Meet Kyle L. Dickson

In the last 20+ years, Mr. Dickson has managed and participated in an eclectic array of legal matters, primarily helping entrepreneurs with their complex legal needs. Mr. Dickson has had the unique experience of going from private practice into business and serving in a variety of executive functions and then he returned to private practice years later. This combination of experience gives him an uncommon perspective on many matters.

Mr. Dickson supports and serves on many boards in his community including Mission Generation, Inc., Associated Credit Union of Texas, Mainland Communities Crime Stoppers, Inc., TCISD Foundation for the Future, Inc. and College of the Mainland Foundation, Inc.

Mr. Dickson resides in his hometown with his wife from the same town and has two grown children. In his spare time he strives to improve his musicianship hoping to one day be a “rock star” and also enjoys boating on Galveston Bay.

Meet Charles E. Lobb, Jr.

Mr. Lobb is a founding member of Murray | Lobb PLLC. Since 1985, Mr. Lobb has been actively involved in litigation, concentrating his skills in construction and collections. Mr. Lobb is well-versed in banking and UCC matters. Mr. Lobb also takes great pride in his risk avoidance and dispute resolution skills prior to suits being filed.

Mr. Lobb is a member of the Houston Bar Association, the Litigation Section and Construction Section of the State Bar. He is the author of several seminar materials on collections and M&M Liens.

A lover of the outdoors, Mr. Lobb is and an avid fisherman, hunter, and scuba diver and has completed 13 marathons. Mr. Lobb is active in his church and supports the CCA, the Quality Deer Management Association and other outdoor environmental associations. Mr. Lobb enjoys traveling and reading in his spare time.

Meet Ronald A. Murray

Mr. Murray has spent over 40 years representing lenders, sellers and buyers in real estate related matters in Harris and surrounding counties. He has served on the Board of Directors for several community banks in the Houston area. He has also served on the Board of Directors of several private schools and civic organizations in the Clear Lake community. He is currently participating in the Meals on Wheels program in the Clear Lake area.

Mr. Murray graduated from the University of Texas with undergraduate and law degrees. He continues to bleed burnt orange and attends many UT athletic events. He served for several years as an Associate Judge in Friendswood, Texas.

Mr. Murray was born and raised in Houston and has lived in the Houston area his entire lifetime. He has two children, two stepchildren and seven grandchildren and another on the way. He enjoys traveling and playing golf.

Pitfalls of Affiliated Companies

Since its humble beginning in Wyoming in 1977, the limited liability company (“LLC”) type of entity formation has gained rapid acceptance as a way to avoid personal liability and still maintain administrative flexibility. In addition, many lenders now insist that borrowers create a separate single-purpose entity for each project. Thus, most businesses consist of multiple affiliated companies that are each supposed to be treated discretely under the law. However, since non-corporate entities such as partnerships and LLCs are not required to hold regular meetings or even appoint officers, the owners of those entities tend to overlook other company formalities as well. This lackadaisical attitude may inadvertently create a situation where creditors come to rely on assets of affiliates, not just the entity with which they have a contract. In a bankruptcy proceeding, the creditors may go so far as to ask the court to substantively consolidate the affiliated companies.

The following are the most common pitfalls that affiliated companies should avoid in effort to preserve the benefit of each company’s independent existence:

Entangled Finances – If affiliated companies co-mingle their funds or one entity pays the bills for another entity without appropriate inter-company transfer records, it becomes increasingly difficult to distinguish the assets and liabilities of each company. Moreover, many affiliated companies produce only consolidated financial statements that imply that additional resources are available to satisfy an entity’s debts. If the entities share bookkeeping personnel, then mistakes become even more likely.

Reliance on Credit of Affiliates – If affiliated companies pledge any of their assets to secure loans to another entity or guarantee such loans, creditors may be entitled to rely on the credit of all of the entities. Creditors often request financial statements from such affiliates and require joint and several liability among the affiliates. Creditors may press hard for consolidation if some entities are asset-rich while others have major liabilities.

No Separate Stationary and Signatories – Often a group of companies will have one overarching trade name and will not clearly indicate the particular affiliate that is acting with respect to a transaction. Similarly, sometimes multiple entities will be executing the same document. If the same person signs the documents for several different entities, it is very easy to make a scrivener’s error and confuse the entities. Likewise, with modern computer technology, duplicated and revised documents with global changes to names, may not reflect the actual intent of the parties in every cases. These similar, yet different, documents can lead to unintended consequences and may require extra time and expense to audit and correct errors.

Undercapitalization – If a company does not have sufficient assets to pay for its liabilities in the ordinary course of business and is dependent on an affiliate for funding, then creditors may seek recovery against the finding entity too.

If a business is structured with several affiliated companies, the owners must still be diligent about ensuring that each entity is capable of standing alone both financially and contractually. Owners should also make clear to creditors that only that particular company may be relied on for payment. If not, all of the effort put into creating the separate companies may be disregarded in favor of producing more equitable results for creditors of affiliated companies.

Shareholder Oppression – The Texas Supreme Court has Spoken

On June 20, 2014 in the case of Ritchie v. Rupe, the Texas Supreme Court declined to recognize a common-law cause of action for shareholder oppression. Much of this article is quoted from the actual opinion.

The Texas Supreme Court found that existing statutory law adequately protects and provides remedies for various categories of conduct identified as frequent causes of shareholder oppression.  The Court addressed each of the common complaints of conduct giving rise to the shareholder oppression cases and identified the statutory cause of action for each.  They are as follows:

  1. Denial of Access to Corporate Books and Records.  A common complaint of those alleging shareholder oppression is the denial of access of the corporation’s books and records.  The Court held that Texas Business Organizations Code, Chapter 21 expressly protects a corporate shareholder’s right to examine corporate records. See Tex. Bus. Orgs. Code §§ 21.218 (examination of records), 21.219 (annual and interim statements of corporation), 21.220 (penalty for failure to prepare voting list), 21.222 (penalty for refusal to permit examination), 21.354 (inspection of voting list) and 21.372 (shareholder meeting list).
  2. Withholding or Refusing to Declare Dividends.  A second complaint of those alleging shareholder oppression relates to the corporation’s declaration of dividends, including the failure to declare dividends, the failure to declare higher dividends, and the withholding of dividend payments after a dividend has been declared.  With regard to the latter, shareholders already have a right to receive payment of a declared dividend in accordance with the terms of the shares and the corporation’s certificate of formation, and they can enforce that right as a debt against the corporation.  When a dividend is declared, it becomes a debt owing by the corporation to the stockholders.   With regard to the failure to declare dividends or the failure to declare higher dividends, those decisions fall within the discretion of a corporation’s directors, and those decisions must be made in compliance with the formal fiduciary duties that they owe to the corporation, and thus to the shareholders collectively.  Shareholders can sue the directors for breach of those duties on behalf of the corporation through a derivative action.  In sum, a remedy exists for dividend decisions made in violation of a director’s duties to the corporation and its shareholders collectively, but no remedy exists for decisions that comply with those duties, even if they result in incidental harm to a minority shareholder’s individual interests.
  3. Termination of Employment.  A third common complaint of those alleging shareholder oppression relates to the termination of the minority shareholder’s employment with the corporation.  Texas is steadfastly an at-will employment state.  The general rule has been absent a specific agreement to the contrary, employment may be terminated by the employer, or the employee at will, for good cause, bad cause, or no cause at all.  There may be situations in which, despite the absence of an employment agreement, termination of a key employee is improper, for no legitimate business purpose, intended to benefit the directors or individual shareholders at the expense of the minority shareholder, and harmful to the corporation.  Such a decision could violate the director’s fiduciary duties to exercise their uncorrupted business judgment for the sole benefit of the corporation and to refrain from usurping corporate opportunities for personal gain.  In such a case, a shareholder may enforce these duties through a derivative action.  Such action could also be potentially “oppressive” under Tex. Bus. Orgs. Code §11.404 and thus justify the appointment of a rehabilitative receiver under Tex. Bus. Orgs. Code §11.404 (a)(1)(c).
  4. Misapplication of Corporate Funds and Diversion of Corporate Opportunities.  A fourth complaint of those alleging shareholder oppression involves the misapplication of corporate funds and diversion of corporate opportunities.  The duty of loyalty that officers and directors owe to the corporation specifically prohibit them from misapplying corporate assets for their own personal gain or wrongfully diverting corporate opportunities to themselves.  These types of actions may be redressed through a derivative action, or through direct action brought by the corporation, for breach of fiduciary duty.
  5. Manipulation of Stock Values.  The final complaint of those alleging shareholder oppression involves the directors’ manipulation of the value of the corporation’s stock.  As a general rule, claims on such conduct belong to the corporation, rather than the individual shareholder.  The individual shareholders have no separate and independent right of action for injuries suffered by the corporation which merely result in the depreciation of the value of their stock.

Importantly, the Court also recognized that the business judgment rule is applicable to decisions made by office and directors in actions under the Tex. Bus. Orgs. Code §11.404 (a)(1)(c).  The Court held that “a corporation’s directors or managers engage in “oppressive” actions under §11.404 when they abuse their authority over the corporation with intent to harm the interests of one or more of the shareholders, in a manner that does not comport with the honest exercise of their business judgment, and by so doing so create a serious risk of harm to the corporation”.

The Court further ruled that the statue (Tex. Bus. Orgs. Code §11.404) does not authorize a buy-out remedy of a minority shareholders shares, even if such actions are deemed oppressive under the statute.

The case can be found here.