Under Texas law, stock is personal property. Minority shareholder rights are based ultimately on fundamental rights of property ownership.
The common law cause of action that protects personal property rights is the tort of conversion of property. “The Texas action for the tort called conversion is descended from several common law forms of action, each of which addressed a particular injury to personal property and provided a separate remedy for that injury; the modern action, without being fettered by the strict procedural rules of the forms of action, encompasses the elements and remedies of each of these actions and applies them as appropriate to the particular case.” Prior to the advent of the shareholder oppression doctrine, Texas jurisprudence had a relatively well-developed body of law applying the conversion cause of action to protect property rights of minority shareholders in closely-held corporations. Texas courts have held: “Once a presentment of the stock and reasonable request for change of ownership, coupled with some proof of ownership, then the unreasonable refusal to transfer is a conversion of the stock.” “A refusual of a corporation to transfer record ownership of corporate stock may, under appropriate circumstances, result in liability of the corporation for damages as a corporation for damages as a conversion of the stock.” In eliminating the shareholder oppression doctrine from Texas law, the Texas Supreme Court in Ritchie v. Rupe, specifically pointed to the conversion cause of action as one of the “common-law causes of action [that] already exist[s] to address misconduct by corporate directors and officers.” A claim that stock conversion “is a personal cause of action and a personal injury” and may be asserted directly by the shareholder.
At common law when a defendant unlawfully detained property, the owner might sue him either in detinue, to recover his property together with damages for its unlawful detention, or in “trover,” to treat the detention as a conversion of the property by defendant, whereby the title would pass to defendant as of the time of the conversion, and to recover the value of the property at the time it was converted. The modern tort claim for conversion merges the two common law causes of action into a single claim with an election of remedies. The tort for conversion of property may be thought of as a civil cause of action for theft, but the tort covers a broader range of interference with property rights than just loss of physical possession.
Common law conversion applies only to ownership or possessory interests in personal property. Only property that is personal, as opposed to real property, and tangible or physical may be converted. Generally, intangible property cannot be converted unless the underlying intangible right has been merged into a document that has may be converted. The “merger doctrine” departed from the common law, which restricted conversion claims to tangible property. The merger doctrine allowed conversion “to encompass a different class of property, such as shares of stock [and] was motivated by society’s growing dependence on intangibles.” Under this doctrine a legal instrument, such as a certificate of title, can be converted, but a trade name cannot. An bank account cannot be converted but a specific fund of money (or pile of dollar bills) can be converted
To establish a claim for conversion of property, a plaintiff must prove that (1) the plaintiff owned or had possession of the property or entitlement to possession; (2) the defendant unlawfully and without authorization assumed and exercised dominion or control over the property to the exclusion of, or inconsistent with, the plaintiff's rights as an owner; (3) the plaintiff demanded return of the property; (4) the defendant refused to return the property; and (5) the plaintiff was injured by the conversion. The demand and refusal elements are established as a matter of law and are not submitted to the jury if the property was initially taken wrongfully without the owner’s consent, or when the actions of the defendant amount to a clear repudiation of the plaintiff’s rights such that demand would be useless.
The plaintiff must prove either ownership, legal possession, or the right to immediate possession of the property at the time of conversion. The plaintiff may introduce testimony or other evidence that the property was acquired by purchase or otherwise.
The defendant must exercise dominion or control over the property in a manner inconsistent with the plaintiff’s ownership rights. Any act that interferes with the owner’s right to the property and deprives the owner of its free use and enjoyment constitutes dominion and control. There is no requirement of a physical taking, and the interference may be temporary, but the act of control or dominion must be positive and affirmative, mere non-feasance is insufficient.
If the property was initially taken lawfully, then conversion of the property occurs when the plaintiff demands its return, and the defendant refuses, but demand and refusal are unnecessary if the circumstances indicate that the defendant has clearly repudiated the plaintiff’s right or that a demand would be futile. Demand and refusal are also not necessary if the defendant took possession without the plaintiff’s consent.
The remedy for conversion of property is generally either (1) the lost value of the personal property converted or (2) return of the property plus special damages for loss of use during the period of wrongful detention. The plaintiff must make the election before the case is submitted to the jury and may not change it after submission. The usual measure of damages is fair market value at the time and place of the conversion.
|About the author: Houston Business Lawyer Eric Fryar is a published author and recognized expert in the field of shareholder oppression and the rights of small business owners. Eric has devoted his practice almost exclusively to the protection of shareholder rights over the last 25 years. Learn more||
This post represents our opinion regarding the relevant shareholder oppression and minority ownership rights law. However, not everyone agrees with us, and the law is changing quickly in this area. This page may not be up to date. Be sure to consult with qualified counsel before relying on any information of this page. See Terms and Conditions.