Bell Nunnally attorney Benjamin L. Riemer recently authored “Business Divorce Litigation in the Aftermath of ‘Ritchie v. Rupe’: Concerns for Investors in Texas Businesses Have Been Greatly Exaggerated” for Bloomberg BNA’s Corporate Law & Accountability Report. The article explores the impact of the Supreme Court of Texas decision in Ritchie v. Rupe on the process of business divorce in Texas.
Ritchie v. Rupe was an appeal by a closely-held corporation who had been compelled by lower courts to buy out a minority shareholder’s interest after she brought a claim of shareholder oppression under the Texas Business Organization Code’s Texas Receivership Statute. In a 6-3 decision, the court ruled against minority shareholder Ann Rupe and held that minority investors in closely-held Texas companies could no longer seek the “buy-out” remedy for shareholder oppression claims. In his piece, Riemer notes that while the Court narrowed the legal standard used to evaluate shareholder oppression claims, legal protections available to minority shareholders of closely held companies have not been affected as dramatically as some have commented.
Riemer details that, despite the court’s ruling, shareholder oppression claims can still be brought by minority shareholders. Such claims simply need to meet a more onerous standard prescribed in the Ritchie decision, and a forced buy-out is no longer an available remedy for such claims. However, Riemer notes that the buy-out remedy is still available with respect to a breach of fiduciary claim. Riemer adds that in business divorce cases, shareholder oppression claims often tend to be fringe issues, overshadowed by a number of more typical claims such as petition for access to the company’s books and records, breach of fiduciary duty and breach of contract claims based on the company’s governing agreements.
Riemer concludes the article by suggesting that the Texas legislature should consider adding a “liquidating receiver” to the Texas Receivership Statute, thereby enabling the buy-out remedy to be available for shareholder oppression claims when the court’s strict standards are satisfied. This move would put the state more in line with the majority of jurisdictions that authorize the buy-out remedy for oppression claims.
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