Fiduciary Duties and Minority Shareholder Oppression from the Defense Perspective: Differing Approaches in Texas, Delaware, and Nevada

Suits by minority shareholders in Texas are on the rise and represent an expanding, cutting-edge area of civil litigation in this state and across the country. This article first addresses fiduciary duty requirements in Texas and Delaware, and the mechanisms available under the “Internal Affairs Doctrine” that may mandate the application of another state’s law instead of Texas’ in the context of fiduciary and shareholder litigation. There follows a discussion of Texas law on the evolving legal theory of “Minority Shareholder Oppression.” As will be seen, unlike the broad and amorphous formulation of the doctrine some Texas Courts of Appeals have adopted (absent meaningful guidance so far from the state’s supreme court), Delaware has rejected the Texas lower courts’ approach of adopting a vague and general, almost standard-less cause of action called “shareholder oppression,” in favor of a case-specific approach designed to protect minority shareholders in limited circumstances, such as squeeze-out mergers and freeze-outs. Delaware courts do this mostly through the way they interpret fiduciary and disclosure duties as well as minority shareholder appraisal rights. Finally, this paper concludes with a brief analysis of minority shareholder oppression in Nevada, a state that is seen as an increasingly attractive alternative forum for incorporation.