## Facts

- Lee Wolfman, Inc. was organized with three classes of common stock (A, B, C), each initially authorized at 150 shares, with 100 shares issued and outstanding per class.
- Ownership of the outstanding shares was concentrated by class: Lee Wolfman held all 100 Class A shares; Irene Ford held all 100 Class B shares; James I. Shanken held all 100 Class C shares.
- A separate corporation was formed to operate a “Spring Branch” store, allegedly without stock ownership by Lee Wolfman, Inc. or Shanken and without Shanken’s knowledge or consent.
- The directors later decided Lee Wolfman, Inc. should acquire the Spring Branch corporation and proposed amending the charter to increase authorized shares to facilitate the acquisition.
- A first proposal would have increased authorized shares pro rata across all three classes; Shanken opposed it, asserting that the Texas Business Corporation Act required two-thirds approval by each affected class, making Class C approval necessary.
- After the pro rata proposal failed, shareholders adopted a second amendment increasing authorized shares of Class A and Class B only (by 175 shares each) while leaving Class C’s authorized shares unchanged, over Shanken’s objection.
- Shanken brought a shareholder derivative action alleging statutory violations and breach of fiduciary duty based on the selective increase, arguing it disadvantaged Class C by altering its position in the capital structure.
- The trial court granted defendants’ motion for summary judgment; Shanken appealed without a statement of facts, limiting review to the summary-judgment record.

## Issues

1. Whether a charter amendment increasing authorized shares of Class A and Class B, while leaving Class C unchanged, required a separate two-thirds class vote by Class C under Article 4.03 of the Texas Business Corporation Act.
2. Whether changing a class’s relative position in the capital structure (through increasing other classes’ authorized shares) constitutes a statutory change to that class’s “designations, preferences, limitations, or relative rights.”
3. Whether the summary-judgment record raised a genuine issue of material fact on statutory or fiduciary-duty theories sufficient to defeat summary judgment.

## Decision

- The appellate court affirmed summary judgment for the defendants.
- Article 4.03 did not require a separate class vote by Class C because the amendment did not change Class C shares into a different number of shares and did not change Class C’s designations, preferences, limitations, or relative rights.
- Any dilution of Class C’s relative position from increasing other classes’ authorized shares was not, by itself, a statutory change to Class C’s rights triggering class-voting protection.
- On the record presented, no genuine issue of material fact existed as to whether the amendment altered Class C’s legal rights, entitling defendants to judgment as a matter of law.

## Legal Principles

- Under Article 4.03 of the Texas Business Corporation Act, a class vote is required for charter amendments that directly alter that class’s shares (including changing the class into a different number of shares) or directly alter the class’s designations, preferences, limitations, or relative rights.
- Increasing the authorized shares of other classes, without altering the number or formal rights of the complaining class, does not constitute a statutory change to that class requiring a separate class vote.
- A reduction in a class’s comparative or economic position within the overall capitalization is distinct from a change to the legal rights attached to the shares.

## Conclusion

The court held that shareholders of an unchanged class are not entitled to a separate class vote on a charter amendment that increases only other classes’ authorized shares, because Article 4.03 protects against direct alterations of a class’s own shares or formal rights, not against dilution of relative position alone.


Shanken v. Lee Wolfman, Inc., 370 S.W.2d 197 (Tex. Civ. App.—Houston 1963, writ ref’d n.r.e.)