jimmie-d-redmon-and-wife-kathy-redmon-appellantscross-appellees-v-valta ( 2006 )

Chief Justice "*r-+^s^ Clerk
James t. Worthen ^tum^ Cathy S.i.usk
Twelfth Court of Appeals
Justices Chief Staff Arn )r.\ky
Sam Griffith Margaret 1Iussky
Diane DeVasto
Wednesday, April 05, 2006
Mr. William J. Gardner Mr. Stayton L. Worthington
422 North Green Coghlan, Crowson, Fitzpatrick, Westbrook
Suite B & Worthington, LLP
Longview, TX 75601 The Energy Centre, Suite 21 1
1127 Judson Road
Longview, TX 75606
RE: Case Number: 12-04-00172-CV
Trial Court Case Number: 2000-621 -A
Style: Jimmie D. Redmon and wife Kathy Redmon, Appellants/Cross-Appellees
v.
Valta R. Griffith, Individually and as Representative of the Estate of Ralph E. Griffith,
Deceased, Appellee/Cross-Appellant
Enclosed is a copy of the Opinion issued this date in the above styled and numbered cause.
Also enclosed is a copy of the Court's judgment.
Very truly yours,
CATHY S. LUSK, CLERK
By: KdjUJUL, Mfl.
Katrina McClenny, Chief Depifff' Clerk
CC: Hon. John Ovard
Judge David Scott Brabham
Ms. Barbara Duncan
1517 West Front Street • Suite 354 • Tyler, TX 75702 • Tel: 903-593-8471 • Fax: 903-593-2193
Serving Anderson, Angelina, Cherokee, Gregg, Henderson, Houston, Nacogdoches, Rains, Rusk. Sabine. San Augustine. Shelby. Smith. Trinity, t 'psirnr.
Van Zandt and Wood Counties
www.12thcoa.courts.state.Lx.us
NO. 12-04-00172-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
JIMMIE D. REDMON APPEAL FROM THE 188TH
AND WIFE, KATHYREDMON,
APPELLANTS/CROSS-APPELLEES,
JUDICIAL DISTRICT COURT OF
VALTA R. GRIFFITH, INDIVIDUALLY
AND AS REPRESENTATIVE OF THE
ESTATE OF RALPHE. GRIFFITH,
DECEASED,
APPELLEE/CROSS-APPELLANT GREGG COUNTY, TEXAS
OPINION
Jimmie D. Redmon and Kathy Redmon (collectivelythe "Redmons") appeal the trial court's
summaryjudgment entered in favor of Valta R. Griffith, both individually and as representative of
theEstate ofRalph E. Griffith, deceased ("Griffith").' TheRedmons raise two issues onappeal. The
Griffiths raise one issue on appeal. We affirm in part and reverse and remand in part.
Background
G.E.M. Transportation was a trucking company started by Ralph Griffith. By prior
agreement, when Ralph Griffith recouped his initial investment, the companywas incorporated in
Alsonamed as a defendant in this matter is the R.E. and Valta Griffith Living Revocable Trust.
Texas as G.E.M. Transportation, Inc. ("G.E.M.") and twenty-five percent ofthe corporation's stock
was transferred to Jim Redmon, who became operations manager, vice president, and director of
G.E.M. Ralph Griffith was president and director of G.E.M. and retained seventy-five percent of
the stock in the corporation. Ralph Griffith's wife, Valta, was secretary, treasurer, and director of
G.E.M. Jim Redmon's wife, Kathy, also participated in running the business affairs of G.E.M.
In 1999, disputes arose between the Redmons and the Griffiths, and on or about August 11,
1999, Ralph Griffith terminated Jim Redmon's positions with G.E.M.2 Less than a month later,
Kathy Redmon's position at G.E.M. was likewise terminated.
On March 17, 2000, the Redmons, both individually and derivatively on behalf of G.E.M.,
filed the instant lawsuit against G.E.M. and the Griffiths in various capacities. By their lawsuit, the
Redmons sought an accounting and inspection of G.E.M.'s corporate books and records. The
Redmons further alleged that the Griffiths, as officers and directors of G.E.M., committed fraud and
breached fiduciary duties owed to the Redmons by diverting corporate opportunities, funds, and
revenues and by making illegal disbursements of corporate assets for their own personal use and
benefit. Moreover, the Redmons sought damages for breach of contract and made a claim for
shareholder oppression.
Following Ralph Griffith's death, Valta Griffith put G.E.M. into Chapter 11 bankruptcy on
February 9, 2001. The bankruptcy proceeding was converted to a Chapter 7 proceeding on
February 13, 2001. Following a suggestion of bankruptcy filed in the trial court on November 7,
2001, all proceedings against G.E.M. at the state level were stayed.
On May 29, 2003, the Redmons, by their second amended petition, abandoned any claims
made by them on behalf of G.E.M. derivatively and removed G.E.M. as a defendant in the lawsuit.
On December 15, 2003, Griffith filed both a traditional and a no evidence motion for summary
judgment. The Redmons responded. Griffith subsequently moved for summaryjudgment on her
counterclaim for conversion. On February18,2004,the trial court signeda finaljudgmentordering
that the parties take nothing on their respective claims against one another. This appeal followed.
2
Jim Redmon retained his position as a director of G.E.M.
Standard of Review
In reviewing a traditional motion for summaryjudgment, this court must apply the standards
established in Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985), which are
as follows:
1. The movant for summary judgment has the burden of showing that there is no
genuine issue of material fact and that it is entitled to judgment as a matter of law;
2. In deciding whether there is a disputed material fact issue precluding summary
judgment, evidence favorable to the non-movant will be taken as true;
3. Every reasonable inference must be indulged in favor of the non-movant and any
doubts resolved in its favor.
See id., May v. Nacogdoches Mem! Hosp., 61 S.W.3d 623, 628 (Tex. App.-Tyler 2001, no pet.).
For a party to prevail on a motion for summary judgment, he must conclusively establish the absence
of any genuine question ofmaterial fact and that he is entitled to judgment as a matter of law. Tex.
R. Civ. P. 166a(c). A movant must either negate at least one essential element of the nonmovant's
cause of action or prove all essential elements of an affirmative defense. See Randall's Food
Markets, Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995); see also MMP, Ltd. v. Jones, 710
S.W.2d 59, 60 (Tex. 1986). Since the burden of proof is on the movant, and all doubts about the
existence of a genuine issue of material fact are resolved against the movant, we must view the
evidence and its reasonable inferences in the light most favorable to the nonmovant. See Great Am.
Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex. 1965). We are
not required to ascertain the credibility of affiants or to determine the weight of evidence in the
affidavits, depositions, exhibits, and other summaryjudgment proof. See Gulbenkian v. Penn, 151
Tex. 412,252 S.W.2d 929,932 (Tex. 1952). The only question is whether or not an issue ofmaterial
fact is presented. See Tex. R. Civ. P. 166a(c).
Once the movant has established a right to summary judgment, the nonmovant has the burden
to respond to the motion for summaryjudgment and present to the trial court any issues that would
preclude summary judgment. See, e.g., City ofHouston v. Clear Creek Basin Auth., 589 S.W.2d
671, 678-79 (Tex. 1979). All theories in support of or in opposition to a motion for summary
judgment must be presented in writing to the trial court. See Tex. R. Civ. P. 166a(c).
The rules of civil procedure further authorize a no evidence motion for summary judgment.
Tex. R. Civ. P. 166a(i). After adequate time for discovery, a party without presenting summary
judgment evidence may move for summary judgment on the ground that there is no evidence of one
or more essential elements of a claim or defense on which an adverse party would have the burden
of proof at trial. Id. The motion must state the elements as to which there is no evidence. Id. The
court must grant the motion unless the respondent produces summary judgment evidence raising a
genuine issue of material fact. Id. The movant need not produce any proof in support of its no
evidence claim. See Id.; see also, Judge David Hittner and Lynne Liberato, Summary Judgments in
Texas, 34 Hous. L. Rev. 1303, 1356 (1998). The motion must be specific in alleging a lack of
evidence on an essential element of a cause ofaction, but need not specifically attack the evidentiary
components that may prove an element of the cause of action. See Denton v. Big Spring Hosp.
Corp., 998 S.W.2d 294, 298 (Tex. App.-Eastland 1999, no pet.). Once a no evidence motion has
been filed in accordance with Rule 166a(i), the burden shifts to the nonmovant to bring forth
evidence that raises a fact issue on the challenged evidence. See Macias v. Fiesta Mart, Inc., 988
S.W.2d 316, 316-17 (Tex. App.-Houston [14th Dist.] 1999, no pet.). A no evidence motion is
properly granted if the nonmovant fails to bring forth more than a scintilla ofprobative evidence to
raise a genuine issue of material fact as to an essential element of the nonmovant's claim on which
the nonmovant would have the burden of proof at trial. See Merrell Dow Pharm., Inc. v. Havner,
953 S.W.2d 706, 711 (Tex. 1997). If the evidence supporting a finding rises to a level that would
enable reasonable, fair minded persons to differ in their conclusions, then more than a scintilla of
evidence exists. See Havner, 953 S.W.2d at 711. Less than a scintilla of evidence exists when the
evidence is so weak as to do no more than create a mere surmise or suspicion of a fact, and the legal
effect is that there is no evidence. See Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983).
On appeal, we will uphold a no evidence summary judgment only if the summary judgment
record reveals no evidence ofthe challenged element, i.e., (a) there is a complete absence ofevidence
as to the challenged element; (b) the evidence offered to prove the challenged element is no more
than a mere s cintilla; (c) t he e vidence e stablishes c onclusively t he o pposite o f t he c hallenged
element; or (d) the court is barred by rules of law or of evidence from giving weight to the only
evidence offered to prove the challenged element. See Taylor-Made Hose, Inc. v. Wilkerson, 21
S.W.3d 484, 488 (Tex. App.-San Antonio 2000, pet. denied) (citing Robert W. Calvert, 'Wo
Evidence" and "Insufficient Evidence" Points ofError, 38 Tex.L.Rev. 361, 362-63 (I960)).
Discussion
We will consider the Redmons' first and second issues together. In their first issue, the
Redmons argue that the trial court improperly granted summary judgment on the basis that they
lacked standing. In their second issue, the Redmons argue that the trial court erred in granting
summary judgment because they presented sufficient evidence with regard to their various theories
of recovery to create a genuine issue of material fact.
Standing
Standing is a component of subject matter jurisdiction, which we consider under the same
standard by which we review subject matter jurisdiction generally. See Tex. Ass'n ofBus. v. Tex.
Air Control Bd., 852 S.W.2d 440, 445-46 (Tex. 1993); see also Myer v. Cuevas, 119 S.W.3d 830,
833 (Tex. App.-San Antonio 2003, no pet.) (disputes concerning subject matter jurisdiction
reviewed de novo). The test for standing requires that there be a real controversy between the parties
which will actually be determined by the judicial declaration sought. See Nootsie, Ltd. v.
Williamson County Appraisal Dist, 925 SW.2d 659, 661 (Tex. 1996). Without a breach of a legal
right belonging to the plaintiff, no cause of action can accrue to his benefit. See Nobles v. Marcus,
533 S.W.2d 923, 927 (Tex. 1976). Thus, it follows that a plaintiff who seeks individual redress
based on allegations concerning wrongs done to a corporation lacks standing.
Traditionally, a corporate officer owes a fiduciary duty to the shareholders collectively, i.e.,
the corporation, but he does not occupy a fiduciary relationship with an individual shareholder unless
some contract or special relationship exists between them in addition to the corporate relationship.
See Faour v. Faour, 789 SW.2d 620, 621-22 (Tex. App-Texarkana 1990, writ denied) (citing
Kaspar v. Thome, 755 S.W.2d 151,155 (Tex. App.-Dallas 1988, no writ); Schoellkopfv. Pledger,
739 S.W.2d 914, 918 (Tex. App.-Dallas 1987), rev'd on other grounds, 762 S.W.2d 145 (Tex.
1988)). Moreover, a corporate shareholder has no individual cause of action for personal damages
caused solely by a wrong done to the corporation. See Faour, 789 S.W.2d at 622 (citing
Commonwealth of Massachusetts v. Davis, 140 Tex. 398, 168 S.W.2d 216, 221 (Tex. 1942);
Pledger, 739 SW.2d at 918). The cause of action for injury to the property of a corporation or for
impairment or destruction of its business is vested in the corporation, as distinguished from its
shareholders, even though the harm may result indirectly in the loss of earnings to the shareholders.
See Davis, 168 S.W.2d at 221. The individual shareholders have no separate and independent right
of action for wrongs to the corporation that merely result in depreciation in the value of their stock.
Id.
As a result, to recover for wrongs done to the corporation, the shareholder must bring the suit
derivatively in the name of the corporation so that each shareholder will be made whole if the
corporation obtains compensation from the wrongdoer. Faour, 789 S.W.2d at 622. However, a
corporate shareholder may have an individual action for wrongs done to him where the wrongdoer
violates a duty arising from a contract or otherwise and owing directly by him to the shareholder.
Id. Such a principle is not so much an exception to the general rule as it is a recognition that a
shareholdermay sue for violation of his individual rights regardless of whether the corporationalso
has a cause of action. Id. It is the natureof the wrong, whetherdirectedagainstthe corporation only
or against the shareholder personally, not the existence of injury, which determines who may sue.
Id. (citing Pledger, 739 S.W.2d at 918).
Appellate courts have also recognized an individual cause of action for "shareholder
oppression" or "oppressive conduct." See, e.g., Cotten v. Weatherford Bancshares, Inc., 187
S.W.3d 687,699-700 (Tex. App.-Fort Worth 2006, no pet. h.); Gonzalesv. GreyhoundLines, Inc.,
181 S.W.3d 386,392 n.5 (Tex. App.-El Paso 2005, no pet.); Willis v. Donnelly, 118 S.W.3d 10, 32
n.12 (Tex. App.-Houston [14th Dist.] 2003, no pet.); Pinnacle Data Services, Inc. v. Gillen, 104
S.W.3d 188, 192 (Tex. App.-Texarkana 2003, no pet.); Willis v. Bydalek, 997 S.W.2d 798, 801
(Tex. App.-Houston [1st Dist.] 1999, pet. denied); Hoggett v. Brown, 971 S.W.2d 472, 488, n.13
(Tex. App.-Houston [14th Dist.] 1997,pet. denied); Davis v. Sheerin, ISA SW.2d 375, 383 (Tex.
App.-Houston [1st Dist.] 1988, writ denied). Oppressive conduct has been defined as follows:
1. [MJajority shareholders' conduct that substantially defeats the minority's
expectations that, objectively viewed, were both reasonable under the circumstances
and central to the minority shareholder's decision to join the venture; or
2. [BJurdensome, harsh, or wrongful conduct; a lackofprobity andfairdealing in the
company's affairs to the prejudice of some members; or a visible departure from the
standards of fair dealing and a violation of fair play on which each shareholder is
entitled to rely.
See Willis, 997 S.W.2d at 801. While oppressive conduct is more easily found in the context of a
close corporation, we are aware of no case law expressly limiting it to such a context. See Davis,
754 S.W.2d at 381 ("Courts take an especially broad view of the application of oppressive conduct
to a closely-held corporation, where oppression may more easily be found."). Moreover, a claim of
oppressive conduct can be independently supported by evidence of a variety of conduct.3 See id.
When considering questions of standing, we review the pleadings to determine whether the
plaintiff has alleged facts that affirmatively demonstrate the court's jurisdiction. See Myer, 119
S.W.3dat833. We resolve any doubt in favor of the plaintiff. Id.
Claims/Causes of Action
We will address the claims and allegations in the Redmons' pleadings one by one. We will
first consider whether the Redmons have standing. If we determine that they did have standing to
bring a claim, we will then address the propriety ofthe trial court's grant of summary judgment with
regard to that claim.
Shareholder Oppression4
Standing
As set forth above, appellate courts in Texas have recognized a cause ofaction for oppressive
conduct. The Redmons have pleaded that they were minority shareholders in G.E.M. with the
Griffiths owning a seventy-five percent share of the corporate shares. In their second amended
petition, the Redmons have further alleged that certain conduct on the Griffiths' part amounts to
shareholder oppression. Specifically, the Redmons allege that the Griffiths have engaged in
We note that a no evidence motion is properly granted if the nonmovant fails to bring forth more than a
scintilla of probative evidence to raise a genuine issue of material fact as to unessential element of the nonmovant's
claim on which the nonmovant would have the burden of proof at trial. SeeHavner, 953 S.W.2dat 711. Because
any one of a variety of activities or conduct can give rise to shareholder oppression, the fact that there may be a lack
of evidence to support the existence of one such activity does not defeat the claim so long as there is evidence to
support that another such instance of conduct occurred.
The Redmons have raised other claims such as breach of fiduciary duty, breach of contract, and fraud.
While the shareholder oppression claim may be based on the same underlying facts, we have analyzed the other
claims separately from it.
7
wrongful conduct; have not dealt in the company's affairs fairly to the prejudice ofthe Griffiths; and
have not observed the standards of fair dealing on which each shareholder is entitled to rely. See
Willis, 997 S.W.2d at 801. The Redmons also allege that the Griffiths maliciously suppressed the
payment of dividends owed to them and made improper personal loans to themselves from G.E.M.
in addition to paying personal expenses from corporate funds without the approval of the board of
directors. Finally, the Redmons allege that the Griffiths employed "squeeze out" techniques such
as diverting corporate opportunities, excessive payment ofdividends to themselves, and attempts to
deprive the Redmons of the fair value of their shares and of the benefits thereof. See Davis, 754
S.W.2d at 382. We conclude that the Redmons have made sufficient allegations, which taken as
true, would demonstrate a claim for shareholder oppression. We hold that the trial court's grant of
summary judgment on the ground that the Redmons lacked standing to proceed on their claim for
shareholder oppression was improper.
Summary Judgment Evidence
We next consider whether the Redmons presented sufficient summary judgment evidence
to create a genuine issue of material fact with regard to their shareholder oppression claim. Our
review ofthe summary judgment record indicates that there is some evidence that the Griffiths paid
personal expenses from corporate funds without the approval ofthe board ofdirectors. Specifically,
in her deposition testimony, Valta Griffith stated that G.E.M. purchased a life insurance policy on
Ralph Griffith using corporate funds. Valta Griffith further testified that G.E.M. paid her utility bills
every month without authorization by the board ofdirectors. She further stated that G.E.M. paid her
credit card bills on at least one occasion without the authorization of the board of directors. In his
affidavit, Jim Redmon testified that in Spring 1999, in spite of his efforts, Ralph and Valta Griffith
refused him access to certain financial statements prepared by G.E.M.'s CPA, Bob Johnston. Jim
Redmon further stated that he continued to seek access to information concerning the financial
condition of the company until August 1999, when his position at G.E.M. was terminated.
We conclude that the Redmons presented sufficient evidence to overcome the Griffiths'
motion for summary judgment concerning their claim of shareholder oppression. Evidence
concerning the use of corporate funds to pay personal expenses combined with evidence that Jim
Redmon was denied access to information concerning the financial condition of the corporation
8
sufficiently creates a material fact issue concerning whether there was a lack of probity and fair
dealing in the company's affairs to the prejudice of the Redmons or otherwise, a visible departure
from the standards of fair dealing, and a violation of fair play on which minority shareholders like
the R edmons w ere e ntitled tor ely. W e h old t hat t he t rial c ourt i ncorrectly g ranted s ummary
judgment on the Redmons claim for shareholder oppression.5
Breach of Fiduciary Duty
Standing
We will next consider the Redmons' allegations concerning breach of fiduciary duty.6 In
their second amended petition, the Redmons allege as follows:
C. Breach of Fiduciary Duties
1. [T]he Griffith defendants are fiduciaries in numerous respects. First, as officers and
directors of G.E.M., charged with the exclusive handling and management of the
financial affairs ofthe corporation, they are charged with the exercise ofthe utmost
good faith, integrity, and fair dealing in connection with this management. The
Griffiths['] actions in diverting corporate opportunities, funds, and revenues, and
of making illegal disbursements of corporate assets for their own personal use and
benefit, constitute not only violations of their fiduciary duties, but knowing and
willful violation of those duties....
2. The acts of the individual Defendants in exercising and engaging in the oppressive
and "squeeze-out" tactics outlined in paragraphs L-P of Section V., above, are
further a cts a nd o missions i n v iolation oft heir fiduciary d uties a s c ontrolling,
majority shareholders, officersf,] and directors of G.E.M., against Defendants....
In paragraphVI. (C)(1),the Redmons distinctlyallegethat the Griffithsviolated fiduciarydutiesthey
owed as officers and directors of G.E.M. The fiduciary duty an officer or director owes to the
corporation is distinguishable from a fiduciary relationship that may exist between majority and
minority shareholders or otherwise by contract or other special relationship between the individual
We do not reach the issue of whether other allegationsof wrongdoing potentially underlying the
Redmons' shareholder oppression claim have sufficient evidentiary support in the summary judgmentrecord. See
n.3.
The existence of a confidential or fiduciary relationship is ordinarily a question of fact, andthe issue only
becomes a question of law when it is oneof no evidence. Crim Truck & Tractor Co. v. Navistar Int'I Transp.
Corp., 823 S.W.2d 591, 594 (Tex. 1992).
parties. Compare Faour, 789 SW.2d at 621-22 with Willis, 997 S.W.2d at 801.
We iterate that a cause of action for injury to the property of a corporation or for impairment
or destruction of its business is vested in the corporation, as distinguished from its shareholders, see
Davis, 168 SW.2d at 221, and that to recover for damages to the corporation, the shareholder must
bring the suit derivatively in the name of the corporation so that each shareholder will be made
whole ifthe corporation obtains compensation from the wrongdoer. See Faour, 789 SW.2d at 622.
Moreover, in determining who has standing to sue, we must consider the nature ofthe wrong alleged,
not the existence of injury. Id. (citing Pledger, 739 S.W.2d at 918).
In the instant case, the Redmons abandoned their derivative claim on behalfofG.E.M. Even
though the underlying facts supporting their allegations with regard to breach of fiduciary duty may
intermingle, in paragraph (C)(1), they have sought a distinct avenue of recovery from the Griffiths
based on allegations that they violated their fiduciary duties as officers and directors ofG.E.M. Such
allegations allege a breach ofduty owed to the corporation. As such, since they have not alleged the
breach of a legal duty owed to them individually, no cause of action can accrue to their benefit
therefrom. See Nobles, 533 SW.2d at 927. Thus, we conclude that the Redmons do not have
standing to recover from the Griffiths individually for their alleged breach of fiduciary duty as set
forth in paragraph (C)(1).
We next consider the Redmons' allegations in paragraph (C)(2). With the exception oftheir
allegation that the Griffiths violated their fiduciary duties as officers and directors of G.E.M., which
are duties owed to the corporation, the Redmons' allegations that the Griffiths violated fiduciary
duties as controlling majority shareholders warrant further discussion. A coshareholder in a closely
held corporation does not as a matter of law owe a fiduciary duty to his coshareholder. Willis, 118
S.W.3d at 31 (citing Hoggett, 971 S.W.2d at 488). Instead, the existence of such a duty depends on
the circumstances. See Willis, 118 S.W.3d at 31(citing Pabich v. Kellar, 71 SW.3d 500, 504-06
(Tex. App.-Fort Worth 2002, pet. denied)). For example, a fiduciary duty exists if a confidential
relationship exists.7 Willis, 118 S.W.3d at 31. A fiduciaryrelationship is an extraordinaryone and
A confidential relationship exists where influence has been acquired and abused and confidence has been
reposed and betrayed. Navistar Int'l Transp. Corp., 823 S.W.2d at 594. A person is justified in placing confidence
in the belief that another party will act in his or her best interest only where he or she is accustomed to being guided
by the judgment or advice of the other party and there exists a long association in a business relationship, as well as
10
will not be lightly created; the mere fact that one subjectively trusts another does not alone indicate
that confidence is placed in another in the sense demanded by fiduciary relationships because
something apart from the transaction between the parties is required. Kline v. O 'Quinn, 874 S.W.2d
776, 786 (Tex. App.-Houston [14th Dist.] 1994, writ denied).
Further, fiduciary relationships may be created by contract, through the repurchase of a
shareholder's stock in a closely held corporation, in certain circumstances in which a majority
shareholder in a closely held corporation dominates control over the business, and in closely held
corporations in which the shareholders operate more as partners than in strict compliance with the
corporate form. Id at 31-32.
In the case at hand, the Redmons' pleadings allege that a majority-minority shareholder
relationship existed between the Redmons and the Griffiths. They further make reference to G.E.M.
as a "closely-held corporation"8 in paragraph V., section P of theirpleadings. TheRedmons further
allege facts indicating a great deal of control over the business exercised by Ralph Griffith. Such
allegations combined with allegations in the Redmons' pleadings that the Griffiths engaged in
wrongful conduct and a lack of fair dealing with regard to the company's affairs to the prejudice of
the Redmons sufficiently alleges a breach of fiduciary duty by way of oppressive conduct.
SummaryJudgment Evidence
As set forth previously, because there is some evidence creating a material fact issue
concerning the Redmons' shareholder oppression claim, we do not reach the issue of whether other
allegations of wrongdoing potentially underlying the Redmons' shareholder oppression claim have
personal friendship. Dominguez v. Brackey Enters., Inc., 756 S.W.2d 788, 791-92 (Tex. App.-El Paso 1988, writ
denied). However, the fact that the relationship has been a cordial one and of long duration does not necessarily
constitute a confidential relationship. Navistar Int'l Transp. Corp., 823 S.W.2d at 594; Hallmark v. Port/Cooper T.
Smith Stevedoring Co., 907 S.W.2d 586, 592 (Tex. App.-Corpus Christi 1995, no writ).
Q
The Redmons argue in their reply brief that G.E.M. was a close corporation as defined by Texas Business
Corporation Act, art. 5.14(L)(b)(2). Yet the definition contained in Article 5.14 is only applicable to a derivative
proceeding brought by a shareholder of "a closely held corporation," which may be treated by the court as a direct
action brought by the shareholder for his own benefit. See TEX. BUS. CORP. ACT art. 5.14(L)(b)(2) (Vernon 2003).
Because the definition of a "closely held corporation" in Article 5.14 is limited to that article, it is inapplicable to
circumstances involving the creation of fiduciary duties between majority and minority shareholders in close
corporations. Id. Moreover, Article 5.14(L) indicates that the trial court possesses discretion in this regard when a
shareholder has brought a derivative proceeding. Since the Redmons abandoned their derivative claims and never
sought to have the trial court confer the benefits set forth in Article 5.14(L) upon them, 5.14(L) is inapplicableand
provides them no basis for recovery.
11
sufficient evidentiary support in the summary judgment record. See n.3.
Breach of Contract
Standing
We next consider the Redmons' allegations concerning breach of contract. In their second
amended petition, the Redmons allege as follows:
E. Breach of Contract
1. The actions of Defendants in terminating the employment contracts of Plaintiffs,
under the peculiar factual circumstances presented in this case, constitute
shareholder oppression and are a breach of the contract ofemployment which each
Plaintiff had with G.E.M.
The possibility exists that the firing ofan at-will employee who is a minority shareholder can
constitute shareholder oppression. Cf Willis, 997 S.W.2d at 802. In Willis, the court elaborated as
follows:
The law empowers the board of directors to manage a corporation (citation omitted). Such power
obviously includes the power to discharge employees. Given the broad range of business judgment
allowed by law to directors and the fact that Texas is an employment-at-will state, we hold that firing
alone is simply not the sort of "burdensome, harsh, or wrongful conduct" or "visible departure from
the standards of fair dealing" that may constitute shareholder oppression. Nor were the [appellants']
expectations of continued employment without a contract, "objectively reasonable," under Davis v.
Sheerin, 754 S.W.2d at 381. Texas law does not recognize a minority shareholder's right to continued
employment without an employment contract (citation omitted). All are presumed to know the law.
Expectations of continued employment that are contrary to well settled law cannot be considered
objectively reasonable. Therefore, we hold that the trial judge erred in rendering judgment for
shareholder oppression based solely on the jury's finding of wrongful lock-out.
Here, the Redmons have pleaded that the Griffiths wrongfully terminated their employment
contracts, which in light of the circumstances detailed in their pleadings amounted to shareholder
oppression. We conclude that the Redmons have made sufficient allegations to demonstrate standing
to proceed for wrongful termination within the confines of their shareholder oppression claim.
However, the Redmons further allege that the Griffiths are liable for breach of the contracts
of employment which the Redmons had with G.E.M. Privity in contract provides a party with
standing to maintain the action. See, e.g., Interstate Contracting Corp. v. City of Dallas, 135
12
S.W.3d 605,618 (Tex. 2004) (citingBrown v. Todd, 53 S.W.3d 297,305 (Tex. 2001) (under Texas
law, standing limits subject matter jurisdiction to cases involving a distinct injury to the plaintiffand
a real controversy between the parties, which will be actually determined by the judicial declaration
sought)). Privity is established by proving that the defendant was a party to an enforceable contract
with either the plaintiff or a party who assigned its cause of action to the plaintiff. See Conquest
Drilling Fluids v. Tri-Flo Int'l, 137 S.W.3d 299, 308 (Tex. App.-Beaumont 2004, no pet.).9
Where a corporation enters into a contract, the officer's signature on the contract, with or
without a designation as to his representative capacity, does not render him personally liable under
the contract. See Robertson v. Bland, 517 S.W.2d 676, 678 (Tex. Civ. App.-Houston [1st Dist.]
1974, writ dism'd). Thus, to the extent that the Redmons seek recovery from the Griffiths apart from
their shareholder oppression claim for a contract they allege they had with G.E.M., we hold they
have not pleaded sufficient facts to establish standing to maintain such an action.
Summary Judgment Evidence
As set forth previously, because there is some evidence creating a material fact issue
concerning the Redmons' shareholder oppression claim, we do not reach the issue ofwhether other
allegations ofwrongdoing potentially underlying the Redmons' shareholder oppression claim have
sufficient evidentiary support in the summary judgment record. See n.3.
Constructive Fraud
We next consider the Redmons' allegations concerning constructive fraud. In their second
amended petition, the Redmons allege as follows:
With respect to any assets determined in any accounting to properly belong to the corporation, but which are
held in the name of the individual Defendants, such assets, having been obtained by Plaintiffs as a result of their
breaches of duties and fiduciary duties owed to the corporation, such assets should be declared to be held by
Other means of recovery are available for a plaintiff to establish standing to sue for breach of contract.
See, e.g., Interstate Contracting Corp. v. City ofDallas, 135 S.W.3d at 618 (subcontractor); Zuniga v. Wooster
Ladder Co., 119 S.W.3d 856, 862 (Tex. App.-San Antonio 2003, no pet.) (contractingparty has standing to enforce
contract on behalfof thirdparty beneficiary); Perryv. Breland, 16 S.W.3d 182, 187(Tex. App.-Eastland 2000, pet.
denied (agency relationship);Tex. StateEmployees Union v. Tex. Workforce Comm 'n, 16S.W.3d 61, 67-68 (Tex.
App.-Austin 2000, no pet.) (third party beneficiary has standing to enforce contractbecause it steps into the shoes of
contracting party), disapproved on othergrounds, Tex. Dep't ofParks & Wildlife v. Miranda, 133 S.W.3d 217, 224
n. 4 (Tex. 2004). However, in the case at hand, apart from theirallegations concerning shareholder oppression, the
Redmons have not alleged facts that would give rise to standing in such instances.
13
the individual Defendants as constructive trustees for the benefit of the corporation since that [is] the only
remedy that will adequately compensate the corporation and Plaintiffs, derivatively, and prevent the unjust
enrichment of the said Defendants in violation of their fiduciary duties.
In their brief, the Redmons concede that their claims for accounting and for inspection of corporate
books and records are moot. Thus, it follows that to the extent they seek to recover "assets
determined in any accounting to properly belong to the corporation, but which are held in the name
of the individual Defendants," that claim is likewise moot.
However, a breach of fiduciary duty is a form of constructive fraud. Welder v. Green, 985
S.W.2d 170,175 (Tex. App.-Corpus Christi 1998, pet. denied); Stum v. Stum, 845 SW.2d407,415
(Tex. App.-Fort Worth 1992, no writ) (pleadings alleging breach of fiduciary duties were sufficient
to allege fraud), overruled on other grounds, Humphreys v. Meadows, 938 SW.2d 750, 752 (Tex.
App.-Fort Worth 1996, pet. denied). Therefore, to the extent we have held that the Redmons have
standing to raise breach of fiduciary duty, we further hold that they have standing to proceed on a
claim of constructive fraud.
Summary Judgment Evidence
As set forth previously, because there is some evidence creating a material fact issue
concerning the Redmons' shareholder oppression claim, we do not reach the issue ofwhether other
allegations ofwrongdoing potentially underlying the Redmons' shareholder oppression claim have
sufficient evidentiary support in the summary judgment record. See n.3.
Fraudulent Transfer
Standing
We next consider the Redmons' allegations concerning fraudulent transfer. In their second
amended petition, the Redmons allege as follows:
The Griffiths have made numerous transfers of assets belonging to them individually to the Trust for
the purpose of defrauding the Redmons, whom they believed to be their creditors. These transfers are
violative of various provisions of the Texas Uniform Fraudulent Transfer Act as set forth in § 24.001,
et seq. Texas Business and Commerce Code. The Plaintiffs Redmons request various remedies
available under those acts to satisfy their claims.
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the
14
creditor's claim arose before or within a reasonable time after the transfer was made or the obligation
was incurred, if the debtor made the transfer or incurred the obligation with an actual intent to
hinder, delay, or defraud any creditor of the debtor. Tex. Bus. & Comm. Code Ann. § 24.005(a)(1)
(Vernon 2002). In determining actual intent, consideration may be given, among other factors, to
whether before the transfer was made, the debtor had been sued or threatened with suit. See Tex.
Bus. & Comm. Code Ann. § 24.005(b)(4) (Vernon 2002).
In their motion for summary judgment, the Griffiths contended that the Redmons' claim for
fraudulent transfer was not ripe as they were not creditors of the Griffiths. Ripeness, like standing,
is a threshold issue that implicates subj ect matterjurisdiction. See Patterson v. Planned Parenthood
ofHouston & Southeast Tex., Inc., 971 S.W.2d 439,442 (Tex. 1998). However, tort claimants are
entitled to file causes of action under the Uniform Fraudulent Transfer Act based upon pending,
unliquidated tort claims. See Blackthorne v. Bellush, 61 S.W.3d 439, 443-44 (Tex. App.-San
Antonio 2001, no pet.); see also Tex. Bus. & Comm. Code Ann. § 24.002(3), (4) (Vernon 2002).
In the case at hand, the Redmons have brought their claim for fraudulent transfer in conjunction with
their other claims, which include a tort claim for breach of fiduciary duty. See Douglas v. Aztec Pet.
Corp., 695 S.W.2d 312, 318 (Tex. App.-Tyler 1985, no writ) (breach of fiduciary duty is a tort).
Thus, we hold that the Redmons' fraudulent transfer claim is ripe.
In their motion for summaryjudgment, the Griffiths further argued that even ifthe claim was
ripe, the Redmons lacked capacity to bring the claim because it belonged to G.E.M. Although
couched in terms of capacity, because the ultimate issue concerns whether the Redmons have
pleaded that they have suffered a distinct injury caused by the Griffiths, which will be actually
determined by the judicial declaration sought, the issue is one of standing.
Here, the Redmons alleged that the Griffiths "have made numerous t ransfers of assets
belonging to them individually to the Trust for the purpose of defrauding the Redmons." Based on
our reading ofthe Redmons' second amended petition, we conclude that they have properly pleaded
facts which would entitle them to standing on a claim of fraudulent transfer. They have specifically
limited their claim to assets belongingto the Redmons individually that were allegedly transferred
to the R.E. and Valta Griffith Living Revocable Trust, which is also a defendant in this matter.
Summary Judgment Evidence
15
The aforementioned arguments that relate to standing were the only ones raised in the
Griffiths' motion for summary judgment with regard to fraudulent transfer. Although the Griffiths
made allegations generally that no evidence existed to support the Redmons' allegations with regard
to fraudulent transfer, they failed to specify which elements offraudulent transfer lacked evidentiary
support. See Tex. R. Civ. P. 166a(i) (a no evidence motion must state the elements as to which there
is no evidence). As such, we have limited our discussion to the Griffiths' jurisdictional arguments
presented to the trial court in the Griffiths' motion. For the foregoing reasons, the Redmons' first
issue is sustained in part and overruled in part. Furthermore, the Redmons' second issue is
sustained.
Trial Court's Denial of the Griffiths' Motion for Summary Judgment
The Griffiths have likewise appealed the trial court's judgment. In their sole issue, the
Griffiths argue that the trial court erred in denying their motion for summary judgment on their
counterclaim against the Redmons for conversion. In their brief, the Griffiths have not presented
much in the way of cogent argument, nor have they cited to any authority in support of their sole
issue. See TEX. R. APP.P. 38.1(h). Rather, the Griffiths have referred us to their motion for
summary judgment on their counterclaims "[f]or further argument." We hold that the Griffins have
waived their sole issue by their failure to adequately brief it. See id.; Kang v. Hyundai Corp., 992
S.W.2d 499,503 (Tex. App.-Dallas 1999, no pet.) (failure to cite any authority constitutes a waiver).
The Griffiths' sole issue is overruled.
Conclusion
We have held that the Redmons, by their pleadings, have sufficiently demonstrated standing
with regard to their claims for (1) shareholder oppression, (2) breach of fiduciary duty by way of
shareholder oppression, (3) wrongful termination of their employment within the confines of their
shareholder oppression claim, (4) constructive fraud to the extent the claim has not been rendered
moot, and (5) fraudulent transfer of the Griffiths' individual assets to the R.E. and Valta Griffith
Living Revocable Trust. In this regard, the Redmons' first issue is sustained. We have further held
that the trial court correctly determined that the Redmons did not have standing with regard to their
16
claims for (1) breach of fiduciary duty owed by the Griffiths to G.E.M. and (2) breach of contract
that the Redmons allegedly had with G.E.M. In this regard, the Redmons' first issue is overruled.
We have also held that the trial court incorrectly granted summaryjudgment on the Redmons' claim
for shareholder oppression. Therefore, we sustained the Redmons' second issue. We have further
overruled the Griffiths' sole issue.
We reverse the trial court's judgment in part and remand the portions of this cause
concerning (1) shareholder oppression, (2) breach of fiduciary duty by way of shareholder
oppression, (3) breach ofcontract within the confinesofthe Redmons' shareholder oppression claim,
(4) constructive fraud to the extent the claim has not been rendered moot, and (5) fraudulent transfer
of the Griffiths' individual assets to the R.E. and Valta Griffith Living Revocable Trust for further
proceedings consistent with this opinion. We affirm the remainder of the trial court's judgment.
DIANE DEVASTO
Justice
Opinion delivered April 5, 2006.
Panel consisted of Worthen, C.J., Griffith, J., and DeVasto, J.
(PUBLISH)
17
f
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
APRIL 5, 2006
NO. 12-04-00172-CV
JIMMIE D. REDMON AND WIFE, KATHY REDMON,
Appellant/Cross-Appellees,
V.
VALTA R. GRIFFITH, INDIVIDUALLY AND AS REPRESENTATIVE
OF THE ESTATE OF RALPH E. GRIFFITH, DECEASED,
Appellee/Cross-Appellant
Appeal from the 188th Judicial District Court
of Gregg County, Texas. (Tr.Ct.No. 2000-621-A)
THIS CAUSE came to be heard on the oral arguments, appellate record and
the briefs filed herein, and the same being inspected, it is the opinion of this court that there was
error in the judgment of the court below insofar as the trial court incorrectly granted summary
judgment on the Appellants' claim for (1) shareholder oppression (2) breach of fiduciary duty by
way of shareholder oppression, (3) breach of contract within the confines of the Redmons'
shareholder oppression claim, (4) constructive fraud to the extent the claim has not been rendered
moot, and (5) fraudulent transfer of the Griffiths' individual assets to the R.E. and Valta Griffith
Living Revocable Trust.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
ofthe court below wherein the trial court incorrectly granted summaryjudgment on the Appellants'
claim for (1) shareholder oppression (2) breach offiduciary duty by way ofshareholder oppression,
(3) breach of contract within the confines of the Redmons' shareholder oppression claim, (4)
constructive fraud to the extent the claim has not been rendered moot, and (5) fraudulent transfer
of the Griffiths' individual assets to the R.E. and Valta Griffith Living Revocable Trust is
reversed, and the cause is remanded for further proceedings consistent with this opinion. In all
other respects the judgment of the trial court is affirmed.
It is further ORDERED that all costs in this cause expended, both in this
court and the court below be adjudged against the party incurring such cost; and that this decision
be certified to the trial court below for observance.
Diane DeVasto, Justice.
Panel consisted of Worthen, C.J., Griffith, J., and DeVasto, J.