Mueller v. Beamalloy, Inc.
994 S.W.2d 855, 1999 WL 351128, 1999 Tex. App. LEXIS 4158 (1999)
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Rule of Law:
A court may only appoint a receiver to liquidate a corporation if one of the four specific instances listed in Article 7.06 of the Texas Business Corporation Act is met. General equitable principles cannot be used to order liquidation when the specific statutory requirements are not satisfied.
Facts:
- In 1973, Allen H. Mueller and Wilson each became 50% shareholders and directors of a corporation later known as Beamalloy, Inc.
- Mueller withdrew from active management in 1991, leaving Wilson to run the company.
- Mueller and Wilson became deadlocked over the management of the company and could no longer work together.
- The corporation was profitable, generating approximately $120,000 in annual profits, and was debt-free.
- The corporation's primary asset, a highly customized welder, was worth only $10,000 to $15,000 upon liquidation, far less than its value as a going concern.
- In 1994, while still running Beamalloy, Wilson formed a competing corporation, Electron Beam Technology, Inc., located across the street.
- Attempts by Mueller and Wilson to buy out each other's shares in Beamalloy failed.
Procedural Posture:
- Mueller filed a shareholder derivative suit against Wilson and Beamalloy in the 11th Judicial District Court.
- Wilson and Beamalloy answered and filed a counterclaim against Mueller.
- Wilson filed a separate petition in the same court seeking the appointment of a receiver to liquidate Beamalloy pursuant to Texas Business Corporation Act art. 7.06.
- The trial court consolidated Mueller's derivative suit with Wilson's liquidation petition.
- Wilson and Beamalloy moved for an expedited appointment of a liquidating receiver.
- The trial court granted a trial amendment, allowing Wilson and Beamalloy to also seek liquidation under the general equitable powers of other statutes.
- The trial court granted the motion and issued an interlocutory order appointing a receiver to liquidate Beamalloy.
- Mueller, as appellant, appealed the trial court's order to the Court of Appeals of Texas.
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Issue:
Does a trial court have the authority under Texas law to appoint a liquidating receiver for a solvent, profitable corporation based solely on shareholder deadlock, when none of the specific statutory grounds for liquidation are met?
Opinions:
Majority - Justice Tim Taft
No. A trial court abuses its discretion by appointing a liquidating receiver for a corporation unless one of the four exclusive statutory instances in Article 7.06 of the Texas Business Corporation Act is satisfied. The court reasoned that corporate liquidation is an extreme remedy, intended only as a 'last resort.' The legislature created a specific and exclusive list of four prerequisites for such an action: (1) a suit by the Attorney General, (2) a corporate application to continue liquidation, (3) a corporation being in receivership for 12 months with no feasible rehabilitation plan, or (4) a creditor's application showing irreparable harm. None of these applied to Beamalloy, which was profitable and solvent. The court rejected the argument that general equitable powers under Article 7.05 or the Civil Practice and Remedies Code could justify liquidation, noting that the legislature deliberately omitted equitable grounds from the liquidation statute (Art. 7.06) while including them in the statute for rehabilitative receiverships (Art. 7.05), indicating a clear intent to restrict the power to liquidate a corporation.
Analysis:
This decision reinforces the legal principle that corporate liquidation is a harsh, statutory remedy, not an equitable solution for shareholder disputes like deadlock. It establishes that specific statutes governing corporate dissolution override general statutes granting courts equitable powers. The ruling clarifies for shareholders in closely-held corporations that they cannot use the courts to force a liquidation of a profitable enterprise simply due to internal discord. This forces shareholders to rely on contractual remedies like buy-sell agreements or to seek less drastic judicial interventions, such as a rehabilitative receivership, rather than dissolution.
