Opinion ID: 2831389
Heading Depth: 1
Heading Rank: 2

Heading: E, infra.

Text: 16 The father of Buddy Rupe and Paula Dennard established the family trust to benefit his wife, his two children (Buddy and Dennard), and Dennard’s three children. At the time, Buddy had one adopted child. The father did not wish to leave voting shares to an adopted child and believed Buddy to be incapable of having children. Accordingly, the family trust provided that Buddy’s inheritance of RIC dividends would revert to Dennard and her three children on Buddy’s death. 17 Almost all of RIC’s voting shares were owned by trusts, including the 18% of the voting shares attributable to Rupe and her son. For ease of reference, this opinion will refer to the beneficial interest owners of the trust when possible. 18 In accordance with the terms of the family trust, see supra note 16, Buddy’s RIC dividends of $50,000 per year from his shares in the family trust reverted to Dennard and her children. 6 (a descendant of one of RIC’s early owners) and Dennis Lutes (an attorney for RIC and Dennard’s family) feared she would sue to reform the trust and add her and Buddy’s son as a beneficiary. Dennard serves as chair of RIC’s board of directors, and with her children controls over 70% of RIC’s voting stock. Ritchie serves as RIC’s president, is on the board, and together with his family owns just under 10% of RIC’s voting stock. And Lutes serves as vice-president and secretary of RIC and is on the board. Together, Dennard and her children, Ritchie and his family, and Lutes control approximately 79% of RIC’s voting shares and three of the board’s four positions. The trial court found that Dennard, Ritchie, and Lutes voted the same for every shareholder vote for the entire time relevant to this lawsuit. Before his death, Buddy was RIC’s fourth director. RIC’s sales were approximately $152 million by 2007. After Buddy’s death, Ritchie offered to appoint Rupe to RIC’s board if she would agree to not sue another stockholder of RIC, which included the trust. Rupe accepted. Subsequently, when her home was facing foreclosure and she encountered a tax problem, Rupe asked if RIC would purchase her shares. Ritchie responded that RIC would prefer to delay any offer to purchase her shares because one of its subsidiaries was attempting to obtain new financing. Lutes later offered to redeem Rupe’s shares for $1 million. Rupe replied that the $1 million buyout offer was “absurd” and was designed to take advantage of her. Dennard, Ritchie, and Lutes then elected Dennard’s daughter Gretchen to take Buddy’s seat on the board. Ritchie later offered for RIC to purchase Rupe’s shares for approximately $1.7 million (or $5,987 per share) to be paid over a seven-year period. In making the offer, Ritchie warned that RIC would be the only purchaser of her stock. Ritchie admitted at trial this value was calculated using 7 the book value of RIC’s shareholder equity, and Ritchie and Lutes both conceded that book value was not necessarily representative of market value.19 RIC’s calculation also deducted 50% of the book value of one of its major subsidiaries,20 and further reduced the value of Rupe’s stock by 46.3%.21 Ritchie separately informed Dennard that based on the same date he valued Rupe’s shares at $5,987 per share, Dennard’s shares possessed a book value of $7,032 per share for gift tax purposes. And these offers to purchase Rupe’s shares were markedly lower than the per-share prices RIC paid to previous minority shareholders. Unsatisfied with the offer, Rupe retained investment banker George Stasen to market her stock to third parties. When they met, Dennard, several of her children, and Ritchie greeted Stasen in “a very hostile fashion,” and Ritchie refused Stasen’s request to meet with any potential thirdparty buyers. They required Rupe and any potential buyer to execute confidentiality agreements that were not subject to negotiation and that granted RIC sole discretion to approve or disapprove disclosure of requested information. According to Stasen, potential buyers laughed at him because they could not be expected to “make a decision on an investment from this limited information without meeting the executives” of a closely held corporation like RIC. Stasen explained that “[t]here was no way I could ever sell anything . . . [b]ecause there wasn’t enough information in the package and everybody wanted to be 19 For example, RIC listed an office building for sale for $1.8 million but established its book value at $124,000 due to depreciation. 20 RIC subsidiary Hutton Communications was in a financial crisis, but Hutton’s chief financial officer testified that its turnaround began before the date on which RIC assessed the book value of Rupe’s shares. 21 RIC used this particular discount when buying back certain stock in previous years. 8 able to meet Lee Ritchie and talk to the executives of the companies.” Importantly Dennard admitted at trial that she disagreed with Ritchie’s refusal to meet with potential third-party buyers, she would want to meet with the president of a closely held corporation before investing, Stasen’s request of Ritchie was reasonable, and refusing such a request would be “oppressive to a minority shareholder.” Rupe sued Dennard, Ritchie, Lutes, and RIC, claiming shareholder oppression and breach of fiduciary duty. Rupe sought a court-ordered buyout of her shares or, alternatively, the appointment of a receiver to liquidate RIC. Among other things, the jury found after an eight-day trial that: (1) Dennard, Ritchie, Lutes, and RIC engaged in oppressive conduct; (2) RIC failed to allow Rupe to inspect and copy relevant books and records; (3) Dennard paid personal expenses from RIC’s corporate funds; (4) Dennard, Ritchie, and Lutes offered Rupe a position on the board if she would agree to not sue a shareholder of RIC; (5) Dennard, Ritchie, and Lutes engaged in oppressive conduct in their redemption offers and treatment of Rupe with regard to inspection and copying of corporate records; (6) Dennard, Ritchie, and Lutes breached their fiduciary duties to Rupe; and (7) the fair value of Rupe’s shares was $7.3 million.22 The trial court entered judgment in favor of Rupe and ordered Dennard, Ritchie, and Lutes to cause RIC to redeem Rupe’s shares for $7.3 million. The court of appeals agreed that the conduct amounted to shareholder oppression and a stock buyout was the most appropriate remedy but remanded for a redetermination of the stock’s value in light of the lack of marketability and control. 339 S.W.3d 275, 299, 302. 22 RIC’s $1.7 million offer was calculated utilizing a valuation date of June 30, 2003. The jury assessed the value of Rupe’s shares as of June 30, 2006. The court of appeals affirmed the jury’s valuation date, which is not at issue in this appeal. 9