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Minority Shareholder Squeeze Out:

Who Determines the Facts?

The Ritchie v Rupe court of appeals decision defined the fact finding function in a minority shareholder squeeze out. Shareholders rights in shareholder oppression.

Minority shareholder squeeze out as decided by a jury

How the Court Determines that a Minority Shareholder Has Been Squeezed Out

The Ritchie v. Rupe court of appeals opinion was a significant examination of the former Shareholder Oppression Doctrine. It was reversed by the Supreme Court, but its analysis of how the fact finding function operates in equitable remedies will be important as the lower courts develop existing remedies to fill in the gaps left by the Supreme Court in legal protections against minority shareholder squeeze-outs.

Shareholder oppression was a unique cause of action because the plaintiff is not seeking damages proximately caused by specific wrong-doing; rather the plaintiff sought an equitable remedy (usually a forced buy-out) based on the existence a pattern of oppressive conduct, generally culiminating in or for the purpose of a minority shareholder squeeze out. A plaintiff establishes liability by proving a pattern of discrete oppressive acts. Whether certain conduct constitutes shareholder oppression is a question of law.  Therefore, in a shareholder oppression case, there is no jury question requiring a finding of that the defendant oppressed the plaintiff.  Rather, the court determines whether oppression has occurred, and the court fashions the equitable remedy.  The jury decides only whether the specific oppressive acts occurred and the value of the shares. Typically, there is no factual dispute as to many of the oppressive acts; therefore, the trial court (or appellate court) may base its conclusion that the defendant committed shareholder oppression on undisputed oppressive acts even if those acts were never submitted to the jury. 

Submitting a Minority Shareholder Squeeze Out to a Jury

In the Dallas Court of Appeals opinion in Ritchie v. Rupe, the court explicitly addressed the procedural issues relating to submission of a shareholder oppression case.  In that case, the court of appeals affirmed a shareholder oppression judgment ordering a forced buy-out. In addition to jury findings, the trial court also issued 43 numbered findings of fact and conclusions of law. The appellants attacked the judgment as being based on factual findings not submitted to the jury and argued that the findings of fact and conclusions of law should be disregarded.  The court of appeals rejected this argument. The court held:

"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. However, jury questions "should not be submitted where the facts in question are conclusively established." T.A. Manning & Sons, Inc. v. Ken-Tex Oil Corp., 418 S.W.2d 324, 326 (Tex. Civ. App.—Austin 1967, writ ref'd n.r.e.); see also City of Brenham v. Honerkamp, 950 S.W.2d 760, 769 (Tex. App.—Austin 1997, pet. denied) ("A proposition conclusively established by the evidence should not be submitted to the fact finder."). Further, in certain circumstances the trial court may make findings of fact on elements of a ground of recovery or defense that were omitted from the charge. See TEX.R. CIV. P. 279. When part of a cause is decided by the jury and part by the court, a party may request and the court may issue findings of fact  and  conclusions  of  law  on  the  court-decided  issues.  See  Toles v.  Toles, 45  S.W.3d  252,  264  n.  5 (Tex. App.—Dallas 2001, pet. denied), and the cases cited therein."

Probably, the trial court should not have issued "findings of fact." The issues decided by the trial court, including existence of facts that were undisputed or conclusively established, are conclusions of law.  However, the trial court had stated in its order that, "[t]o the extent necessary, each of the findings of fact shall be treated as a conclusion of law and each conclusion of law shall be treated as a finding of fact."

The principal basis of the oppression judgment was that the defendants had refused to cooperate with plaintiff's attempts to sell her shares to third parties, thereby substantially defeating her reasonable expectation of free alienability of her stock. The appellants argued that this basis of liability had been waived because it was not submitted to the jury. The court of appeals noted: "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." The fact that the defendants had refused to meet with prospective purchasers was undisputed.  Therefore, no jury question was necessary:

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., 296 S.W.2d 517, 523 (Tex.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. Accordingly, this fact was conclusively established and did not require a jury finding. See TEX.R. CIV. P. 279 (independent grounds of recovery are not waived if conclusively established).

The court also rejected the argument that the trial court was not entitled to consider the parts of the definition of shareholder oppression that had not been submitted in jury instructions.  "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." Under the court's reasoning, probably the submission of any instruction to the jury as to the definition of oppressive conduct whatsoever was unnecessary.

 

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Houston Business Lawyer Eric Fryar 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

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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.

 

 

 

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