David A. Skeels v. Jonathan T. Suder Michael T. Cooke And Friedman, Suder & Cooke, P.C. ( 2023 )

Supreme Court of Texas
══════════
No. 21-1014
══════════
David A. Skeels,
Petitioner,
v.
Jonathan T. Suder; Michael T. Cooke; and Friedman, Suder &
Cooke, P.C.,
Respondents
═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Second District of Texas
═══════════════════════════════════════
Argued February 23, 2023
JUSTICE DEVINE delivered the opinion of the Court, in which
Justice Boyd, Justice Blacklock, Justice Busby, Justice Bland, Justice
Huddle, and Justice Young joined.
CHIEF JUSTICE HECHT filed a dissenting opinion.
Justice Lehrmann did not participate in the decision.
The central issue in this declaratory-judgment suit is whether a
corporate resolution authorized a law firm to redeem a departing
shareholder’s shares on terms unilaterally set by the firm’s founders.1
Corporate shares are personal property,2 but a professional corporation
may redeem them if the redemption price and other terms are
(1) “agreed to between the board of directors” and either “the
shareholder” or his “personal representative,”3 (2) “specified in the
governing documents” or “an applicable agreement,”4 or (3) determined
according to a statutorily authorized “shareholders’ agreement.”5
Here, the firm’s governing documents did not address
redemption, and after the firm terminated a shareholder’s employment,
he did not agree to the founders’ proposed redemption terms. The
founders then purported to redeem his shares at no cost, arguing that a
resolution generally authorizing the founders “to take affirmative action
on behalf of the Firm” unambiguously encompasses redemption. The
trial court agreed, and the court of appeals affirmed, concluding that the
resolution’s “broad language allowed the [founders] to set the terms of
any share redemption as [they] saw fit.”6
We reverse. By modifying “affirmative action” with “on behalf of
the Firm,” the resolution authorized the founders to take action the firm
1 “Redemption” generally refers to the “act or an instance of reclaiming
or regaining possession by paying a specific price,” including “reacquisition of
a security by the issuer.” Redemption, BLACK’S LAW DICTIONARY, at 1530 (11th
ed. 2019).
2 TEX. BUS. ORGS. CODE § 21.801.
3 Id. § 303.004(b)(1).
4 Id. § 303.004(b)(2).
5 See id. §§ 21.101, .104, 303.001.
6 665 S.W.3d 637, 642, 651 (Tex. App.—Fort Worth 2021).
2
could take, but it did not constitute the departing shareholder’s
agreement that the founders may set redemption terms of their own
accord on his behalf. Nor does the resolution itself “specif[y]” any
redemption terms. And because the firm was not authorized—by
statute, governing document, or shareholders’ agreement—to set the
redemption terms without the departing shareholder’s agreement, the
resolution did not independently authorize the founders to unilaterally
determine those terms. The case is remanded to the trial court for
further proceedings.
I. Background
In 1992, the predecessor of Friedman, Suder & Cooke, P.C. (FSC)
incorporated as a law firm professional corporation. As of 1999, the firm
had four shareholders, three of whom remain with FSC to this day:
Walker Friedman, Jonathan Suder, and Michael Cooke (collectively, the
Founders). A relatively small, closely held corporation,7 FSC hired
David Skeels in 2007, and he became a shareholder within four years.
As an employed shareholder, Skeels received a portion of his practice
team’s aggregate contingent-fee recoveries less expenses.
Although FSC’s articles of incorporation authorized 100,000
shares of common stock, amendments declared that “no shares ha[d]
7 See TEX. BUS. ORGS. CODE § 21.563(a) (a “closely held corporation” has
“fewer than 35 shareholders” and no publicly traded shares). “A ‘closely held
corporation’ is not to be confused with a ‘close corporation.’” Sneed v. Webre,
465 S.W.3d 169, 177 n.6 (Tex. 2015). A close corporation may take advantage
of statutory provisions “dedicated to the special needs of such corporations”
that “exempt[] them from many of the rules that govern other types of
corporations.” Ritchie v. Rupe, 443 S.W.3d 856, 880 (Tex. 2014). Although any
corporation can “elect to operate as a ‘close corporation’ by so providing in the
appropriate corporate documents,” id. at 879 n.34, FSC did not elect to do so.
3
been issued.” Nevertheless, Cooke explained that FSC “deemed” its
shareholders to have an “equivalent number” of shares based on “pro
rata ownership” and that new shareholders received “an undetermined
amount of shares,” which later became “determined” when FSC created
stock certificates in 2014.
Before 2014, only three shareholders had left FSC. FSC’s articles
of incorporation did not address share redemption or prescribe what
would happen to a departing shareholder’s shares. According to Cooke,
each departing shareholder had “released any rights to their shares” in
“negotiated separation agreements” with “settlements of claims or
potential claims” and “[m]utual releases.”
The resolution central to the issue now on appeal was crafted in
connection with a 2014 IRS audit of FSC. After an initial meeting with
an agent, FSC’s office manager explained in a memorandum that the
IRS “wants to see that we are a real corporation acting like a real
corporation.” The manager admonished that FSC had “some work to do
with respect to our record keeping” before reconvening with the IRS
agent: “Purchase a stock book and issue the stock correctly”; “Show
voided stock for partners who left the firm”; “Create stock for newer
partners”; and “Back date.” To that end, FSC formally issued—but did
not actually distribute—backdated certificates of 1,000 shares of
common stock to each of its shareholders.
The day before the next IRS meeting, Cooke prepared the
following resolution (the 2014 Resolution), which FSC’s shareholders,
including Skeels, signed:
4
RESOLUTION
02/11/14
WHEREAS, Friedman, Suder & Cooke, P.C. (the
“Firm”) desires to ratify, confirm and memorialize in
writing a policy and practice of the Firm, and a right
possessed by Walker Friedman, Jonathan Suder and
Michael Cooke, before any current shareholder other than
Walker Friedman, Jonathan Suder and Michael Cooke
became a shareholder in the Firm;
WHEREAS, such policy, practice and right is that
Walker Friedman, Jonathan Suder and Michael Cooke
collectively have been entitled to take affirmative action
and veto any vote or action taken by or on behalf of the
Firm notwithstanding the number of shareholders, or the
number of shares issued to any shareholder;
NOW, THEREFORE, be it resolved as follows:
1. Notwithstanding the number of shareholders, or
the number of shares issued to any shareholder, Walker
Friedman, Jonathan Suder and Michael Cooke,
collectively, have been entitled, and shall continue to be
entitled, to take affirmative action on behalf of the Firm,
and veto any vote or action taken by or on behalf of the
Firm, and/or by any other shareholder, whether
individually, or collectively.8
Cooke later explained that because the Founders were “putting
something in writing to show share ownership when before it had been
just an unwritten policy and practice of how we consider ourselves
shareholders,” they “didn’t want there to be a record in place having
equal share ownership when that did not reflect actual control and
8 Emphasis added.
5
management of the firm.” Thus, “it was important to have another
document and agreement in place”—the 2014 Resolution—“to reflect
that ultimate power and control existed with” the Founders.
From 2014 through 2015, Skeels grew dissatisfied with FSC and
began to look elsewhere for employment. In December 2015, after
discovering emails between Skeels and another shareholder, Decker
Cammack, criticizing one of the Founders, FSC terminated Skeels’s and
Cammack’s employment. Cooke told Skeels that he would need to
return his shares in a “procedure” involving “some sort of agreement,
like a release of claims to shares or some sort of redemption agreement.”
FSC proposed separation terms, including that Skeels tender his shares
with mutual releases and receive $50,000 (later increased to $75,000)
when proceeds came in from a specific matter he had worked on for FSC.
Skeels did not accept the terms and hired a lawyer to help determine
the value of his shares. Shortly before Skeels and Cammack joined
another law firm in January 2016, Skeels asked to inspect FSC’s books
before responding to its “proposals concerning [his] involuntary
separation.” Skeels alleges FSC refused his request.
The next month, FSC sent a letter asking Skeels to “voluntarily
surrender” his shares, “just as Decker Cammack did.” Otherwise, the
letter would serve as notice that the shares would be redeemed
“pursuant to the [2014] Resolution” and the requirements in
Section 21.305 of the Business Organizations Code. Skeels was
informed that, “consistent with the value that other departing
shareholders received,” the redemption price would be “zero.” Skeels
responded that FSC lacked “any specific authority to redeem or value
shares” and that he owned “common stock,” not “redeemable shares.”
6
Skeels then sued FSC, Cooke, and Suder (collectively, the Firm),
seeking, among other things, declarations that (1) the attempted
redemption was void because the 2014 Resolution was not a governing
document or shareholders’ agreement under Sections 1.002(36),
21.101(a), and 21.305 of the Business Organizations Code; (2) the
certificate of formation did not contain a redemption provision; and
(3) the parties had not agreed on the redemption price. FSC
counterclaimed for a declaration that the 2014 Resolution authorized
the Founders’ redemption actions. The Firm also moved for sanctions.9
Throughout the proceedings, the Firm has continually
refashioned its justification for its redemption authority. After Skeels
noted that FSC shares were common stock not designated as
redeemable, the Firm agreed that shares are “not generally redeemable”
under Chapter 21 and, to make them redeemable under Section 21.305,
“shares must be designated as redeemable on the share certificate or as
stated in the certificate of formation.”10 The Firm then shifted focus to
9Skeels initially brought a shareholder derivative suit that, according
to the Firm, included ad hominem attacks and disclosed confidential
information. After FSC, Cooke, and Suder each moved for sanctions, Skeels
amended his petition, dropping the derivative claims. The trial court awarded
sanctions to Cooke and Suder and attorney’s fees to FSC, concluding that
Skeels brought the lawsuit to embarrass and harass the Firm. In a ruling
unchallenged in this Court, the court of appeals reversed those awards. 651
S.W.3d at 64.
10 See TEX. BUS. ORGS. CODE §§ 21.154(a)(1), .210, .305(a). “[A]rticles of
incorporation” are now referred to as the “certificate of formation.” See, e.g.,
id. §§ 1.002(6), .006(1); Byron F. Egan, EGAN ON ENTITIES: CORPORATIONS,
PARTNERSHIPS AND LIMITED LIABILITY COMPANIES IN TEXAS 22 (4th ed. 2023)
(“[T]he document a filing entity must file with the Secretary of State to be duly
organized under Texas law is now simply called a ‘certificate of formation,’
whereas previously each entity had its own name for such document.”).
7
Section 303.004, which broadly authorizes professional corporations to
redeem shares and provides options for setting the redemption terms,
including when “governing documents” specify the terms.11 The Firm
argued that, because the 2014 Resolution established the Founders as
FSC’s “[g]overning authority”12 in a “governing document,” “redemption
of shares is left largely to the discretion of the professional corporation
and the professionals serving as part of its governing authority.”
At a pretrial conference, the Firm changed tack again, presenting
the 2014 Resolution as a “shareholders’ agreement.” Chapter 21 of the
Business Organizations Code authorizes shareholders’ agreements that
govern “the exercise or division of voting power,” “even if the terms of
the agreement are inconsistent with this code.”13 Thus, according to the
Firm, the 2014 Resolution authorized the Founders “to take whatever
action they want” to redeem shares; “[t]hat is the end of the analysis.”
The trial court agreed, signing an order granting FSC’s
counterclaim, denying Skeels’s declaratory-judgment claim, and
declaring that the 2014 Resolution authorized the Founders’ redemption
actions. When the court called the case for trial, Skeels’s counsel
represented that none of Skeels’s other claims survived the interlocutory
11 See TEX. BUS. ORGS. CODE § 303.004.
12 See id. § 1.002(35)(A) (defining “Governing authority”); Egan, supra
note 10, at 22 (although “each entity typically has a particular person or set of
persons which govern that type of entity,” the Business Organizations Code
“replaces all those different terms and simply refers to the persons or entities
that control the entity as that entity’s ‘governing authority’”).
13 TEX. BUS. ORGS. CODE §§ 21.101(a)(7), .104.
8
order. After taking up the Firm’s sanctions motions, the merits of which
are not at issue here,14 the court signed a final take-nothing judgment.
The court of appeals affirmed,15 concluding that the
2014 Resolution’s “broad language” permitted the Founders to take
affirmative action “with no limitation placed on that power” and
“allowed the governing authority to set the terms of any share
redemption as it saw fit.”16 In a dissent, Justice Birdwell accused the
majority of “read[ing] too much into the Resolution” when it “did not
contemplate share redemption” and “does not purport to expressly allow
the [Founders] to unilaterally set the price and terms of share
redemption.”17 We granted Skeels’s petition for review.18
14 See supra note 9.
15 The court of appeals initially reversed the declaratory judgment but
then affirmed on rehearing and further rehearing. No. 02-18-00112-CV, 2020
WL 5666555 (Tex. App.—Fort Worth Sept. 24, 2020), opinion withdrawn, 2021
WL 1538254 (Tex. App.—Fort Worth Apr. 12, 2021, order) (per curiam), and
opinion superseded on reh’g, 2021 WL 2460862 (Tex. App.—Fort Worth June
17, 2021), opinion withdrawn and superseded on further reh’g, 665 S.W.3d 637(Tex. App.—Fort Worth 2021).
16 665 S.W.3d at 642, 650-51.
17 Id. at 665, 673 (Birdwell, J., dissenting). Although Justice Birdwell
agreed with the majority that the sanctions and attorney’s fee awards should
be reversed, he expressly noted, “I do not think this holding should be taken to
mean that I (or this court, for that matter) condone this litigation in general”;
the litigation “appear[s] to have been undertaken with a purpose beyond the
recovery of simple damages”; and “the situation was not improved by the
attempt to force cancellation of shares that were not required by law to be
redeemed so that an inactive shareholder would arguably have no legal right
to access books and records that would have likely confirmed the potentially
minimal damage recovery.” Id. at 674-75.
18 In an amicus letter, Professor Elizabeth Miller questions the lower
courts’ characterization of the 2014 Resolution as a Chapter 21 shareholders’
agreement that authorizes unilateral determination of redemption terms.
9
II. Discussion
Texas Rule of Civil Procedure 166 empowers a trial court to
convene a pretrial conference to identify the “legal matters to be ruled
on or decided by the court” and to issue appropriate orders “to assist in
the disposition of the case without undue expense or burden to the
parties.”19 When a trial court’s order “disposes of claims in this fashion,”
it “is akin to a summary judgment or directed verdict, and review is de
novo.”20 But judgment without a jury verdict is proper “only when the
law does not allow reasonable jurors to decide otherwise.”21
A. Statutory Framework
To contextualize the parties’ dispute, we begin with an overview
of the statutory framework. Title 7 of the Business Organizations Code
governs professional entities.22 Chapters 301 and 303 govern
professional corporations that are “formed for the purpose of providing
a professional service,” including legal services.23 Although a
professional corporation resembles other for-profit corporations by
Professor Franklin Snyder and Eric Fryar, as amici supporting Skeels, argue
that the Firm’s unilateral redemption of Skeels’s shares for zero value
extinguishes property in violation of a corporation’s quasi-fiduciary duties.
They further warn against construing a nonspecific grant of decision-making
authority as conferring the power to cancel a shareholder’s shares.
19 TEX. R. CIV. P. 166(g); see also JPMorgan Chase Bank, N.A. v. Orca
Assets G.P., 546 S.W.3d 648, 653 (Tex. 2018).
20 Orca Assets, 546 S.W.3d at 653.
21 Id. (quoting City of Keller v. Wilson, 168 S.W.3d 802, 832 (Tex. 2005)).
22 See generally TEX. BUS. ORGS. CODE §§ 301.001–304.001.
23 Id. §§ 301.001(a), .003(3), (8), 303.001–.006.
10
offering limited shareholder liability,24 Title 7 restricts who may be
shareholders. Individual shareholders of law firm professional
corporations must be licensed attorneys,25 and their ownership interests
may be transferred only to other persons or entities authorized to
provide legal services.26 If a shareholder or successor to the interest is
or becomes unauthorized to provide legal services, such person “shall
promptly relinquish” the interest.27 In that case, the professional
corporation “shall purchase or cause to be purchased” the surrendered
interest on terms that “may be provided by the governing documents of
the entity or an applicable agreement.”28
On the other hand, if a departing shareholder continues to be
authorized to provide legal services, Title 7 does not address whether
the shareholder must relinquish the ownership interest. But
Section 303.004 helps ensure that a professional corporation has an
opportunity to redeem those shares:
(a) A professional corporation may redeem shares of a
shareholder, including a deceased shareholder.
(b) The price and other terms of a redemption of shares
may be:
24 Id. § 303.002(b).
25 See id. §§ 301.003(5), .004(2), .007(a). A professional corporation may
also issue shares to other professional organizations. See id. §§ 301.003(7),
.004(2), .007(a).
26 Id. § 301.009; see also id. §§ 301.003(3), (5), (7), .004(2), .007(a).
27 Id. § 301.008(b)–(c).
28 Id. § 301.008(d).
11
(1) agreed to between the board of directors of the
professional corporation and the shareholder or the
shareholder’s personal representative; or
(2) specified in the governing documents of the
professional corporation or an applicable
agreement.29
Shareholders in a closely held professional corporation may desire
even greater freedom in the redemption process because selling
non-publicly traded shares is not only difficult, but sometimes
impossible.30 To “address and resolve such difficulties,” shareholders
may enter into “shareholder agreements that contain . . . redemption
provisions that reflect their mutual expectations and agreements.”31 To
that end, Chapter 21 is also potentially relevant in providing that a
compliant shareholders’ agreement is “effective among the shareholders
and between the shareholders and the corporation even if the terms of
the agreement are inconsistent with [the Code].”32 Thus, in evaluating
29 Id. § 303.004.
30 Ritchie v. Rupe, 443 S.W.3d 856, 871 (Tex. 2014); see also id. at 881
(“Of course, shareholders may also prevent and resolve common disputes by
entering into a shareholders’ agreement to govern their respective rights and
obligations. Importantly, the Legislature has granted corporate founders and
owners broad freedom to dictate for themselves the rights, duties, and
procedures that govern their relationship with each other and with the
corporation.” (citing TEX. BUS. ORGS. CODE §§ 21.052–.059, .101–.110, .210,
.401–.408)).
31Id. at 871; see also id. at 883 n.46 (noting that the Legislature has
placed limits on corporate redemptions to protect creditors (citing TEX. BUS.
ORGS. CODE §§ 21.301–.318)).
32TEX. BUS. ORGS. CODE § 21.104; see also id. §§ 21.101 (authorizing
shareholders to enter into a shareholders’ agreement as to specified matters),
12
a professional corporation’s redemption of shares, we consider whether
any Chapter 21 shareholders’ agreements or any documents or
agreements as described in Section 303.004(b) either set the redemption
terms or authorize who may determine those terms.
B. The 2014 Resolution
The crux of the parties’ dispute is whether the 2014 Resolution—
by authorizing the Founders “to take affirmative action on behalf of the
[f]irm”—either (1) satisfies one of Section 303.004(b)’s two options for
setting the redemption terms for Skeels’s shares or (2) constitutes a
Chapter 21 shareholders’ agreement that independently authorizes the
Founders to unilaterally determine the redemption terms. The Firm
relies solely on the 2014 Resolution and does not rely on any other
governing document or agreement to redeem Skeels’s shares.33 At its
core, the dispute turns on whether Skeels, by signing the
2014 Resolution, agreed to allow the Founders to redeem his shares on
any terms and at any price they may choose. He did not.
When construing an agreement, undefined terms are typically
given their plain, ordinary, and generally accepted meaning unless the
instrument shows that the parties used them in a technical or different
sense.34 We enforce agreements as written, and if the terms are plain,
303.001 (making Chapter 21 applicable “to a professional corporation, unless
there is a conflict with this title”).
33The Firm also does not rely on the 2014 Resolution’s language that
the Founders are entitled to “veto any vote or action taken by or on behalf of
the [f]irm, and/or by any other shareholder, whether individually, or
collectively.”
34 Farmers Grp., Inc. v. Geter, 620 S.W.3d 702, 709 (Tex. 2021).
13
definite, and unambiguous, we cannot alter their meaning under the
guise of construing them.35
To conclude that the Founders held an “unfettered right” to take
action with “no limitation placed on that power,” the court of appeals
focused on the resolution’s “affirmative action” language.36 But the
2014 Resolution does not authorize any action without limitation
because, textually, “affirmative action” is modified by “on behalf of the
[f]irm.”
According to the plain meaning of “on behalf of,” the
2014 Resolution authorized the Founders to act only as FSC’s agent or
representative.37 A general, nonspecific authorization to act as an
entity’s agent or representative does not independently authorize action
the entity would not otherwise be permitted to take. The Firm has not
established that FSC has ever been authorized to set the redemption
price and other redemption terms without the departing shareholder’s
agreement, and the adoption of the 2014 Resolution did not change that.
FSC’s governing documents did not address redemption, and Cooke
admitted that he is “not aware of any company document that
35 Fiess v. State Farm Lloyds, 202 S.W.3d 744, 753 (Tex. 2006).
36 665 S.W.3d 637, 650, 652 (Tex. App.—Fort Worth 2021).
37 See Behalf, BLACK’S LAW DICTIONARY, at 189 (11th ed. 2019) (“[O]n
behalf of means ‘in the name of, on the part of, as the agent or representative
of.’”); Behalf, THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH
LANGUAGE, at 162 (5th ed. 2016) (noting that “[a] traditional rule holds that in
behalf of and on behalf of have distinct meanings” and “on behalf of means ‘as
the agent of, on the part of’”); see also In re Davenport, 522 S.W.3d 452, 457
(Tex. 2017) (“Courts may look to dictionaries to discern the meaning of a
commonly used term[.]”).
14
specifically addressed redemption.” Crucially, the 2014 Resolution did
not expand the scope of FSC’s authorized actions; it simply designated
who may act on FSC’s behalf.38
The Firm alleges the record nonetheless establishes FSC’s
“historical policy and practice” that “one cannot be a shareholder if he is
not an attorney in the [f]irm, nor will he be paid any money for his shares
upon departure” and that this policy and practice “informs the meaning”
of the 2014 Resolution’s phrase “affirmative action.” The record
supports the Firm’s claim that FSC did not pay any money to reacquire
shares held by the shareholder who departed concurrently with Skeels.
And the Firm asserts that the three shareholders who departed FSC
before 2014 “tendered their share[s] without monetary compensation.”39
But each of these departing shareholders agreed to “negotiated
separation agreements” that involved “releas[ing] any rights to their
shares,” “settlements of claims or potential claims,” and “[m]utual
releases.” Similarly, when FSC terminated Skeels’s employment, Cooke
told him that he would need to return his shares and “the procedure
would be some sort of agreement, like a release of claims to shares or
38 In effect, the 2014 Resolution appears to designate the Founders as
FSC’s “governing authority” with general unanimous written consent to “take
action without holding a meeting, providing notice, or taking a vote.” See TEX.
BUS. ORGS. CODE § 6.201(b). Although a “governing authority” is authorized
to “manage[] and direct[] the business and affairs of the domestic entity,” it
does so “[s]ubject to the title of this code that governs the domestic entity and
the governing documents of the domestic entity.” Id. § 3.101.
39Skeels presented no evidence that FSC paid money to past departing
shareholders for their shares but alleges that the Firm has not produced the
separation agreements and that “[t]he circumstances under which prior
shareholders left [FSC] and the value of the consideration they received for
their shares have never been fully explored.”
15
some sort of redemption agreement.” This historical course of dealings
shows that when FSC reacquired shares from departing owners, the
redemption terms were part of a separation package in a bilateral
transaction with mutual consideration, regardless of whether the
consideration they received was monetary or not. The record bears no
evidence that FSC reacquired shares from departing shareholders in
unilateral transactions with prices and terms dictated by FSC or the
Founders.
Although the 2014 Resolution’s phrase “affirmative action” could
broadly encompass share-redemption actions, those actions must still be
undertaken “on behalf of the [f]irm.” For example, consistent with FSC’s
past practices, the resolution appears to authorize the Founders to
negotiate redemption terms with a departing shareholder and to redeem
the shares on terms “agreed to” by the shareholder.40 But by signing the
resolution, Skeels did not prospectively agree that the Founders may
determine the redemption price and terms on both FSC’s behalf and his
behalf. In other words, the resolution does not reflect that “the
shareholder” or his “personal representative” “agreed to” any “price and
other terms of a redemption of shares,” as contemplated by
Section 303.004(b)(1). By the same token, even if the resolution were a
compliant Chapter 21 shareholders’ agreement—a question we do not
reach today—its terms did not independently authorize the Founders to
unilaterally determine the redemption terms.41
40 See id. § 303.004(b)(1).
41 See id. §§ 21.101 (authorizing and delineating the permissible
purposes of a “shareholders’ agreement”), .104 (authorizing enforcement of a
compliant shareholders’ agreement even if its terms conflict with the Code).
16
Nor does the 2014 Resolution “specif[y]” any redemption terms.42
The resolution is inarguably silent about redemption, so it certainly
cannot be specific, as the statute requires. The Firm has posited that it
“could at any time amend a governing or other formational document to
expressly address the issue.” But it reports that FSC and the Founders
“have not done that and do not want to do it.” Accordingly, at this
juncture, there are no governing documents or applicable agreements
specifying the price and other terms to satisfy Section 303.004(b)(2)’s
option to set the redemption terms.43 The Firm could conceivably
change this,44 but it undisputedly has not.
When all is said and done, Skeels’s shares may prove to have little
to no market value.45 But even without regard to their market value,
Skeels may have desired to hold on to his shares as personal property
Because the 2014 Resolution does not authorize the Founders to determine the
redemption terms in a manner inconsistent with Section 303.004(b), we need
not explore any limitations on Section 21.104’s parameters or how that
provision interacts with Section 303.004(b).
42 See id. § 303.004(b)(2).
43 See id.
44 See id. §§ 3.051(a) (“A filing entity may amend its certificate of
formation.”), .052(a) (stating that the amendment procedure “is as provided by
the title of this code that applies to the entity”).
45 See, e.g., Christopher C. Wang, Breaking Up Is Hard to Do: Allocating
Fees from the Unfinished Business of a Professional Corporation, 64
U. CHI. L. REV. 1367, 1395 (1997) (“If an attorney-shareholder leaves a
professional corporation and nothing . . . provides for an automatic redemption
of shares, the attorney may end up holding shares that are valueless because
of the lack of a market for them.”).
17
when he departed FSC.46 FSC, in turn, may attempt to amend its
governing documents and exercise redemption under
Section 303.004(b)(2). We express no opinion on the value of Skeels’s
shares because that is a question for another day. Rather, we hold that
the Firm did not establish as a matter of law that, based on the
2014 Resolution, the Founders could determine the redemption price
and redeem Skeels’s shares without his agreement. The court of appeals
erred in concluding otherwise.
46 Although Title 7 does not address whether a licensed attorney must
relinquish any ownership interest when separating from a professional
corporation, the Firm notes that Skeels has been “an employee and/or equity
member” of a competing law firm throughout this litigation. The briefing is
silent about whether the rules governing professional conduct—or any other
authority—prevents an attorney from continuing to hold shares in a law firm
professional corporation while being employed with or owning interests in a
competitor. Cf. Berrett v. Purser & Edwards, 876 P.2d 367, 370-71 (Utah 1994)
(noting hypothetical ethical concerns that may arise when a licensed attorney
shareholder in a professional corporation has her employment terminated and
works for another law firm without having her shares redeemed). We do not
address this unraised issue here, and our opinion should not be understood to
invite this practice or express any view regarding the ethical implications of
such an arrangement. See Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763, 782
(Tex. 2020) (“Our adversary system of justice generally depends ‘on the parties
to frame the issues for decision and assign[s] to courts the role of neutral
arbiter of matters the parties present.’” (alteration in original) (quoting
Greenlaw v. United States, 554 U.S. 237, 243 (2008))). We confine our holding
to the meanings of the 2014 Resolution and Section 303.004, and we expect
attorneys and law firms to comply with all applicable ethical obligations.
“Hopefully, possible ethical problems will motivate both attorneys and law
firms to provide by agreement, article, or bylaw for the disposition of shares in
case of employment termination.” Berrett, 876 P.2d at 371.
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III. Conclusion
Because the 2014 Resolution did not authorize redemption of
Skeels’s shares on terms dictated by the Founders, we reverse the court
of appeals’ judgment and remand the case to the trial court for further
proceedings.
John P. Devine
Justice
OPINION DELIVERED: June 23, 2023
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