William R. Kruse and Deborah Kruse v. Henderson Texas Bancshares, Inc. ( 2019 )

NO. 12-18-00238-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
WILLIAM R. KRUSE AND § APPEAL FROM THE 4TH
DEBORAH KRUSE,
APPELLANTS
V. § JUDICIAL DISTRICT COURT
HENDERSON TEXAS
BANCSHARES, INC.,
APPELLEE § RUSK COUNTY, TEXAS
OPINION
William R. Kruse and Deborah Kruse appeal from an adverse judgment in their suit to
determine the value of their dissenters’ shares of stock in Prosper Bancshares, Inc., which merged
with Henderson Texas Bancshares, Inc. In their sole issue, Appellants contend the trial court
abused its discretion when it denied their motion for a jury trial. We affirm.
BACKGROUND
Appellants, owners of a minority share of common stock of Prosper Bancshares, Inc., were
notified by that entity that it intended to merge into Henderson Texas Bancshares, Inc., and it
proposed to pay minority shareholders $0.80 per share. Appellants voted against the merger,
exercised their right of dissent, and demanded payment of $1.82 per share. The parties were unable
to agree on the fair value of the stock. Appellants filed suit pursuant to Chapter 10 of the Texas
Business Organizations Code. Citing Section 10.354(a)(2), they sought “the fair value of their
ownership shares through an appraisal.” Additionally, they sought “a finding and determination
of the fair value of their ownership interests” pursuant to Sections 10.361 and 10.362. They
included a jury demand requesting a trial by jury of all matters of fact. Appellants prayed that the
trial court appoint an appraiser to determine the fair value of the shares and order Henderson Texas
Bancshares, Inc. to pay them the fair value of the shares.
The court determined that Appellants perfected their rights to dissent and are entitled to
receive payment for the fair value of their ownership interests in Prosper Bancshares, Inc. With
the agreement of the parties, the trial court appointed Donald Erickson to serve as appraiser and
determine the fair value of Appellants’ ownership interests in the stock. Erickson determined that
the fair value of the stock was $0.96 per share. Appellants filed extensive objections to Erickson’s
report. Erickson filed an amended report in which he again determined that the fair value of the
stock was $0.96 per share. Appellants filed objections to the amended report.
Appellants filed a motion for jury trial arguing they have a constitutional right to have their
case heard by a jury. The trial court denied this motion, heard testimony, and rendered judgment
that the fair value of Appellants’ shares in Prosper Bancshares, Inc. is $0.96 per share, ordering
that Appellants recover $108,494.56. This appeal followed.
MOTION FOR JURY TRIAL
In their sole issue, Appellants contend the trial court abused its discretion by denying their
request for a jury to find the fair value of their ownership interest in Prosper Bancshares, Inc. They
argue that their right to a jury trial is supported by Article V, Section 10 of the Texas Constitution
and Article I, Section 15 of the Texas Constitution. They also assert that the existence of fact
questions prevents the district court from appraising their ownership interests as a matter of law,
and the trial court’s error is harmful.
Standard of Review
We review the trial court’s denial of a request for a jury trial for an abuse of discretion.
Mercedes-Benz Credit Corp. v. Rhyne, 925 S.W.2d 664, 666 (Tex. 1996). We consider the entire
record and determine whether the trial court’s decision is arbitrary, unreasonable, and without
reference to guiding principles. Id.
Applicable Law
An owner of an ownership interest in a domestic entity subject to dissenters’ rights pursuant
to Chapter 10 of the Texas Business Organizations Code is entitled to dissent from a plan of
merger, and, subject to compliance with the procedures set forth in the statute, obtain the fair value
of that ownership interest through an appraisal. TEX. BUS. ORG. CODE ANN. § 10.354(a) (West
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Supp. 2018). The statute specifies the procedures the owner must comply with in order to perfect
his right of dissent and appraisal. Id. § 10.356 (West Supp. 2018). The owner must demand in
writing that the responsible organization pay the fair value of the owner’s ownership interests and
state the owner’s estimate of the fair value of the ownership interests. Id. § 10.356(b)(3). The
organization may either agree to that amount or provide to the owner an estimate of the fair value
of the ownership interests. Id. § 10.358 (West 2012).
If a dissenting owner and responsible organization cannot agree on the fair value of the
owner’s ownership interests, either party may file a petition with the court in the appropriate
jurisdiction requesting a finding and determination of the fair value. Id. § 10.361(a) (West 2012).
The court shall determine which owners have perfected their rights and become entitled to receive
payment for the fair value of their ownership interests and appoint an appraiser to determine the
fair value of those ownership interests. Id. § 10.361(e). The appraiser shall determine the fair
market value of the ownership interests and file a report with the court. Id. § 10.363(b) (West
2012).
Either the dissenting owner or the responsible organization may object to the appraiser’s
report, based on the law or the facts. Id. § 10.364(a) (West 2012). If an objection to the report is
raised, the court shall hold a hearing to determine the fair value of the ownership interest. Id.
§ 10.364(b).
In construing a statute, our objective is to determine and give effect to the legislature’s
intent. Tex. Dep’t of Transp. v. Needham, 82 S.W.3d 314, 318 (Tex. 2002). We examine the
entire act, not just isolated portions of it. City of San Antonio v. City of Boerne, 111 S.W.3d 22,
25 (Tex. 2003). We start with the plain and common meaning of the statute’s words. Id. If the
statutory language is unambiguous, we will interpret the statute according to its plain meaning.
Id. Words and phrases shall be read in context and construed according to the rules of grammar
and common usage. TEX. GOV’T CODE ANN. § 311.011(a) (West 2013). We presume that every
word of the statute has been used for a purpose, and that every word excluded from the statute has
also been excluded for a purpose. Laidlaw Waste Sys. (Dallas), Inc. v. City of Wilmer, 904
S.W.2d 656, 659 (Tex. 1995). We also presume that the legislature enacted the statute with
complete knowledge of existing law and with reference to it. Acker v. Tex. Water Comm’n, 790
S.W.2d 299, 301 (Tex. 1990). It is further presumed that the legislature enacts a statute with the
intention of complying with the Texas and United States constitutions. TEX. GOV’T CODE ANN.
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§ 311.021(1). We may also consider the object sought to be obtained by the statute, common law
or former statutory provisions, and the consequences of a particular construction. Id. § 311.023(1),
(4), (5).
Analysis
The Texas Corporation Law provides an extensive scheme regulating every facet of
formation, governance, and dissolution of a corporation in the state of Texas. See TEX. BUS. ORGS.
CODE ANN. §§ 1.001-23.110 (West 2012 & Supp. 2018). Chapter 10 dictates how mergers, interest
exchanges, conversions, and sales of assets are to occur. See id. §§ 10.001-10.902. The statute
provides that an owner of an ownership interest has the right to dissent from a plan of merger and
specifies the steps the owner must take as well as the responses required by the corporation. See
id. §§ 10.351-.368. Because the statute is silent about the right to have a jury decide the fair value
of the dissenting owner’s interest, we must determine the legislature’s intent and whether the Texas
Constitution requires a jury in this instance. 1
Legislative Intent
The bulk of Chapter 10 is addressed to the required actions of dissenting owners and the
responsible organization. At certain junctures, the statute anticipates certain, discreet court
interventions. As part of the extensive scheme for dissenting to a merger, owners must submit to
the organization certificates representing their ownership interest for the purpose of making a
notation that a demand for the payment of the fair value of an interest has been made. TEX. BUS.
ORG. CODE § 10.356(d). If this is not done, the organization has the option of terminating the
owner’s right to dissent and appraisal, unless a court, for good cause shown, directs otherwise. Id.
If the parties are unable to agree on the fair value of the interest, either party “may file a petition
requesting a finding and determination of the fair value of the owner’s ownership interests . . . .”
Id. § 10.361(a). The court shall determine which owners have perfected their rights. Id.
§ 10.361(e). The rights of an owner terminate if, after a Section 10.361 hearing, the court adjudges
the owner not entitled to dissent. Id. § 10.367(a)(4). Where owners have perfected their rights,
the court shall appoint an appraiser, with powers granted by the court, to determine the fair value
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We note that, while there are numerous statutes that do not specify whether the legislature intends the matter
to be heard before a jury, the legislature has made its intent clear at times. See TEX. HEALTH & SAFETY CODE ANN.
§ 574.062(c) (West 2017) (hearing on modification of court-ordered mental services “shall be held before the court,
without a jury . . .”); TEX. FAM. CODE ANN. § 55.32(c) (West 2014) (At hearing on juvenile’s fitness to proceed, the
“court shall determine the issue of whether the child is unfit to proceed unless the child or the attorney for the child
demands in writing a jury . . . .”).
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of the ownership interest. Id. §§ 10.361(e), 10.363(a). The court shall approve the form of a notice
required to be provided, and the judgment of the court is final and binding. Id. § 10.361(f). If an
objection to the appraiser’s report is raised, the court shall hold a hearing to determine the fair
value of the ownership interest. Id. § 10.364(b). After the hearing, the court shall require the
organization to pay the amount of the determined value. Id.
All judicial interventions referenced in Chapter 10 refer to a “court,” often in the context
of a “hearing.” The terms “jury” and “trier of fact” do not appear in Chapter 10. A “court” is a
“tribunal constituted to administer justice,” especially “a governmental body consisting of one or
more judges who sit to adjudicate disputes,” or the “judge or judges who sit on such a tribunal.”
Court, BLACK’S LAW DICTIONARY (10th ed. 2014). The term “judge” is often used
interchangeably with “court.” Judge, BLACK’S LAW DICTIONARY.
The term “hearing” is defined as “[a] judicial session, usu. open to the public, held for the
purpose of deciding issues of fact or of law, sometimes with witnesses testifying.” Hearing,
BLACK’S LAW DICTIONARY. It is also termed “judicial hearing.” Id. In contrast, the term “trial”
is defined as “[a] formal judicial examination of evidence and determination of legal claims in an
adversary proceeding” and includes both a jury trial and a trial before a judge without a jury. Trial,
BLACK’S LAW DICTIONARY. Based on these definitions, it would seem that the use of a jury is not
anticipated at a hearing.
Statutes are presumed to have been enacted by the legislature with complete knowledge of
existing law and with reference to it. Acker, 790 S.W.2d at 301. Here, the legislature’s intent to
designate the court as the fact finder presiding over a hearing, rather than a formal jury trial, is
evident from the plain meaning of the words used in the statute. See City of San Antonio, 111
S.W.3d at 25; Williams v. Williams, 19 S.W.3d 544, 547 (Tex. App.−Fort Worth 2000, pet. denied)
(held that there is no right to have a jury make findings on an application for a family violence
protective order pursuant to Chapter 82 of the family code).
Both parties reference a 1963 supreme court case affirming a jury trial involving appraisal
of a dissenting shareholder’s interest in the corporation. See Farnsworth v. Massey, 365 S.W.2d
1 (Tex. 1963). In that case, the plaintiff asserted a cause of action for conversion and, in the
alternative, asked for recovery of the fair value of his stock. The questions regarding fraud,
conspiracy, and fair value of the stock were submitted to the jury and its responses were
incorporated into the judgment. The supreme court addressed a jurisdictional question, holding
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that appointment of an appraiser is not jurisdictional, and noting that the plaintiff waived his right
to have an appraiser appointed. Id. at 4. Referencing the dollar amount awarded by the jury for
the fair value of the stock, it determined that “the jury’s finding . . . clearly relates to the statutory
method of ascertaining the value of a dissenting shareholder’s interest and is sustainable as such.”
Id. The question of whether the issue of fair value should have been submitted to the jury was
never raised and never discussed by either the intermediate appellate court or the supreme court.
We do not consider this case to implicitly require a jury trial, if requested, to determine the value
of an ownership interest under Section 10.364.
Texas Constitution, Article I, Section 15
Article I, Section 15 of the Texas Constitution states, “The right of trial by jury shall remain
inviolate. The Legislature shall pass such laws as may be needed to regulate the same, and to
maintain its purity and efficiency. . . .” TEX. CONST. art. I, § 15. This provision grants the right to
a jury for those actions, or analogous actions, where a jury was available when the constitution
was adopted in 1876. Barshop v. Medina Cty. Underground Water Conservation Dist., 925
S.W.2d 618, 636 (Tex. 1996). The precursor to Chapter 10 of the Business Organizations Code,
Article 5 of the Business Corporations Act, was enacted in 1955. See Act of March 30, 1955, 54th
Leg., R.S., ch. 64, 1955 Tex. Gen. Laws 274-82 (codified at TEX. BUS. ORG. CODE ANN. §§ 10.001-
.902). Before then, mergers, consolidations, and the sale of all of the assets of a solvent corporation
could be accomplished only by unanimous consent of the stockholders. See Massey v.
Farnsworth, 353 S.W.2d 262, 266 (Tex. Civ. App. – Houston 1961), rev’d on other grounds, 365
S.W.2d 1 (Tex. 1963); Clark v. Brown, 108 S.W. 421, 445 (Tex. Civ. App.−Texarkana 1908),
rev’d on other grounds, 116 S.W. 360 (Tex. 1909). Shareholders did not have the right to require
the corporation to purchase their shares. Massey, 353 S.W.2d at 266. Thus, when the Texas
Constitution was adopted, there was no common law action or statutory scheme comparable to the
current statute allowing the right of a minority shareholder to dissent and request an appraisal.
Therefore, Article I, Section 15 cannot be invoked to support a motion for a jury trial in a
proceeding to determine the value of the dissenters’ ownership interest. See Barshop, 925 S.W.2d
at 636.
Texas Constitution, Article V, Section 10
Article V, Section 10 of the Texas Constitution, known as the Judiciary Article, provides
that, “[i]n the trial of all causes” in a Texas district court, the plaintiff or defendant who requests a
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jury and pays the jury fee shall have the right of trial by jury. TEX. CONST. art. V, § 10. Although
this sounds definitive, not all adversary proceedings are “causes” within the meaning of this
provision. State v. Credit Bureau of Laredo, Inc., 530 S.W.2d 288, 293 (Tex. 1975).
The term “cause” is defined as a lawsuit or a case. Cause, BLACK’S LAW DICTIONARY
(10th ed. 2014). The term emphasizes the merits of the action from the plaintiff’s point of view,
especially with a connotation of seeking justice. Suit, BLACK’S LAW DICTIONARY, quoting Bryan
A. Garner, Garner’s Dictionary of Legal Usage, 863 (3d ed. 2011). A “cause” imports a judicial
proceeding in its entirety and is nearly synonymous with “suit.” Id. Courts have identified, on a
case by case basis, some proceedings that do not qualify as a “cause” under Article V, Section 10.
We note the following:
Middleton v. Tex. Power & Light Co., 185 S.W. 556, 561-
62 (Tex. 1916) (held that trial by jury cannot be claimed in inquiry
that is nonjudicial in character or with respect to proceedings before
an administrative board).
Hammond v. Ashe, 131 S.W. 539, 539 (Tex. 1910) (orig.
proceeding) (held that contested elections are proceedings specially
created and controlled by statute, and not “causes” in which the right
of trial is secured).
Burckhalter v. Conyer, 9 S.W.2d 1029, 1029-30 (Tex.
Comm’n App. 1928, judgm’t affirmed) (held that, where the custody
and possession of a child is sought by invoking the writ of habeas
corpus, neither party is entitled to a jury trial).
Tex. Liquor Control Bd. v. Jones, 112 S.W.2d 227, 229-30
(Tex. Civ. App.−Texarkana 1937, no writ) (held that administrative
proceeding to cancel permit to sell liquor is not a civil suit or cause
of action and party is not entitled to a jury trial).
Cocke v. Southland Life Ins. Co., 75 S.W.2d 194, 198 (Tex.
Civ. App.−El Paso 1934, writ ref’d) (held that party not entitled to
jury trial on incidental matter of objections to receiver’s final
account filed after final judgment in foreclosure action).
In each of those cases, there is some special reason a jury is unsuitable. Special
proceedings, and incidental or supplemental proceedings do not fall within the term “cause.”
Chapter 10 specifies the procedures dissenting owners and responsible organizations must adhere
to when the owner disapproves of the merger, with special emphasis on the owner’s right to an
appraisal. This has been referred to as a “judicial appraisal procedure.” See 11 William V.
Dorsaneo III, Texas Litigation Guide § 161.02[1] (2018). This is consistent with use of the term
“hearing” in Section 10.364 as a session held to decide issues of fact as opposed to a “formal
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judicial examination of evidence and determination of legal claims in an adversarial proceeding.”
See Trial, BLACK’S LAW DICTIONARY. Dissent and appraisal rights, and proceedings to determine
fair value, are proceedings specially created and controlled by the statutes that allow them. See
TEX. BUS. ORG. CODE ANN. §§ 10.351-.368; Hammond, 131 S.W. at 539; Roper v. Jolliffe, 493
S.W.3d 624, 634-35 (Tex. App.−Dallas 2015, pet denied) (held proceedings to obtain family
violence protective order not a cause within the meaning of Article V, Section 10). Further, the
subchapter on rights of dissenting owners is the exclusive remedy for the recovery of the value of
the ownership interest or money damages to the owner with respect to the action, except where the
owner alleges fraud in the transaction. TEX. BUS. ORG. CODE ANN. § 10.368. The allegation of
fraud is typically presented to a jury. See Hoggett v. Brown, 971 S.W.2d 472, 482 (Tex.
App.−Houston [14th Dist.] 1997, pet. denied) (held no error in submitting claims of irregularity or
fraud in the merger transaction to jury). The provisions for dissent and appraisal are one discreet
piece of the total scheme regulating mergers, interest exchanges, conversions, and sales of assets
by the organization.
The proceeding for determining the fair value of a dissenting shareholder’s ownership
interest is not a “cause” within the meaning of Article V, Section 10 of the Texas Constitution.
Therefore, this constitutional provision’s jury trial mandate does not support Appellants’ request
for a jury trial. Accordingly, the trial court did not abuse its discretion in denying Appellants’
motion for a jury trial. See Mercedes-Benz Credit Corp., 925 S.W.2d at 666. We overrule
Appellants’ sole issue.
DISPOSITION
Because the trial court did not abuse its discretion by overruling Appellants’ motion for a
jury trial, we affirm the trial court’s judgment.
BRIAN HOYLE
Justice
Opinion delivered August 30, 2019.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(PUBLISH)
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COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
AUGUST 30, 2019
NO. 12-18-00238-CV
WILLIAM R. KRUSE AND DEBORAH KRUSE,
Appellants
V.
HENDERSON TEXAS BANCSHARES, INC.,
Appellee
Appeal from the 4th District Court
of Rusk County, Texas (Tr.Ct.No. 2016-139)
THIS CAUSE came to be heard on the appellate record and briefs filed herein,
and the same being considered, it is the opinion of this court that there was no error in the judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment of
the court below be in all things affirmed, and that all costs of this appeal are hereby adjudged
against the appellants, WILLIAM R. KRUSE and DEBORAH KRUSE, for which execution
may issue, and that this decision be certified to the court below for observance.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.