Texas Business Court Clarifies Conversion Claims And Shareholder Standing In Business Dissolution Dispute

The Texas Business Court continues to shape the legal landscape for business disputes across the state. In a recent memorandum opinion from the Fourth Division in Stratton v. Hogan, Judge Stacy Rogers Sharp addressed critical issues surrounding shareholder standing, conversion claims, and the procedural requirements of Rule 91a motions to dismiss. Stratton v. Hogan, 2026 Tex. Bus. 44 (4th Div. July 15, 2026). The opinion may offer guidance for business owners navigating the often-contentious process of dissolving a jointly owned enterprise.

Background: A Business Partnership Unravels

The dispute arose from the breakdown of a business relationship between two co-owners of Stratton Hogan Clinics, Inc., a physical therapy practice, and Stratton Hogan Real Estate, LLC (SHRE), the entity which held the clinics’ real estate. When negotiations to separate their interests failed, one co-owner, Stratton, sued for judicial dissolution, prompting the court to appoint a supervisor to manage the winding down of the entities.

As the dissolution progressed, Hogan asserted claims and counterclaims against Stratton and Stratton’s separately owned rehabilitation business, and Stratton and his separate business (the Stratton Parties) asserted claims against Hogan for conversion of physical therapy equipment and against SHRE for breach of a $300,000 promissory note. Hogan moved to dismiss the Stratton Parties’ new claims under Texas Rule of Civil Procedure 91a, which allows for dismissal of claims lacking a basis in law or fact.

The Court’s Analysis

Conversion Claim: Dismissed

The court dismissed Stratton’s conversion claim because he failed to establish that he — rather than the corporation — owned or had rights to the allegedly converted equipment.

Under Texas law, a conversion claim requires the plaintiff to prove ownership, possession, or entitlement to the property at issue. Here, Stratton’s own pleadings described the equipment as belonging to the corporation, not to him personally. Quoting In re UMTH Gen. Servs., L.P., 725 S.W.3d 424, 430 (Tex. 2025), the Stratton court emphasized that suits for injuries to a corporation must be brought by the corporation itself or derivatively on its behalf.

While Texas law permits courts to treat derivative actions as direct claims in closely held corporations under Texas Business Organizations Code § 21.563, this provision does not eliminate the requirement that a shareholder plead a derivative claim in the first instance. Here, Stratton sued only individually — not derivatively — leaving no claim on which the court could grant direct relief.

Additionally, Stratton’s own pleading undermined his claim of harm. The allegedly converted equipment had already been divided through the wind-up process, and Stratton acknowledged that he was seeking recovery only to the extent the converted items are excluded from the true-up. Stratton’s pleading therefore recognized that the harm, if any, had not yet occurred. This concession, the court found, effectively negated the present injury element.

Contract Claim: Survives Dismissal

The court denied dismissal of the Stratton Parties’ breach of contract claim based on an unpaid promissory note, explaining that the Stratton Parties adequately pleaded all required elements —a valid contract, performance, breach, and resulting damages. Hogan’s argument that SHRE had not appeared in the lawsuit provided no grounds for Rule 91a dismissal, as the rule requires the court to decide the motion based solely on the pleading of the cause of action.

Notably, the court observed that the wind-up process had already resolved this claim through payment from the sale of joint property, leaving no remaining issue for trial.

Attorney’s Fees Declined

Hogan was not awarded attorney’s fees despite prevailing on part of his 91a motion to dismiss. Rule 91a makes such awards discretionary, and, given the mixed outcome, the court declined to award fees to either party.

Practical Takeaways for Texas Businesses

This opinion offers important considerations for business owners and their counsel:

1. Understand the Distinction Between Direct and Derivative Claims. Shareholders in closely held corporations cannot automatically recover for harm done to the company. To pursue relief for corporate injuries, a shareholder must properly plead a derivative claim or risk dismissal.
2. Pleadings Matter. Texas’s notice-pleading standard still requires plaintiffs to include essential factual allegations supporting their claims. Allegations that negate required elements — such as ownership or harm — may be fatal.
3. Wind-Up Processes May Moot or Resolve Disputes. Court-supervised dissolution and wind-up procedures may address some issues that might otherwise require separate litigation. Working constructively with appointed supervisors may help parties to resolve asset and liability disputes efficiently.
4. Rule 91a Provides an Effective Early Exit. The Texas Business Court continues to apply Rule 91a to screen out claims that lack legal or factual bases early in litigation, conserving resources for all parties.

Conclusion

As the Texas Business Court develops its jurisprudence, opinions like Stratton v. Hogan provide valuable guidance on pleading standards, shareholder rights, and the interplay between litigation and business dissolution. Business owners facing similar disputes may wish to consult experienced counsel to ensure their claims are properly structured and their interests protected.