In Skeels v. Suder, a departing shareholder of a law firm sued regarding the firm’s decision to redeem his shares for no consideration. No. 21-1014, 2023 Tex. LEXIS 578 (Tex. June 23, 2023). Partners of a law firm entered into a shareholder agreement that allowed certain individuals to take action. The resolution stated:
Notwithstanding the number of shareholders, or the number of shares issued to any shareholder, Walker Friedman, Jonathan Suder and Michael Cooke, collectively, have been entitled, and shall continue to be entitled, to take affirmative action on behalf of the Firm, and veto any vote or action taken by or on behalf of the Firm, and/or by any other shareholder, whether individually, or collectively.
Id. (emphasis added). The firm’s governing documents did not address redemption, and after the firm terminated a shareholder’s employment, he did not agree to the founders’ proposed redemption terms. The founders then purported to redeem his shares at no cost, arguing that a resolution generally authorizing the founders “to take affirmative action on behalf of the Firm” unambiguously encompasses redemption. The trial court ruled for the lawfirm and rejected the departing shareholder’s claim regarding the redemption.
The majority of the court of appeals affirmed that under the various documents, it had the right to do so: “The plain language of the Resolution—a shareholder agreement—broadly allowed Friedman, Suder, and Cooke as the Firm’s governing authority to take affirmative action on behalf of the Firm; thus, the trial court did not err by finding that the Resolution governed the redemption of Skeels’s shares on the terms dictated by the Firm’s governing authority.”
The Texas Supreme Court reversed. The court noted that the Texas Organizations Code provides that corporate shares are personal property, but a professional corporation may redeem them if the redemption price and other terms are (1) “agreed to between the board of directors” and either “the shareholder” or his “personal representative,” (2) “specified in the governing documents” or “an applicable agreement,” or (3) determined according to a statutorily authorized “shareholders’ agreement.” Id.
The Texas Supreme Court held that:
[M]odifying “affirmative action” with “on behalf of the Firm,” the resolution authorized the founders to take action the firm could take, but it did not constitute the departing shareholder’s agreement that the founders may set redemption terms of their own accord on his behalf. Nor does the resolution itself “specif[y]” any redemption terms. And because the firm was not authorized—by statute, governing document, or shareholders’ agreement—to set the redemption terms without the departing shareholder’s agreement, the resolution did not independently authorize the founders to unilaterally determine those terms.