BIG VICTORY FOR MAJORITY OWNERS IN TEXAS COMPANIES

In Ritchie v. Rupe, the Texas Supreme Court basically eliminated the Texas common-law cause of action for minority shareholder oppression (a powerful tool for minority shareholders to attack the majority owners and principals in closely held corporations).  Shareholder oppression occurs when the majority shareholders in a corporation take action that unfairly prejudices the minority.  It most commonly occurs in close corporations, because the lack of a public market for shares leaves minority shareholders particularly vulnerable, since minority shareholders cannot escape mistreatment by selling their stock and exiting the corporation.  The majority shareholders may harm the economic interests of the minority by refusing to declare dividends or attempting a squeeze-out. The majority may physically lock the minority out of the corporate premises and even deny the minority the right to inspect corporate records and books, making it necessary for the minority to sue every time it wants to look at them.  In Ritchie, a minority shareholder in a closely held company alleged that the company's shareholders breached their duties by offering to buy her shares in the corporation for less than fair market value. And, the defendants refused to meet with the minority shareholder's investment banker and prospective purchaser based on the business judgment rule.  The trial court ordered the corporation to purchase the shares of the minority shareholder for $7.3 million.  The Court of Appeals ruled and then the Supreme Court basically eliminated the minority oppression claim.  This ruling is important because minority shareholders no longer have a powerful remedy against controlling shareholders, directors and officers of Texas corporations.  But, the ruling in Ritchie should not be viewed as an excuse to squeeze out or disregard minority shareholders.  There are still plenty of other claims in Texas jurisprudence to deal with bad business partners.  Think about first refusal provisions, redemption, and possibly arbitration provisions.  If you need help with a recalcitrant business partner or corporate litigation, call James Bell at 972-788-1400 or email him at jbell@fflawoffice.com.

 

5301 Spring Valley Rd.

Suite 200

Dallas, Texas 75254

972-788-1400

www.fflawoffice.com

       

JAMES S. BELL


James Bell is originally from Pacific Palisades, California.  He attended the University of Southern California and then received his B.A. with honors from Southern Methodist University in 2001. He  received his J.D. cum laude from Southern Methodist University Dedman School of Law in 2005.  He was admitted to the State Bar of Texas in 2006 and then the State Bar of California in 2007.  He is also admitted to practice before the United States District Courts for the Northern District of Texas, the Eastern District of Texas, and the Central District of California.  He was a panelist and speaker at the 2009 State Bar of Texas Advanced Family Law Seminar.  His litigation matters range from complex civil litigation (securities fraud, corporate and investment fraud, intellectual property, and other business related torts), to business dispute litigation to family law matters.

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