News

Texas Supreme Court Ruling In Sneed v. Webre Allows For Derivative Suits Against Closely-Held Corporations

The Texas Supreme Court unanimously ruled in favor of our client, Lloyd Webre, holding that his derivative claim for a closely held corporation should not have been dismissed for lack of standing by a Harris County District Court.

The defendants had argued successfully in the district court that the business judgment rule was relevant to the standing issue in Mr. Webre’s derivative claim brought on behalf of a closely held corporation. The court of appeals reversed, and the Texas Supreme Court granted review. The Supreme Court often grants review to reverse erroneous holdings, but as in this case, the Court also grants review on important legal issues.

The Supreme Court agreed with our client’s position that the Texas Legislature has removed from derivative claims on behalf of closely held corporations the many procedural hurdles and standing requirements that must be met when bringing a derivative claim on behalf of a traditional corporation. The derivative claim in this case challenged business decisions that were opposed by our client in his capacity as a director of this long-time family-owned company in Texas whose business operations include producing and selling salt water and salt.

The other novel issue in the case was the propriety of a so-called “double derivative claim,” because our client was a stockholder, not in the operating company that had been affected by the challenged business decisions, but in the holding company that owns 100% of the stock in the operating company. By virtue of this opinion, Texas now has joined a growing number of states that recognize double-derivative actions.

The grant of review in this case reflects the Texas Supreme Court’s increasing focus on commercial law issues.

Reagan Simpson argued the case in December 2014, and was assisted by Cam Barker.