Dick Poe was the only director of Poe Management, Inc. (PMI). As part of that role, he authorized the issuance of 1,100 shares of PMI stock, which he purchased for $3.2 million. Prior to the issuance of these shares, Dick's son, Richard, was PMI's only shareholder. Richard did not have knowledge of the issuance until after Dick's death and at that point, he brought suit to invalidate the share issuance.
Richard claimed that the issuance was a self-dealing transaction that violated Dick's duties as a fiduciary of PMI and also that Dick violated an informal fiduciary duty when he failed to manage PMI with Richard's best interest in mind. The trial court provided to the jury an instruction on informal fiduciary duty, to which Richard objected. The trial court also included with the jury questions the issue regarding safe harbor for self-dealing transactions under Section 21.418(b).
Over Richard's second objection, the trial court also instructed the jury that the share issuance could be valid if they found any of the three following circumstances listed in the statute:
- Approval by disinterested directors
- Approved by a vote of the shareholders, or
- The issuance was fair to PMI
The jury decided that Dick violated the informal fiduciary duty that he owed to Richard and that the share issuance was not enforceable. The court of appeals affirmed that finding and as such did not address the issue of whether the jury instruction regarding the informal fiduciary duty by the trial court was proper. The Texas Supreme Court reversed.
The issues before the Texas Supreme Court were as follows:
- Whether a director of a corporation may owe a duty to manage the corporation in the best interest of an individual shareholder in addition to formal fiduciary duties to the corporation, and
- Whether the jury was correctly instructed regarding the statutory safe harbor under Business Organizations Code Section 21.418(b).
Conclusion of the Court
The court held that "a corporation's director cannot owe an informal; duty to operate or manage the corporation in the best interest of or for the benefit of an individual shareholder." The director's duty is only to engage in acts and decisions that benefit the corporation, not an individual shareholder.
The court also determined that the trial court abused its discretion in instructing the jury that it could find the share issuance valid by using conditions for which there was no evidence presented. The jury's deliberations should have centered only on the last factor- fairness to PMI.
The court concluded that these errors by the trial court likely confused or mislead the jury. Based on this conclusion, the court finds that the judgment was improper and remands the case for a new trial.
For a full reading of the case please refer to: In re Estate of Poe, — S.W.3d —, 2022 WL — (Tex. June 17, 2022) [20-0178]