Opinion By Justice MOSELEY.
This case involves claims for shareholder oppression filed by a minority shareholder in a closely held corporation, Rupe Investment Corporation ("RIC"). The trial court determined the plaintiff minority shareholder, Ann Caldwell Rupe as trustee for the Dallas Gordon Rupe, III, 1995 Family Trust ("Buddy's Trust"), had been subjected to shareholder oppression by RIC and some of its shareholders and directors ("appellants"). The trial court ordered appellants to cause RIC to redeem Buddy's Trust's stock in RIC (the
The evidence is undisputed that appellants told Ann and her representative that they refused to meet with, and refused to allow any RIC management personnel to meet with, any prospective purchasers of the Stock. Based on the evidence and circumstances of this case, we conclude appellants' actions in connections with Ann's efforts to sell the Stock to third parties constituted oppressive conduct. We also conclude the trial court did not abuse its discretion in ordering appellants to cause RIC to buy out the Stock as an equitable remedy for this conduct. However, we conclude the trial court erred in ordering the Stock be purchased for a price that did not constitute fair market value. We also conclude the trial court erred in conditionally awarding Ann appellate attorney's fees. Accordingly, we affirm the trial court's judgment in part and reverse in part. We reverse the trial court's judgment as to Ann's appellate attorney's fees, and we render judgment that she take nothing on her claim for attorney's fees. We reverse the trial court's judgment as to the amount to be paid by RIC for the Stock, and we remand the case for further proceedings to determine the fair market value of the Stock. We affirm the rest of the trial court's judgment.
RIC was founded by Dallas Gordon Rupe, Jr., a/k/a "Pops," and Robert Ritchie. By the time of the events in this case, all of RIC's common stock
After Buddy died, his wife, appellee Ann Caldwell Rupe, succeeded him as trustee of Buddy's Trust.
The record reflects that several disputes among the individuals in their various capacities came to a head in the months following Buddy's death. For purposes of our discussion, the overriding dispute here concerns Ann's efforts to sell the Stock to third parties. There is no shareholders' or buy-sell agreement, right of first offer, or other restriction on the sale of the Stock to third parties. Although not required to do so, Ann contacted Ritchie about RIC buying the Stock. After some attempts, they were unable to reach an agreement for the sale of the Stock to RIC.
In 2004, Ann hired a retired capital fund manager, George Stasen, to help sell the Stock to third parties. Stasen met with Ritchie, Paula, and her children and sought their cooperation with his efforts to sell the Stock. Stasen testified that Ritchie told him that neither Ritchie nor any member of RIC's management would meet with any prospective purchasers of the Stock. In addition to Ritchie's own testimony confirming this, the record contains a fax from Ritchie to Ann dated February 1, 2006, stating that "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 testified that after the meeting, he felt it would be extraordinarily difficult to market the Stock to a third party because any investor would want to meet with RIC's management and RIC's management had made it clear they did not want to meet anyone. He said that interviewing corporate management was a regular part of a prospective investor's due-diligence process for determining whether to invest in a closely held corporation, and that management's refusal to meet with prospective investors made the Stock impossible to sell. Stasen testified that he "got laughed at" by prospective investors when he told them they could not meet with management. Stasen estimated the book value of the Stock at $3.9 million, but he discounted the Stock, pricing it at $3.4 million "[b]ecause I knew it would be incredibly difficult to sell this without offering a discount" because RIC's management refused to meet with prospective buyers. Stasen testified the chance of selling stock in a closely held corporation without affording the prospective purchaser an opportunity to meet with management was "zero." Ultimately, Stasen was unable to sell any of the Stock, "[b]ecause you cannot make a decision on an investment from this limited information without meeting the executives of [RIC] and without
On July 21, 2006, Ann sued Ritchie, Paula, and Lutes in their individual capacities. Ann later added RIC as a defendant. Ann's causes of action included shareholder oppression and breach of fiduciary duty, as well as a demand for access to RIC's books and records. Ann sought an order requiring the defendants to purchase the Stock "at a fair market value" or an order appointing a receiver to liquidate RIC. Ann also sought attorney's fees for efforts involved in obtaining access to RIC's books and records.
The case was heard by a jury in a trial lasting over two weeks. During the trial, and over appellants' objection, the trial court granted Ann's motion for leave to amend her petition to change the capacity in which Ritchie, Paula, and Lutes were sued from their individual capacities to their capacities as the directors of RIC and as the trustees of the various shareholder trusts.
The jury returned a verdict on the issues submitted to it. After conducting a post-trial hearing, the trial court signed a judgment ordering appellants to cause RIC to buy out the Stock for $7.3 million, the "fair value" of the Stock as found by the jury. The judgment conditionally awarded Ann appellate attorney's fees, but did not award her attorney's fees for trial.
The trial court also signed and filed findings of fact and conclusions of law, containing forty-three numbered findings of fact and twelve numbered conclusions of law.
In their third issue, appellants assert that "[t]he trial court's findings of fact and conclusions of law are erroneous and should be vacated because they are not limited to the issues decided solely by the trial court and they are not supported by legally or factually sufficient evidence." In the argument portion of their brief most closely relevant to this contention, appellants identify five matters or issues that they assert were tried to, and decided by, the trial court. They then assert:
(Case citations omitted.)
Appellants' general attack on the trial court's findings and conclusions is not persuasive. Generally, failure to submit or request a jury question on a ground of recovery or defense results in waiver of that ground on appeal. TEX.R. CIV. P. 279.
Appellants' brief admits — and our review confirms — that at least some of the trial court's findings of fact relate to matters that were conclusively established. We fail to see — and appellants do not explain — how those findings "probably caused the rendition of an improper judgment." See TEX.R.APP. P. 44.1(a)(1). Further, appellants' brief does not discuss whether any of the trial court's findings of fact are permitted under rule 279. Neither does appellants' brief indicate which of the trial court's findings they contend address "claims and parties that were not at issue" or address "fact questions that were answered by the jury." Instead, appellants merely assert that we should disregard them all.
To the extent necessary, we will address appellants' specific complaints about specific findings of fact. However, we reject as inadequately briefed appellants' blanket assertion in their third issue that we should disregard all of the trial court's findings of fact. See TEX.R.APP. P. 38.1(i).
In their first issue, appellants contend the trial court's judgment should be "reversed and judgment rendered for Appellants." In support of this issue they make several arguments. They assert that the court-ordered buyback of the Stock is not an available remedy for shareholder oppression under Texas law; that their actions do not constitute shareholder oppression as a matter of law; and that the buyout remedy is inappropriate here because it is "unduly harsh" under the circumstances.
Construction of statutes is a question of law for the courts. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 357 (Tex.2000). Whether certain conduct constitutes shareholder oppression is also a question of law. Willis v. Bydalek, 997 S.W.2d 798, 801 (Tex.App.-Houston [1st Dist.] 1999, pet. denied). We review questions of law de novo. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 239 (Tex.2003).
The trial court's order that appellants cause RIC to buy out the Stock was an exercise of its equitable authority. "`The expediency, necessity, or propriety of equitable relief' is for the trial court, and its ruling is reviewed for an abuse of discretion." Wagner & Brown, Ltd. v. Sheppard, 282 S.W.3d 419, 428-29 (Tex. 2008) (quoting State v. Tex. Pet Foods, Inc., 591 S.W.2d 800, 803 (Tex.1979)); see Edwards v. Mid-Continent Office Distribs., L.P., 252 S.W.3d 833, 836 (Tex.App.-Dallas 2008, pet. denied) ("a trial court exercises broad discretion in balancing the equities in a case seeking equitable relief"). A court ordering equitable relief has discretion to decree "full and exact justice for all parties." Bush v. Gaffney, 84 S.W.2d 759, 764 (Tex.Civ.App.-San Antonio 1935, no writ). However, a court may not provide equitable relief beyond that amount. See id. ("A court of equity... will make restitution, but not reprisals. It will fill full the measure of compensation, but will not overflow it with vindictive damages."). A trial court abuses its discretion when it acts arbitrarily or unreasonably without reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985).
Appellants assert that the court-ordered buyback of the Stock is not an available remedy for shareholder oppression under Texas law. They argue the only relief available for shareholder oppression under Texas law is the appointment of a receiver to "rehabilitate" the corporation. Appellants state in their brief: "If the Legislature had intended to create an oppression cause of action for relief other than a receivership, it would have done so clearly and directly." Because we conclude the legislature has in fact done so, we reject appellants' argument.
Texas law expressly authorizes a trial court to appoint a receiver to "rehabilitate" a corporation if, inter alia, "the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent." TEX. BUS. CORP. ACT art. 7.05(A)(1)(c) (expired Jan. 1, 2010).
In Patton v. Nicholas, 154 Tex. 385, 279 S.W.2d 848 (1955), the supreme court addressed the trial court's discretion to fashion equitable relief in shareholder disputes. There the minority-shareholder plaintiffs sued the corporation and the majority shareholder (who was also its president and a director) for fraud and abuse of his controlling position over the corporation. Id. at 849.
In Davis v. Sheerin, 754 S.W.2d 375 (Tex.App.-Houston [1st Dist.] 1988, writ denied), one of our sister courts recognized that a "buyout" is an available — and sometimes appropriate — remedy for shareholder oppression. There the trial court found the majority-shareholder defendant acted oppressively toward the minority-shareholder plaintiff, appointed a receiver for the corporation, and ordered the majority shareholder and the corporation to buy out the plaintiff's interest in the corporation at the value found by the jury. Id. at 378. The court stated that "Texas courts, under their general equity power, may decree a `buy-out' in an appropriate case where less harsh remedies are inadequate to protect the rights of the parties." Id. at 380. In doing so, the court observed that Patton had been cited as support for the proposition "that a dissolution statute[] does not provide the exclusive remedy for injured shareholders, and that courts have equitable powers to fashion appropriate remedies where the majority shareholders have engaged in oppressive conduct." Id. at 380 (citing Masinter v. WEBCO Co., 164 W.Va. 241, 262 S.E.2d 433, 439-40 & n. 7 (1980)).
Appellants imply that this Court has refused to recognize a buyback of stock as an available remedy for shareholder oppression. Appellants' brief states that "[i]n contrast [to the holding in Davis v. Sheerin], this Court's only statement regarding the remedies for oppression faithfully tracks Article 7.05's plain language," citing to our opinion in Davis v. Davis, No. 05-95-01813-CV, 1996 WL 200935, at *1 (Tex.App.-Dallas April 17, 1996, no writ) (not designated for publication). This statement is accurate but misleading for two reasons. First, the availability of a buyback was not an issue in Davis v. Davis. See id. Second, what we said in Davis v. Davis, in full, was:
Id. (emphasis added). Thus, our language in Davis v. Davis "faithful[ly] tracking" article 7.05 is fully consistent with our holding today.
Appellants refer us to Brodie v. Jordan, 447 Mass. 866, 857 N.E.2d 1076 (2006), in support of their argument that "the proper response to oppression is the rehabilitative remedy of an Article 7.05 receivership — not a court-ordered divorce in the form of a buy back."
Massachusetts law differs from that of Texas in at least one relevant, significant way. As Brodie noted, unlike many other states where a buyout is an appropriate remedy for majority shareholder misconduct, under Massachusetts law "minority shareholders have no statutory right to involuntary dissolution of a corporation due to majority misconduct." Id. at 1082 n. 7. On this basis, the court declined to infer that Massachusetts courts have the power to order a buyout. Id. In contrast to Massachusetts and as discussed above, such a remedy is available under Texas law. See TEX. BUS. CORP. ACT arts. 7.05 (permitting appointment of receiver to rehabilitate corporation for misconduct of directors or controlling persons), 7.06(A)(3) (permitting liquidation of corporation in receivership if no feasible plan for remedying the condition has been presented within twelve months after appointment of receiver). Thus, the legal framework in which Brodie was decided is different from that existing here.
Additionally, the outcome in Brodie flows from the conclusion that the trial court's remedy — forced buyout of the minority shareholder's stock for a price based on her share of the corporation's net assets as valued by a court-appointed expert — placed the plaintiff in a significantly better position than she would have enjoyed absent the wrongdoing. Id. at 1081. We discuss herein whether this particular judgment shares that defect. However, we reject appellants' argument, based on Brodie, that as a matter of law a buyout can never be an appropriate remedy for shareholder oppression in Texas.
Lastly, appellants assert that "Ann abandoned her receivership claim in the trial court and did not file her own appeal seeking a receivership." To the extent appellants are arguing the trial court lacked authority to order a buyout of the Stock without appointing a receiver, they failed to preserve that argument by objection, see TEX.R.APP. P. 33.1(a), and indeed made the opposite argument to the trial court.
We now arrive at the heart of the case. The trial court concluded that Paula, Ritchie, Lutes, and RIC acted oppressively toward Buddy's Trust by, among other things, refusing to cooperate with Ann's attempts to sell the Stock to a third party. Appellants assert that their alleged conduct was not oppressive.
Statutes like article 7.05 providing remedies for oppression rarely define the term. See Davis, 754 S.W.2d at 381. The term is expansive and covers a multitude of situations dealing with improper conduct; thus a narrow definition would be inappropriate. Id. Texas courts have generally recognized two non-exclusive definitions for shareholder oppression:
Willis, 997 S.W.2d at 801 (citing Davis, 754 S.W.2d at 381-82); see also Redmon v. Griffith, 202 S.W.3d 225, 234 (Tex.App.-Tyler 2006, pet. denied) (quoting Willis); Pinnacle Data Servs., Inc. v. Gillen, 104 S.W.3d 188, 196 (Tex.App.-Texarkana 2003, no pet.) (same). These definitions are not mutually exclusive; depending on the facts of the case, conduct could be oppressive under either or both definitions. See Scott v. Trans-Sys., Inc., 148 Wn.2d 701, 64 P.3d 1, 6 (2003); Gimpel v. Bolstein, 125 Misc.2d 45, 477 N.Y.S.2d 1014, 1019 (N.Y.Sup.Ct.1984).
The jury determines what acts occurred (assuming those facts are in dispute), but whether those acts constitute shareholder oppression is a question of law for the court. See Willis, 997 S.W.2d at 801; Davis, 754 S.W.2d at 380. And like other questions of law, the trial court's determination of that issue is subject to de novo review. See J.M. Davidson, Inc., 128 S.W.3d at 239.
In deciding whether conduct rises to the level of oppression, courts must exercise caution, balancing the minority shareholder's reasonable expectations against the corporation's need to exercise its business judgment and run its business efficiently. See Willis, 997 S.W.2d at 801 (recognizing that "a corporation's officers and directors are still afforded a rather broad latitude in conducting corporate affairs"). However, as the Davis court observed, "Courts take an especially broad view of the application of oppressive conduct to a closely[]held corporation, where oppression may more easily be found." Davis, 754 S.W.2d at 381.
Article 7.05 authorizes equitable intervention when "the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent." TEX. BUS. CORP. ACT ANN. art. 7.05(A)(1)(c) (emphasis added). This text clearly indicates shareholder oppression claims may be brought against "directors or those in control of the corporation." Id. This negates the argument that the absence of a majority shareholder is a bar to such claims.
Appellants' other cited authority, Allchin, is a non-published opinion
The evidence is undisputed that Paula, Ritchie, and Lutes together control, either through direct ownership or by virtue of their positions as trustees of the shareholder trusts, 73.7 percent of the voting stock.
As noted above, one of the definitions of shareholder oppression is "majority shareholders' conduct that substantially defeats the minority's expectations that, objectively viewed, were both reasonable under the circumstances and central to the minority shareholder's decision to join the venture. ..." Willis, 997 S.W.2d at 801. Commentators have classified the "reasonable expectations" of shareholders into two broad categories: specific reasonable expectations and general reasonable expectations.
However, general reasonable expectations are expectations that arise from the mere status of being a shareholder.
One of the general reasonable expectations of any property owner — including the owner of stock in a corporation — is the right of free alienation of that property.
Thus, one of the general reasonable expectations of a shareholder whose stock contains no restrictions on its alienation, and whose rights are not otherwise limited or qualified by contract, is that she is free to sell her stock to a party of her choosing at a mutually acceptable price. See Thompson v. Hambrick, 508 S.W.2d 949, 953-54 (Tex.Civ.App.-Dallas 1974, writ ref'd n.r.e.) (stating general rule, citing Seagrave Corp. v. Mount, 212 F.2d 389, 395 (6th Cir.1954) (stating general rule as applicable to majority shareholders)). This is true even if the stock is that of a closely held corporation.
Although it does not deal specifically with shareholder oppression, the Sandor case provides a useful illustration of the general reasonable expectations of a holder
The court in Sandor recognized Williams owned the stock free of any restriction on transfer and "[h]is ownership of the stock and his right to sell or transfer it was a vested right and interest, subject only to the right of the corporation to manage and regulate its affairs under the laws of this state and under the provisions of its charter and bylaws." Sandor, 321 S.W.2d at 617. The court rejected the argument that newly adopted transfer restrictions could be imposed on existing unrestricted stock, explaining that "[s]uch a restriction on previously unrestricted stock would unreasonably restrain and prohibit its sale and transfer and could result in depriving the owner of the full value of his stock." Id. at 618. The court concluded the corporation's right to manage its affairs did not include the right to adopt policies that impair the vested rights of holders of unrestricted stock to seek to sell their stock:
Id. at 618-19.
Despite the general reasonable expectation of being able to sell unrestricted shares at a mutually acceptable price, often no ready market exists for the stock in a closely held corporation, especially if it represents a non-controlling, minority interest.
The second definition for shareholder oppression is "burdensome, harsh, or wrongful conduct; a lack of probity and fair dealing in the company's affairs to the prejudice of some members; or a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely." Willis, 997 S.W.2d at 801. This definition focuses more on the conduct of the directors or those in control of the corporation than on the reasonable expectations of the minority shareholder. The standards of fair dealing with respect to the owner of unrestricted stock in a corporation would include a requirement that they act fairly and reasonably in connection with a shareholder's efforts to sell that stock to a third party and not adopt policies that unreasonably restrain or prohibit the sale or transfer of the stock or that deprive the owner of its fair market value. See Sandor, 321 S.W.2d at 618.
The second definition of shareholder oppression will often overlap the reasonable expectations definition because the standards of fair dealing on which all shareholders are entitled to rely will often include conduct necessary to meet the reasonable expectations of shareholders. Thus, conduct of the directors or those in control of the corporation that substantially defeats the reasonable expectations of a minority shareholder will often constitute conduct that is "burdensome, harsh, or wrongful," or that constitutes "a lack of probity and fair dealing in the company's affairs" or "a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely." See Willis, 997 S.W.2d at 801. Under either definition, oppressive conduct does not require a showing of fraud, illegality, mismanagement, wasting of assets, or deadlock, although these factors are often present.
In this case, there are no restrictions on the sale of the Stock to third parties.
Appellants argue that Ann waived their refusal to meet with potential purchasers as a basis for shareholder oppression because no question about that conduct was submitted to the jury. We reject appellants' argument because uncontroverted issues need not be submitted to the jury. City of Keller v. Wilson, 168 S.W.3d 802, 814-15 & n. 52 (Tex.2005). "No jury finding is necessary to establish undisputed facts." Id. (quoting Wright v. Vernon Compress Co., 156 Tex. 474, 296 S.W.2d 517, 523 (1956)). Ritchie admitted, and put in writing, his refusal to speak with potential purchasers. No witness testified that Ritchie or any other member of management agreed to meet or did meet any potential purchasers of the Stock.
Appellants next assert their conduct as directors that the trial court found to be oppressive was protected from liability by the business judgment rule. We address this argument only in the context of the trial court's conclusion that appellants engaged in oppressive conduct by refusing to cooperate with Ann's attempts to sell the Stock to a third party.
The business judgment rule protects a corporation's directors from personal liability to shareholders for their actions in operating the corporation unless their actions are ultra vires or tainted by fraud. See Gearhart Indus., Inc. v. Smith Int'l, Inc., 741 F.2d 707, 721 (5th Cir.1984). However, this is not a derivative suit for breach of the duty of care owed to the corporation. Further, the directors of RIC were not held personally liable for the shareholder oppression; nor were the directors
Appellants also contend their conduct was protected by a doctrine similar to the business judgment rule incorporated into the definition for oppression under article 7.05. See Willis, 997 S.W.2d at 801 (referring to need for balancing minority shareholders' reasonable expectations against corporation's need to exercise business judgment). Ritchie testified that he refused to speak to prospective purchasers and directed the rest of RIC's management not to speak to them because of concerns that any statements management made could result in lawsuits by the purchasers. Lutes also testified it would have been possible for Ritchie to meet with outside investors, but that such a meeting might put the corporation at risk of becoming involved in litigation with third parties.
However, the corporation's interest in managing its affairs — or to minimize the possibility of litigation — does not include the right to "substantially defeat" the reasonable expectation of a minority shareholder that she can effectively market her unrestricted stock in the corporation, see Willis, 997 S.W.2d at 801, or the right "to take from holders of unrestricted stock the value of their stock." See Sandor, 321 S.W.2d at 618-19. Moreover, Paula testified that she would disagree with Ritchie's decision not to meet with prospective investors and that she believed Ritchie's decision would have been oppressive. Likewise, Lutes testified it was reasonable for Ann to expect that RIC would help her, to the extent possible, sell the Stock to outside parties.
As discussed below, there are several means by which the corporation can protect itself from litigation short of a flat refusal to meet with potential buyers. Applying the definitions of shareholder oppression and balancing the minority shareholder's general reasonable expectations against the corporation's need to exercise business judgment to these facts, we cannot conclude the corporation's desire to avoid any possibility of litigation outweighed Ann's general reasonable expectation of marketing the Stock. Further, other than a general and nonspecific fear of litigation with third parties, appellants do not argue any other justification supporting their contention that their refusal to meet — or allow RIC management to meet — with prospective purchasers of the Stock constitutes a legitimate exercise of business judgment of such necessity as to outweigh the substantial negative effects of their actions on Ann's efforts to sell the Stock.
Under the uncontroverted facts of this case, we conclude appellants acted oppressively toward Ann by refusing to meet or allow any officer or director of RIC to meet with prospective purchasers of the Stock because that conduct in this case substantially defeated Ann's general reasonable expectation of marketing the Stock.
In reaching this conclusion, we recognize that the rights of the minority shareholder and the concomitant obligations of the directors or those in control of the corporation are not unlimited. Under the definitions of shareholder oppression, they are limited to such requests and responses necessary to avoid (1) conduct by majority shareholders that "substantially defeats" the minority shareholder's general reasonable expectations (and, if proven, any specific reasonable expectations), as well as (2) conduct that is "burdensome, harsh, or wrongful," or that constitutes "a lack of probity and fair dealing in the company's affairs" or "a visible departure from the standards of fair dealing and a violation of fair play on which each shareholder is entitled to rely." Id.
For example, and in the context of a minority shareholder's efforts to sell her stock, the majority shareholders, directors, or those in control of the corporation need not seek potential purchasers for the minority shareholder's stock or otherwise market the stock on her behalf. They need not agree to requests that would unduly disrupt or affect the operation of the business or intrude into issues reserved for corporation's officers and directors. And a shareholder cannot request the corporation's management to speak or act in a manner that would tend to inflate the value of the stock and the corporation, and the shareholder may not request that management mislead potential investors.
Further, reasonable restrictions on the access to and use of business information or property, depending on the nature of the business, will normally be acceptable. Thus, the corporation's management may place reasonable limitations on the corporation's cooperation, including limiting the time spent with potential investors and requiring them to sign confidentiality agreements that protect the company's interests while permitting reasonable due-diligence. However, they cannot act in such a way as to substantially defeat the minority shareholder's right to sell her stock to a third party. See Willis, 997 S.W.2d at 801.
We need not opine on the outer limits of what conduct was necessary to avoid substantially defeating Ann's reasonable expectation of marketing the Stock. Here, appellants flatly refused Ann's request that management meet with potential purchasers of the Stock. On its face, this request did not intrude into issues reserved for the directors and officers. There is no evidence the request materially affected the operation of the business or was unreasonable in any other manner. And, most importantly, there is substantial evidence that refusing Ann's request to meet with potential purchasers had the practical effect of precluding her from the opportunity to market the Stock to third parties.
Appellants next assert that, even if Texas law authorizes a buyout as a remedy for
Appellants argue that
In support of their argument, appellants again cite Brodie (the Massachusetts supreme court case) as well as language in Davis. See Brodie, 857 N.E.2d at 1081-82; Davis, 754 S.W.2d at 380.
Appellants' brief also references a motion they filed with the trial court to set the amount and type of security to supersede the judgment, as well as an affidavit by Ritchie filed in support of that motion. In that motion, appellants asked the trial court to set the amount of security necessary to supersede the judgment at no more than $4 million, stating that having to post security of $7.3 million would destroy RIC. Appellants' motion did not challenge the trial court's judgment and did not argue — as appellants do here — that the alleged negative effects on RIC of having to buy the Stock entitled them to a rendition of judgment in their favor. Accordingly, that motion did not preserve appellants' argument for review. See TEX.R.APP. P. 33.1(a).
Appellants also filed below — but do not cite in connection with this argument — a motion to modify the judgment that argued for imposition of remedies less harsh than a buyout of the Stock. That motion relied on another affidavit from Ritchie, in which he stated that to pay the judgment RIC would have to give up nearly all its working capital and cash reserves and liquidate one or more of its illiquid assets. He stated his opinion that this liquidation would take several months, result in a taxable gain to the corporation, and could possibly be made only at a "fire sale" price. He concluded that even if RIC could sell the assets within a year, payment of the judgment "would cripple RIC and cause substantial harm to RIC and its other shareholders."
Ann counters appellants' argument by stating there was evidence RIC had net sales of over $152 million in 2007 and had $55 million in assets. She also points out that the trial court set the amount necessary to supersede the judgment at the amount of the judgment plus interest. The record indicates appellants posted a supersedeas bond in that amount.
Assuming their motion to modify the judgment was sufficient to preserve appellants' argument for appeal, based on the evidence and the record we cannot say that the trial court's order that appellants cause RIC to buy out the Stock as an equitable remedy for their oppressive conduct
We conclude that a buyout is an available remedy for shareholder oppression under Texas law and that, under the circumstances, appellants' conduct in refusing to meet — or allow RIC management to meet — with prospective purchasers constituted oppressive conduct as to Ann. We also conclude that the trial court did not abuse its discretion in ordering appellants to cause RIC to buy the Stock as an equitable remedy for this oppressive conduct. To this extent, we overrule appellants' first issue. As a result, we need not consider whether the trial court erred in concluding that appellants' other conduct — standing alone or in conjunction with their conduct as a whole — was oppressive. See TEX.R.APP. P. 47.1. Thus, we also do not reach appellants' arguments attacking the propriety of the jury's findings or the trial court's findings of fact and conclusions of law concerning that other conduct. See id.
The jury was asked to find the "fair value" of the Stock. They were instructed that "fair value" meant the value of the Stock, determined:
In response, the jury found the Stock was worth $7.3 million. Based on this finding, the trial court ordered appellants to cause RIC to pay Ann $7.3 million for the Stock and for Ann to surrender the Stock to RIC. As a part of their first issue, appellants argue the trial court erred in ordering RIC to pay $7.3 million for the Stock because the Stock was wrongly valued.
Appellants assert that "[t]he limited case law on this [date of valuation] issue requires that the value be calculated on the date of injury," citing Pabich v. Kellar, 71 S.W.3d 500 (Tex.App.-Fort Worth 2002, pet. denied). Instead of June 2006, appellants appear to argue that the appropriate date for valuing the Stock should be March 2003, the date of a "conversation between Lee and Ann in which he told her the other shareholders intended to nominate her to RIC's board."
The issue in Pabich was the determination of damages for fraud, breach of fiduciary duty, and tortious interference with a business relationship. Id. at 508. The court of appeals stated, "When calculating the value of stock in order to determine the amount of damages to award an injured party who had an ownership interest in the corporation, evidence of the value of the corporation at the time the alleged injury occurred is required." Id. at 509
Moreover, the date of a conversation concerning Ann's possible nomination to the board of directors is not germane to valuing the Stock in connection with the court-ordered buyout of the Stock as a remedy for appellants' oppressive conduct in connection with Ann's efforts to sell the stock to third parties. The record indicates that Ritchie refused Ann's request that he meet with potential buyers as late as his fax to her of February 1, 2006. Ann filed this suit on July 21, 2006. The June 30, 2006 valuation date was the date of RIC's last audited financial statements at the time Ann's expert prepared his report. Appellants do not contend the value of the Stock changed materially between February 1 and June 30, 2006; nor have they shown that it was inequitable for the trial court to value the Stock as of June 30, 2006 in order to fashion an equitable remedy for appellants' oppressive conduct in connection with Ann's efforts to sell the stock to third parties. Accordingly, we conclude appellants have not shown the trial court erred by using June 30, 2006 as the relevant date for determining the value of the Stock.
The trial court ordered RIC to redeem the Stock for "fair value," which the jury determined to be (as of June 30, 2006) $7.3 million without discounts for lack of marketability or minority status. Appellants assert the trial court erred by instructing the jury not to apply any discounts to the Stock's value. They contend the value of the Stock should include discounts for the lack of marketability and the minority status of the Stock.
Two types of "fair value" are enterprise value and fair market value. The enterprise value of stock is determined by the value of the company as a whole and ascribing to each share its pro rata portion of that overall enterprise value.
Here, the jury's verdict as to the Stock's "fair value" constitutes their determination of "enterprise value," as they were instructed to value the stock "[w]ithout discounting for lack of marketability or minority status." The jury heard evidence from Donald and Richard Latin, who conducted a valuation of RIC and determined the value of the Stock was $7,377,000 to $8,922,000. The Latins testified their valuation
Enterprise value has been seen as the appropriate valuation when a minority shareholder, with no desire to leave the corporation, has been forced to relinquish his ownership position by the oppressive conduct of the majority. See Moll, Fair Value, supra, at 319-20. In that situation, "[t]he oppressed minority investor was not looking to sell, and the oppressive majority investor, absent the threat of dissolution or other judicial sanction, was not looking to buy." Id. at 321 & n. 108. Likewise, enterprise value has been held to be the appropriate value for a shareholder dissenting to a merger: in that situation there is a willing buyer, but not a willing seller. See Swope v. Siegel-Robert, Inc., 243 F.3d 486, 492-93 (8th Cir.2001). That, however, is not the situation in this case. Here, Ann desired to leave the corporation and sought to market the Stock, first to RIC and then to third parties.
In crafting an equitable remedy for appellants' oppressive conduct in connection with Ann's efforts to sell the Stock, the trial court should have provided the relief prevented by appellants' conduct, i.e., a sale at fair market value. If Ann had been able to sell to a willing buyer under no obligation to purchase, Ann would have obtained the "fair market value" of the Stock. As an equitable remedy for appellants' oppressive conduct, Ann is entitled to no more than that.
Two factors affecting the fair market value of the Stock are its lack of marketability and the fact that it represents a minority position in RIC. See Swope, 74 F.Supp.2d at 911; Moll, Fair Value, supra, at 324 n. 115. By expressly instructing the jury to exclude these factors in determining the "fair value" of the stock and by basing its equitable remedy on their determination, the trial court ordered appellants to pay Ann more than the fair market value of the Stock. Thus the trial court's judgment provided excessive relief for Ann. See Brodie, 857 N.E.2d at 1081 (concluding buyout remedy placed the plaintiff in a significantly better position than she would have enjoyed absent the wrongdoing).
However, we conclude the enterprise value of the Stock constituted some evidence of its fair market value. Cf., e.g., Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 314 (Tex.2006) ("Unsegregated fees for the entire case are some evidence of what the segregated amount should be."). The record also contains some evidence of the discount for lack of marketability and minority status. Ritchie testified that the 46.3 percent Cromwell discount
We sustain the remaining part of appellants' first issue to the extent it challenges the trial court's order that RIC pay a price for the Stock that did not reflect its fair market value, which would include discounts for lack of marketability and for the Stock's minority position. We conclude the cause should be remanded to the trial court for further proceedings to determine the fair market value of the Stock. In all other respects, we overrule appellants' first issue.
Because the valuation of the Stock was erroneous due to the absence of discounts for lack of marketability and for the Stock's minority position, we need not reach appellants' argument that the value must be further discounted for "trapped-in capital gains tax liability," and we express no opinion on that issue.
Little remains of appellants' third issue, in which they make a global attack on the trial court's findings of fact and conclusions of law. To the extent not already addressed, we dispose of the remaining portions as follows.
Appellants challenge the jury's findings and the trial court's findings of fact and conclusions of law concerning whether appellants committed shareholder oppression and breached their fiduciary duties in ways other than the refusal to cooperate with Ann's efforts to sell the Stock to third parties. As noted above — and with one exception — we need not address these issues. See TEX.R.APP. P. 47.1. The exception concerns appellants' arguments that the jury's finding and the trial court's conclusions regarding whether appellants caused RIC to withhold corporate books and records from Ann was contrary to the evidence. Those findings and conclusions are not necessary to support the trial court's award of equitable relief. However, they are relevant to the trial court's award of attorney's fees on appeal and are discussed below.
Appellants argue that the trial court's conclusions of law are "insupportable" because they did not designate the capacity in which appellants acted.
Appellants assert that part of a conclusion of law setting out the definition of shareholder oppression should be disregarded because that part of the definition was not submitted to the jury. As discussed above, the jury does not decide whether an act is oppressive; that decision is one of law for the court. See Willis, 997 S.W.2d at 801; Davis, 754 S.W.2d at 380. Thus, the failure to include part of the definition in the jury charge does not affect the trial court's ability to consider the complete definition in making a ruling on an issue of law. Moreover, because whether appellants' conduct constitutes shareholder oppression is a question of law of the court, see J.M. Davidson, Inc., 128 S.W.3d at 239, we do not see how the
We overrule the remainder of appellants' third issue.
In their second issue, appellants contend the trial court erred in awarding conditional appellate attorney's fees to Ann. Generally, litigants cannot recover attorney's fees unless the recovery is authorized by statute or a contract between the parties. See Intercontinental Grp. P'Ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 & n. 7 (Tex.2009); New Amsterdam Cas. Co. v. Tex. Indus., Inc., 414 S.W.2d 914, 915 (Tex.1967). Ann asserted she was entitled to attorney's fees under article 2.44(D) of the Texas Business Corporation Act because RIC withheld its corporate books and records from Ann and her agents and did not allow them to make extracts of the books and records. Appellants assert there is no evidence RIC withheld its corporate books and records and did not allow Ann and her agents to examine and make extracts of them.
In determining an assertion that no evidence supports a jury finding, we review the evidence and must credit the favorable evidence if a reasonable juror could, and we must disregard the contrary evidence unless reasonable jurors could not. City of Keller, 168 S.W.3d at 823. A challenge to the legal sufficiency of the evidence will be sustained when, among other things, the evidence offered to establish a vital fact does not exceed a scintilla. Kroger Tex. Ltd. P'ship v. Suberu, 216 S.W.3d 788, 793 (Tex.2006). Evidence does not exceed a scintilla if it is so weak as to do no more than create a mere surmise or suspicion that the fact exists. Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 601 (Tex.2004).
Before January 1, 2010, a shareholder's rights to review a corporation's books and records, and the shareholder's remedy for breach of those rights were controlled by article 2.44 of the Texas Business Corporation Act. Under article 2.44(C), a shareholder of at least five percent for at least six months had the right to review the corporation's books and records and make extracts therefrom for any proper purpose. TEX. BUS. CORP. ACT ANN. art. 2.44(C) (expired 2010).
The jury found that RIC, acting by and through its officers and directors, failed to permit Ann or her agents to examine and make extracts of RIC's books and records.
In March 2003, Ann's attorney at that time, Jim Hartnett, made a written request to review and have copied fourteen categories of information about RIC and the shareholder trusts. After an exchange of several letters regarding the documents, Lutes wrote Hartnett on March 28, stating that he could come review the materials assembled to that point during regular business hours. On April 14, Lutes notified Hartnett that all of the requested materials were assembled and available for Hartnett's review. On May 6, Hartnett went to RIC's offices and spent a few hours examining the documents. A dispute then arose over the copying of the documents. Hartnett wanted to have a copy service remove all the documents from RIC's premises, copy them, and return the originals to RIC. RIC did not want certain of its original corporate documents to leave the premises. RIC told Hartnett that he could have a copy service bring its copiers onto RIC's premises and copy the documents or that, alternatively, Hartnett could use RIC's copiers and staff at a cost of twenty-five cents per page.
After an exchange of correspondence, Ritchie eventually offered to allow all documents other than the original minute books and stock books to be copied offsite by a copy service and to allow the original books to be copied onsite by a copy service. Ritchie's May 21 letter to Hartnett stated that all the requested materials remained available for inspection, review, extracting, and copying at RIC's office. Hartnett's representation of Ann ended sometime in May.
Ann asserts Hartnett testified he never received the documents that he wanted copied. Hartnett's testimony was as follows:
This evidence shows appellants complied with Ann's right to have her attorney examine and make extracts of the corporate books and records.
Hartnett also testified he thought appellants were "stalling" in telling him to look to Ann for the information he requested. And Ann testified generally that she did not receive all the "documents" she "wanted" until after she filed suit. However, the correspondence among Hartnett, Lutes, and Ritchie shows appellants never refused to provide access to the information requested, and they provided access to the information within the time period Hartnett proposed.
Ann asserts appellants' refusal to allow Hartnett to remove the corporate books and records from RIC's premises for photocopying is evidence that appellants interfered with Hartnett's review of the documents and his ability to make extracts. The shareholder's right under
Accordingly, we conclude there is no more than a scintilla of evidence that appellants withheld corporate books and records from Ann in violation of article 2.44(C). Thus, we sustain appellants' second issue, reverse that portion of the trial court's judgment awarding attorney's fees, and render judgment that Ann take nothing on her claim for attorney's fees.
In their fourth issue, appellants present five arguments for reversal and remand of the cause. They assert the trial court erred by granting Ann leave to file a trial amendment of her petition, by denying appellants leave to designate a rebuttal expert on valuation, and by admitting unreliable expert testimony regarding the value of the Stock presented by Ann. In their brief, appellants assert the evidence is factually insufficient to support some of the jury findings. Appellants also assert the case should be remanded because Ann's counsel injected racial prejudice into the jury argument. Finally, appellants argue that "[c]umulative error and/or the interest of justice require reversal." Because we have determined a remand is necessary on the valuation of the Stock, we address these arguments only to the extent they could entitle appellants to a remand of the merits of Ann's oppression claim based on appellants' refusal to meet with prospective purchasers of the Stock.
In her original petition, Ann alleged her causes of action against Ritchie, Paula, and Lutes in their individual capacities. During trial, the court granted Ann leave to amend her petition alleging Ritchie, Paula, and Lutes were liable in their capacities as directors of RIC and trustees of the different shareholder trusts. Appellants assert the trial court erred by granting Ann leave to amend her petition during the trial.
After the time for filing amended pleadings has passed, the trial court abuses its discretion in denying leave to file an amended pleading unless (1) the party opposing the amendment presents evidence of surprise or prejudice, or (2) the amendment asserts a new cause of action or defense, and thus is prejudicial on its face, and the opposing party objects to the amendment. State Bar v. Kilpatrick, 874 S.W.2d 656, 658 (Tex. 1994) (per curiam); Greenhalgh v. Serv. Lloyds Ins. Co., 787 S.W.2d 938, 939 (Tex.1990); G.R.A.V.I.T.Y. Enters., Inc. v. Reece Supply Co., 177 S.W.3d 537, 542 (Tex.App.-Dallas 2005, no pet.). An amendment that is prejudicial on its face has three defining characteristics: (1) it asserts a new substantive matter that reshapes the nature of trial itself; (2) the opposing party could not have anticipated the new matter in light of the development of the case up to the time the amendment was requested; and (3) the amendment would detrimentally
After the parties had closed the evidence, appellants moved for a directed verdict asserting they were not liable in their individual capacity. Ann then requested leave to amend the petition to allege appellants' liability in their representative capacities and later filed a written amendment to that effect. The trial court held a hearing to determine whether appellants were prejudiced and surprised by the amendment.
At the hearing, appellants' counsel told the trial court that Ann was put on notice of appellants' lack-of-capacity argument in their motion for summary judgment. However, after further questioning by the court and Ann's counsel, appellants' counsel admitted the issue was not expressly raised in the motion for summary judgment. Thirty-two days before the beginning of trial, appellants filed an answer containing a verified denial of Ritchie, Paula, and Lutes's liability in their individual capacities. Appellants' counsel told the court that after appellants filed the verified denial, she expected Ann to amend her petition in response to the verified denial. Appellants' counsel explained that appellants were prejudiced by the amendment because it left them with insufficient time to investigate various trial-related issues arising with the trusts included as defendants, including limitations, proportionate responsibility, contribution, and whether to present expert testimony about trusts and trustees. Counsel told the court that appellants might have designated Ritchie or Lutes as an expert to testify about trusts and trustees. The trial court suggested that Ritchie and Lutes could be recalled to testify about trusts and trustees, but counsel rejected that opportunity, stating, "We would also need time just to analyze and to determine what the strategy is, what the defense is, you know, preparing the witnesses." Appellants' counsel also told the court the inclusion of the trusts in the suit raised issues concerning counsel's compensation and whether each defendant trustee should have had separate counsel.
Ann argued to the trial court that appellants had not shown actual prejudice but only assertions that they might have proceeded differently. The trial court asked appellants' counsel whether a continuance was requested, and counsel stated that no continuance was sought. The court then granted the trial amendment, stating:
Appellants argue the trial amendment was prejudicial on its face and that they presented substantial evidence of surprise and prejudice. However, based on the record before it, the trial court could have reasonably concluded that the amendment did not reshape the nature of the trial itself, that appellants anticipated the new matter in light of the case, and that the amendment did not detrimentally affect appellants' presentation of their case. See Halmos, 314 S.W.3d at 622. Further, the evidence regarding surprise and prejudice was disputed. See Kirkpatrick v. Mem'l Hosp. of Garland, 862 S.W.2d 762, 776 (Tex.App.-Dallas 1993, writ denied) (a trial court does not abuse its discretion when it makes a decision on conflicting evidence). We cannot conclude the trial court acted without reference to guiding rules or principles regarding trial amendments in ruling on the request. Accordingly, the trial court did not abuse its discretion in granting Ann leave to amend her petition.
Appellants assert the trial court erred by denying them leave to designate Don Erickson as an expert witness on the valuation of RIC. Ann responds that appellants' attempted designation of Erickson was untimely and that the trial court did not abuse its discretion in denying them leave to designate Erickson. In light of the remand of the valuation issue, we need not address this argument. We leave to the trial court any decisions on discovery and designation of expert witnesses regarding value on remand. See TEX.R.APP. P. 47.1.
Appellants also assert the case must be remanded for a new trial because the trial court abused its discretion in denying appellants' motion to exclude Ann's valuation experts, the Latins. As the case is being remanded for further proceedings concerning the valuation of the Stock, we need not address this issue. See TEX.R.APP. P. 47.1.
In the argument section of their brief, appellants assert the evidence is factually insufficient to support various jury answers. They do not, however, include this issue in their issues presented. See TEX. R.APP. P. 38.1(f). We have already addressed many of those arguments in this opinion, but to the extent we have not, the remaining arguments present nothing for review. Id. Moreover, appellants' arguments do not challenge the factual sufficiency of the evidence to support the conclusion that their refusal to meet with potential purchasers of the Stock was oppressive conduct. Indeed, the evidence supporting this conclusion was undisputed. Thus the resolution of appellants' other factual sufficiency arguments are not necessary to the final disposition of the appeal. Accordingly, we do not address them. See TEX.R.APP. P. 47.1.
Appellants assert that "[a]ppellee's counsel presented an improper and incurable jury argument that injected racial prejudice into the case." The argument of Ann's counsel about which appellants complain was as follows:
Appellants did not object to this argument at trial, and we see nothing on the face of the argument that injects race or racial prejudice into the case.
Appellants state that this argument is racially prejudicial in the context of evidence presented during the first day of testimony when Ann's counsel questioned Paula about the disposition in Pops's will of his interest in the "Koon Kreek Klub." At the time appellants did not object to those questions. However, in their motion for new trial, appellants first raised the issue of improper jury argument, asserting that the alliteration of the initial letter "K" in "Koon Kreek Klub" evokes racism by implicitly referring to the "KKK" or Ku Klux Klan, and that, in that context, the closing argument amounts to charges of racism leveled against appellants.
Appellants did not present any evidence showing or even suggesting that the Koon Kreek Klub was, or ever had been, connected with racism or the Ku Klux Klan. Further, error in improper jury argument must be preserved by a timely and overruled objection. See TEX.R.APP. P. 33.1(a); TEX.R. CIV. P. 324(b)(5). A trial court's instruction to a jury to disregard improper argument can cure harm in most cases. See Standard Fire Ins. Co. v. Reese, 584 S.W.2d 835, 839 (Tex.1979).
There are rare instances in which a party may complain about a jury argument on appeal despite the absence of a timely objection. In those instances the harm or prejudice is such that it could not be cured by an appropriate instruction. See Living Ctrs. of Tex., Inc. v. Peñalver, 256 S.W.3d 678, 680 (Tex.2008) (per curiam). "[A]rguments that strike at the courts' impartiality, equality, and fairness inflict damage beyond the parties and the individual case under consideration if not corrected. Such arguments damage the judicial system itself by impairing the confidence which our citizens have in the system, and courts countenance very little tolerance of such arguments." Id. at 681. Appellants contend this case involves such an instance of incurable harm or prejudice.
We disagree. The jury argument in this case involves no such extreme attack on opposing counsel or blatant accusation of racial prejudice. Appellants presented no evidence that the Koon Kreek Klub had any racist identification, history, or connections. The argument did not even mention the Koon Kreek Klub, the Ku Klux Klan, or the KKK, nor did it otherwise state or imply that appellants were racists. Unlike the argument in Living Centers, the argument in this case did
We conclude appellants have not shown that Ann's jury argument — alone or in conjunction with testimony early in the trial concerning Pops's membership in the Koon Kreek Klub — injected accusations of racial prejudice that were incurable, thus obviating the need for an objection in order to preserve any error. Indeed, we find nothing about the argument was incurable. Thus, any complaint about the jury argument was waived by appellants' failure to object at trial. See TEX.R.APP. P. 33.1(a); Reese, 584 S.W.2d at 840-41.
Appellants contend the cause should be remanded for new trial because of "various other errors that infected the trial and necessitate reversal of the judgment." Appellants then list five alleged errors, one of which they admit was not preserved for appellate review. Appellants present no argument or authority showing the trial court erred in these matters. We conclude these contentions are not properly briefed and present nothing for appellate review. See TEX.R.APP. P. 38.1(i).
We overrule appellants' fourth issue.
We conclude that appellants' refusal to meet with or allow any officer or director of RIC to meet with potential purchasers of the Stock was oppressive conduct and that the trial court did not abuse its discretion by ordering RIC to buyout the Stock as an appropriate equitable remedy. However, we conclude the trial court erred by instructing the jury not to include discounts in determining the fair market value of the Stock. We also conclude the trial court erred in awarding Ann attorney's fees in the event of an appeal. Accordingly, we reverse those parts of the trial court's judgment determining the amount of the buyout remedy and awarding conditional attorney's fees on appeal, we remand the determination of the value of the Stock to the trial court for further proceedings, and we render judgment that Ann take nothing on her claim for attorney's fees. In all other aspects, we affirm the trial court's judgment.
TEX.R. CIV. P. 279.
