## Facts

- Richard C. “Dick” Poe Jr. operated three car dealerships and held the dealerships and related property through several limited partnerships.
- Poe Management, Inc. (PMI) was the general partner of the limited partnerships and, through that role, controlled them.
- PMI was authorized to issue up to 10,000 shares but initially issued only 1,000 shares, all owned by Dick’s son, Richard Poe.
- Each year, Richard signed written consents appointing Dick as PMI’s sole director and as president; Richard served as vice president; and Dick’s lawyer, Paul Sergent, served as secretary.
- According to Sergent, the arrangement was intended to allow Dick to run the businesses as long as he wanted, with Richard taking over after Dick’s death or retirement.
- In mid-April 2014, Dick was diagnosed with a terminal medical condition and entered hospice care.
- On May 1, 2014, while hospitalized for hospice care, Dick instructed Sergent to shift control of PMI back to Dick.
- Sergent prepared a unanimous written consent of PMI’s board of directors (Dick was the only director) authorizing PMI to issue 1,100 new shares to Dick for approximately $3.2 million.
- After the issuance, Dick held 1,100 of 2,100 outstanding shares (about 52%), giving him voting control of PMI.
- Dick died on May 16, 2014.
- Dick’s accountant, Anthony Bock, and the dealerships’ comptroller, Karen Castro, were appointed executors of Dick’s will.
- Acting through written consents of a majority of PMI shareholders (counting the 1,100 shares issued to Dick), Bock and Castro elected themselves and Sergent as PMI officers and removed Richard as vice president; Richard was not invited to the shareholder meeting.
- Richard filed a petition in the probate proceeding against Bock, Castro, and Sergent (collectively, Dick’s advisers), seeking a declaration that the May 1 issuance was invalid under Texas Business Organizations Code (TBOC) § 21.418 because it was not “fair to the corporation.”
- Dick’s advisers counterclaimed for declarations that the issuance was valid.
- The jury was asked whether the issuance was “fair to” PMI and answered “No.”
- The probate court declared the issuance invalid and unenforceable; Dick’s advisers appealed.

## Issues

1. Under TBOC § 21.418, does the party seeking to uphold an interested-director transaction bear the burden to prove the statutory conditions, including that the transaction was fair to the corporation?
2. When the jury answers “No” to a question asking whether the transaction was “fair to the corporation,” is that answer dispositive against the party with the burden on fairness (rather than a mere non-finding requiring the challenger to prove “unfairness”)?
3. Did the probate court commit reversible error in submitting the fairness question and allocating the burden of proof in the jury charge?

## Decision

- The court of appeals affirmed the probate court’s declaration that the May 1, 2014 stock issuance was invalid and unenforceable.
- The court held that § 21.418 functions as a safe-harbor provision and that the party relying on it must prove its requirements, including fairness to the corporation.
- The jury’s “No” answer to whether the issuance was fair operated against Dick’s advisers on an element they were required to prove to obtain the statute’s protection.
- The court rejected the advisers’ argument that Richard was required to obtain an affirmative jury finding that the issuance was “unfair,” and it rejected their jury-charge complaints as a basis for reversal.

## Legal Principles

- Under TBOC § 21.418, a director’s self-interested transaction is not insulated from challenge unless statutory conditions are established, including that the transaction was fair to the corporation at the time of authorization (or approval under the statute).
- When a party seeks the benefit of § 21.418’s protection, that party bears the burden to secure favorable fact findings on the statute’s elements, including fairness.
- A jury question framed as “Was the transaction fair to the corporation?” places the risk of a “No” answer on the party with the burden to prove fairness; failure to obtain a “Yes” means the party did not establish the safe harbor.
- Fairness to the corporation is a fact question that may include both economic terms and the transaction’s effect on corporate control and governance, especially in a closely held corporation.

## Conclusion

The El Paso Court of Appeals affirmed the probate court’s judgment voiding Dick Poe’s hospice-era issuance of majority voting stock to himself, holding that TBOC § 21.418 required the proponents of the conflicted issuance to prove it was fair to PMI and that the jury’s “No” answer defeated their attempt to validate the transaction.


In the Matter of the Estate of Poe, 591 S.W.3d 607 (2019)