Chapter 9-7 Common Law Shareholder Oppression

• Jurisdiction: United States

9-7 Common Law Shareholder Oppression

9-7:1 Overview

Common law shareholder oppression first gained traction in Texas in the 1988 case of Davis v. Sheerin.³⁶ The Davis courts and several other courts of appeals erroneously relied upon Section 11.404(b)(3) of the Business Organizations Code to create a cause of action which provided oppressed shareholders multiple equitable remedies.

9-7:1.1 Related Causes of Action

Statutory Shareholder Oppression, Receivership, Officer and Director Liability: Breach of the Duty of Loyalty

MUST READ CASE

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

9-7:2 Expressly Rejected in Texas

The Supreme Court of Texas recently rejected the common-law cause of action for shareholder oppression.³⁷ However, an oppressed shareholder may still seek the appointment of a receiver under the Business Organizations Code.³⁸ Furthermore, 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.³⁹

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Notes:

^[36] Davis v. Sheerin, 754 S.W.2d 375, 378 (Tex. App.—Houston [1st Dist.] 1988, writ denied).

^[37] Ritchie v. Rupe, 443 S.W. 3d 856, 878 (Tex. 2014).

^[38] See Tex. Bus. Orgs. Code Ann. § 11.404(a)(1)(C).

^[39] For example, the Supreme Court reiterated that the malicious suppression of dividends will support a cause of action for breach of fiduciary duty, despite there not being a common-law cause of action for shareholder oppression. Ritchie v. Rupe, 443 S.W.3d 856, 884-85 (Tex. 2014) (quoting Patton v. Nicholas, 279 S.W.2d 848, 853 (Tex. 1955)).