Ritchie v. Rupe

443 S.W.3d 856

Lee C. RITCHIE, et al., Petitioners

v.Ann Caldwell RUPE, As Trustee for the Dallas Gordon Rupe, III 1995 Family Trust, Respondent.

No. 11–0447.

Supreme Court of Texas.

Argued Feb. 26, 2013.

Decided June 20, 2014.

Rehearing Denied Oct. 24, 2014.

Eric Thomas Stahl, Law Offices of Frank L. Branson, P.C., Dallas, TX, for Amicus Curiae Cruz, M.D., Erwin.

John Richard Fahy, Whitaker Chalk Swindle & Schwartz PLLC, Fort Worth, Rex S. Whitaker, Baird, Crews, Schiller & Whitaker, P.C., Temple, Wayne Martin Whitaker, Whitaker Chalk Swindle & Schwartz PLLC, Fort Worth, TX, for Amicus Curiae Fahy, John R. Wayne Whitaker and Rex Whitaker.

Carol Bavousett Mattick, Attorney at Law, San Antonio, TX, for Amicus Curiae Mattick, Carol Bavousett.

Elizabeth Stone Miller, Attorney and Professor of Law, Waco, TX, for Amicus Curiae Miller, Elizabeth S.

Marc I. Steinberg, SMU Dedman School of Law, Dallas, TX, for Amicus Curiae Steinberg, Marc Robert A. Ragazzo, Alan R. Bromberg, Joseph K. Leahy, Bruce A. McGovern, Gary S. Rosin, and David Simon Sokolow.

Peter M. Kelly, Kelly, Durham & Pittard, L.L.P., Houston, TX, for Amicus Curiae Texas Trial Lawyers Association.

Amy Elaine Davis, Katherine Khristine Elrich, Hermes Sargent Bates LLP, Hilaree A. Casada, Cowles & Thompson, P.C., Robert B. Gilbreath, Hawkins Parnell, Thackston & Young LLP, Dallas, TX, for Petitioner.

Brett David Kutnick, Hankinson LLP, Charla G. Aldous, Aldous Law Firm, Jeffrey S. Levinger, Levinger PC, Steven E. Aldous, Forshey & Prostok LLP, Dallas, TX, for Respondent.

Opinion

Justice BOYD delivered the opinion of the Court, in which Chief Justice HECHT, Justice GREEN, Justice JOHNSON, Justice LEHRMANN, and Justice DEVINE joined.

In this case, a minority shareholder in a closely held corporation alleged that the corporation's other shareholders, who were also on the board of directors, engaged in “oppressive” actions and breached fiduciary duties by, among other things, refusing to buy her shares for fair value or meet with prospective outside buyers. The directors essentially admit to this conduct but insist that they were simply doing what was best for the corporation. For the most part, the jury sided with the minority shareholder, and the trial court ordered the corporation to buy out her shares for $7.3 million. The court of appeals agreed that the directors' refusal to meet with prospective purchasers was “oppressive” and upheld the buy-out order. We hold that this conduct was not “oppressive” under the statute on which the minority shareholder relies, and in any event, the statute does not authorize courts to order a corporation to buy out a minority shareholder's interests. Moving beyond the statutory claims, we decline to recognize or create a Texas common-law cause of action for “minority shareholder oppression.” We thus reverse the court of appeals' judgment. Because the court of appeals upheld the judgment based on the oppression claim and did not reach the breach-of-fiduciary-duty claim, we remand the case to the court of appeals.

I.Background

Rupe Investment Corporation (RIC) is a Texas closely held corporation.¹ Before this dispute arose, RIC's board of directors had four members: Paula Dennard, who chaired the board; Dallas Gordon Rupe, III (Buddy), who was Dennard's brother; Lee Ritchie, who served as president of RIC; and Dennis Lutes, an attorney whose clients included RIC, Dennard, and her family. Paula Dennard and Buddy Rupe were the descendants of RIC's founder, and Ritchie is the descendant of one of its early owners. Three different family trusts collectively owned approximately 72% of RIC's voting stock.² Dennard, Ritchie, and Lutes served as trustees of those trusts and thus collectively controlled a majority of RIC's voting power. Ritchie and his family also owned an additional 10% of the shares directly, increasing the combined voting power to 82%. Buddy owned the remaining 18% directly. There was no shareholders' agreement.

Ann Rupe joined the family when she married Buddy in 1983. Rupe was Buddy's second wife, and their marriage and the birth of their son, Guy, took place after the death of Dennard and Buddy's father, Gordon. Gordon's will created Gordon's Trust, which named Gordon's wife, his children (Dennard and Buddy), and Dennard's three children as beneficiaries. Buddy and Rupe wanted their son to be added as a beneficiary of Gordon's Trust, but Dennard and her children refused, and this created some friction between Rupe and Dennard. According to Rupe, Dennard treated Rupe “as an outsider” from the very beginning, and told her that she would “never get any money in this family.” With Buddy's encouragement, Rupe began considering a lawsuit to reform Gordon's Trust to add Guy as a beneficiary.

Buddy died in 2002. His 18% interest in RIC had been placed in a trust for the benefit of Rupe and their son (Buddy's Trust), naming Rupe as trustee.³ In Rupe's view, Dennard, Ritchie, and Lutes immediately became “hostile” towards her and feared that she would sue to reform Gordon's Trust. At one point, Ritchie, with Dennard's and Lutes's approval, offered to appoint Rupe to replace Buddy on RIC's board of directors, but only if she would agree not to file suit against Gordon's Trust. Rupe declined, and instead asked Ritchie if RIC would be interested in buying out her shares. Ritchie replied that RIC could not at that time because one of RIC's subsidiaries, Hutton Communications, was going through a financial crisis. Soon thereafter, Rupe's attorney sent a letter to Lutes, requesting the opportunity to review and copy RIC's corporate documents⁴ and directing the Rupe and Ritchie family members not to communicate directly with Rupe regarding RIC or any other business matters.

On behalf of RIC, Lutes later offered to redeem Rupe's shares for $1 million. With this offer, he told Rupe that “any further discussions regarding a possible stock redemption would be pointless until the Hutton Communications situation is finally resolved,” and he encouraged Rupe not to redeem the shares until they “ultimately” increased in value. Rupe's attorney declined the redemption offer. Because RIC's sales exceeded $150 million and it had assets in excess of $50 million, he considered it “absurd” and an attempt “to take advantage of [Rupe].”

Rupe subsequently terminated her relationship with her attorney and personally requested a new redemption offer from Ritchie. Ritchie reiterated that he did not recommend selling her shares at that time, but he agreed to raise the issue at an upcoming board meeting. After the board meeting, Ritchie made a new offer of $1,760,947, which he said was based on a formula that RIC had previously used to value RIC's shares and, in any event, was “the highest cash offer that RIC directors believed they could make without jeopardizing the company and its other shareholders.” Rupe declined the offer and decided to try to sell her shares to an outside party. She hired a new attorney and a broker, George Stasen, to market her shares. At Rupe's request, Dennard and Ritchie met with Stasen in March 2005. The meeting did not go well. Stasen, who described the meeting as “hostile,” informed Dennard and Ritchie that he felt RIC's financial performance was “very, very unsatisfactory” and accused them of mismanagement. Stasen admitted at trial, however, that he had only a limited understanding of the company at the time. Nevertheless, throughout late 2005, Ritchie and Lutes worked with Stasen and Rupe's latest attorney to draft confidentiality agreements to allow Stasen to disclose some of RIC's confidential business information to Rupe's prospective outside purchasers.

In January 2006, Rupe sent a note to Ritchie, asking for dates when he could meet with prospective purchasers. After conferring with Lutes and an outside attorney with expertise in securities law, Ritchie sent a reply to Rupe declining to participate in such meetings. Ritchie stated that, because RIC would not be a party to the sale of her shares to an outside buyer, “it would be inappropriate for me or any other officer or director of [RIC] to meet with your prospects or otherwise participate in any activities relating to your proposed sale of stock.” Stasen prepared marketing materials and provided them to potential buyers, but he did not succeed in selling the stock because, in his opinion, “everybody wanted to be able to meet Lee Ritchie and talk to the executives ... as part of their due diligence.” Although he determined that the book value of Rupe's stock was $3.9 million, he discounted that to $3.4 million because of the directors' refusal to meet with prospective buyers. In his view, however, it would be “incredibly difficult” to market Rupe's shares without such meetings, and the likelihood of selling the shares was “zero.”

In July 2006, Rupe filed this suit against Dennard, Ritchie, Lutes, and RIC,⁵ alleging that they engaged in “oppressive” conduct and breached fiduciary duties to her. Rupe requested an accounting and valuation and an order requiring RIC to purchase her shares at fair market value or, alternatively, appointing a receiver to liquidate RIC. The jury found in Rupe's favor on essentially all of her claims and found that the fair value of Rupe's stock was $7.3 million. The trial court rendered judgment on the jury's verdict, concluding that Dennard, Ritchie, Lutes, and RIC had “engaged in oppressive conduct to the rights of [Buddy's Trust] that is likely to continue in the future,” that “the most equitable remedy” for this oppression was to require RIC to redeem Rupe's shares, and that this remedy was “less drastic” than liquidating the company or appointing a receiver. Based on these conclusions and the jury's findings, the trial court ordered RIC to purchase Rupe's shares for $7.3 million. Dennard, Ritchie, Lutes, and RIC appealed.

The court of appeals held that their refusal to meet with Rupe's prospective purchasers constituted oppressive conduct as a matter...