Davis v. Sheerin

Brief Fact Summary. Appellants, William H. Davis and Catherine L. Davis, denied Appellee, James L. Sheerin’s, rights inherent in his 45 percent stock share in W.H. Davis Co., Inc., (the corporation). The trial court found Appellants actions as oppressive and ordered a buy out of Appellee’s shares.

Synopsis of Rule of Law. A court, in equity, may order a buy out of stock if oppressive conduct is found.

Facts. In May of 1985, Appellee brought suit as an individual, and as a shareholder on behalf of the corporation against Appellants based on allegations of Appellants’ oppressive conduct toward Appellee as a minority shareholder and their breaches of fiduciary duties owed to Appellee and the corporation.
The corporation was incorporated by William, a 55 percent stockholder, and Appellee, in 1955. Appellee and Appellants served as directors and officers of the corporation, with William serving as president. Appellee was not employed by the corporation.
In 1985, Appellants denied Appellee’s right to inspect the corporate books, unless Appellee produced his stock certificate. Appellants claimed Appellee gifted his 45 percent interest in the corporation to them in the late 1960’s.
The trial court found that there was a conspiracy to deprive Appellee of his stock and that Appellants acted oppressively against Appellee. It ordered a “buy out” of Appellee’s 45 percent stock share for $550,000. Appellants appeal claiming (1) Texas law does not allow a “buy out” as a remedy, and (2) even if such a remedy was available, the trial court’s finding of “oppressive conduct” does not warrant application of a buy out.

Issue.
Whether Texas law permits a “buy out” as a remedy?

If so, whether “oppressive conduct” warrants the application of a buy out?

If so, whether oppressive conduct exists in this instant case?

Held. The trial court’s holding is affirmed.
Yes, a buy out is a permitted remedy under the court’s equity power.

Yes, oppressive conduct warrants the application of a buy out.

Yes, oppressive conducts exists in this case to warrant a buy out.

Discussion.
Although the Texas Business Corporation Act (Act) does not expressly provide for a buy out, Texas courts, under their general equity power, may decree a “buy out” in cases where less harsh remedies are inadequate to protect the rights of the parties.

Although the Act does not explicitly provide for a buy out, it does recognize a cause of action for oppressive conduct. Furthermore, other jurisdictions have recognized a buy out as an available remedy for oppressive conduct.

Although the typical oppressive “squeeze out” techniques used in closely held corporations do not exist here, the court finds that Appellants’ actions to deprive Appellee of his interest in the corporation, breach of their fiduciary duties, and attempt to silence Appellee’s voice in the corporation are considered oppressive.