The summer of 2014 was an unsettling one for minority investors in private Texas companies. In a series of three decisions in late June, the Texas Supreme Court dramatically altered the existing legal landscape. For more than two decades, minority shareholders in Texas private companies were entitled to bring a claim for shareholder oppression when their reasonable economic expectations were frustrated by the majority owners’ actions. In a majority opinion from late June, however, the Supreme Court jettisoned that claim, holding that shareholder oppression does not exist under Texas statutes or in common law. See Ritchie v. Rupe, — S.W.3d — , 2014 WL 2788335 (Tex. June 20, 2014).

This article reviews the impact of the Rupe decision and the Court’s other holdings. We also forecast where we expect the legal battle lines are likely to be drawn in future disputes arising between majority owners and substantial minority investors in private businesses, because legal avenues still remain available to minority investors who contend they are being harmed by the those who control the company.

The Supreme Court’s three recent decisions are summarized as follows:

• • Ritchie v. Rupe, — S.W.3d — , 2014 WL 2788335 (Tex. June 20, 2014). The trial and appellate courts in Rupe held that the company’s majority owners had engaged in shareholder oppression by, among other things, refusing to meet with potential buyers that sought to purchase the minority owner’s stock. In a 6-3 decision, a majority of the Texas Supreme Court reversed the lower court’s buy-out order and made three primary holdings: (1) the only statutory remedy for “oppressive” actions is a rehabilitative receivership, and a buy-out remedy was not available under the Texas statute; (2) the definition of “oppressive” actions in the Texas statute includes a failure to satisfy the business judgment rule; and (3) there is no common-law cause of action for shareholder oppression in Texas.
• Cardiac Perfusion Servs., Inc. v. Hughes, — S.W.3d —,2014 WL 2896002 (Tex. June 27, 2014) (per curiam). Following Rupe, the Texas Supreme Court reversed the lower court decisions that approved a buy-out of the minority owner’s stock after a finding that the majority owner committed multiple acts that constituted shareholder oppression. Although the Cardiac Perfusion Court reversed the decision based on the now defunct buy-out remedy, it also remanded the case (in the interests of justice) to allow the minority shareholder to pursue a derivative suit under Section 21.563(c) of the Texas Business Organizations Code. Argo Data Resource Corp. v. Shagrithaya, 380 S.W.3d 249
• (Tex. App.—Dallas 2012, pet. denied). Without opinion, the Supreme Court denied the minority shareholder’s petition for review of the decision from the Fifth Court of Appeals in Dallas that: (a) certain actions of the majority shareholder did not constitute shareholder oppression; and (b) the majority shareholder did not breach his fiduciary duty to the corporation.

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