a t i o n w h e n m a j o r i t y s h a r e h o l d e r r e f u s e d t o p a y d i v i d e n d s t o m i n o r i t y s h a r e h o l d e r )

. 

### 3

## amicus brief submitt ed by sever al profe ssors and fac ulty of T ex as law schools demonstrates, the 7 

## majority share holders have the power to fre eze out the minority share holders by deny ing them employ ment and failing to pay dividends. The majority share holders can mag nify the economic 8 

## impact of the fre eze out scheme by using corpor ate funds to persona lly b en ef i t t hemselves and deny ing the minority share holders acc ess to corpor ate information—conduc t commonly ref err ed to

as a “fr eeze out.” And the majority share holders can ultimately offe r to rede em the minority 9


## share holder’s stock a

t a bar g ain price —often re fer red to a s a “sque eze out.” 1 0


## Unlike minority share holders in pa rtnerships or public corpor ations, minority share holders
in closely held corpor ations are uniquely subject to this oppressive conduct beca use of their inability

to fre ely exit the venture

. I n a partne rship, a minority share holder has a statutory rig ht to withdraw
from the partne rship and rec eive either her share of the proce eds if the rema ining partne rs terminate
the partne rship or a fair value buy out of her share s if the rema ining partne rs continue the partne rship.
T E X


## . B U S


## . O R G S


## . C O D E 

## §§ 152.501(b)( 1), 152.601(1). L ikewise, dissatisfied minority share holders
in a publi cly held corpor ation may sell their share s on the open marke t. But there is no statutory rig ht for a minority share holder to exit the corpor ation and rec eive a return of her investment. And
fre qu en t l y , t h e only buy ers for minority share s of a closely held corpor ation are the rema ining

R a g a z z o , s u

p r a n o t e 6

. 7

I d

. a t 4

– 5

. 8

I d

. 9

I d

. a t 5

. 10


### 4

## share holders—who might be eng ag ing in the oppressive conduct from which they could ultimately

profit.
I dea lly , minority share holders would rea ch buy -sell or share holder ag ree ments with the majority share holders befor e purcha sing minority share s. When disputes arise, share holders could

rea dily turn to their agr eeme nts as t he basis for their rig hts without needing to resor t to t h e law to deter mine the duties owed. But as one commentator has observe d, “[f]rom a rela tional standpoint, people enter closely -held businesses in the same manner as they enter marria g e: optimis tically and ill-prepar ed.” This case exposes the heig htened vulnera bility to oppression minority share holders 1 1


## fac e: the minority share holder inherited her share s from her husband, who acquir ed his sha res as a member of

a fa mily owned business that for esawno need f or shar eholder

ag ree ments. Giving due consider a

ti o n to th e p li g h t o f mi n o r it y share holders, thirty -one states have statutes that permit even the harsh reme dy of allowing courts to appoint a rec eiver to liquidate a corpor ation
based on share holder oppression. Another four states allow liquidation for “per sistent unfairne ss” 1 2

M u r d o c k , s u

p r a n o t e 4 , a t 4 2 6 ; s e e a l s o D o u g l a s K

. M o l l , M i n o r i t y O p p r e s s i o n & t h e L i m i t e d L i a b i l i t y 11 C o m p a n y : L e a r n i n g (

o r N o t ) f r o m C l o s e C o r

p o r a t i o n H i s t o r

y , 4 0 W A K E F O R E S T L

. R E V
. 8 8 3 , 9 1 2 ( 2 0 0 5 ) ( “ B e c a u s e c l o s e c o r p o r a t i o n o w n e r s a r e f r e q u e n t l y l i n k e d b y f

a m i l y o r o t h e r p e r s o n a l r e l a t i o n s h i p s , t h e r e i s o f t e n a n i n i t i a l
a t m o s p h e r e o f m u t u a l t r u s t t h a t d i m i n i s h e s t h e s e n s e t h a t c o n t r a c t u a l p r o t e c t i o n i s n e e d e d

. C o m m e n t a t o r s h a v e a l s o a r g u e d t h a t c l o s e c o r p o r a t i o n o w n e r s a r e o f t e n u n s o p h i s t i c a t e d i n b u s i n e s s a n d l e g a l m a t t e r s s u c h t h a t t h e n e e d f o r c o n t r a c t u a l p r o t e c t i o n i s r a r e l y r e c o g n i z e d

. ” ( i n t e r n a l c i t a t i o n s o m i t t e d ) )

.

A L A
. C O D E § 1 0

- 2 A

- 1 4 3 0 ; A R K
. C O D E § 4

- 2 7

- 1 4 3 0 ; C O L O
. R E V
. S T A T
. § 7

- 1 1 4

- 3 0 1 ; C O N N
. G E N
. S T A T
. § 3 3

- 12 8 9 6 ; G A
. C O D E § 1 4

- 2

- 9 4 0 ; I D A H O C O D E § 3 0

- 1

- 1 4 3 0 ; 8 0 5 I L L
. C O M P
. S T A T
. 5 / 1 2

. 5 5 ; I O W A C O D E § 4 9 0

. 1 4 3 0 ; M D
. C O D E , C O R P S
. & A S S ’ N S § 3

- 4 1 3 ; M IC H
. C O M P
. L A W S § 4 5 0

. 1 4 8 9 ; M IS S
. C O D E § 7 9

- 4

- 1 4

. 3 0 ; M O
. A N N
. S T A T
. § 3 5 1

. 4 9 4 ; M O N T
. C O D E § 3 5

- 1

- 9 3 8 ; N E B
. R E V
. S T A T
. § 2 1

- 2 9 8 5 ; N

. H

. R E V
. S T A T
. § 2 9 3

- A : 1 4

. 3 0 ; N

. J

. S T A T
. § 1 4 A : 1 2

- 7 ; N

. M

. S T A T
. § 5 3

- 1 6

- 1 6 ; N

. Y

. B U S
. C O R P
. L A W § 1 1 0 4

- a ; O R
. R E V
. S T A T
. § 6 0

. 6 6 1 ; 1 5 P A
. S T A T
. § 1 9 8 1 ; R

. I

. G E N
. L A W S § 7

- 1

. 2

- 1 3 1 4 ; S

. C

. C O D E § 3 3

- 1 4

- 3 0 0 ; S

. D

. C O D IF IE D L A W S § 4 7

- 1 A

- 1 4 3 0 ; T E N N
. C O D E § 4 8

- 2 4

- 3 0 1 ; U T A H C O D E § 1 6

- 1 0 a - 1 4 3 0 ; V T
. S T A T
. t i t

. 1 1 A , § 1 4

. 3 0 ; V A
. C O D E § 1 3

. 1

- 7 4 7 ; W A S H
. R E V
. C O D E § 2 3 B

. 1 4

. 3 0 0 ; W

. V A
. C O D E § 3 1 D

- 1 4

- 1 4 3 0 ; W IS
. S T A T
. § 1 8 0

. 1 4 3 0 ; W Y O
. S T A T
. § 1 7

- 1 6

- 1 4 3 0

. 

### 5

## or “unfa irly prejudicia l” conduc t

. One state has broade r lang uag e for when dissoluti on is 1 3


## appropr iate. Thus, thirty -si x s t ates in all appea r to allow liquidation for oppressive or simil ar 1 4


## conduct. See also D O U G L A S 

## K. M O L L 

## & R O B E R T 

## A. RA G A Z Z O 

## , T H E 

## L A W O F 

## C L O S E L Y 

## H E L D

1 5


## C O R P O R A T I O N S 

## Fig

. 7.1 (2012); Robert B. T h ompson, The Shareholder’s Cause of Action for Oppression , 48 B U S


## . L A W


## . 699, 709 n.70 (1993).
Her e, Ann marrie d into t h e Rupe family

. Her husband’s sister, Paula Denna rd, informed Rupe that she would “neve r g et any money in this family .” Rupe and her husband, Buddy , wanted

to add their son as a benef iciary to the family trust that owned 47% of Rupe I nvestment Corporation (RI C), but Denna

rd and her children ref

used. When Buddy passed awa y , Rupe acquir ed (tog ether 1 6


## with her son) an 18% interest in RI C. Rupe claims that Denna rd and her colleag ues L ee Ritchie 1 7 1 8

A L A S K A S T A T
. § 1 0

. 0 6

. 6 2 8 ; C A L
. C O R P
. C O D E § 1 8 0 0 ; M IN N
. S T A T
. § 3 0 2 A

. 7 5 1 ; N

. D

. C E N T
. C O D E 13 § 1 0

- 1 9

. 1

- 1 1 5

.

S e e N

. C

. G E N
. S T A T
. § 5 5

- 1 4

- 3 0 ( 2 ) ( i i ) ( a u t h o r i z i n g l i q u i d a t i o n i f “ r e a s o n a b l y n e c e s s a r y f o r t h e p r o t e c t i o n 14
o f t h e r i g h t s o r i n t e r e s t s o f t h e c o m p l a i n i n g s h a r e h o l d e r ” )

.

S e v e r a l s t a t e s a l s o i m p o s e s p e c i a l f i d u c i a r y d u t i e s o n m a

j o r i t y s h a r e h o l d e r s i n c l o s e l y h e l d c o r p o r a t i o n s
. S e e , 15
e
. g
. , B a r t h v
. B a r t h , 6 5 9 N

. E

. 2 d 5 5 9 , 5 6 1 n
. 6 ( I n d

. 1 9 9 5 ) ; C r o s b y v
. B e a m , 5 4 8 N

. E

. 2 d 2 1 7 , 2 2 1 ( O h i o 1 9 8 9 ) ; W i l k e s v
. S p r i n g s i d e N

u r s i n g H o m e , I

n c
. , 3 5 3 N

. E

. 2 d 6 5 7 , 6 6 3 ( M a s s
. 1 9 7 6 )

. F i d u c i a r y d u t y p r o t e c t i o n s a r e d i s c u s s e d i n P a r t I I

. E , i n f r a . T h e f a t h e r o f B u d d y R u p e a n d P a u l a D e n n a r d e s t a b l i s h e d t h e f a m i l y t r u s t t o b e n e f

i t h i s w i f e , h i s t w o c h i l d r e n 16 ( B u d d y a n d D e n n a r d ) , a n d D e n n a r d ’ s t h r e e c h i l d r e n
. A t t h e t i m e , B u d d y h a d o n e a d o p t e d c h i l d

. T h e f a t h e r d i d n o t w i s h t o l e a v e v o t i n g s h a r e s t o a n a d o p t e d c h i l d a n d b e l i e v e d B u d d y t o b e i n c a p a b l e o f h a v i n g c h i l d r e n
. A c c o r d i n g l y , t h e f a m i l y t r u s t p r o v i d e d t h a t B u d d y ’ s i n h e r i t a n c e o f R I C d i v i d e n d s w o u l d r e v e r t t o D e n n a r d a n d h e r t h r e e c h i l d r e n o n B u d d y ’ s d e a t h

.

A l m o s t a l l o f R I C ’ s v o t i n g s h a r e s w e r e o w n e d b y t r u s t s , i n c l u d i n g t h e 1 8 % o f t h e v o t i n g s h a r e s a t t r i b u t a b l e 17 t o R u p e a n d h e r s o n
. F o r e a s e o f r e f e r e n c e , t h i s o p i n i o n w i l l r e f e r t o t h e b e n e f

i c i a l i n t e r e s t o w n e r s o f t h e t r u s t w h e n p o s s i b l e
. I n a c c o r d a n c e w i t h t h e t e r m s o f t h e f a m i l y t r u s t , s e e s u

p r a n o t e 1 6 , B u d d y ’ s R I C d i v i d e n d s o f $ 5 0 , 0 0 0 p e r 18 y e a r f r o m h i s s h a r e s i n t h e f

a m i l y t r u s t r e v e r t e d t o D e n n a r d a n d h e r c h i l d r e n
. 

### 6

## (a desce ndant of one of RI C’s ear ly owner s) and Dennis L utes (an attorney for RI C and Denna rd’s family ) fe ar ed s h e wo uld sue to ref orm the trust and add her and Buddy ’s son as a benef iciary

. Denna rd serve s as chair of RI C’s board of direc tors, and with her children controls over 70% of
RI C’s voting stock. Ritchie serve s as RI C’s president, is on the board, and toge ther with his family

owns just under 10% of RI C’s voting stock. And L utes serve s as vice- president and secr etar y of RI C
and is on the board. Tog ether , Denna rd and her children, Ritchie and his family , and L utes control approximately

79% of RI C’s voting share s and three of the boa rd’s four positions. The trial court
found that Denna

rd, Ritchie, and L utes voted the same for ever y share holder vote for the entire time
rele vant to this lawsuit. Be fore his death, Buddy was RI C’s fou rt h d i re ct or. RI C’s sales wer e approximately

$152 milli on by

2007.
After Buddy ’s dea th, Rit chie of fer ed to appoint Rupe to RI C’s board if she would ag ree to
not sue another stockholder of RI C, which included the trust. Rupe acc epted. Subsequently , when
her home was fac i n g fore closure and she encounte red a tax problem, Rupe asked if RI C would purcha se her share s. Ritchie responde d that RI C would p re fe r t o d elay any offe r to purcha se her
share s beca

use one of

its subsi diaries wa s attempting to obtain ne w financ ing.
L utes later offe red to rede em Rupe’s share s for $1 milli on. Rupe replied that the $1 milli on buy out offe r was “absur d” and was desig ned to take advanta g e of her. Denna rd, Ritchie, and L utes then elec ted Denna

rd’s da ug hter Gr etche n to take B uddy ’s sea t on the board.
Ritchie later of

fer ed for RI C to purcha se R upe’s shares for approximately $1.7 milli on (or $5,987 per share ) to be paid over a seven- y ear period. I n making the offe r, Ritchie war ned that RI C would be the only

purcha ser of

her stock. Ritchie admitted at trial this va lue was c alculate d using

7

## the book value of RI C’s share holder equity , and R itchie and L utes both conce ded that book value

was not nece ssarily repr esenta tive of m arke t value. RI C’s calc ulation also deducted 5 0 % o f the 1 9


## book value of one of its major subsidiaries, and further reduc ed the v al ue of Rupe’s stock by 2 0


## 46.3%. Ritchie separ ately informed Denna rd that based on the same date he valued Rupe’s share s 2 1



## at $5,987 per share , Denna rd’ s s h ar es possessed a book value of $7,032 per share for g ift tax
purposes. And these offe rs to purcha se Rupe’s share s wer e marke dly lower than the per- share price s RI C paid to previous minority share holders.
Unsatisfied with the offe r, Rupe reta ined investment banker Geor g e Stasen to marke t her
stock to third parties. When they met, Denna rd, sever al of her children, and Ritchie g ree ted Stasen
in “a very hostile fashion,” and Ritchie ref used Stasen’s reque st to meet with any potential thirdparty buy ers. They require d Rupe and any potential buy er to execute confide ntiality ag ree ments that

wer e n o t s ubject to neg otiation and that g rante d RI C sole discretion to approve or disapprove
disclosure of r equeste d information.
Acc ording to Stasen, potential buy ers laug hed at him beca use they could not be expected to “make a decision on an inve stment from this lim ited information without me eting the executives”
of a closely held corpor ation like RI C. Stasen explained tha t “ [t ]here was no way I could ever sell
any thing

. . . [b] eca

use there wasn’t enoug h information in the packa g e and ever y body wanted to be

F o r e x a m p l e , R I C l i s t e d a n o f f i c e b u i l d i n g f

o r s a l e f o r $ 1

. 8 m i l l i o n b u t e s t a b l i s h e d i t s b o o k v a l u e a t $ 1 2 4 , 0 0 0 19 d u e t o d e p r e c i a t i o n
.

R I C s u b s i d i a r y H u t t o n C o m m u n i c a t i o n s w a s i n a f i n a n c i a l c r i s i s , b u t H u t t o n ’ s c h i e f f i n a n c i a l o f

f i c e r t e s t i f

i e d 20 t h a t i t s t u r n a r o u n d b e g a n b e f o r e t h e d a t e o n w h i c h R I C a s s e s s e d t h e b o o k v a l u e o f R u p e ’ s s h a r e s
. R I C u s e d t h i s p a r t i c u l a r d i s c o u n t w h e n b u y i n g b a c k c e r t a i n s t o c k i n p r e v i o u s y e a r s
. 21


### 8

## able to meet L ee Ritchie and talk to the executives of the companies.” I mportantly Denna rd admitted

at trial that she disag ree d with Ritchie’s ref usal to meet with potential third-par ty buy ers, she would

want to m eet with the pr esident of a closely held cor poration bef

ore investing, S tasen’s request of
Ritchie was rea sonable, and ref using such a reque st would be “oppre ssive to a mino r it y s h a r e h o ld e r
. ” Rupe sued Dennard, Ri tchie, L utes, and R I C, cl aim ing shareholde r oppression and breac h
of fiduciar

y duty

. Rupe soug ht a court-or dere d b u y o u t o f her share s or, alterna tively , the appointment of a r ece iver to liquidate RI C. Among othe r thing s, the jury found af ter a n eig ht-day
trial that: (1) Denna

rd, Ritchie, L utes, and R I C en gaged in oppressive conduct; (2) RI C failed to allow Rupe to inspect and copy rele vant bo o k s an d records; (3) Denna rd paid persona l expenses from RI C’s corpor ate funds; (4) Denna rd, Ritchie, and L

utes offe red Rupe a

position on the board
if she wo u ld ag ree to not sue a share holder of RI C; (5) Denna rd, Ritchie, and L utes eng ag ed in oppressive conduct in the ir rede mption offe rs and trea tment of Rupe with r eg ard to inspe ction and
copy ing of co rp o ra te rec ords; (6) Denna rd, Ritchie, and L utes brea ched their fiduciar y duties to Rupe; and (7) the fa ir value of Rupe’s share s was $7.3 milli on. The trial court e ntere d judgme nt 2 2


## in favor of Rupe and order ed Denna rd, Ritchie, and L utes to cause RI C to rede em Rupe’s share s for $7.3 milli on. The court of appea ls ag ree d that the conduct amounted to share holder oppression and

a stock buy out was the most appropr iate reme dy but rema nded for a rede termination of the stock’s value in lig ht of the lac k of marke tability and contr ol. 339 S.W .3d 275, 299, 302.

R I C ’ s $ 1

. 7 m i l l i o n o f

f e r w a s c a l c u l a t e d u t i l i z i n g a v a l u a t i o n d a t e o f J u n e 3 0 , 2 0 0 3

. T h e j u r y a s s e s s e d t h e 22
v a l u e o f R u p e ’ s s h a r e s a s o f J u n e 3 0 , 2 0 0 6

. T h e c o u r t o f a p p e a l s a f f i r m e d t h e j u r y ’ s v a l u a t i o n d a t e , w h i c h i s n o t a t i s s u e i n t h i s a p p e a l

. 

### 9

## II. Discussion

The Court today holds that beca use the share holder oppression statu te only expressly
addre sses the reme dy of rec eiver ship, no other reme dy for oppression is available

. And beca use the

reme dy of rec eiver ship is compar ably harsh, the Court imposes a stringe nt definition of oppression by incorporating the business judgme nt rule. The Court’s logic in a pply ing the business judgme nt rule in this context would presumably also apply to minority share holder claims fo r brea ch of
fiduciar y d u ty

. But the Court’s initial holding that rec eiver ship is the onl y reme dy for oppression
is flawed—w hich nec essar ily aff ects the soundne ss of the Court’s re maining holding s. The share holder oppression statute not only addre sses but also prefers lesser leg al and equitable reme dies than rec eiver ship—it does not exti ng uish them. Be cause courts may impose
lesser reme dies, the long- standing definition of oppression that has exis ted at common law in Texas
and a host of other jurisdictions (to which the L eg islature has acquie sced) should apply

. Fur ther, the
business ju d gm ent rule is fundame ntally incong ruent with the conce pt of minority share holder oppressi o n b ecause that oppression (such as buy ing minority share s for a barg ain price ) ty pically
benef its the corpor atio n
. An d the oppression statute contemplates use of lesser reme dies in
situations wher e oppression exis ts b u t d o e s n o t h a r m th e c o r p o r a ti on—further indicating the business judgme nt r

ule should not apply . Neither does the business judg ment rule have a place in minority
share holder c laims for bre ach of fiduciar y duty . I addre ss eac h point in turn.
A. Rem edy At the hea

rt of thi s case is the pre- codified ve rsion of the Te x as oppre ssion statute, former
article 7.05. That provision require s a share holder seeking a reha bilitative rec eiver ship to establish

1 0

## that the direc tors’ acts are “illeg al, oppressive, or fra udulent.” Act of Mar. 30, 1955, 54th L eg ., R.S.,
ch. 64, art. 7.05(A)( 1), 1955 Tex. Gen. L aws 239, 290-91, amended b y Act of May 3, 1961, 57th
L eg ., R.S., ch. 169, 1, 1961 Tex. Gen. L aws 319, 319 (her einaf ter “for mer art. 7.05”). Additionally ,

a cour t may only appoint a re ceive r: (1) when t he court deems it nece ssary “to conse rve the assets and business of the corpor ation and to avoid damag e to parties at interest,” and (2) if “a l l o ther require ments of law are complied with” and “all other reme dies available either at law or in equity , including the appointment of a rec eiver for specific assets of the corpor ation, are deter mined by the

court to be inadequa te.” For mer art. 7.05. I n short, a court may appoint a rec ei v er wh en : (1 ) the
direc tors eng ag e in oppressive conduct; (2) such conduct harms the corpor ation; and (3) lesser leg al and equitable reme dies will not suffice.
But the plain lang uag e of the oppression statute prefer s o t h er reme dies—it does not exti ng uish them. For

mer article 7.05 provides for rec eiver ship only if “all other reme dies available
either at law or in equity

. . . are deter mined by the court to be inadequa te.” For mer art. 7.05. I f no other reme dies are available under the statute or commo n l aw , as the Court holds, the oppression

statute woul d h av e n o need to express a pref ere nce for their use. Such a holding violates our fundame ntal canon of construction to not rende r any statutory lang uag e meaning less. See Columbia
Med. Ctr. of Las Colinas, Inc. v. Hogue , 271 S.W .3d 238, 256 (Tex. 200 8 ) (“The Court must not interpre t the statute in a manner that rende rs any part of the statute meaning less or superf luous.”). And in doing so, the Court defe ats the ver y purpose of

the L eg islature’s c are fully chosen w ords.
Other jurisdictions with simil ar oppression statutes have uniformly interpret ed t h em as allowing other lesser remedies. The Te x as oppre ssion statute has its roots in t he I llinois Business

1 1

## Corporation Act of 1933, which fo rm ed the basis for the Model Business Corporation Act. 2 3 2 4


## Courts in states with oppression statutes simil ar to ours have disc ussed eig ht leg al and equitable

re medies less drastic than a reha bilitative rec eiver ship: (1) appointment of a fiscal ag ent t o periodica lly repor

t to the court; (2) rete ntion o f j u ri s diction by the court; (3) an acc ounting of alleg edly misappropriate d funds; (4) an injunction for oppressive conduct (such as reduc ing

e x cessive salarie s or bonuses); (5) order ing a dividend; (6) order ing a buy out; (7) permitting min o r it y share holders to purcha se additional stock; and (8) awa rding damag es cause d by oppressive conduct. See, e.g. , Bake r v. C o mm ercial Body Builders, Inc. , 507 P.2d 387, 395–96 (Or. 1973); Fix v. Fix
Material Co., Inc. , 538 S.W .2d 351, 357 n.3 (Mo. Ct. App. 1976). I ronica lly , the courts that have

rec og nized these reme dies attribute the cre ation of two of them (continuing the ex erc ise of jurisdiction and order ing a dividend) to this very Court—even though the Court exti ng uishes them today

. See Bake r , 507 P.2d at 395–96 (citing Patton v. Nicholas , 279 S.W .2d 848 (Tex. 1955)); Fix , 538 S.W .2d at 357 n.3 (same ).
Severa l courts with st at u t es s i m ilar to ours have specific ally addre ssed the propriety of a buy out as a reme dy for oppression. Unsurprising ly , the semin al T ex as case on the issue has 2 5


## likewise ag ree d with this authority in rec og nizi ng the availability of a buy out under our oppression

C e n t

. S t a n d a r d L i

f e I n s
. C o
. v
. D a v i s , 1 4 1 N

. E

. 2 d 4 5 , 4 9 ( I l l

. 1 9 5 7 ) ( “ T h e c o n c e p t o f o p p r e s s i v e c o n d u c t a s 23
a g r o u n d f

o r d i s s o l u t i o n o f a c o r p o r a t i o n i n e q u i t y a p p e a r s f o r t h e f i r s t t i m e i n t h e 1 9 3 3 a c t

. ” )

. M u r d o c k , s u

p r a n o t e 4 , a t 4 5 5

. 24

S e e B a l v i k v
. S

y l v e s t e r , 4 1 1 N

. W

. 2 d 3 8 3 , 3 8 9 ( N

. D

. 1 9 8 7 ) ; D e l a n e y v
. G e o r g i a - P a c i f i c C o r p
. , 5 6 4 P

. 2 d 2 7 7 , 25 2 8 8 ( O r
. 1 9 7 7 ) ( “ [ T ] h i s i s a n a p p r o p r i a t e c a u s e f o r r e l i e f i n t h e f

o r m o f a r e q u i r e m e n t t h a t [ t h e m a j o r i t y s h a r e h o l d e r ] p u r c h a s e p l a i n t i f

f s ’ s t o c k a t a f

a i r p r i c e
. ” )

. O r e g o n h a s s i n c e a m e n d e d i t s s t a t u t e t o e x p r e s s l y a l l o w b u y o u t s a n d o t h e r r e m e d i e s , n o t i n g t h a t t h e l i s t e d r e m e d i e s “ s h a l l n o t b e e x c l u s i v e o f o t h e r l e g a l a n d e q u i t a b l e r e m e d i e s t h a t t h e c o u r t m a y i m p o s e
. ” O R
. R E V
. S T A T
. § 6 0

. 9 5 2 ( 2 )

– ( 3 )

. 

### 1 2

## statute that expresses a pref ere nce for the u s e o f l es ser leg al and equitable reme dies. Davis v. Sheerin , 754 S.W .2d 375, 380 (Tex. App.—Houston [1st Dist.] 1988, writ denied) (“Te x as courts, under their g ener al equity power , may decr ee a [buy out] in an appropr iate case
. . . .”). Texas courts of appea ls have ag ree d. And sever al courts in other jurisdictions whose oppression statutes addre ss 2 6



## no reme dy other than dissoluti on have found buy outs to be appropr iate reme dies for oppression. 2 7


## I mportantly , I am awa

re of no state that has interpre ted their share holder oppression statute

as fore closing all reme dies except rec eiver ship, as the Court does today

. I ndeed, other state supreme
courts have cited this Court’s prec edent for the proposition that “[m] ost states have adopted the view
that a dissoluti on statute does not provide the exclusive reme dy for injured share holders and that the

courts have equitable power s to fashion appropr iate reme dies wher e the majority share holders have
brea ched the ir fiduciar

y duty to the minority

by eng ag ing in oppr essive conduc t.” 2 8

S e e , e
. g
. , C h r i s t i a n s v
. S t a f f o r d , N o
. 1 4

- 9 9

- 0 0 0 3 8

- C V , 2 0 0 0 W L 1 5 9 1 0 0 0 , a t * 2 ( T e x . A p p
. — H o u s t o n [ 1 4 t h 26 D i s t

. ] O c t

. 2 6 , 2 0 0 0 , n o p e t

. ) ( m e m
. o p
. ) ( “ [ A ] c o u r t m a y o r d e r a n e q u i t a b l e ‘ b u y - o u t ’ o f a p a r t y ’ s m i n o r i t y s h a r e s f o r o p p r e s s i v e a c t s o f

t h e m a j o r i t y w h e n t h e p a r t y s u e s b o t h i n d i v i d u a l l y i n h i s o w n r i g h t a n d a s a s h a r e h o l d e r o n b e h a l f o f t h e c o r p o r a t i o n
. ” ) ; A d v a n c e M a r i n e , I n c
. v
. K e l l e

y , N o
. 0 1

- 9 0

- 0 0 6 4 5

- C V , 1 9 9 1 W L 1 1 4 4 6 3 , a t * 2 ( T e x . A p p
. — H o u s t o n [ 1 s t D i s t

. ] J u n e 2 7 , 1 9 9 1 , n o w r i t ) ( m e m
. o p
. ) ( “ C o u r t s h a v e p o w e r t o o r d e r t h e e q u i t a b l e r e m e d y o f a b u y - o u t b y t h e m a j o r i t y s h a r e h o l d e r s a c c o r d i n g t o t h e f a c t s o f t h e p a r t i c u l a r c a s e
. ” ) ; s e e a l s o B a l i a s v
. B a l i a s , I n c , 7 4 8 S

. W

. 2 d 2 5 3 , 2 5 6

– 5 7 ( T e x . A p p
. — H o u s t o n [ 1 4 t h D i s t

. ] 1 9 8 8 , w r i t d e n i e d ) ( a f f i r m i n g t r i a l c o u r t ’ s d e n i a l o f a p p o i n t m e n t o f a r e c e i v e r w h e r e s h a r e h o l d e r f

a i l e d t o d e m o n s t r a t e t h a t o t h e r r e m e d i e s w o u l d h a v e b e e n i n a d e q u a t e )

. S e e M a d d o x v
. N o r m a n , 6 6 9 P

. 2 d 2 3 0 , 2 3 7 ( M o n t

. 1 9 8 3 ) ( “ [ A ] c o u r t s i t t i n g i n e q u i t y i s e m p o w e r e d t o 27 d e t e r m i n e t h e q u e s t i o n s i n v o l v e d i n a c a s e a n d d o c o m p l e t e j u s t i c e
. T h i s i n c l u d e s t h e p o w e r t o f a s h i o n a n e q u i t a b l e r e s u l t

. ” ( c i t a t i o n s a n d q u o t a t i o n m a r k s o m i t t e d ) ) ; A l a s k a P l a s t i c s , I n c
. v
. C o p p o c k , 6 2 1 P

. 2 d 2 7 0 , 2 7 4

– 7 5 ( A l a s k a 1 9 8 0 ) ; M c C a u l e

y v
. T o m M c C a u l e

y & S o n , I

n c
. , 7 2 4 P

. 2 d 2 3 2 , 2 4 3 ( N

. M

. C t

. A p p
. 1 9 8 6 ) ; S a u e r v
. M o f f i t t , 3 6 3 N

. W

. 2 d 2 6 9 , 2 7 4

– 7 5 ( I o w a C t

. A p p
. 1 9 8 4 )

.

M a s i n t e r v
. W

E B C O C o
. , 2 6 2 S

. E

. 2 d 4 3 3 , 4 3 9

– 4 0 ( W

. V a
. 1 9 8 0 ) ( c i t i n g P a t t o n , 2 7 9 S

. W

. 2 d a t 8 5 3 ) ; s e e 28
a l s o R o w e n v
. L e M a r s M u t

. I n s
. C o
. o f I o w a , 2 8 2 N

. W

. 2 d 6 3 9 , 6 5 6 ( I o w a 1 9 7 9 ) ( “ W h e r e v e r a s i t u a t i o n e x i s t s w h i c h i s c o n t r a r y t o t h e p r i n c i p l e s o f e q u i t y a n d w h i c h c a n b e r e d r e s s e d w i t h i n t h e s c o p e o f j u d i c i a l a c t i o n , a c o u r t o f e q u i t y w i l l d e v i s e a r e m e d y t o m e e t t h e s i t u a t i o n , t h o u g h n o s i m i l a r r e l i e f h a s b e e n g i v e n b e f o r e
. ” ( q u o t a t i o n m a r k s o m i t t e d ) ( c i t i n g P a t t o n , 2 7 9 S

. W

. 2 d a t 8 5 7 ) )

. 

### 1 3

## Commentators are in acc ord with the host of jurisdictions that rec o gn i z e courts reta in the

authority to implement lesser leg al and equit ab l e re m edies for share holder oppression. As one

co m mentator has observe d, beca use most oppression statutes are based on the Model Busine s s Corporation Act, “alter

native re lief, particularly buy -outs of m inority share holders, is available in most, if not all, jurisdictions.” And leading scholars on share holder oppression have observe d that 2 9 

## buy outs “are the most common remedy for dissension within a close c orpora tion.” But ig noring 3 0 

## the plain lang uag e of the s tatute and the gre at weight of authority ag ainst its holding, today Texas
become s the first jurisdiction to hold tha t a n oppression statute abolishes the reme dies it expressly pref ers. B. Defin ition of Opp ression
The Court’s fir st misint erpr etation of the statute (that there is but one remedy ) re sults in a
second: that oppression must have an unduly restrict i v e definition. The Court observe s that

rec eiver ship is a harsh or d ra s t i c re medy , desig ned for situations that pose a serious threa t to the
corpor ation and its share holders. __ S.W .3d at __; see also Balias v. Balias , 748 S.W .2d 253, 257 3 1

M u r d o c k , s u

p r a n o t e 4 , a t 4 6 4

. 29

D o u g l a s K

. M o l l , S h a r e h o l d e r O p p r e s s i o n a n d “ F a i r V

a l u e ” : O f D i s c o u n t s , D a t e s , a n d D a s t a r d l y D e e d s 30 i n t h e C l o s e C o r

p o r a t i o n , 5 4 D U K E L

. J

. 2 9 3 , 3 0 9 n
. 5 6 ( 2 0 0 4 ) ( q u o t i n g 1 F

. H O D G E O ’ N E A L & R O B E R T B

. T H O M P S O N , O ’ N E A L ’ S C L O S E C O R P O R A T IO N S § 1

. 1 6 , a t 1

- 9 7 ( 3 d e d

. 2 0 0 2 ) ; s e e a l s o i d

. a t 3 0 8

– 0 9 ( “ T h e m o s t c o m m o n r e m e d y f o r o p p r e s s i o n
. . . i s a b u y o u t o f t h e o p p r e s s e d i n v e s t o r ’ s s t o c k h o l d i n g s
. A b u y o u t i s a d v a n t a g e o u s b e c a u s e i t p r o v i d e s a m e c h a n i s m f

o r a n o p p r e s s e d s h a r e h o l d e r t o e x t r i c a t e h i s i n v e s t m e n t f r o m a v e n t u r e w i t h o u t h a v i n g t o d i s s o l v e t h e c o r p o r a t i o n
. T h e m a

j o r i t y s h a r e h o l d e r c o n t i n u e s t o o p e r a t e t h e c l o s e c o r p o r a t i o n a n d t o p a r t i c i p a t e i n t h e c o m p a n y ’ s s u c c e s s e s a n d f

a i l u r e s , w h i l e t h e m i n o r i t y s h a r e h o l d e r r e c o v e r s t h e v a l u e o f h i s i n v e s t e d c a p i t a l a n d r e m o v e s h i m s e l f f r o m t h e c o m p a n y ’ s a f

f a i r s
. ” ) ; M u r d o c k , s u

p r a n o t e 4 , a t 4 7 0 ( “ T h e m o s t c o m m o n f o r m o f a l t e r n a t i v e r e m e d y i s t h e b u y - o u t o f t h e m i n o r i t y s h a r e h o l d e r
. ” )

.

T h e r e m e d y o f r e c e i v e r s h i p i s h a r s h o r d r a s t i c w h e n c o m p a r e d t o o t h e r r e m e d i e s s u c h a s c o m p e l l i n g d i v i d e n d s 31
o r a b u y o u t b e c a u s e i t r e p l a c e s t h e s h a r e h o l d e r s ’ c h o s e n m a n a g e r s w i t h c o u r t

- c h o s e n m a n a g e r s
.

_ _ S

. W

. 3 d a t

_ _ ; B a l i a s , 7 4 8 S

. W

. 2 d a t 2 5 7

. B u t t h i s d o e s n o t m e a n t h a t e v e n a r e c e i v e r s h i p f o r d i s s o l u t i o n w i l l c a u s e t h e c o r p o r a t i o n t o c e a s e 

### 1 4

## (Tex. App.—Houston [14t h Dist.] 1988, writ denied)

. The Court has taken a position commentators

previous l y wa rn ed ag ainst: “the view of dissoluti on as a ‘dra stic’ reme dy g ener ally works to the disadvantag e of minority share holders.” Be cause the Court conclude s that rec eiver ship is the only 3 2



## reme dy under the oppression statute and that it is drastic or harsh, it ad o p t s a n o v el and strict definition of oppre ssion:
when [di rec tors or manag ers] abuse t heir authority over the corpor ation with the intent to harm the interests of one or more of the share holders, in a manner that does not comport with the honest exe rc i s e o f their business judgme nt, and by doing so cre ate a serious risk of ha

rm to the corpor ation.

__ S.W .3d at __. The business judgme nt rule shields direc tors and manag ers fr o m l i abil ity for
rational de cisions made for the bene fit of the cor

poration. I f there is no ha rm to the corpor ation, 3 3


## the direc tor or manag er has not violated the business judgme nt rule (and might not have violated the
rule even if there is harm to the corpor at i o n i f t h e decision was made in the honest exercise of
business judgme nt). Thus, the Court’s definition of oppression will only allow rec overy if a direc tor

or manag er fails to honestly exercise her business judgme nt and harms a minority share holder as well
as the c orpora tion its elf.
The Texas oppression statute and the court of appea ls case s construing it did not develop in

a vac uum. The deve loping body of law in Texas and bey ond indicates why the Court’s re strictive

t o b e a g o i n g c o n c e r n
. T h e m a j o r i t y s h a r e h o l d e r s m a y w e l l p u r c h a s e t h e c o r p o r a t i o n f r o m t h e r e c e i v e r , e s s e n t i a l l y b u y i n g o u t t h e m i n o r i t y s h a r e h o l d e r
.

M u r d o c k , s u

p r a n o t e 4 , a t 4 2 6

. 32

S e e T e x a r k a n a C o l l

. B o w l , I

n c
. v
. P h i l l i

p s , 4 0 8 S

. W

. 2 d 5 3 7 , 5 3 9

– 4 0 ( T e x . C i v . A p p
. — T e x a r k a n a 1 9 6 6 , n o 33
w r i t ) ( h o l d i n g t h a t a s h a r e h o l d e r w a s n o t e n t i t l e d t o a r e m e d y f o r o p p r e s s i o n b e c a u s e t h e d i r e c t o r s ’ d e c i s i o n s w e r e “ n o t i n c o n s i s t e n t w i t h t h e h o n e s t e x e r c i s e o f b u s i n e s s j u d g m e n t a n d d i s c r e t i o n ” )

. 

### 1 5

## definition of oppression is unw arr anted. L ike many other states, Texas’s statute was simil ar to the

Model Act. As discussed above, the overw helming majority of courts have construed their

3 4 

## oppression statutes to allow for reme dies o t h er than rec eiver ship. See supra Part I I .A. As

commentators have observe d, “less drastic reme d i es [t han dissoluti on] may be justified by less oppressive conduct than that require d to dissolve a corpor ation.” Acc ording ly , courts have “almost 3 5 

## uniformly taken a broad approa ch to defining oppressive conduct, and wher e al t er n ati ves to dissoluti on do not exis t by statute, have upheld the g ener al equitable power of the courts to fashion
such alter natives. The pa

ttern appe ars f

irmly established”—e x cept a s of today in Texas. 3 6


## New York has primarily shaped the definitions of oppression in the United States. The first 3 7


## New York court to square ly addre ss the issue observe d that “[w]hether the controlling share holders discharg ed petiti oner for cause or in their g ood business judgme nt is irrele vant;” rather, what was rele vant was the minority share holder’s “re asonable expectations.” In re Topper , 433 N.Y.S.2d 359,
362 (N.Y. Sup. Ct. 1980). The rea sonable expectations test for oppression has been further ref ined

T h e C o u r t b e l i e v e s t h e M o d e l A c t c o m p e l s i t s c o n c l u s i o n h e r e b e c a u s e t h e A c t e x p r e s s l y p r o v i d e s a b u y o u t 34
a s a r e m e d y .

_ _ S

. W

. 3 d a t _

_ n
. 2 5

. B u t t h e M o d e l A c t o n l y c h a n g e d i n 1 9 8 4 t o e x p r e s s l y p r o v i d e a b u y o u t

. C o m p a r e M O D E L B U S
. C O R P
. A C T § 1 4

. 3 4 ( 1 9 8 4 ) ( e s t a b l i s h i n g p r o c e d u r e f o r b u y o u t i n l i e u o f d i s s o l u t i o n ) w i t h M O D E L B U S
. C O R P
. A C T § 9 7 ( 1 9 7 1 ) ( a l l o w i n g c o u r t t o l i q u i d a t e c o r p o r a t i o n d u e t o o p p r e s s i v e c o n d u c t w i t h o u t s p e c i f y i n g o t h e r r e m e d i e s ) a n d M O D E L B U S
. C O R P
. A C T § 9 0 ( 1 9 6 0 ) ( s a m e )

. P r e s c i e n t l y , t h e T e x a s L e g i s l a t u r e a d d e d i n 1 9 5 5 t h e f l e x i b i l i t y t h e M o d e l A c t d i d n o t h a v e u n t i l r e c e n t l y b y e x p r e s s l y a l l o w i n g l e s s e r l e g a l a n d e q u i t a b l e r e m e d i e s
. F o r m e r a r t

. 7

. 0 5

. T h e T e x a s A c t s h o u l d n o t h a v e t o e x p r e s s l y e n u m e r a t e l e s s e r l e g a l a n d e q u i t a b l e r e m e d i e s t o g i v e t h e p l a i n s t a t u t o r y l a n g u a g e i t s i n t e n d e d e f f e c t

. M u r d o c k , s u

p r a n o t e 4 , a t 4 5 9

. 35

I d

. a t 4 7 0 ( c i t a t i o n s o m i t t e d ) ; c o m p a r e f a v o r a b l y M c C a u l e

y , 7 2 4 P

. 2 d a t 2 3 6 ( “ T h e a b s e n c e o f a r i g i d l y 3 6 d e f i n e d s t a n d a r d f

o r d e t e r m i n i n g w h a t c o n s t i t u t e s o p p r e s s i v e b e h a v i o r e n a b l e s c o u r t s t o d e t e r m i n e , o n a c a s e - b y - c a s e b a s i s , w h e t h e r t h e a c t s c o m p l a i n e d o f s e r v e t o f r u s t r a t e t h e l e g i t i m a t e e x p e c t a t i o n s o f m i n o r i t y s h a r e h o l d e r s , o r w h e t h e r t h e a c t s a r e o f s u c h s e v e r i t y a s t o w a r r a n t t h e r e q u e s t e d r e l i e f

. ” )

. M u r d o c k , s u

p r a n o t e 4 , a t 4 6 5

. 37


### 1 6

## as “whe n the majority ’s conduct substantially defe ats the expectations that objectively viewed wer e

both rea sonable under the circ umstances and wer e centr al to the minority share holder’s decision to join the venture .” Davis , 754 S.W .2d at 381 (citing In re W iedy’ s Furniture Clearance Ctr. Co. , 487
N.Y.S.2d 901, 903 (N.Y. App. Div. 1985)). Hig h courts in Alaska, I owa, Mary land, Montana, New
J erse y , New Mexi co, North Carolina, North Dakota, Rhode I sland, and Washington have followed
New York’s lead in a dopting the rea sonable expectations test. And this test is f irmly established 3 8


## in Texas jurisprudenc e, with the Amarillo, Corpus Christi, Dallas, El Paso, For t Worth, Houston (1st
and 14th Districts), San Antonio, Texarkana , and Ty ler courts of appea ls having applied the test in
share holder oppre ssion cases. 3 9


## But the rea sonable ex pecta tio n s test can be a poor fit when the minority share holder, such

as the one here , inherited her share s (per haps indicating she had no investment expectations at all). 4 0

S e e B a u r v
. B a u r F a r m s , I n c
. , 8 3 2 N

. W

. 2 d 6 6 3 , 6 7 4 ( I o w a 2 0 1 3 ) ; B o l a n d v
. B o l a n d , 3 1 A

. 3 d 5 2 9 , 5 4 2 ( M d

. 38 2 0 1 1 ) ; S c o t t v
. T

r a n s

– S y s
. , I n c
. , 6 4 P

. 3 d 1 , 6 ( W a s h

. 2 0 0 3 ) ; H e n d r i c k v
. H e n d r i c k , 7 5 5 A

. 2 d 7 8 4 , 7 9 1 ( R

. I

. 2 0 0 0 ) ; B r e n n e r v
. B e r k o w i t

z , 6 3 4 A

. 2 d 1 0 1 9 , 1 0 2 8

– 2 9 ( N

. J

. 1 9 9 3 ) ; B a l v i k , 4 1 1 N

. W

. 2 d a t 3 8 7 ( N

. D

. 1 9 8 7 ) ; M c C a u l e y , 7 2 4 P

. 2 d a t 2 3 7

– 3 8 ( N

. M

. 1 9 8 6 ) ; S t e f a n o v
. C o

p p o c k , 7 0 5 P

. 2 d 4 4 3 , 4 4 6 n
. 3 ( A l a s k a 1 9 8 5 ) ; M e i s e l m a n v
. M e i s e l m a n , 3 0 7 S

. E

. 2 d 5 5 1 , 5 6 3 ( N

. C

. 1 9 8 3 ) ; F o x v
. 7 L B a r R a n c h C o
. , 6 4 5 P

. 2 d 9 2 9 , 9 3 3 ( M o n t

. 1 9 8 2 ) ; s e e a l s o A d l e r v
. T a u b e r g , 8 8 1 A

. 2 d 1 2 6 7 , 1 2 6 9 ( P a
. S u p e r
. C t

. 2 0 0 5 ) ; F o r d v
. F o r d , 8 7 8 A

. 2 d 8 9 4 , 9 0 4 ( P a
. S u p e r
. C t

. 2 0 0 5 ) ; M o r r o w v
. P r e s t o n w o l d , I

n c
. , N o
. C V 0 0 0 4 4 5 8 4 4 S , 2 0 0 2 W L 6 5 2 3 6 9 , a t * 4 ( C o n n
. S u p e r
. C t

. M a r
. 2 2 , 2 0 0 2 )

. S e e , e
. g
. , K o h a n n i m v
. K a t o l i ,

_ _ S

. W

. 3 d

_ _ ,

_ _ , 2 0 1 3 W L 3 9 4 3 0 7 8 , a t * 9 ( T e x . A p p
. — E l P a s o J u l y 2 4 , 39 2 0 1 3 , p e t

. d e n i e d ) ; B o e h r i n g e r v
. K o n k e l , 4 0 4 S

. W

. 3 d 1 8 , 2 5 ( T e x . A p p
. — H o u s t o n [ 1 s t D i s t

. ] 2 0 1 3 , n o p e t

. ) ; A r g o D a t a R e s
. C o r p
. v
. S h a g r i t h a y a , 3 8 0 S

. W

. 3 d 2 4 9 , 2 6 5 ( T e x . A p p
. — D a l l a s 2 0 1 2 , p e t

. f i l e d ) ; I n r e T r o c k m a n , N o
. 0 7

- 1 1

- 0 3 6 4

- C V , 2 0 1 2 W L 5 5 4 9 9 9 , a t * 2 ( T e x . A p p
. — A m a r i l l o F e b

. 1 , 2 0 1 2 , n o p e t

. ) ( m e m
. o p
. ) ; G u e r r a v
. G u e r r a , N o
. 0 4

- 1 0

- 0 0 2 7 1

- C V , 2 0 1 1 W L 3 7 1 5 0 5 1 , a t * 6 ( T e x . A p p
. — S a n A n t o n i o A u g
. 2 4 , 2 0 1 1 , n o p e t

. ) ( m e m
. o p
. ) ; G i b n e y v
. C u l v e r , N o
. 1 3

- 0 6

- 1 1 2

- C V , 2 0 0 8 W L 1 8 2 2 7 6 7 , a t * 1 6

– 1 7 ( T e x . A p p
. — C o r p u s C h r i s t i A p r
. 2 4 , 2 0 0 8 , p e t

. d e n i e d ) ( m e m
. o p
. ) ; R e d m o n v
. G r i

f f i t h , 2 0 2 S

. W

. 3 d 2 2 5 , 2 3 4 ( T e x . A p p
. — T y l e r 2 0 0 6 , p e t

. d e n i e d ) ; C o t t e n v
. W e a t h e r f o r d B a n c s h a r e s , I

n c
. , 1 8 7 S

. W

. 3 d 6 8 7 , 6 9 9

– 7 0 0 ( T e x . A p p
. — F o r t W o r t h 2 0 0 6 , p e t

. d e n i e d ) ; G o n z a l e z v
. G r e y h o u n d L i n e s I

n c
. , 1 8 1 S

. W

. 3 d 3 8 6 , 3 9 2 n
. 5 ( T e x . A p p
. — E l P a s o 2 0 0 5 , p e t

. d e n i e d ) ; W i l l i s v
. D o n n e l l y , 1 1 8 S

. W

. 3 d 1 0 , 3 2 n
. 1 2 ( T e x . A p p
. — H o u s t o n [ 1 4 t h D i s t

. ] 2 0 0 3 ) a

f f ’ d i n p a r t a n d r e v ’ d i n p a r t o n o t h e r g r o u n d s , 1 9 9 S

. W

. 3 d 2 6 2 ( T e x . 2 0 0 6 ) ; P i n n a c l e D a t a S e r v s
. , I n c
. v
. G i l l e n , 1 0 4 S

. W

. 3 d 1 8 8 , 1 9 6 ( T e x . A p p
. — T e x a r k a n a 2 0 0 3 , n o p e t

. )

.

S e e R a g a z z o , s u

p r a n o t e 6 , a t 1 0

. 40


### 1 7

## Due to such circ umstances, New York courts develope d a test for finding oppression if the conduct

of the majo ri ty become s “burde nsome, harsh and wrong ful.” Gimpel v. Bolstein , 477 N.Y.S.2d
1 0 1 4 , 1020 (N.Y. Sup. Ct. 1984). Hig h courts in Maine, Mississ ippi, Ore g on, Rhode I sland, and Washington have followed this test, as have the cour ts of appea ls in Tex as. 4 1 4 2


## Be ca use of the panoply of leg al and equitable reme dies Texas and other courts h av e

rec og nized for oppre ssion, these two definitions of oppression are firmly established in T exas a nd
national jurisprudenc e and allow courts the flexibi lity to cra ft reme di es fo r t h e vary ing ty pes of oppression. There is no valid basis to overturn this mountain of jurisprudenc e, leave Texas out of

4 3 

## step with other jurisdictions whose statutes are simil ar to ours, and chill investment in closely held
corpor ations.

S e e N a p p v
. P a r k

s C a m p , L t d

. , 9 3 2 A

. 2 d 5 3 1 , 5 3 8 ( M e
. 2 0 0 7 ) ; S c o t t , 6 4 P

. 3 d a t 6 ( W a s h

. 2 0 0 3 ) ; H e n d r i c k , 41 7 5 5 A

. 2 d a t 7 9 1 ( R

. I

. 2 0 0 0 ) ; K i s n e r v
. C o f f e y , 4 1 8 S o
. 2 d 5 8 , 6 1 ( M i s s
. 1 9 8 2 ) ; B a k e r , 5 0 7 P

. 2 d a t 3 9 3 ( O r
. 1 9 7 3 ) ; s e e a l s o E d e n b a u m v
. S c h w a r c z - O s z t r e i c h e r n e , 8 8 5 A

. 2 d 3 6 5 , 3 7 8 ( M d

. C t

. S p e c
. A p p
. 2 0 0 5 ) ; C o l t v
. M t

. P r i n c e t o n T r o u t C l u b , I n c
. , 7 8 P

. 3 d 1 1 1 5 , 1 1 1 8 ( C o l o
. A p p
. 2 0 0 3 ) ; M o r r o w , 2 0 0 2 W L 6 5 2 3 6 9 , a t * 5 ; J o r g e n s e n v
. W

a t e r W o r k s , I n c
. , 5 8 2 N

. W

. 2 d 9 8 , 1 0 7 ( W i s c
. C t

. A p p
. 1 9 9 8 ) ; W h a l e A r t C o
. v
. D o c t e r , 7 4 3 S

. W

. 2 d 5 1 1 , 5 1 4 ( M o
. C t

. A p p
. 1 9 8 7 )

. S e e , e
. g
. , K o h a n n i m ,

_ _ S

. W

. 3 d a t

_ _ , 2 0 1 3 W L 3 9 4 3 0 7 8 , a t * 9 ; B o e h r i n g e r , 4 0 4 S

. W

. 3 d a t 2 5 ; S h a g r i t h a y a , 42 3 8 0 S

. W

. 3 d a t 2 6 5 ; T

r o c k m a n , 2 0 1 2 W L 5 5 4 9 9 9 , a t * 2 ; G u e r r a , 2 0 1 1 W L 3 7 1 5 0 5 1 , a t * 6 ; G i b n e y , 2 0 0 8 W L 1 8 2 2 7 6 7 , a t * 1 6

– 1 7 ; G o n z a l e z , 1 8 1 S

. W

. 3 d a t 3 9 2 n
. 5 ; W i l l i s , 1 1 8 S

. W

. 3 d a t 3 2 n
. 1 2 ; G i l l e n , 1 0 4 S

. W

. 3 d a t 1 9 6 ; D e v j i v
. K e l l e r , N o
. 0 3

- 9 9

- 0 0 4 3 6

- C V , 2 0 0 0 W L 1 8 6 2 8 1 9 , a t * 7 ( T e x . A p p
. — A u s t i n D e c
. 2 1 , 2 0 0 0 , n o p e t

. ) ( m e m
. o p
. ) ; D a v i s , 7 5 4 S

. W

. 2 d a t 3 8 2

.

T h e C o u r t h o l d s t h a t t h e L e g i s l a t u r e c a n n o t a c q u i e s c e t o d e c i s i o n s t h a t r u n c o n t r a r y t o a s t a t u t e ’ s p l a i n 4 3 l a n g u a g e a n d t h a t l o n g - s t a n d i n g T e x a s c o u r t d e f i n i t i o n s o f

o p p r e s s i o n a r e t h u s i n v a l i d

.

_ _ S

. W

. 3 d a t

_ _ n
. 1 6

. T h e f i r s t p r o p o s i t i o n i s u n q u e s t i o n a b l y t r u e , b u t t h e C o u r t ’ s a p p l i c a t i o n i s i n c o r r e c t

. I f , a s t h e C o u r t h o l d s , t h e s t a t u t o r y d e f i n i t i o n o f o p p r e s s i o n s h o u l d b e m o r e r e s t r i c t i v e t h a n t h e c o m m o n - l a w d e f i n i t i o n b e c a u s e t h e s t a t u t e a p p l i e s t o m o r e t h a n j u s t c l o s e l y h e l d c o r p o r a t i o n s , t h e n t h e c o m m o n - l a w c l a i m f o r o p p r e s s i o n s h o u l d f i l l t h e “ g a p ” i n p r o t e c t i o n t h e C o u r t a d m i t t e d l y l e a v e s w i t h i t s d e c i s i o n
. 

### 1 8

## C. The Bus iness Jud gm ent Rule

I n addition to cra fting a restric tive definition of oppression, the Court embeds in its definition
the business judgme nt rule, shielding majority share holders and direc tors from liability for decisions
that do not harm the corpor ation or that wer e made in the honest exercise of business judgme nt. But
the business judgme nt rule is fundame ntally at odds with the lesser share holder oppression reme dies
the oppression statute expressly pref ers. The Court’s incl u s i o n o f t h e rule in the definition of oppression neg ates the ve ry protec tion the oppression statute af forde d until today

. 4 4


## When cra fting the rea sonable ex pecta tions test for share holder oppression, the New York

court observe d that “[w]hether the controlling share holders discharg ed petitioner fo r cause or in their
g ood business judgme nt is irrele vant.” Topper , 433 N.Y.S.2d at 362. A number of other courts have
likewise re

jected the business judgme nt rule in minority share holder oppre ssion cases. 4 5


## Commentators have ag ree d that the business judgme nt rule should not apply in share holder oppression ca ses. As one le ading commentator ha s expl ained: [T] he share holder oppression doctrine rec og nizes that decisions about such matters by a majority -controlled board can be part of a minority share holder fre eze-out. The oppression doctr i n e, t here fore , is implicitl y premised upon the notion that close corpor ation employ

ment, manag ement, and dividend decisions require more than a

T h e C o u r t r e s p o n d s t h a t t h e b u s i n e s s j u d g m e n t r u l e i s c o n g r u e n t w i t h t h e p o r t i o n o f t h e o p p r e s s i o n s t a t u t e , 44
n o t i n g t h a t i t i s “ t o c o n s e r v e t h e p r o p e r t y a n d b u s i n e s s o f t h e d o m e s t i c e n t i t y a n d a v o i d d a m a g e t o i n t e r e s t e d p a r t i e s
. ”

_ _ S

. W

. 3 d a t _

_ n
. 1 3

. T h i s a s s e s s m e n t i s m i s g u i d e d f o r t h r e e r e a s o n s
. F i r s t , m i n o r i t y s h a r e h o l d e r s w h o s e i n v e s t m e n t s a r e b e i n g d i m i n i s h e d w o u l d s e e m t o q u a l i f y a s “ i n t e r e s t e d p a r t i e s
. ” S e c o n d , t h e C o u r t i s r e a d i n g o n e p r o v i s i o n o f t h e s t a t u t e ( “ c o n s e r v e t h e p r o p e r t y a n d b u s i n e s s o f t h e d o m e s t i c e n t i t y ” ) t o r e n d e r t w o o t h e r s m e a n i n g l e s s ( “ i n t e r e s t e d p a r t i e s ” a n d “ a l l o t h e r l e g a l a n d e q u i t a b l e r e m e d i e s ” )

. T h i r d , t h i s d i s t o r t i o n o f t h e s t a t u t e l e a v e s a g a p i n p r o t e c t i o n u n d e r t h e c o m m o n l a w .

S e e , e
. g
. , G r a t o v
. G r a t o , 6 3 9 A

. 2 d 3 9 0 , 3 9 6 ( N

. J

. S u p e r
. C t

. A p p
. D i v . 1 9 9 4 ) ; F o x , 6 4 5 P

. 2 d a t 9 3 4

– 3 5 45 ( M o n t

. 1 9 8 2 ) ; S m i t h v
. A t l

. P r o p s
. , I n c
. , 4 2 2 N

. E

. 2 d 7 9 8 , 8 0 1 , 8 0 4 ( M a s s
. A p p
. C t

. 1 9 8 1 ) ; E x a d a k t i l o s v
. C i n n a m i n s o n R e a l t y C o
. , 4 0 0 A

. 2 d 5 5 4 , 5 6 1 ( N

. J

. S u p e r
. C t

. L a w D i v . 1 9 7 9 )

. 

### 1 9

## m ere surfa ce inquiry into the majority ’s conduct. I ndeed, the fac t that courts

apply ing the oppression doctrine are subjecting the majority ’s actions to “re asonable expectations” or “burde nsome, harsh, and wrong ful conduct” standards sug g ests that courts are requiring majority share holders to do more than mere ly articula te a rational business purpose for

their dec isions. Doug las K. Moll, Shareholder Oppression in Texas Close Corporati ons: Majority Rule Isn’t W hat
It Used To Be , 1 H O U S


## . B U S


## . & T A X


## . L .J

. 12, 20 (2001) (c i t at i o n s omitted); see also F. Hodg e O’Ne al, Close Corporat ions: Existing Legislati on and Rec ommende d Reform , 33 B U S


## . L A W


## . 873,
884 (1 9 7 8 ) (cr iticiz ing the business judgme nt rule as a conce ptual barr ier to judicial relief for
ag g rieve d minority

share holders).
The ty pical example of minority share holder oppression culminates when direc tors offe r to buy a mi nority shareholder’s shares at a fraction of their t rue value. Such an offer will seeming ly
al wa y s b e in the corpor ation’s best interest. For example, the direc tors here offe red at most $ 1

. 7
milli on for share s the jury valued at trial at $7.3 milli on. I f this value wer e the fair marke t va lue, 4 6


## the share holder oppression could benef it the corpor ation by $5.6 milli on if the minority share holder

acc epted. L ikewise, ref

using to pay dividends to share h o l d er s streng thens the corpor ation’s cash

rese rves, pay ing a direc tor’s persona l expenses from corpor ate funds keeps the direc tor satisfied and
in c ontinued service of the corpor ation, and ref using to me et with pr ospective purcha sers preve nts
statements that might possibly be the basis for a secur ities fra ud suit. Eac h such act that potentially
oppresse s a minority share holder can ben ef i t the corpor ation and be justified under the business judgme nt rule. But afte r today , the business ju d gm en t rul e will allow essentially all minority

A s e x p l a i n e d b e l o w , I a g r e e w i t h t h e c o u r t o f a p p e a l s t h a t t h e j u r y ’ s v a l u a t i o n o f t h e m i n o r i t y s h a r e h o l d e r ’ s 46
s t o c k a t $ 7

. 3 m i l l i o n f

a i l e d t o a c c o u n t f

o r t h e s t o c k ’ s l a c k o f m a r k e t a b i l i t y o r c o n t r o l

. T h u s , t h e f a i r m a r k e t v a l u e w o u l d b e s o m e w h a t l e s s t h a n $ 7

. 3 m i l l i o n
. 

### 2 0

## share holder oppression that does not ha rm the corpor ation (and even some liability that does harm
the cor poration if the dire ctors or ma jority share holders made an honest business dec ision).
D. Com m on-Law Cause of Action
The Court also deter

mines “the fore seea

bility , likelihood, and mag nitude of harm sustained by minority share holders due to the abuse of power by those in control of a closely held corpor ation is significa

nt, and Texas la

w should e nsure that reme dies exis t to appropr iately addre ss suc h harm
when t h e underly ing actions are wrong ful.” __ S.W .3d at __. But the Court conclude s that the
common-law standard for min o ri ty share holder oppression is too vag ue and exis ting reme dies 4 7 

## provide a dequate protec tion, thereby obviating the need f

or a c ommon-law ca

use of a ction. Telling ly , the Court acknow ledg es that its interpre tation of the oppression statute and failure

to impose a common-law reme dy for oppression “lea ves a ‘g ap’ in the protec tion that the law aff ords

to individual minority share holders” when the harm to the minority share holders does not harm the
corpor ation. __ S.W .3d at __. Until today , that g ap has no t ex i s ted beca use Texas courts have 4 8

O n e b a s i s f

o r t h e C o u r t ’ s c o n c l u s i o n i s i t s b e l i e f t h a t t h e c o m m o n - l a w r e a s o n a b l e e x p e c t a t i o n s t e s t i s d i f f i c u l t 47 t o a p p l y w h e n a m i n o r i t y s h a r e h o l d e r i n h e r i t e d h e r s h a r e s
.

_ _ S

. W

. 3 d a t

_ _ . B u t t h i s i s p r e c i s e l y w h y c o u r t s i n T e x a s a n d a h o s t o f

o t h e r j u r i s d i c t i o n s a p p l y t h e t e s t f o r b u r d e n s o m e , h a r s h , a n d w r o n g f u l c o n d u c t w h e n a d d r e s s i n g i n h e r i t e d s h a r e s
. S e e s u

p r a P a r t I I

. B

. T h e C o u r t t a k e s s o l a c e i n t h e f a c t t h a t m a

j o r i t y s h a r e h o l d e r s t h a t h a r m m i n o r i t y s h a r e h o l d e r s m i g h t a l s o b e 48 h a r m i n g t h e c o r p o r a t i o n , t h u s a l l o w i n g a r e h a b i l i t a t i v e r e c e i v e r u n d e r t h e o p p r e s s i o n s t a t u t e o r a b r e a c h o f f i d u c i a r y d u t y c l a i m i f t h e f

a c t s s u p p o r t i t

.

_ _ S

. W

. 3 d a t

_ _ n
. 5 3

. T h e C o u r t s p e c i f i c a l l y o p i n e s t h a t “ [ r ] e f

u s a l t o p a y d i v i d e n d s , p a y i n g m a j o r i t y s h a r e h o l d e r s o u t s i d e t h e d i v i d e n d p r o c e s s , a n d m a k i n g f i r e - s a l e b u y o u t o f

f e r s c e r t a i n l y c a n h a r m t h e c o r p o r a t i o n , f

o r i n s t a n c e , b y l o w e r i n g t h e v a l u e o f i t s s t o c k

. ” I d

. B u t s u c h o b s e r v a t i o n r e f l e c t s a m i s u n d e r s t a n d i n g o f c l o s e l y h e l d c o r p o r a t i o n s
. F o r e x a m p l e , r e f u s i n g t o p a y d i v i d e n d s t o a n y s h a r e h o l d e r y i e l d s a d d i t i o n a l c a s h r e s e r v e s
. O n e b u y i n g a m a

j o r i t y i n t e r e s t i n t h e c o m p a n y w o u l d o b v i o u s l y p a y m o r e f o r a c o m p a n y w i t h m o r e c a s h , w h i c h t h e y c o u l d e x t r a c t w i t h t h e p o w e r s a s s o c i a t e d w i t h t h e i r m a j o r i t y i n t e r e s t

. O n e b u y i n g a m i n o r i t y i n t e r e s t w o u l d n o t n e c e s s a r i l y p a y m o r e i f t h e y h a v e n o l e g a l r e c o u r s e t o c o m p e l t h e m a j o r i t y s h a r e h o l d e r t o p a y a d i v i d e n d t o t h e m i n o r i t y s h a r e h o l d e r ( a n d t h e y h a v e n o s u c h r e c o u r s e a f t e r t o d a y )

. S u c h a n e x a m p l e i s n o t d i f f i c u l t t o f i n d

. I t o c c u r r e d t h e l a s t t i m e w e a d d r e s s e d t h i s i s s u e
. I n P a t t o n , t h e m a j o r i t y s h a r e h o l d e r r e f

u s e d t o p a y d i v i d e n d s t o t h e m i n o r i t y s h a r e h o l d e r s , a n d w e h e l d t h a t s u c h c o n d u c t d i d n o t h a r m t h e c o r p o r a t i o n
. 2 7 9 S

. W

. 3 d a t 8 5 3

. 

### 2 1

## interpre ted the oppression statute to allow lesser reme dies for oppression that harms minority

share holders but not the cor poration.
No other exis ting reme dy the Court discusses adequately protec ts mi n o r it y s h a r eholder s from
such oppression. The reme dy that comes closest to aff ording some relief to the oppresse d minority
share holder is a common-law claim for brea ch of fiduciar y duty

. But the Court’s logic expressly and
i m p l i edly neg ates such a claim. Ex pressly , the Court observe s that we rec og nized this ca u s e o f
action in Patton and trea ted it as a de rivative a ction. __ S.W .3d at __. But a share holder only has standing to b ri ng a deriva tive action if she fairly and adequately repr esents the interests of the
corpor ation. T E X


## . B U S


## . O R G S


## . C O D E 

## § 21.552(2). Thus, a deriva tive action would only lie in this

4 9



## context when the oppression of the minority share holder harms the corpor at i o n i t self. The Court
espouses this principle by observing that “ac tions that are ‘oppre ssive’ under the statute ordinarily
will not g ive rise to deriva tive suits.” __ S.W .3d at __ n.15. But in Patton , we rec og nized that the majority share holder’s misconduct did not harm the corpor ation itself but nonetheless allowed the minority share holder’s claim for brea ch of fiduciar y duty

. 279 S

. W .2d at 853 (“[W] e find no evidenc e
. . . that [t he corpor ation] was damag ed.”)

. Thus, if the Court is corr ect today and minority
shareh o l d ers may only bring fiduciar y duty claims for the benef it of the corpor ation, Patton is
wrong
. But, Patton is not wrong ; it correc tly allowed a minority share holder claim for brea ch of 5 0

T h e C o u r t o b s e r v e s t h a t s h a r e h o l d e r s i n c l o s e l y h e l d c o r p o r a t i o n s t h a t e l e c t t o b e c l o s e c o r p o r a t i o n s d o n o t 49 h a v e t o f

a i r l y a n d a d e q u a t e l y r e p r e s e n t t h e i n t e r e s t s o f t h e c o r p o r a t i o n
.

_ _ S

. W

. 3 d a t

_ _ ; T E X
. B U S
. O R G S
. C O D E § 2 1

. 5 5 2

. B u t t h i s o f

f e r s n o r e m e d y f

o r m i n o r i t y s h a r e h o l d e r s i n c o r p o r a t i o n s l i k e R I C t h a t h a v e n o t e l e c t e d c l o s e c o r p o r a t i o n s t a t u s
.

T h e C o u r t a l s o n o t e s t h a t t h e B u s i n e s s O r g a n i z a t i o n s C o d e a l l o w s c o u r t s t o t r e a t a c l o s e l y h e l d c o r p o r a t i o n ’ s 50
s h a r e h o l d e r c l a i m a s d i r e c t r a t h e r t h a n d e r i v a t i v e
.

_ _ S

. W

. 3 d a t

_ _ ; T E X
. B U S
. O R G S
. C O D E § 2 1

. 5 6 3 ( c )

. B u t b e c a u s e t h e C o u r t i n t e r p r e t s t h e o p p r e s s i o n s t a t u t e t o o n l y a l l o w a r e m e d y i f t h e c o r p o r a t i o n i t s e l f

i s h a r m e d , t r e a t i n g d e r i v a t i v e 

### 2 2

## fiduciar

y duty even when there was no harm to the cor poration. 279 S.W .2d at 853. Patton did

5 1 

## not require a der ivative claim.
T h e C o u rt ’s logic also impliedly restric ts fiduciar y duty claims. As addre ssed below, t h e Court’s conclusion that the business judgme nt rule should apply to statutory share holder oppression
claims would seem to a

pply with e qual forc e to fiducia ry duty claims. See infra Part I I .E. But the
rule is f undamentally

at odds with the reme dy

of the fiduc iary

duty claim, just as it is at odds with
share holder oppression claims. See supra Part I I .C. I n short, the Court acknow ledg es that its unduly
restric tive i n t erpretation of the oppression statute leave s minority share holders unprotec ted from
conduct that will harm them but not t he cor poration. I t is precisely

the Court’s restrictive view of
the statute that cr eate s the g ap in protec tion and require s a common-law cause of ac tion. E. Breach of Fiduciary Duty
Shareholde r oppression was not the only cause of action in this proce eding

. Rupe also sued
for br eac h of fiducia

ry duty

. L ike share holder oppression, brea ch of fiduciar y duty is a doctrine that p ro t ec t s minority
share holders fr om abuse a nd oppression. As one le ading commentator ha s observe d:
T h e development of the statutory cause of action and the enhanc ed fiduciar y d u t y ref lect the same underly ing conce rns for the position of minority share holders, particula rly i n cl o s e corpor ations afte r harmony no longe r reig ns. Be cause of the

a c t i o n s a s d i r e c t a c t i o n s o f f e r s n o m e a n i n g f

u l p r o t e c t i o n t o t h e o p p r e s s e d m i n o r i t y s h a r e h o l d e r
. T h e C o u r t m i s c h a r a c t e r i z e s P a t t o n a s s t a n d i n g f o r t h e p r o p o s i t i o n t h a t a n i m p r o p e r r e f u s a l t o d e c l a r e 51 d i v i d e n d s e n t i t l e d m i n o r i t y s h a r e h o l d e r s t o r e l i e f “ e i t h e r d i r e c t l y t o t h e c o r p o r a t i o n o r t h r o u g h a d e r i v a t i v e a c t i o n
. ” _

_ S

. W

. 3 d a t

_ _ . B u t w e f o u n d n o h a r m t o t h e c o r p o r a t i o n i n P a t t o n a n d r e q u i r e d t h e m a j o r i t y s h a r e h o l d e r t o d e c l a r e r e a s o n a b l e d i v i d e n d s f o r u p t o f

i v e y e a r s
. 2 7 9 S

. W

. 2 d a t 8 5 7

– 5 8

. W e r e q u i r e d d e c l a r i n g d i v i d e n d s t o b e n e f i t t h e s h a r e h o l d e r s ( w h i c h h a d b e e n h a r m e d ) r a t h e r t h a n t h e c o r p o r a t i o n ( w h i c h h a d n o t b e e n h a r m e d b y w i t h h o l d i n g d i v i d e n d s )

. 

### 2 3

## simil arities between the two reme dial scheme s
. . . it makes sense to t h i nk of t hem

as two manifestations of a minority share holder’s cause of action for oppression [or] as two sides of the sa

me coin . . . . Doug las K. Moll, Shareholder Oppression & Dividend Policy in the Close Corporati on , 60 W A S H


## . & L E E 

## L

. R E V


## . 841, 852 (2003) (quotation marks and citations omitted). The fiduciar y conce pt for
close corpor ations arose in the 1970s, when the Massac husetts high court rec og nized that
“stockholder s in the close corpor ation owe one another substantially the same fiduciar y duty in the
opera tion of the enter

prise that partne rs owe to one another .” Donahue v. Rodd Electrotype Co. , 328 N.E.2d 505, 515 (Ma ss. 1975).
As t h e Fifth Circuit has observe d, this “re cog nition of specia l rules of fiduciar y duty applicable to close corpor ations has g ained widespre ad acc eptanc e.” Hollis , 232 F.3d at 468. Hig h

courts in I ndiana, Maryland, Minnesota, New York, Ohio, Utah, and West Virg inia have rec og nized that majority

share holders ca

n owe f iduciary duties to minority

share holders. 5 2


## We expressly avoided the issue in W illis v. Donnelly beca

use the rec ord there could not support the exis tence o f a fi duciar y duty

. 199 S.W .3d 262, 276–77 (Tex. 2006). But we did

rec og nize the exis tence o f a fiduciar y duty in Patton , wher e we held that “[u] ndoubtedly the
malicious suppression of dividends is a wrong akin to brea ch of trust, for which the courts will aff ord

a reme dy .” 279 S.W .2d at 854. I n light of Patton and the mai n s t re am ap p ro ach in Americ an

S e e C e n t r o E m p r e s a r i a l C e m p r e s a S

. A

. v
. A m
. M o v i l , S

. A

. B

. d e C

. V

. , 9 5 2 N

. E

. 2 d 9 9 5 , 1 0 0 1 ( N

. Y

. 2 0 1 1 ) ; 52 U

. S

. B a n k N

. A

. v
. C o l d S p r i n g G r a n i t e C o
. , 8 0 2 N

. W

. 2 d 3 6 3 , 3 8 1 ( M i n n
. 2 0 1 1 ) ; M c L a u g h l i n v
. S c h e n c k , 2 2 0 P

. 3 d 1 4 6 , 1 5 5 ( U t a h 2 0 0 9 ) ; B a r t h , 6 5 9 N

. E

. 2 d a t 5 6 1 n
. 6 ( I n d

. 1 9 9 5 ) ; C r o s b y , 5 4 8 N

. E

. 2 d a t 2 2 1 ( O h i o 1 9 8 9 ) ; T o n e r v
. B a l t

. E n v e l o p e C o
. , 4 9 8 A

. 2 d 6 4 2 , 6 4 8 ( M d

. 1 9 8 5 ) ; M a s i n t e r , 2 6 2 S

. E

. 2 d a t 4 3 8 ( W

. V a
. 1 9 8 0 ) ; s e e a l s o D & J T i r e , I n c
. v
. H e r c u l e s T i r e & R u b b e r C o
. , 5 9 8 F

. 3 d 2 0 0 , 2 0 6 ( 5 t h C i r
. 2 0 1 0 ) ( a p p l y i n g C o n n e c t i c u t l a w ) ; F i e d e r l e i n v
. B o u t s e l i s , 9 5 2 N

. E

. 2 d 8 4 7 , 8 6 0 ( I n d

. C t

. A p p
. 2 0 1 1 ) ; W a l t a v
. G a l l e g o s L a w F i r m , P

. C

. , 4 0 P

. 3 d 4 4 9 , 4 5 6

– 5 7 ( N

. M

. C t

. A p p
. 2 0 0 1 ) ; L a z e n b y v
. G o d w i n , 2 5 3 S

. E

. 2 d 4 8 9 , 4 9 2 ( N

. C

. C t

. A p p
. 1 9 7 9 )

. 

### 2 4

## jurisprudenc e, Texas courts of appea ls have deter mined on a case -by -ca se basis whether majority
share holders owe an informal fiduciar y duty to minority share holders of closely held corpor ations. 5 3 

## A key fac tor weig hing in f

avor of a fiduc iary

duty is the extent to which the major ity share holders
dominate control ove r a c losely held cor poration. Redmon v . Griffit h , 202 S.W .3d 225, 237 (Tex. App.—Ty ler 2006, pe t. denied). Finally , the business judgme nt r ule should not apply

to these fiducia

ry duty claims. When

we rec og nized a claim for brea ch of fiduciar y duty in Patton , the majority share holder was harming
the minority share holders but not the corpor ation itself, and we compelled a dividend to be paid to the minority share holders. 279 S.W .2d at 853, 857. Had the bu s i n es s judgme nt rule applied, we could not have c ompelled a dividend be cause there was no ha rm to the corpor ation.
F . Appli cation 1. Opp ression Rupe preva iled at trial on her share holder oppression and fiduciar y duty claims, and the trial

court compelled a $7.3 million buy out. T he court of appea ls he ld the re was sufficie nt e vidence of
share holder oppression (and there fore did not r eac h the fiduciar y duty issues), but the $7.3 milli on buy out f ailed to a ccount for the minority share s’ lack of

marke tability

and contr ol. 339 S.W.3d at 302. The jury

char g e def

ined oppre ssion as: burdensome, harsh and wrong ful conduct, a lack of probity and fair dealing i n the aff airs of the company to the prejudice of some of its members, or a visible depar ture

S e e , e
. g
. , R e d m o n , 2 0 2 S

. W

. 3 d a t 2 3 7 ; W i l l i s , 1 1 8 S

. W

. 3 d a t 3 1 ; P a b i c h v
. K e l l a r , 7 1 S

. W

. 3 d 5 0 0 , 5 0 4

– 0 5 53 ( T e x . A p p
. — F o r t W o r t h 2 0 0 2 , p e t

. d e n i e d ) ; H o g g e t t v
. B r o w n , 9 7 1 S

. W

. 2 d 4 7 2 , 4 8 7

– 8 8 ( T e x . A p p
. — H o u s t o n [ 1 4 t h D i s t

. ] 1 9 9 7 , p e t

. d e n i e d ) ; F i s h e r v
. Y a t e s , 9 5 3 S

. W

. 2 d 3 7 0 , 3 7 8

– 7 9 ( T e x . A p p
. — T e x a r k a n a 1 9 9 7 , p e t

. d e n i e d ) ; G a i t h e r v
. M o o d y , 5 2 8 S

. W

. 2 d 8 7 5 , 8 7 7 ( T e x . C i v . A p p
. — H o u s t o n [ 1 4 t h D i s t

. ] 1 9 7 5 , w r i t r e f ’ d n
. r
. e
. )

. 

### 2 5

## fr o m t h e s t andar ds of fair dealing , and a violation of fair play on which every

share holder who e ntrusts her money to a company

is entitled to rely

. As previously

addre ssed, this definition is more appr opriate he re tha n the re asonable expectations
definition beca

use Rupe inherited her share s and thus had no expectations when making a decision
to invest.
The jury found that Denna rd, Ritchie, L utes, and RI C all eng ag ed in oppressive conduct. The jury also aff

irmatively answe red specia l submissi ons that: (1) Denna rd paid persona l expenses from
RI C corpor ate funds; (2) Denna rd, Ritchie, and L utes offe red Rupe a position on the board in exchang e for her agr ee m en t n o t to sue a share holder of RI C; (3) Denna rd, Ritchie, and L utes’s buy out offe rs wer e oppressive; (4) Denna rd, Ritchie, and L utes’s failure to permit Rupe to examine
and copy corpor ate information was oppressive; (5) Denna rd , R i tchie, and L utes owed Rupe a fiduciar y duty ; (6) Denna

rd, Ritchie, and L utes brea ched their fiduciar y duty ; and (7) the fair value

o f R u p e’ s share s was $7.3 milli on, not discounted for lack of marke tability or control. The tr i al

court e ntere d judgme nt that compelled a buy out of Rupe’s shar es for $7.3 milli on. Be fore assessing whether sufficie nt evidenc e supports the verdic t, one must assess whether
the submissi on was proper
. I n addition to submitt ing a broad- form question on oppression, the trial 5 4



## court a sked the jury

to resolve disputed fac ts. This submissi on was proper. I f equitable remedie s still exis t (and the statute specifie s they should), the trial court must know what conduct constitutes oppression in order to fashion the least harsh reme dy reque st ed to rec tify that oppression. For example, if a majority share holder either ref used to pa

y dividends or issued a barg ain buy out of fer

S p e c i f i c a l l y , t h e j u r y w a s a s k e d : “ D o y o u f i n d t h a t t h e D e f

e n d a n t s e n g a g e d i n o p p r e s s i v e c o n d u c t t o t h e r i g h t s 54
o f [ R u p e ] a s a s h a r e h o l d e r i n R u p e I n v e s t m e n t C o r p o r a t i o n ? ” 

### 2 6

## and the jury simply answe red “y es” to the broad- form question, the trial court sitti ng in equity would

not know whether to compel a dividend or a buy out. Be cause the oppression statute ex p ressly pref ers equitable reme dies, I believe the trial court’s submissi on of specia l issues to the jury here was
appropr iate. Having deter

mined t h e trial court’s submissi on was proper , I also believe there is leg ally
sufficie nt evidenc e supporting the finding s of op p re s s i o n
. Be cause Rupe inherited her share s, oppression is define d as burdensome, harsh, or wrong ful conduct. T h er e i s evidenc e of the 5 5 

## following conduct the jury found to be oppressive: (1) making inferior offe rs of $1 milli on and $1.7
milli on; (2) wa

rning Rupe that RI C would be the only purcha ser of

her stock; ( 3) ref

using to meet with prospec tive purcha sers of Rupe’s share s; and (4) Denna rd pay ing persona l ex p en s es from
corpor ate funds. Reg arding the offe rs to purcha se, Ritchi e t es t i fi ed he thought Rupe was not 5 6


## entitled to a “f

air off er.” And t he $1.7 milli on valuation reflecte d discounts bey ond those applied

to previous re d em p tions of minority share s. Reg arding the ref usal to meet with prospec tive purcha ser s , Dennard admitted: (1) she disag ree d with Ritchie’s ref usal to meet with prospec tive purcha sers; (2 ) s h e wo uld want to meet with the president of a closely held corpor ation befor e investing; (3) the reque st for Ritchie to meet with prospect i v e purcha sers was rea sonable; and (4) such a ref

usal would be “oppre ssive to a minority share holder.” L utes also ag ree d that it would
be rea sonable for Rupe to e x pect that RI C would help her se ll her stock “[t] o the extent possible,”

S e e s u p r a n o t e s 4 0

– 4 2 a n d a c c o m p a n y i n g t e x t

. 55

D e s p i t e n e v e r h a v i n g b e e n a n R I C e m p l o y e e , D e n n a r d r e c e i v e s h e a l t h i n s u r a n c e f r o m R I C , r e c e i v e s $ 2 , 5 0 0 56 p e r m o n t h , a n d r e c e i v e s s e c r e t a r i a l a s s i s t a n c e a t h o m e o n a w e e k l y b a s i s t o b a l a n c e h e r p e r s o n a l c h e c k b o o k a n d p a y h e r b i l l s
. N o m i n o r i t y s h a r e h o l d e r r e c e i v e s s i m i l a r b e n e f i t s
. 

### 2 7

## and that “[i] t would have been p o s s i b l e” for Ritchie to have met with potential purcha sers.

Acc ording ly , there is some evidence to support the jury ’s finding s of oppre ssion.
2. Rem edy Having conclude d there is leg ally sufficie nt evidenc e of oppression, t he question bec omes what reme dy is appro p ri at e. Rupe primarily reque sted a buy out and alterna tively reque sted
dissoluti on if the buy out was inadequa te. Dissolution is u n d o u b t ed l y harshe r than a buy out. See
R o b ert A. Rag azzo, Toward a Delaware Common Law of Closely Held Corporati ons , 77 W A S H


## . U.L .Q. 1099, 1119 (1999) (“[The buy out] is less harsh than dissoluti on and often g ives both parties
what they want most.”). But the statute does not allow for dissoluti on based on oppression. For mer
art. 7.05. Thus, there is no need to compar e the harshne ss of a buy out to a reme dy Rupe never
reque sted. 5 7


## Be cause I agr ee wi t h the court of appeals t hat i t was error for the trial court to instruct the jury to not discount the value of Rupe’s stock for its lack of marke tability or minority status, I would
aff irm i t s j u d gm en t rema

nding for a rede termination of t he amount of t he buy out. 339 S.W .3d at
302. Under Rule of Appellate Procedur e 44.1(b), a new trial may be order ed on a separ able part of

a proce eding , but a separ ate trial on unliquidated damag es is improper if liability is contested. T E X


## . R. A P P


## . P. 44.1(b). Her e, the amount of the buy out is an equitable reme dy rathe r than a measure of

T h e C o u r t o b s e r v e s t h a t t h e c o u r t o f a p p e a l s d i d n o t a n a l y z e w h e t h e r a b u y o u t i s l e s s h a r s h t h a n a 57
r e h a b i l i t a t i v e r e c e i v e r
. _

_ S

. W

. 3 d a t _

_ . B u t R u p e n e v e r r e q u e s t e d a r e h a b i l i t a t i v e r e c e i v e r
. A n d t h e c o u r t o f a p p e a l s a c t u a l l y a s s e s s e d t h e a l l e g e d h a r s h n e s s o f t h e b u y o u t a n d d e t e r m i n e d t h e t r i a l c o u r t d i d n o t a b u s e i t s d i s c r e t i o n i n l i g h t o f R I C ’ s $ 1 5 2 m i l l i o n n e t s a l e s a n d $ 5 5 m i l l i o n i n a s s e t s
. 3 3 9 S

. W

. 3 d a t 2 9 8

– 9 9

. I t w o u l d s e e m p r e m a t u r e f o r t h e c o u r t o f a p p e a l s t o f

u l l y a s s e s s t h e c o m p a r a t i v e h a r s h n e s s o f a b u y o u t w h e n i t r e m a n d e d f o r a r e c a l c u l a t i o n o f t h a t a m o u n t

. 

### 2 8

## unliquidated damag es, and a retria l on the amount of the buy out alone is separ ab le without unfairne ss

to the parties. 5 8


## III. Conclusi on I n sum, I cannot ag ree that a proper construction of the share holder oppression statute is that
the statute exti ng uishes the very reme dies i t expressly pref ers. Uniformly , courts in Texas and bey ond have he ld that less harsh re medies at law and equity are available , such as a court-or dere d buy out. Under the time-honored definitions of oppression, there is some evidenc e that the majority
share holders here eng ag ed in burdensome, harsh, and wrong ful co n d u ct by (1) making inferior buy out offe rs; (2) war

ning Rupe that RI C would be the only purcha ser of her stock; (3) withholding

co rpora te information; (4) ref using to meet with prospec tive purcha sers of Rupe’s share s; and (5) pay ing Denna

rd’s persona l expenses with corpor ate funds. RI C’s chair man even admitted that
ref using to meet with prospec tive purcha sers was oppressive. But beca use the valuation of Rupe’s
share s failed to acc ount for their lack of marke tability or control, I would aff irm the judgme nt of the

court of appea ls, which rema nded to the trial court for a rede termination of the amount of the buy out.
Be cause the Court rende rs judgme nt that Rupe take nothing on her valid share holder oppression claim, I respe ctfully

dissent.

R u p e ’ s a l t e r n a t i v e b a s i s o f r e l y i n g o n t h e f i d u c i a r y d u t y c l a i m w o u l d n o t a f f e c t t h a t r e m a n d f

o r a r e t r i a l

. 58 A s s u m i n g a b u y o u t i s t h e a p p r o p r i a t e r e m e d y f o r t h e b r e a c h o f

f i d u c i a r y d u t y h e r e , t h e b u y o u t c a l c u l a t i o n s t i l l f a i l e d t o a c c o u n t f

o r t h e s h a r e s ’ l a c k o f m a r k e t a b i l i t y o r c o n t r o l

. 

### 2 9

## ____________________________________ Eva M. Guzman J ustice
Opinion Delivere d: J une 20, 2014

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