Oct o b e r 2 0 1 4
Focus
Dal l as Bar A ssoci ati on l Headnotes 15
Business Litigation
Minority Shareholder Oppression Cause of Action Struck Down by Brad Jackson and Mark Taylor
Reversing more than 25 years of appellate court decisions, the Texas Supreme Court recently held that minority shareholder oppression is not a recognized cause of action under common law. The Court also ruled that the remedy for appointment of a receiver when the majority engages in oppressive conduct is only available when such conduct cannot be justified under the business judgment rule. Ritchie v. Rupe. Since a 1987 decision by the Houston Court of Appeals, no fewer than seven Texas appellate court decisions had recognized and developed standards for minority shareholder oppression. These standards permitted a shareholder to force a buy-out of his shares if the conduct of the majority substantially defeated the reasonable expectations of the minority shareholder, or demonstrated a lack of probity and fair dealing in the affairs of the company to the prejudice of the minority. The decision in Ritchie reverses this entire body of law, and leaves many wondering whether investors may think twice before taking minority positions in Texas-based business start-ups. Rupe Investment Corporation was
controlled by four individuals who had inherited their interests from the company’s founders and early owners. When Ann Rupe married one of these shareholders, she was treated as an outsider and told she would “never get any money in this family.” After her husband died in 2002, Rupe twice asked the family to purchase her shares, but received offers that she believed were far below fair value. She then engaged a broker to sell her shares to a third party, but the majority stockholders refused to meet with potential purchasers. Rupe believed such a tactic would make it impossible to sell her shares. Rupe brought suit alleging oppressive conduct and breach of fiduciary duty, and a jury found in her favor and ordered a buy-out of her shares for $7.3 million. The court of appeals found the majority’s conduct to be oppressive as a matter of law and upheld the forced buy-out. In determining that this remedy was inappropriate, the Supreme Court relied heavily upon the language of Section 11.404 of the Business Organizations Code, which authorized the appointment of a receiver if the conduct of the majority was “oppressive,” provided that all other remedies available at law or in equity were inadequate. Where other courts had
interpreted the “availability of equitable remedies” language as the implicit recognition of a court’s equitable powers to fashion other remedies such as a forced buy-out, the Supreme Court found this interpretation turned the statute’s “language on its head – treating it as expanding rather than restricting the relief the statute provides.” The Supreme Court further applied a cost-benefit analysis to determine whether a common law cause of action should be recognized. The court concluded that while oppression of minority interests was foreseeable and could be expected to cause substantial harm to minority investors, existing remedies were sufficient to protect those interests. Minority investors could insist upon the corporation invoking “close corporation” status, bring derivative lawsuits, or enter into shareholders’ agreements to protect their interests. Furthermore, in determining the extent of the limited protection provided by Section 11.404, the Supreme Court held that the majority’s abuse of their authority with the intent to harm a minority shareholder must be “in a manner that does not comport with the honest exercise of their business judgment,”
that leads to “a serious risk of harm to the corporation.” In doing so, the court relied upon a 1966 opinion from the Texarkana court of appeals that invoked the business judgment rule in a receivership action, and expressly overturned a holding to the contrary by the court of appeals in Ritchie. The dissent noted that Texas is the first state to eliminate the possibility of a forced buyout as an available equitable remedy in cases of oppression, and criticized the majority for allowing the business judgment rule to be invoked in these cases because the act of oppression rarely harms the corporation as a whole. In doing so, the majority negated the very foundations of protection that courts have long afforded to minority shareholders in closely held corporations. In the wake of Ritchie, aggrieved minority owners must focus their complaints on breaches of fiduciary duty. The decision also puts a premium on the negotiation of shareholder agreements and other means of protecting owners of HN minority interests. Brad Jackson is a commercial litigator at The Law Offices of Brad Jackson. He can be reached at brad@bradjackson.com. Mark Taylor is a partner at Powers Taylor LLP. He can be reached at mark@powerstaylor.com.
Pro Bono Immigration Opportunities By Bill Holston and Lauren Wallis
Hanging in the Houston Asylum office of the great state of Texas is a quote from President Obama. It reads: For over two centuries, this nation has been a beacon of hope and opportunity, a place that has drawn enterprising men and women from around the world who have sought to build a life as good as their talents and hard work would allow. And generation after generation have come to these shores because they believe in America all things are possible. These words hold infinite promise, but fall short when immigrants are unable to navigate our complex legal system. You have the chance to help; to represent a child fleeing gang violence in Honduras, to help an immigrant survivor of domestic violence, to assist a religious minority seeking asylum to escape certain death, to assist a survivor of human trafficking, or to help someone seek legal status in the United States so they can remain with their loved ones. You have the chance to make a difference and hear fascinating stories from people around the word. Are you ready to change someone’s life? Here are a few organizations who present pro bono opportunities. Human Rights Initiative of North
Texas: HRI conducts trainings and places cases with pro bono lawyers through a volunteer coordinator. Staff attorneys provide supervision and support on cases. HRI has opportunities to assist Unaccompanied Minors with Special Immigrant Juvenile Visas, and needs volunteers to screen clients, as well as take cases. The cases have a family court and Immigration Court component. HRI represents immigrants with Asylum cases in Immigration Court and the Bureau of Immigration Appeals. HRI also has opportunities with U Visas and VAWA cases. http://hrionline.org Catholic Charities of Dallas, Citizenship and Immigration Services: Catholic Charities of Dallas provides legal orientation and legal services to unaccompanied immigrant minors who qualify for a Family-Sponsored Petition, U-Visa, T-Visa or Special Juvenile Immigrant Status (SIJS). Currently, it needs attorneys, preferably who speak Spanish, who are willing to learn family court and immigration court procedures involved in the representation of unaccompanied immigrant children. Attorney volunteers may also assist during its weekly legal screenings. If you are interested in helping as an attorney volunteer, please contact Jenna Carl or Jaime Treviño at attorney@ccdallas.org.
DBA Annual Meeting The Annual Meeting is Friday, November 7, in the Pavilion. A reception begins at 3:30 p.m. and the meeting begins at 4:00 p.m.
If you wish to run for a position, you must contact Cathy Maher cmaher@dallasbar.org (214) 220-7401, no later than Thursday, November 6th, at 5:00 p.m. to receive information about service on the Board. You are required to complete a biographical form prior to the meeting.
Mosaic Family Services: Pro bono attorneys may work with Mosaic to prepare all or portions of immigration petitions before submission to USCIS. Attorneys may work on VAWA, U, or T nonimmigrant petitions. Mosaic’s Pro Bono Coordinator will partner with volunteer attorneys and tailor projects that are compatible with the volunteers’ interest and availability. All volunteers will be partnered with a mentor attorney and do not need to have experience in immigration law. http://mosaicservices.org/how-wehelp/legal-representation/ Dallas Hispanic Bar Association: In an effort to maximize representation of the influx of Unaccompanied Minors, the Dallas Hispanic Bar Association is collaborating with HRI and Catholic Charities to screen clients, recruit and train lawyers and place cases with volunteers. http://dallashispanicbar.com/eventsnews/unaccompanied-minors-action-committee/ Justice for Our Neighbors: JFON provides pro bono and low cost legal services: i.e. Family Petitions, Adjustment of Status, Naturalization & Citizenship, Asylum, Violence Against Women Act (VAWA), U Visas, T Visas, Temporary Protected Status, and Special Immigrant Juvenile
Bill Holston is the Executive Director of Human Rights Initiative of North Texas and can be reached at bholston@hrionline.org. Lauren Wallis is an associate at Petty & Stewart, PLLC and can be reached at lwallis@pettystewart.com.
Innovative Solutions for Complex Matters Litigation Resolution and Negotiation Specialist 27 Years of Exclusive ADR Practice Mediator/Arbitrator/Settlement Counsel Online Interactive Calendar
Following the meeting all DBA resident members with an e-mail address on file will receive an online ballot. If you wish to vote online, please make sure the DBA has your e-mail address by visiting the DBA website at www. dallasbar.org, or call Kim Watson at (214) 220-7414 before 5 p.m. on Thursday, November 6, 2014.
Jeff Abrams, Esq.
jeff@abramsmediation.com Cell: 214-289-4427
Please update your spam software to allow the e-mail ballot to enter your inbox from DallasBar@BallotBoxOnline.com. If you receive an online ballot but wish to vote by hard copy, please contact Cathy Maher at (214) 220-7401 to request that a paper ballot be mailed to you.
Status. Because of its small staff, JFON has limited ability to supervise pro bono lawyers, but is open to working with lawyers who do not require supervision. Asylum, trafficking, and TPS matters are handled free of charge. www.jfondfw.org/ Asylum: For a person who has suffered past persecution and/or maintains a well-founded fear of future persecution on account of his or her race, religion, nationality, membership in a particular social group, or political opinion. Special Immigrant Juvenile Status (SIJS): Available to children who are victims of abuse, abandonment, or neglect by one or both parents. If the juvenile is successful, she may remain in the United States, work legally, and in five years apply for U.S. citizenship. Adjustment of Status (AOS): Process for changing one immigration status, or undocumented status, to the status of a lawful permanent resident. U-Visa: Immigrant victims of crime T-Visa: Immigrant survivor of HN Trafficking
MEDIATION AND ARBITRATION, INC abramsmediation.com
5720 LBJ Fwy, Ste 560 Dallas, TX 75240-6328 Tel: 972.702.9066 Fax: 214.526.5880