Filling in the Gaps: Shareholder Oppression After Ritchie v Rupe, Part 2

The purpose of this Part Two article is to explore the common-law protection of minority shareholder rights in closely-held corporations in light of the monumental change in Texas law resulting from the Ritchie v. Rupe decision. In Part One, we explored the development of the shareholder oppression doctrine in Texas as a judicial remedy to the inherent problem in closely-held corporations of oppressive conduct directed toward minority shareholders. The Texas Supreme Court’s decision in Ritchie v. Rupe rejected the creation of such duties on individual shareholders and made clear that majority shareholders owe no legal duties to minority shareholders arising solely by virtue of shareholder status and corporate control. Part One analyzed existing property rights of shareholders that arise from share ownership and existing duties that corporations owe to all shareholders by virtue of the legal relationship between corporation and shareholder—a relationship analogized by our courts as a kind of rust. Drawing on these rights and duties and on the holdings and analysis of cases such as Cates v. Sparkman, Yeaman v. Galveston City Co., and Patton v. Nicholas, we argued for the rediscovery and development of a breach of trust cause of action that individual shareholders could assert against the corporation when majority shareholders abuse their power over the corporation to harm the interests of minority shareholders. In this Part Two, we continue that analysis, looking at a different cause of action, the common law tort of conversion as applied to stock. Conversion is a tort claim that protects property rights in personal property, such as stock ownership. However, our courts have adapted this tort in very special ways when the personal property rights in a shareholder’s stock in a corporation are impaired by that same corporation. The development of this judicial doctrine, in light of the specific duties that corporations owe to shareholders, may provide another potent judicial remedy to minority shareholders against corporate abuse of power.