## Facts

- Dorothy Monroe Earthman and J. B. Earthman III divorced in March 1971.
- The divorce decree awarded Dorothy specific shares and ordered J. B. Earthman III to transfer them: 1,300 shares of Earthman’s, Inc.; 10,833 shares of Resthaven Memorial Gardens, Inc.; and 325 shares of Mission Life Insurance Company.
- The corporations were closely held and controlled by J. B. Earthman (father) and his sons, including J. B. Earthman III and Robert Earthman.
- After the decree, Dorothy sought transfer of the shares on the corporate books; the defendants and their counsel demanded presentation of certificates and executed stock powers.
- Defendants asserted that certain stock certificates were held by the father as security for a debt of J. B. Earthman III and would not be released until the debt was paid.
- Even after proceedings to place certificates in the court registry and release them for transfer, the corporations continued to resist recognizing Dorothy’s ownership and issuing/recording shares.
- Earthman’s, Inc. claimed its charter documents restricted transfers and gave the corporation/shareholders a prior purchase right, contending the divorce award functioned as a “sale.”
- Mission Life asserted regulatory conditions for transfer; Resthaven demanded a lost-instrument bond.
- Evidence included testimony that Dorothy was pressured to accept a stated value for her stock and threatened with no dividends and fabricated accusations if she refused.
- Dorothy sued for recognition of her rights and later added claims for conspiracy and conversion, seeking actual and exemplary damages.
- A jury found conversion and awarded substantial actual damages for each block of stock and exemplary damages in equal amounts; the trial court entered judgment accordingly.

## Issues

1. Whether a divorce decree’s property division awarding corporate shares constitutes a “sale” or voluntary transfer that triggers corporate transfer restrictions or purchase options.
2. Whether defendants’ refusal to recognize and register the decree-awarded shares, and their retention/control of the shares, constituted conversion of corporate stock.
3. Whether the evidence and trial rulings supported the compensatory valuation of closely held shares and an award of exemplary damages.

## Decision

- The appellate court affirmed the judgment for Dorothy.
- The court held that the divorce-decree transfer was not a “sale” triggering Earthman’s, Inc.’s asserted purchase-option/transfer-restriction provisions.
- The court upheld the jury’s finding that defendants’ conduct amounted to conversion of Dorothy’s stock.
- The court sustained the compensatory damages awards for the value of the converted shares.
- The court upheld exemplary damages based on evidence of intentional and wrongful conduct.
- The court rejected defendants’ numerous appellate complaints and found no reversible error.

## Legal Principles

- A judicial award of shares in a divorce property division is not treated as a voluntary “sale” for purposes of enforcing corporate transfer restrictions or rights of first refusal against the decree’s recipient.
- Conversion of corporate stock may be shown by wrongful dominion or control inconsistent with the owner’s rights, including refusing to recognize ownership or to register transfer without lawful justification.
- Compensatory damages for conversion of closely held stock may be based on evidence supporting the shares’ value, including financial information and testimony.
- Exemplary damages are permitted when the conversion is accompanied by willful, intentional, or malicious conduct, such as coercive efforts to defeat the owner’s rights.

## Conclusion

The court upheld liability and substantial compensatory and exemplary damages where closely held corporations and family insiders refused to honor a divorce decree awarding shares, holding that the decree was not a “sale” triggering transfer restrictions and that the coordinated refusal to recognize and register the shares supported conversion.


Earthman’s, Inc. v. Earthman, 526 S.W.2d 192 (Tex. Civ. App.—Houston [1st Dist.] 1975)