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Click here for the full text of this decision FACTS:Michael Willis sued Dan Donnelly on a personal note. Donnelly filed a counterclaim and third party action against Willis, Francie, Urban Retreat of Houston Inc. (URH) and Willis/Hite Enterprises Inc. (WHE), alleging several causes of action based on the parties dealings during the creation and operation of the Urban Retreat, a high end spa. The case proceeded to trial, and the jury ruled in favor of Willis on the promissory note. The jury found that WHE and URH breached a letter agreement by failing to convey stock to Donnelly, and that Donnelly was entitled to ten percent of the stock in WHE and fifty percent of the stock in URH under the terms of the letter agreement. The jury also found that Willis and Francie were individually liable under the letter agreement because they ratified the agreement. The jury rejected Donnelly’s tortious interference and fraud claims. It ruled in favor of Donnelly on his breach of fiduciary duty claim against Willis but found no breach of fiduciary duty by Francie. The jury was instructed that the Willises owed Donnelly a fiduciary duty, and asked whether each complied with their fiduciary duty to Donnelly. Since the jury was also instructed that a “yes” answer must be based on a preponderance of the evidence, the Willises had the burden of proving that they had complied with their fiduciary duties in order to avoid liability. As to both the breach of contract and breach of fiduciary duty claims, the jury found damages of $1,707,684.30. Both sides appealed. The court of appeals held that the record supported the liability of all Petitioners for breach of contract. It agreed with the trial court that the Willises were liable for breach of contract because they ratified the letter agreement. Id. at 26. However, it reversed the judgment on the contract claim and remanded this portion of the case to the district court for a new trial on liability and damages, because it concluded that the jury had received an erroneous instruction on contract damages. The court of appeals affirmed the judgment against Willis for breach of fiduciary duty, except that it remanded the judgment for constructive trust on the realty for an election of remedies. It reversed and remanded the portions of the judgment awarding attorney’s fees to Willis and Donnelly. HOLDING:The court reverses in part the court of appeals’ judgment and renders a take-nothing judgment on all of Donnelly’s claims against the Willises. The court affirms the court of appeals’ judgment insofar as it remanded the case for a new trial on the contract claim against WHE and URH. The court remands the case to the district court. Willis is not a party to the letter agreement, and he incorporated two companies that by law would shield him from personal liability. While his name is included in the opening sentence of the agreement, the agreement obligated URH and WHE only to issue shares to Donnelly. Moreover, at the meeting where the agreement was signed, Willis crossed his signature line off the agreement and refused to sign it. As a matter of law, the corporate shield from liability operates in these circumstances. To impose liability against the Willises under a common law theory of implied ratification because they accepted the benefits of the letter agreement would contravene the statutory imperative that, absent actual fraud or an express agreement to assume personal liability, a shareholder may not be held liable for contractual obligations of the corporation. The court holds that characterizing the theory as “ratification” rather than “alter ego” is simply asserting a “similar theory” of derivative liability that is covered by the statute. Further, ratification is a common law doctrine that does not fit the factual circumstances presented. Petitioners specifically objected to the contract damages instruction on grounds that it was erroneously based on the “other matters relating to shares provision.” The court agrees with the court of appeals that this provision does not set out the correct measure of damages for breach of contract in this case. This provision is not a liquidated damages provision and unambiguously applies to only two situations: 1. it grants a right of first refusal to the original shareholders, allowing them to control ownership in the corporation in the event Donnelly wants to sell his shares, and grants a corresponding right of first refusal to Donnelly if the original shareholders want to sell their shares; and 2. It applies when there is an exchange of stock due to a combination of one or more Urban Retreat companies. Neither situation arose in this case. As to WHE and URH, a remand for new trial was the appropriate remedy, and a remand for new trial on both damages and liability was warranted. Donnelly argues for the existence of a fiduciary relationship based on an alleged fiduciary duty of a majority shareholder to a minority shareholder. The court holds instead that the breach of fiduciary duty claim in the pending case fails because all the alleged breaches of fiduciary duty occurred before Donnelly became a shareholder and before he was entitled to shareholder status. There can be no liability for alleged breaches of a duty that occurred before the duty arose. The only conceivable basis for a fiduciary relationship in this case would be a duty owed by a majority shareholder to a minority shareholder. Assuming without deciding that such a relationship can give rise to a general fiduciary duty, the court declines to recognize the existence of such a duty on this record. Donnelly never actually became a shareholder of URH or WHE, and indeed his contract claim is based on the alleged failure of these corporations and the Willises to convey stock owed to him under the letter agreement. Further, as detailed above, the trial testimony and Donnelly’s own briefing confirm that Willis and Donnelly agreed to delay the transfer of Donnelly’s stock until the business “turned the corner.” The alleged breaches of fiduciary duty occurred before Donnelly was terminated in late 1994. At that time the spa was still losing money. Only after Donnelly was asked to leave did he treat the contract as terminated and bring suit alleging breach of contract and other claims. The court holds that in these circumstances, where a plaintiff is suing for breach of fiduciary duty based on his purported status as a minority shareholder, but 1. no transfer of stock to the purported minority shareholder ever occurred, 2. the purported majority and minority shareholders were both experienced businessmen who had never met prior to the business arrangement at issue, 3. the two were conducting business under a written agreement that expressly required corporate entities, not the majority shareholder, to issue the stock, and 4. the two were also operating under an oral agreement to postpone the transfer of stock when the alleged breaches of fiduciary duty occurred, Texas law does not recognize the existence of a fiduciary duty. OPINION:Don R. Willett, J.; O’Neill, Brister and Medina, JJ.

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