SUPREME COURT FINDS NO CAUSE OF ACTION FOR SHAREHOLDER OPPRESSION UNDER TEXAS COMMON LAW

Ritchie v. Rupe
Texas Supreme Court, No.11-0447 (June 20, 2014)
Justice Boyd (Opinion); Justice Guzman (Dissent)
In a long-awaited decision, the Texas Supreme Court held there is no cause of action for shareholder oppression in closely-held corporations under Texas common law, and that the statute referring to “oppressive” conduct by those in control of a corporation does not authorize a buy-out order or any remedy other than the “rehabilitative receivership” provided by that statute. The Court’s six-justice majority rejected both the “reasonable expectations” and “fair dealing” definitions of oppression quoted by some Texas courts of appeals, and held that Texas law provides adequate remedies to address the harms for which other courts have created the shareholder-oppression cause of action. “Ultimately, because the standard is so vague and subject to different meanings in different circumstances, we conclude that creating new and independent legal remedies for “oppressive” actions is simply bad jurisprudence.” The Court therefore reversed the judgment of the Dallas Court of Appeals and remanded for consideration of a breach-of-fiduciary-duty claim not previously reached by that court. The dissenting justices would have affirmed the judgment under the common-law definitions of shareholder oppression utilized by several Texas courts of appeals and other jurisdictions. This case will have significant ramifications for countless cases pending in Texas trial and appellate courts, and provides substantial guidance for those considering the rights and responsibilities of majority and minority shareholders in closely-held corporations.

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