Opinion

Opinion issued July 28, 2011.

In The

Court of

Appeals

For The

First District

of Texas

————————————

NO. 01-10-00151-CV

———————————

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

On Appeal from the 11th District Court

Harris County, Texas

Trial Court Case No. 2009-23093

O P I N I O N

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, Wogel, 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). Thus, standing is never presumed,

cannot be waived, and can be raised for the first time on appeal. Id.

at 443–45. We review standing under the

same standard by which we review subject-matter jurisdiction generally. Id. at

446 . Whether the trial court has

subject-matter jurisdiction is a question of law that we review de novo. Tex. Dep’t of Parks & Wildlife v.

Miranda , 133 S.W.3d

217, 226 (Tex. 2004) .

A plea to the jurisdiction is a

dilatory plea that is intended to defeat a cause of action regardless of

whether the claims asserted have merit. Bland Indep. Sch. Dist. v. Blue , 34

S.W.3d 547, 554 (Tex. 2000). The pleader

must allege facts that affirmatively demonstrate the trial court’s jurisdiction

to hear the case. Tex. Ass’n of Bus. , 852 S.W.2d at 446 . If a plea to the jurisdiction challenges the

existence of jurisdictional facts, as here, we consider relevant evidence

submitted by the parties when necessary to resolve the jurisdictional issues

raised. See Bland , 34 S.W.3d at 555 .

“When the consideration of a trial court’s subject matter jurisdiction

requires the examination of evidence, the trial court exercises its discretion

in deciding whether the jurisdictional determination should be made at a

preliminary hearing or await a fuller development of the case, mindful that

this determination must be made as soon as practicable.” Miranda ,

133 S.W.3d at 227 . If the jurisdictional

challenge implicates the merits of the plaintiff’s cause of action and the plea

to the jurisdiction includes evidence, then the trial court must determine if a

fact issue exists. Id. In reviewing the trial

court’s determinations, we take as

true all evidence favorable to the nonmovant and indulge every reasonable

inference and resolve any doubts in the nonmovant’s favor. Id.

at 228 . If the relevant evidence is

undisputed or fails to raise a fact question on the jurisdictional issue, the

trial court rules on the plea to the jurisdiction as a matter of law. Id. However, if the evidence creates a fact

question regarding the jurisdictional issue, then the trial court cannot grant

the plea to the jurisdiction, and the fact issue will be resolved by the fact

finder. Id. at 227–28. After a

defendant asserts and supports with evidence that the trial court lacks

subject-matter jurisdiction, the plaintiff is required, when the facts underlying

the merits and subject-matter jurisdiction are intertwined, to show that there

is a disputed material fact question regarding the jurisdictional issue. Id.

at 228 .

Generally, unless standing

is conferred by statute, a plaintiff must demonstrate that he “possesses an

interest in a conflict distinct from that of the general public, such that the

defendant’s actions have caused the plaintiff some particular injury.” Williams

v. Lara , 52 S.W.3d 171, 178 (Tex. 2001); see also Tex. Ass’n of Bus. , 852

S.W.2d at 446 (“The general test for standing in Texas requires that there (a)

shall be a real controversy between the parties, which (b) will be

actually determined by the judicial declaration sought.”) (internal quotation

omitted).

B. Law of Stockholder Standing

A

corporate officer owes a fiduciary duty to the corporation, but, absent some

contract or special relationship, he does not owe a fiduciary duty to an

individual shareholder. Redmon v. Griffith , 202 S.W.3d 225, 233

(Tex. App.—Tyler 2006, pet. denied).

Furthermore, “a corporate shareholder has no individual cause of action

for personal damages caused solely by a wrong done to the corporation.” Id. Likewise, individual stockholders generally

“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.” Perry v. Cohen , 285 S.W.3d 137, 144 (Tex. App.—Austin 2009, pet.

denied) (quoting Wingate v. Hajdik , 795

S.W.2d 717, 719 (Tex. 1990)).

“Accordingly, an action for such injury must be brought by the

corporation, not individual shareholders.”

Id.

Thus,

“to recover for wrongs done to the corporation, the shareholder must bring the

suit derivatively in the name of the corporation so that each shareholder will

be made whole if the corporation obtains compensation from the wrongdoer.” Redmon ,

202 S.W.3d at 234 (citing Faour v. Faour ,

789 S.W.2d 620, 622 (Tex. App.—Texarkana 1990, writ denied)). “[T]he

right to proceed against an officer or former officer of a corporation for

breaching a fiduciary duty owed to the corporation belongs to the corporation

itself.” Grinnell v. Munson , 137 S.W.3d 706, 718 (Tex. App.—San Antonio

2004, no pet.) . In a shareholder derivative suit, “the

individual shareholder steps into the shoes of the corporation and usurps the

board of directors’ authority to decide whether to pursue the corporation’s

claims.” In re Crown Castle Int’l Corp. , 247 S.W.3d 349, 355 (Tex.

App.—Houston [14th Dist] 2008, orig. proceeding).

Both

the now-superseded TBCA, and its successor, the Business Organizations Code,

specifically provide for shareholder derivative proceedings. Tex.

Bus. Corp. Act . Ann. art.

5.14 (current version at Tex. Bus. Orgs.

Code Ann . §§ 21.551–.563 (Vernon Supp. 2010)). Article 5.14 defines “derivative proceeding”

as “a civil suit in the right of a domestic corporation. . . .” Id.

art. 5.14(A)(1). It states that the term

“‘shareholder’ includes a beneficial owner whose shares are held in a voting

trust or by a nominee on the beneficial owner’s behalf.” Id.

art. 5.14(A)(2).

Article 5.14 goes on to make

various procedural provisions.

Specifically, it provides:

B. Standing . A shareholder may not commence or maintain a derivative

proceeding unless the shareholder:

(1) was a shareholder of the

corporation at the time of the act or omission complained of or became a

shareholder by operation of law from a person that was a shareholder at that

time; and

(2) fairly and adequately

represents the interests of the corporation in enforcing the right of the

corporation.

C. Demand. No shareholder may commence a derivative

proceeding until:

(1) a written demand is filed

with the corporation setting forth with particularity the act, omission, or

other matter that is the subject of the claim or challenge and requesting that

the corporation take suitable action; and

(2) 90 days have expired from

the date the demand was made . . .

D. Stay;

Discovery .

(1) If the . . . corporation commences an inquiry

into the allegations made in a demand or petition and the person or group

described in section H of this Article is conducting an active review of the

allegations in good faith, the court shall stay a derivative proceeding until

the review is completed . . . .

(2) If a domestic or foreign corporation proposes

to dismiss a derivative proceeding pursuant to section F of this Article,

discovery by a shareholder following the filing of the derivative proceeding in

accordance with the provisions of this Article shall be limited to facts

relating to whether the person or group described in Section H of this Article

is independent and disinterested, the good faith inquiry and review by such a

person or group, and the reasonableness of the procedures followed by such

person or group in conducting its review and will not extend to any facts or

substantive matters with respect to the act, omission, or other matter that is

the subject matter of the action in the derivative proceeding. . . .

E. Tolling

of the Statute of Limitations. A

written demand filed with the corporation under Section C of this Article tolls

the statute of limitations on the claim . . . .

F. Dismissal

of Derivative Proceeding. A court

shall dismiss a derivative proceeding on a motion by the corporation if the

person or group described in Section H of this Article determines in good

faith, after conducting a reasonable inquiry and based on the factors as the

person or group deems appropriate under the circumstances, that the

continuation of the derivative proceeding is not in the best interests of the

corporation. In determining whether the

requirements of the previous sentence have been met, the burden of proof shall

be on:

(1) the plaintiff shareholder, if a majority of the

board of directors consists of independent and disinterested directors at the

time the determination is made or if the determination is made by a panel of

one or more independent and disinterested persons appointed under Section H(3)

of this Article; or

(2)

the corporation, in all other circumstances. . . .

G. Commencement

of Proceeding After Rejection of Demand.

If a derivative proceeding is commenced after a demand is rejected, the

petition must allege with particularity facts that establish that the rejection

was not made in accordance with the requirements of Sections F and H of this

Article.

H. Determination

by Directors or Independent Persons .

The determination described in Section F of this Article must be made

by:

(1) a majority vote of

independent and disinterested directors . . . if [they]

constitute a quorum of the board of directors;

(2) a majority vote of a

committee consisting of two or more independent and disinterested directors

appointed by a majority vote of one or more independent and disinterested

directors . . . ; [or]

(3) a panel of one or more

independent and disinterested persons appointed by the court on a motion by the

corporation. . . .

I. Discontinuance

or Settlement. A derivative

proceeding may not be discontinued or settled without the approval of the

court.

J. Payment

of Expenses .

(1) On termination of a

derivative proceeding, the court may order:

(a) the . . . corporation to pay

the expenses of the plaintiff incurred in the proceeding if it finds that the

proceeding has resulted in a substantial benefit to the . . .

corporation;

(b) the plaintiff to pay the

expenses of the . . . corporation or any defendant incurred in investigating

and defending the proceeding if it finds that the proceeding was commenced

or maintained without reasonable cause

or for an improper purpose. . . .

Id. art.

5.14(B)–(J).

Regarding

closely held corporations, article 5.14 provides:

(1) The provisions of Sections B

through H of this Article are not applicable to a closely held

corporation. If justice requires:

(a) a derivative proceeding

brought by a shareholder of a closely held corporation may be treated by a

court as a direct action brought by the shareholder for his own benefit; and

(b) a recovery in a direct or

derivative proceeding by a shareholder may be paid either directly to the

plaintiff or to the corporation if necessary to protect the interests of

creditors or other shareholders of the corporation.

(2) For purposes of this

section, a “closely held corporation” means a corporation:

(a) with less than 35

shareholders; and

(b) that has no shares listed on

a national securities exchange or regularly quoted in an over-the-counter

market by one or more members of a national securities association.

Id. art.

5.14(L).

However, a shareholder may bring a

cause of action to recover damages for wrongs done to him individually when a

wrongdoer violates a duty owed directly to the shareholder. Perry ,

285 S.W.3d at 144 . “It is the nature of the wrong, whether

directed against the corporation only or against the shareholder personally,

not the existence of injury, which determines who may sue.” Redmon ,

202 S.W.3d at 234 .

C. Webre’s Standing to File a Derivative Suit

as a Shareholder of Texas United and United Salt

In

his first issue, Webre argues that the appellees’ pleas to the jurisdiction and

motions to dismiss address only his standing to bring suit on behalf of United

Salt but his suit was brought on behalf of both United Salt and Texas United. He is a 24% shareholder in Texas United, which,

in turn, is a 100% shareholder of United Salt.

1.

Webre’s Standing to Bring a

Derivative Suit on behalf of Texas United

The

breaches of fiduciary duty and fraud alleged in Webre’s petition create a cause

of action for United Salt — Webre’s claims

arising from the Saltville Acquisition allege that United Salt suffered a

direct injury. See Tex. Ass’n of Bus. , 852

S.W.2d at 446 ; Perry , 285 S.W.3d at

144 .

Furthermore, Webre alleges that

Texas United suffered direct harm from the officers’ misrepresentations to its

board following the Saltville Acquisition and as the sole shareholder of United

Salt because of the interrelated nature of the companies and their

management. He alleges that both Texas

United and United Salt 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 payment of

higher performance bonuses to the officers than would have been justified under

more accurate financial forecasts for the companies.

Webre is undisputedly a shareholder

in Texas United, which both parties agree is a closely held corporation. Thus, he has standing as a shareholder to

bring a derivative suit on behalf of Texas United for harm suffered by Texas

United as a result of the officers’ actions. See

Wingate , 795 S.W.2d at 718–19; Redmon ,

202 S.W.3d at 234 .

Thus, the question presented to

this Court is whether Webre as a shareholder of Texas United can bring a suit

against the officers on behalf of Texas United’s wholly owned subsidiary,

United Salt.

2.

Webre’s Standing to Bring a

Derivative Suit on Behalf of United Salt

Webre argues that, as a shareholder

in Texas United, which is the beneficial owner of the shares of its wholly

owned subsidiary United Salt, he also has standing to bring a derivative action

on behalf of United Salt. Webre cites Roadside Stations, Inc. v. 7HBF, Ltd., &

Nu-Way Distrib. Co. , 904 S.W.2d 927 (Tex. App.—Fort Worth 1995, no writ).

In Roadside , the court addressed the “question of whether a

stockholder in the parent company can bring a [derivative] suit on behalf of a

subsidiary.” 904 S.W.2d at 930 . The court cited the version of article

5.14(B) in effect at the time, [2] which provided that a

derivative suit can be brought only if “[t]he plaintiff was a record or

beneficial owner of shares . . . at the time of the transaction of which he

complains. . . .” Id. at 930.

The Roadside court reasoned:

Stockholders of a

corporation are the equitable owners of the assets of the corporation. Consequently, 7HBF, as a stockholder with a

fifty percent interest in Nu-Way, Inc., also is an equitable owner of fifty

percent of the stock of Nu-Way Distributing Co. because Nu-Way, Inc. is the

owner of all stock in Nu-Way Distributing Co.

We agree with the Chancery Court of Delaware that such an equitable

ownership interest gives one standing to bring a derivative suit. Therefore, we conclude 7HBF has standing to

bring this derivative suit.

Id. at 931

(citing Jones v. Taylor , 348 A.2d

188, 190 (Del. Ch. 1975) (stating that, under Delaware law, for purposes of

derivative action, “stockholder” includes equitable owners) (other internal

citations omitted)).

We

conclude that this same reasoning applies in the instant case. Webre, as a stockholder in Texas United, is

also an equitable owner of stock in United Salt because Texas United owns all

of the stock in United Salt. See id.

Thus, Webre can properly be considered a stockholder for purposes of

bringing a derivative suit on behalf of United Salt.

The

appellees argue that Roadside does

not apply to this case. However,

appellees’ argument that the court’s discussion on this issue is “sheer dicta”

is a misreading of the case, as the opinion makes clear that the analysis

recounted above was required to resolve the Roadside

appellant’s second issue. See id. at 930–31. Furthermore, appellees’ argument that Roadside applies a different version of

the TBCA is unavailing. Although Roadside’s version of article 5.14(B)

allowed “beneficial owners” to file derivative suits and the version applicable

here allows a “shareholder” to file derivative suits, the applicable version of

article 5.14(A) does not exclude “equitable owners” from its definition of a

shareholder. See Tex. Bus. Corp. Act Ann .

art. 5.14(A)(2) (stating only that “‘shareholder’ includes a beneficial owner

whose shares are held in a voting trust or by a nominee on the beneficial

owner’s behalf”); cf. Jones , 348 A.2d

at 190 (stating that, under Delaware law, for purposes of derivative action,

“stockholder” includes equitable owners) (citing Rosenthal v. Burry Biscuit Corp. , 60 A.2d 106, 111 (Del. Ch. 1948)

(analyzing purpose of provisions requiring that plaintiff bringing derivative action

be stockholder at time complained-of action occurred, and stating that “the

statute leaves untouched the question as to whether an equitable owner of stock

can maintain a derivative action,” and concluding that “stockholder” was used

“in the sense in which it is used in the common law applicable to proceedings

in equity — whatever that sense is”)).

Furthermore,

many other jurisdictions recognize the standing of a shareholder of a parent or

holding corporation to bring a suit on behalf of a subsidiary corporation. “In a ‘double derivative’ action, the

shareholder is effectively maintaining the derivative action on behalf of the

subsidiary, based upon the fact that the parent or holding company has

derivative rights to the cause of action possessed by the subsidiary.” Blasband

v. Rales , 971 F.2d 1034, 1043 (3rd Cir. 1992) (quoting 13 Charles R.P. Keating, Gail A. O’Gradney ,

Fletcher Cyclopedia of Corporations §

5977, at 240 (rev. ed. 1991)); Sternberg

v. O’Neil , 550 A.2d 1105 , 1107 n.1 (Del. 1988); see also Brown v. Tenney , 532 N.E.2d 230, 231 (Ill. 1988) (“A

double derivative suit is one wherein a shareholder of a parent or holding

company seeks to enforce a right belonging to a subsidiary of the parent or

holding company.”). Thus,

[i]n a double derivative

suit, the shareholder of a holding company seeks to enforce a right belonging

to the subsidiary, and only derivatively to the holding company. This means that the power to bring suit flows

directly from the injured subsidiary, but both the subsidiary and the holding

company would have to fail, refuse or be unable to redress the injury to the

subsidiary.

Brown , 532

N.E.2d at 233 ; see also Pessin v.

Chris-Craft Indus., Inc. , 181 A.D.2d 66, 72 (N.Y. App. Div. 1992) (“Where a

stockholder controls a subsidiary, and there is no independence between the

parent stockholder and the subsidiary . . . double

derivative standing is conferred on the minority shareholders of the

controlling stockholder.”).

We

sustain Webre’s first issue.

D. Requirement

that Webre Make a Written Demand to Maintain Suit

In his second and third issues, Webre

argues that, to the extent it did so, the trial court erred in finding he had

no standing because he did not make a written demand pursuant to TBCA article

5.14(C) or comply with other procedural aspects of article 5.14. Webre argues that the plain language of

article 5.14(C) does not require a written request in suits on behalf of

closely held corporations.

Texas United meets TBCA article

5.14(L)’s definition of a closely held corporation — it has fewer than 35 shareholders and is not

listed on any national securities exchange.

United Salt is the wholly owned subsidiary of Texas United and is also a

closely held corporation. The plain

language of article 5.14(L) provides that “[t]he provisions of Sections B

through H of this Article are not applicable to a closely held

corporation.” Tex. Bus. Corp. Act Ann . art. 5.14(L). Thus, Webre was not required to comply with

the written demand requirement of section (C).

We sustain Webre’s second and third

issues.

Estoppel

In his fourth issue, Webre argues

that he is not estopped from recovery in his suits either by receiving a

benefit from the Saltville Acquisition or by changing his position. Webre argues that he has not received any

benefit from the Saltville Acquisition because the acquisition has yet to

recover its costs, and he argues that he has consistently objected to the

transactions complained of in the derivative suit. Webre also argues that estoppel, as an

affirmative defense, is an improper challenge to standing.

The appellees argue that Webre is

estopped from maintaining this suit because he cannot accept the benefits of a

transaction and simultaneously sue to challenge the transaction. They argue that the Saltville operations have

already become profitable.

Webre and appellees have presented

conflicting evidence and arguments regarding whether the Saltville Acquisition

has become profitable, and if it has, the extent to which its profitability has

benefited Webre and the other shareholders.

Resolution of this dispute is fact-intensive and goes to the heart of

the merits of this litigation — i.e.,

whether either corporation has an ultimate right to recover — and, thus, disposal of this issue as a matter

of law through a plea to the jurisdiction is improper. See

Miranda , 133 S.W.3d at 227–28 (trial court may rule on plea to jurisdiction

as matter of law only if relevant evidence is undisputed or fails to raise fact

question on jurisdictional issue).

Furthermore, quasi-estoppel theories, such as acceptance of benefits,

are not proper grounds for attacking subject-matter jurisdiction. See

Steubner Realty 19, Ltd. v. Cravens Rd. 88, Ltd. , 817 S.W.2d 160, 164 (Tex.

App.—Houston [14th Dist.] 1991, no writ) (holding that quasi-estoppel refers to

certain legal bars, including acceptance of benefits, and precludes party from

asserting, to another’s disadvantage, right inconsistent with position

previously taken); Clark v. Cotton

Schmidt, L.L.P. , 327 S.W.3d 765, 770 (Tex. App.—Fort Worth 2010, no pet.)

(quasi-estoppel is affirmative defense); UL,

Inc. v. Pruneda , No. 01-09-00169-CV, 2010 WL 5060638 , at *6–7 (Tex.

App.—Houston [1st Dist.] Dec. 9, 2010, no pet.) (mem. op.) (discussing

distinction between pleas to jurisdiction and pleas in bar and holding that

affirmative defenses on merits that pertain to plaintiff’s ultimate right to

recover are pleas in bar, not challenges to court’s power to hear suit, and

proving such affirmative defenses does not entitle defendants to dismissal for

lack of jurisdiction).

We sustain Webre’s fourth issue.

Business Judgment Rule

In his fifth issue, Webre argues

that the business judgment rule for shareholder derivative actions does not

apply to suits brought on behalf of closely held corporations, and, therefore,

this ground does not support the trial court’s judgment dismissing his suit.

Appellees argue that because Texas

law gives control over business acquisitions and corporate lawsuits to the

company’s board of directors, a dissenting shareholder has no standing to

maintain a derivative suit unless he pleads and proves fraud or self-dealing by

the board. Appellees argue that Webre

did not plead or prove any fraud or self-dealing by United Salt’s board of directors. Appellees also argue that Webre lacks

authority from the boards of directors of either United Salt or Texas United to

file this suit and that his suit is contrary to the vote of the lawful majority

actions of both boards of directors and the other shareholders. We address both of appellees’ arguments.

In the first part of his fifth

issue, Webre argues the trial court could not dismiss his suit for lack of

standing on the basis of his failure to plead and prove fraud. We agree.

The notion that a plaintiff is required to prove the merits of his case

in order to prove his standing to bring his claims is internally inconsistent with

and contrary to Texas law. See Tex. Ass’n of Bus. , 852 S.W.2d at

443 (holding that standing is implicit in subject-matter jurisdiction and

subject-matter jurisdiction is essential to authority of court to decide case);

Miranda , 133 S.W.3d at 228 (“We

adhere to the fundamental precept that a court must not proceed on the merits

of a case until legitimate challenges to its jurisdiction have been decided.”). To be entitled to seek judgment on the merits

of his case, a plaintiff must have standing; therefore, his standing cannot, as

a matter of law, depend on his proof of the merits of his case.

Moreover, Webre alleged that the

boards of directors of both Texas United and United Salt made the relevant

decisions underlying this case based on misrepresentations, fraud, and breaches

of fiduciary duties by the corporations’ officers. The appellees argue that this is not the case

and that the actions taken by the boards of directors were lawful and based on

sound business judgment. Resolution of this

dispute is fact-intensive and goes to the heart of the merits of this

litigation, and, thus, disposal of this issue as a matter of law would be

improper. See Miranda , 133 S.W.3d at 227–28 (trial court may only rule on

plea to jurisdiction as matter of law if relevant evidence is undisputed or

fails to raise fact question on jurisdictional issue).

In the second part of their

response to the fifth issue, appellees argue that Webre lacks standing to bring

suit on behalf of United Salt and Texas United because his allegations

regarding the Saltville Acquisition and his prosecution of this present suit are

contrary to the vote of the majority of both boards of directors. They rely on Pace v. Jordan and similar cases to support this contention.

In Pace v. Jordan , this Court analyzed the trial court’s grant of the

defendants’ “demand-refusal summary judgment motion.” 999 S.W.2d 615 , 618–19 (Tex. App.—Houston

[1st Dist.] 1999, pet. denied). The Pace defendants argued that, under article

5.14, the board of directors’ refusal of one shareholder’s demand to file suit

also barred a second shareholder from bringing a derivative suit. Id. In the context of article 5.14’s

provisions requiring a written demand to the corporation and requiring

dismissal of a derivative suit if the demand is rejected under the

circumstances outlined in sections (C) through (H) of that article, the Pace court noted that a corporation’s

directors, not its shareholders, have the right to control litigation of

corporate causes of action. 999 S.W.2d

at 622 (citing Tex. Bus. Corp. Act Ann .

arts. 2.02(A)(2), 2.31). “[T]he

corporation, through its board of directors, determines whether the chances for

successful suit, the costs of maintaining a suit, and other factors militate in

favor of instituting such an action.” Id. at 623 (citing Cates v. Sparkman , 11 S.W. 846, 848 (Tex. 1889) and Zauber v. Murray Sav. Ass’n , 591 S.W.2d

932, 936 (Tex. Civ. App.—Dallas 1979), writ

ref’d n.r.e. , 601 S.W.2d 940 (Tex. 1980) (per curiam)). Thus, the Pace

court held, “[T]o bring a derivative suit in the right of a corporation, a

shareholder must show that the board of directors’ refusal to act was governed

by something beyond unsound business judgment.”

Id. (citing Langston v. Eagle Publ’g Co. , 719 S.W.2d

612, 616 (Tex. App.—Waco 1986, writ ref’d n.r.e.) and Zauber , 591 S.W.2d at 936 ).

“Under the business judgment rule, a shareholder cannot institute a

derivative suit on the corporation’s behalf by merely showing that the board’s

refusal to act was unwise, inexpedient, negligent, or imprudent.” Id.

However, as we have already

discussed, sections (B) through (H) of article 5.14 do not apply to derivative

suits filed on behalf of closely held corporations. See Tex. Bus. Corp. Act Ann . art. 5.14(L). [3] Thus the reasoning in Pace , which relied on those provisions, while applicable then and

now to suits brought by a shareholder on behalf of a corporation that is not

closely held, does not apply to the instant litigation. See id. [4]

We sustain Webre’s fifth issue.

Direct Recovery

Finally, in his sixth issue, Webre asserts

that the appellees’ argument that he is not entitled to a direct recovery under

TBCA article 5.14(L) does not justify the trial court’s ruling dismissing this

case for lack of standing. We agree.

Article 5.14(L) does not address

standing except to provide that the standing requirements of section (B) do not

apply to closely held corporations. See Tex.

Bus. Corp. Act Ann. art. 5.14(L).

The portion of article 5.14(L) relevant to this issue states,

(1) The provisions of Sections B

through H of this Article are not applicable to a closely held

corporation. If justice requires:

(a) a derivative proceeding

brought by a shareholder of a closely held corporation may be treated by a

court as a direct action brought by the shareholder for his own benefit; and

(b) a recovery in a direct or

derivative proceeding by a shareholder may be paid either directly to the

plaintiff or to the corporation if necessary to protect the interests of

creditors or other shareholders of the corporation.

Id. art.

5.14(L)(1). The plain language of

article 5.14(L) specifically provides that a derivative action brought by a

shareholder of a closely held corporation may be treated by the court either as

a derivative suit or, “[i]f justice requires,” as a “direct action” brought by

the shareholder for his own benefit and that recovery may be paid “either

directly to the plaintiff or to the corporation.” Id.

A determination of whether Webre is

entitled to recover directly or whether any recovery ought to be paid to the

corporation is not a proper basis for denying Webre’s standing to bring this

suit because he would have standing to bring it regardless of whether he seeks

recovery under subsection (1) or subsection (b) of article 5.14(L)(1).

We sustain Webre’s sixth issue.

Appellees’

Alternate Grounds for Affirming the Trial Court’s Judgment

Finally, appellees argue that, even

if we find that Webre has standing to bring this derivative suit on behalf of

Texas United and United Salt, we should affirm the judgment of the trial court

on alternative grounds. Specifically,

appellees argue that summary judgment in their favor is appropriate because

United Salt’s board of directors and its sole shareholder ratified the acts of

the officers, because the business judgment rule precludes Webre from proving

the merits of his allegations, and because estoppel bars this suit as a matter

of law due to Webre’s acceptance of benefits from the Saltville

Acquisition. Appellees also argue that

dismissal is proper under their special exceptions, which argued that Webre did

not plead or prove any fraud or wrongdoing by the boards of directors and that Webre

is not entitled to an opportunity to replead.

However, the trial court’s order

dismissing Wolgel, O’Donnell, and Sneed states only that their “Pleas to the

Jurisdiction and Motions to Dismiss are granted due to [Webre’s] lack of

standing.” The trial court’s order

dismissing Tichenor likewise specifically references his “Plea to the

Jurisdiction and Motion to Dismiss for Lack of Jurisdiction” as the basis for

dismissing Webre’s claims. The record does

not demonstrate that the trial court ruled on any of the appellees’ other

motions or grounds for dismissal. Thus,

these issues are not presented for our review.

See Tex. R. App. P. 33.1(a)(2) (requiring, as prerequisite to

presenting complaint for appellate review, that “the record must show that . .

. the trial court . . . ruled on the request, objection, or

motion. . . .”); In re R.R. , 26

S.W.3d 569, 574 (Tex. App.—Dallas 2000, orig. proceeding) (holding that where

trial court had not ruled on other grounds asserted in motion for protective

order, those issues were not ripe for appellate review).

Conclusion

We reverse

the judgment of the trial court and remand the case for further proceedings

consistent with this opinion.

Evelyn

V. Keyes

Justice

Panel

consists of Justices Keyes, Higley, and Yates. [5]

[1]

The parties cite the Texas

Business Corporation Act ( “TBCA”). We

note that TBCA article 5.14 was recodified as part of the Texas Business

Organizations Code, effective January 1, 2006.

See Act of May 13, 2003, 78th

Leg., R.S., ch. 182, §§ 1, 17, 2003 Tex. Gen. Laws 267 , 448–51, 597 (current

version at Tex. Bus. Orgs. Code Ann .

§§ 21.551–.563 (Vernon 2007)). Chapter

402 of the Business Organizations Code provides that for any entity formed

prior to 2006, article 5.14 applies until December 31, 2009, unless the entity

elects to adopt the code prior to that date.

See Tex. Bus. Orgs. Code Ann . §§ 402.001, .003, .005 (Vernon

2010). We further note that TBCA article

5.14(L), which is the statutory provision central to this case, was codified as

Business Organizations Code section 21.563 with no substantive changes. The entities at issue here were formed prior

to 2006, and this lawsuit was filed on April 13, 2009. Thus, we cite to article 5.14.

[2]

The version of article 5.14 in

effect at the time the instant suit was filed provided that “[a] shareholder

may not commence or maintain a derivative proceeding unless the shareholder was

a shareholder of the corporation at the time of the act or omission complained

of. . . .” Tex. Bus. Corp. Act

Ann.

art. 5.14(B). We also note that the

current provisions of the Business Organizations Code were not substantively

changed when they were recodified. See Tex.

Bus. Orgs. Code Ann . §§ 21.551, 21.552 (Vernon 2010).

[3] This law was not changed by subsequent

codification. See Tex. Bus. Orgs. Code

Ann. § 21.563 (Vernon 2010).

[4] See

Tex. Bus. Orgs. Code Ann. §

21.563; cf. id. §§ 21.552–.559.

[5] The Honorable Leslie B. Yates, former

Justice of the Fourteenth Court of Appeals, sitting by appointment.