© 2014 The Texas Lawbook.
By Mark Curriden – (June 27) – The Supreme Court of Texas has rejected an appeal by Dallas businessman Bala Shagrithaya in his $40 million shareholder litigation against ARGO Data Resources, the software solutions business he co-founded in 1980.
The justices’ decision to not hear Shagrithaya’s appeal is a complete victory for ARGO and it is the second time in a week that minority shareholder cases claiming oppression have been soundly defeated at the state’s highest court.
Shagrithaya sued ARGO and its chief executive officer, Max Martin, in 2007 after Martin substantially reduced his salary despite huge financial successes for the business.
Shagrithaya owns 47 percent of the company, while Martin, the other co-founder, owns 53 percent. In his lawsuit, Shagrithaya asked the court to force Martin and ARGO to buy his shares with no minority discount or issue a $90 million dividend.
In 2009, a Dallas jury heard six weeks of testimony and ruled for Shagrithaya. The court held that Martin’s conduct had oppressed Shagrithaya and that Argo should pay the minority shareholder his share of an $85 million dividend or $40 million.
The Dallas Court of Appeals, however, reversed the trial court.
“ARGO and Mr. Martin have consistently maintained that the facts and the law did not support the trial court’s judgment,” says ARGO General Counsel Brian Jobe. “We’re glad the Dallas Court of Appeals and the Texas Supreme Court both agreed with us.”
Haynes and Boone partners Karen Precella and David Harper represented ARGO in the litigation.
Last week, the Texas Supreme Court issued a landmark decision in a case called Ritchie v. Rupe in which the justices ruled that minority shareholders in closely held Texas companies can no longer turn to the court system to help them receive “fair market value” for their ownership interests when corporate leaders take positions that cause the value of the minority’s interests to plummet.
The justices also declared that it is not “oppressive conduct” when majority shareholders refuse to meet with prospective purchasers of the minority’s stock to discuss future business strategies even if the refusal means the minority will be unable to sell their interests or will be forced to sell at a drastically reduced price.
Once the Supreme Court issued its opinion in the Rupe case, the handwriting was on the wall for the ARGO appeal.
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