Business Litigation Alert: "Texas Supreme Court Update - New Ruling Restrains Minority Shareholder Oppression Claims"

The Texas Supreme Court recently issued its decision in Ritchie v. Rupe, a case that essentially eliminates the continuing viability of claims for minority shareholder oppression in Texas. The case involved a dispute over a family-owned business. After one owner died, his wife claimed that the other owners were hostile to her, and when she sought to sell her shares, they refused to assist with the sale in any way.

When the case originally went to trial, the lower court found the conduct of the majority shareholders “oppressive,” ordering a buyout of the minority’s shares for $7.3 million, and the Dallas Court of Appeals agreed. However, the Texas Supreme Court reversed that decision, ruling that Texas law does not recognize a common law claim for minority “shareholder oppression” and the only statutory remedy for “oppressive” conduct by corporate management is the appointment of a rehabilitative receiver.

This decision by the Texas Supreme Court will mean significant restraints on minority shareholder “oppression” claims moving forward.

  • Shareholder oppression claims will be refocused on harm suffered by the company, if any – not the minority shareholder alone.
  • Minority shareholders will face a significantly weakened position should their personal interests come into conflict with the majority.
  • Refusal to meet with prospective buyers of minority shares does not constitute “oppressive” conduct.

Moving forward, the importance of a well thought out and written shareholder agreement cannot be overstated. Such an agreement should include, at a minimum, provisions that address buyout, first refusal, and redemption of minority shares in the event the parties want to separate. Otherwise, a minority shareholder will have few, if any, real options.

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