Webre v. Sneed

• Decision Date: 07 December 2011
• Docket Number: No. 01–10–00151–CV.,01–10–00151–CV.
• Citation: 358 S.W.3d 322
• Parties: Lloyd P. WEBRE, Jr., individually and Derivatively on Behalf of Texas United Corporation and United Salt Corporation, Appellant, v. Robert Wayne SNEED, James H. Tichenor, Fred Wolgel, James F. O'Donnell, Texas United Corporation, and United Salt Corporation, Appellees.
• Court: Texas Court of Appeals

358 S.W.3d 322

Lloyd P. WEBRE, Jr., individually and Derivatively on Behalf of Texas United Corporation and United Salt Corporation, Appellant,

v.Robert Wayne SNEED, James H. Tichenor, Fred Wolgel, James F. O'Donnell, Texas United Corporation, and United Salt Corporation, Appellees.

No. 01–10–00151–CV.

Court of Appeals of Texas, Houston (1st Dist.).

July 28, 2011.Rehearing En Banc Overruled Dec. 7, 2011.

Christopher Paul Hanslik, Jennifer Lynn Hebert, Boyar & Miller, P.C., David W. Holman, The Holman Law Firm, P.C., Dwayne Day, Dwayne R. Day, P.C., Michael Gary Orlando, Orlando & Braun, L.L.P., Houston, TX, for Appellant.

Ralph A. Midkiff, Kevin D. Jewell, Chamberlain, Hrdlicka, White, Williams & Martin, Allison Bonner Johanson, Paul J. McConnell, DeLange, Hudspeth, McConnell

& Tibbets, LLP, Ann Tuxbury Lebeck, Brandon T. Allen, Robin C. Gibbs, Sydney Gibbs Ballesteros, Gibbs & Bruns L.L.P., Charles W. Schwartz, Skadden, Arps, Slate, Meagher & Flom LLP, Karen Appel Oshman, Neal S. Manne, Susman & Godfrey LLP, Houston, TX, for Appellees.

Panel consists of Justices KEYES, HIGLEY, and YATES.^*

OPINION

EVELYN V. KEYES, Justice.

Appellant, Lloyd Webre, appeals the trial court's dismissal of his suit pursuant to a plea to the jurisdiction filed by appellees, Robert Wayne Sneed, James H. Tichenor, Fred Wolgel, James F. O'Donnell, Texas United Corporation (“Texas United”), and United Salt Corporation (“United Salt”). In six issues, Webre argues that the trial court erred in granting the plea to the jurisdiction and motion to dismiss because (1) Webre, as a shareholder in Texas United, the beneficial owner of the shares of its wholly owned subsidiary United Salt, had standing to bring a derivative action against both companies; (2) the written demand requirements of article 5.14(C) of the Texas Business Corporations Act (“TBCA”),¹ regarding the procedural requirements for bringing a derivative suit, do not apply to closely held corporations; (3) pursuant to TBCA article 5.14(L), rejection-of-demand procedures that apply to shareholder derivative suits on behalf of corporations generally do not apply to derivative actions brought on behalf of closely held corporations; (4) appellees' argument that Webre is estopped from recovery does not present grounds for dismissal for lack of standing; (5) the business judgment rule for shareholder derivative actions set out in article 5.14 and asserted by appellees as a ground for denying Webre standing to bring suit does not apply to suits brought on behalf of closely held corporations; and (6) a determination under article 5.14(L) of whether Webre is entitled to recover damages directly or whether any recovery ought to be paid to the corporation is not a proper basis for denying standing.

We reverse and remand.

Background

Texas United and United Salt are companies in the business of mining, manufacturing, and selling salt and related activities. Texas United is a holding company with six shareholders, and United Salt is its wholly owned subsidiary. Webre is a 24% shareholder in Texas United, and he serves on the boards of directors of both companies. Sneed is the President and CEO of Texas United, Tichenor is the Senior Vice President of Texas United and also serves on the board of directors for United Salt, Wolgel is the General Counsel of both United Salt and Texas United, and O'Donnell is the President and CEO of United Salt. The individual appellees also serve as officers for various related companies. Sneed, Wolgel, and Tichenor are officers of a company referred to by the parties as “Texas Brine,” and Sneed is an officer of Texas Brine Company—Saltville, LLC. Although Texas United and United Salt hold separate board meetings, the same people serve on the board of directors for both companies: Lloyd Webre (appellant); his siblings Camille (Webre) Tichenor, Roberta (Webre) Rude, Mary I. Webre; and spouses and unrelated people, James Tichenor, Arnold J. Webre, and Robert D. Duboise.

Webre's dispute with Sneed, Tichenor, O'Donnell, and Wolgel (collectively, “the officers”) arose over United Salt's acquisition of a salt mining and storage facility located in Saltville, Virginia (“Saltville Acquisition”). On April 9, 2009, Webre filed a shareholder derivative suit against the officers for actions they took regarding the Saltville Acquisition.

According to Webre's pleadings, officers of United Salt began looking into the purchase of the Saltville facilities. Webre alleges that, in the course of completing this acquisition, the officers made various misrepresentations to the United Salt board regarding the nature of the business to be conducted at Saltville and the quality of the salt and the facilities. Webre also alleges that the officers failed to properly investigate various aspects of the Saltville Acquisition, including costs for drilling brine wells and other financial aspects. Webre further alleges that the officers entered into various agreements with other related entities, including Texas Brine, which it was not authorized or qualified to perform. He alleges that United Salt's board of directors approved the Saltville Acquisition and subsequent related transactions and spending resolutions based on the misleading and intentionally incomplete information presented by the officers.

Webre alleges that the officers breached fiduciary duties owed to Texas United and United Salt by “failing to fully investigate the Saltville Acquisition and its implications before obtaining approval for the acquisition from the United Salt Board of Directors” and “failing to investigate concerns about the Saltville Acquisition brought to their attention by Webre”; by “failing to disclose all known information about the Saltville facility and operations to the United Salt and Texas United Board of Directors”; by entering into various agreements without approval from United Salt's and Texas United's boards of directors and by “failing to inform” the boards about those agreements; by “exceeding their spending authority without first seeking Board of Directors approval”; by “entering into contracts which obligated United Salt to perform services [that] it did not have the experience or capability to perform” and by “entering into contracts with related entities that did not have the experience or capability to perform the services the contract obligated them to perform.”

Webre also alleges that the officers' “wrongful actions include breaches of the duty of loyalty and utmost good faith, the duty of candor, the duty to act with integrity of the strictest kind, the duty of fair, honest dealing, and the duty of full disclosure.”

Additionally, Webre has pled a cause of action for fraud, alleging that the officers “made repeated false representations regarding the Saltville Acquisition to the Board of Directors of United Salt and Texas United” and that they “manipulated the financial records and pro forma accounting analyses relating to the Saltville Acquisition.” Webre alleges that these misrepresentations were “material and intended to induce the Board of Directors of United Salt and Texas United to approve resolutions relating to the Saltville Acquisition” and were justifiably relied upon by the boards.

Webre alleges that, as a result of these breaches of fiduciary duty and fraudulent acts, Texas United and United Salt were both harmed. Specifically, he alleges that the companies suffered losses due to problems that “could have been alleviated through proper planning and proper use of resources,” that both companies lost profitability, and that the misrepresentations led to higher performance bonuses to the officers than would have been justified under more accurate financial forecasts for the companies.

Webre filed suit on behalf of himself, individually, and on behalf of Texas United and United Salt, derivatively, on April 9, 2009, against O'Donnell, Sneed, Wolgel, and Tichenor. O'Donnell, Sneed, and Wolgel filed pleas to the jurisdiction arguing that Webre lacked standing to bring his suit because he is not a shareholder of United Salt, he had not filed a written demand letter as required by TBCA article 5.14(C), and “justice” did not require him to bring a direct action under TBCA article 5.14(L).

Texas United and United Salt intervened as defendants on June 9, 2009, and filed their “Special Exceptions, Motion to Dismiss, Motion for Summary Judgment, or in the alternative, Plea in Abatement” arguing that Webre lacked standing to bring his suit because he is not a shareholder of United Salt; his suit is a “double derivative” suit which he lacks standing to bring; he lacks authority from the corporations to sue; his prior demands as a director preclude standing; he lacks standing to sue under the business judgment rule; he is estopped from suing due to his receipt of benefits from the Saltville Acquisition; and he lacks standing to sue under article 5.14(L) because his suit is “unjust and inequitable.”

Tichenor later filed his own plea to the jurisdiction and motion to dismiss arguing that Webre lacks standing to bring his claims because he did not file a written demand pursuant to TBCA article 5.14(C) and he is not a shareholder of United Salt. Tichenor's plea also incorporated the pleadings of the other defendants.

The trial court granted the pleas to the jurisdiction and motions to dismiss “due to [Webre's] lack of standing.” Following its orders dismissing all of the defendants in this case, the trial court entered final judgment on November 23, 2009, and this appeal followed.

Standing in a Derivative Suit

All of Webre's issues assert that the trial court erred in finding that he did not have standing to bring his claims.

A. Standing Generally

Standing is implicit in the concept of subject-matter jurisdiction, and subject-matter jurisdiction is essential to the authority of a court to decide a case. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex.1993)...