September 8, 2015

Aiding and Abetting Shareholder Oppression?

Holland & Knight Shareholder Rights Blog
Michael A. Grill

Earlier this summer, in Brown v. Pennington, No. 05-14-01349-CV, 2015 WL 3958618 (Tex. App., June 30, 2015), the Texas Court of Appeals dismissed a tort claim against a non-shareholder loan guarantor for lack of personal jurisdiction. Pennington, an allegedly oppressed shareholder, claimed that Brown conspired with Pennington’s two fellow shareholders, to eliminate Pennington from the ownership and operation of the corporation, and to replace him with Brown.

While there was nothing out of the ordinary in the jurisdictional analysis, the court seemingly assumed that a cause of action exists for aiding and abetting shareholder oppression. Brown, 2015 WL 3958618, at *9 (“Pennington, by asserting Brown committed a tort in Texas, met his initial burden of alleging jurisdiction under the Texas long-arm statute.”) Having held that Pennington had met his “initial burden,” this raises the question of whether Texas would expand the more familiar cause of action of aiding and abetting a breach of fiduciary duty, which many jurisdictions have recognized.

The court’s passage is all the more curious given that just last year, the Texas Supreme Court explained that the statutory remedy for shareholder oppression was limited to the appointment of a receiver, and that no common law cause of action for shareholder oppression existed in Texas. See Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014). The Ritchie opinion had also been interpreted by some as having narrowed the type of conduct sufficient to give rise to a statutory oppression claim. E.g., James Dawson, Ritchie v. Rupe and the Future of Shareholder Oppression, 124 Yale L.J. F. 89, 91 (2014),

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