V&E Wins Significant Appellate Victory for Herring Bancorp
Vinson & Elkins recently won an important appellate victory for Herring Bancorp, Inc. and bank executives C.C. Burgess and C. Campbell Burgess in a long-running dispute over the redemption of preferred shares held by John Mikkelsen as part of the bank’s conversion into a Subchapter “S” Corporation.
On June 2, 2017, the Amarillo Court of Appeals held that Herring Bank’s executives had properly redeemed Mikkelsen’s preferred shares and overturned a judgment awarding Mikkelsen $150,000 in compensatory damages and attorneys’ fees plus $55,000 in conditional appellate fees.
The underlying dispute began in 2008, when Mikkelsen filed suit claiming that Herring Bancorp had breached its Articles of Incorporation by failing to redeem his preferred shares properly two years earlier. Mikkelsen also asserted minority oppression and breach of fiduciary duty claims
against C.C. Burgess and C. Campbell Burgess.
In 2011, the state trial court granted Mikkelsen’s motion for partial summary judgment on his breach of contract claim related to the validity of the 2006 redemption. In light of that ruling, Herring Bancorp again redeemed Mikkelsen’s preferred shares in 2013 to cover what he allegedly
was owed under the Articles of Incorporation.
In January 2015, after a three-day jury trial, the jury awarded Mikkelsen more than $23,000 in compensatory damages based on its findings that C.C. Burgess and C. Campbell Burgess engaged in oppressive conduct, and it awarded Mikkelsen more than $127,000 in attorneys’ fees through
trial plus $55,000 in conditional appellate fees based on Mikkelsen’s breach of contract claim. The trial court entered judgment in June 2015, which included a declaratory judgment in favor of Mikkelsen that the 2006 redemption and the 2013 tender were invalid.
Herring Bancorp and the Burgesses engaged V&E to take the lead on post-trial motions and the appeal. The trial court denied Herring Bancorp and the Burgesses’ post-trial motions. Herring Bancorp and the Burgesses then filed an appeal. Mikkelsen also filed a cross-appeal on
certain evidentiary issues.
V&E senior associate
Stephen Gilstrap took the lead in briefing and arguing the appeal on March 1, 2016. More than fifteen months later, the Amarillo Court of Appeals awarded Herring Bancorp and the Burgesses a complete victory. In its opinion, the Court held that both
the 2006 redemption and the 2013 tender were valid under the terms of the Articles of Incorporation and issued a declaratory judgment to that effect.
The Court also reversed (1) the trial court’s finding of minority oppression in light of the Texas Supreme Court’s Ritchie v. Rupedecision, concluding that minority oppression in a closely-held corporation is not a viable cause of action, and (2) the trial court’s finding of a breach of
fiduciary duty as to C.C. Burgess. Further, given that the Court issued a declaratory judgment in favor of Herring Bancorp and the Burgesses regarding the validity of the 2006 redemption and 2013 tender, the Court reversed the more than $127,000 in attorneys’ fees awarded to Mikkelsen and, instead,
awarded $10,500 in attorneys’ fees (plus conditional attorneys’ fees should Mikkelsen seek further review and not prevail) to Herring Bancorp and the Burgesses. Finally, the Court rejected all points in Mikkelsen’s cross-appeal.
The V&E team consisted of senior associate
Stephen Gilstrap and partners
Tom Leatherbury and