Chapter 2-7 Shareholder Oppression

• Jurisdiction: United States

2-7 Shareholder Oppression

2-7:1 Overview

There is no common law cause of action for minority shareholder oppression.¹⁶¹ The statutory cause of action for the appointment of a receiver is the exclusive statutory remedy available to an oppressed shareholder. Moreover, the definition of "oppression" in the receivership context is less inclusive than the definition of oppression under the defunct reasonable-expectations or fair-dealings test.¹⁶² Despite this exclusive definition, a governing person's actions which constitute "oppression" in the receivership context might also constitute an actionable breach of fiduciary duty owed to the corporation.¹⁶³ Therefore, the Supreme Court of Texas's rejection of the common law cause of action for minority shareholder oppression did not completely eliminate a plaintiff's ability to obtain a money judgment. Rather, it only limited the causes of actions available for such a plaintiff.

2-7:1.1 Related Causes of Action

Receivership, Derivative Shareholder Suits, Officer and Director Liability: Breach of the Duty of Loyalty, Accounting, Fraud and Constructive Fraud, Conversion, Fraudulent Transfer, Unjust Enrichment

MUST READ CASE

Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014)

2-7:2 Elements

(1) A governing person

• A governing person must be the person who engages in "oppressive" conduct.¹⁶⁴

(2) Engages in oppressive conduct by

• A governing person only engages in oppressive conduct if they abuse their authority over the corporation with the intent to harm the interests of one or more of the shareholders, in a manner that does not comport with the honest exercise of their business judgment, and by doing so create a serious risk of harm to the corporation.¹⁶⁵
• The definition of "oppression" in the receivership context is less inclusive than the definition of oppression under the defunct reasonable-expectations or fair-dealings test.¹⁶⁶

(2)(a) Abusing their authority over the corporation

• An officer or shareholder must abuse their authority over the corporation.

(2)(b) With the intent to harm the interests of one or more of their shareholders

• An officer or shareholder must abuse such authority with the intent to harm the interests of one or more of their shareholders.

(2)(c) In a manner that does not comport with the honest exercise of their business judgment

• An officer or shareholder must abuse such authority in a manner that does not comport with the honest exercise of their business judgment.

(2) (d) Creates a serious risk of harm to the corporation

• Such abuse of authority must

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