Meet 2023 OBA President - Brian Hermanson Page 34 PLUS Transactional Law - ALSO INSIDE: Access to Justice
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ALSO INSIDE: Access to Justice
Volunteers Who Guide Your Association
Volume 94 — No. 1 — January 2023
Meet 2023
OBA President
Brian Hermanson
Page 34
PLUS Transactional Law
contents
January 2023 • Vol. 94 • No. 1
THEME: Transactional Law
Editor: Cassandra Coats
On the Cover: OBA 2023 President Brian Hermanson of Ponca City; photo by Lori Rasmussen.
Special thanks to the staff at the historic Marland Mansion in Ponca City; www.marlandmansion.com.
FEATURES PLUS
6 Virtual Currencies Explainer 34 Meet 2023 OBA President Brian Hermanson
By Miles Pringle 40 Volunteers Who Guide Your Association
12 Remedies for the Freeze-Out: Employment Rights 50 Access to Justice
of Minority Shareholders of Close Corporations
By D. Benham Kirk & Alexandra J. Gage
18 You Shall Not Pass … Or Shall You?
By Rhonda J. McLean
24 Financial Institutions and Commercial Law
Committee Report on the 2022 Amendments to
the Uniform Commercial Code
By Alvin C. Harrell
DEPARTMENTS
4 From the President
52 From the Executive Director PAGE 34 – Meet 2023 OBA President Hermanson
56 Law Practice Tips
62 Board of Governors Actions
66 Oklahoma Bar Foundation News
68 Young Lawyers Division
70 For Your Information
74 Bench & Bar Briefs
76 In Memoriam
81 Editorial Calendar
88 The Back Page
PAGE 50 – Access to Justice
From The President
New Beginnings
By Brian Hermanson
W ITH THE BEGINNING OF A NEW YEAR,
many things are changing across Oklahoma. With
the wind of change comes changes to the Oklahoma Bar We should be proud of our
Association. We begin the year with a new OBA execu-
tive director. Janet Johnson, who has been serving as the association and the way we do
OBA’s educational programs director, is now our associ-
ation’s executive director. This is a change that marks so much for our membership
the end of John Morris Williams’ nearly 20-year tenure in
that role. John has honorably and skillfully led the OBA and all the citizens of the
through many years of change and challenges. Thank
you, John, for all you did for us. You will be missed in state of Oklahoma.
so many ways.
Janet is the first woman to hold the executive direc-
tor role. She is uniquely qualified to provide strong your bar association, and you should take every
leadership as we head into the future. We expect great opportunity to become active in areas of inter-
things from her, and I look forward to working with her. est to you.
Please take the time to meet her. As president, I intend to make myself
This is also a time for new beginnings for me. While I available to all the county bars. I truly like
have been active in the OBA for more than 40 years, this attorneys and look forward to anything I can
opportunity to serve as your president is one that takes do to meet and get to know our membership. I
my breath away. The responsibility of leading an organi- know it is impossible for everyone to come to
zation that is made up of more than the bar center every year, so I will do my best
18,000 attorneys is quite the chal- to bring it to you.
lenge. I feel I have been preparing for I had the privilege to work on the Board
this moment for a long time, but now of Governors with many great leaders. This
that it is here, I am cautiously opti- past year, President Jim Hicks has done an
mistic about the path before me. outstanding job providing strong leadership
I want to claim the days of COVID through some very trying times. His willing-
are behind us and that everything ness to always be an active leader was incredibly
will be back to normal. However, it is important. Jim would always greet you with
more and more apparent to me that a smile and a handshake, and he was always
there will be a new normal that will truly happy to see you. I only hope that I can
not only change the practice of law provide the type of leadership Jim provided.
but also our everyday life. Finally, I would like to discuss what I hope
With that as a background, I still to accomplish during the next year. I hope to
look forward to this coming year. continue to lead the bar through these times
This year, the Board of Governors when it seems outsiders continually try to
will travel around the state to reach attack the OBA. We should be proud of our
Brian Hermanson serves out to our membership. Please take association and the way we do so much for
as district attorney for the advantage by attending any events our membership and all the citizens of the
8th District of Oklahoma.
580-362-2571
that happen near you and get to state of Oklahoma. In every community across
brian.hermanson@dac.state.ok.us know the OBA leadership. This is (continued on page 55)
4 | JANUARY 2023 THE OKLAHOMA BAR JOURNAL
THE OKLAHOMA BAR JOURNAL is a
publication of the Oklahoma Bar Association.
All rights reserved. Copyright© 2023 Oklahoma
Bar Association. Statements or opinions
expressed herein are those of the authors and
do not necessarily reflect those of the Oklahoma
Bar Association, its officers, Board of Governors, Volume 94 — No. 1 — January 2023
Board of Editors or staff. Although advertising
copy is reviewed, no endorsement of any
product or service offered by any advertisement
is intended or implied by publication. JOURNAL STAFF BOARD OF EDITORS
Advertisers are solely responsible for the
content of their ads, and the OBA reserves JANET K. JOHNSON MELISSA DELACERDA, Stillwater, Chair
the right to edit or reject any advertising copy Editor-in-Chief
janetj@okbar.org AARON BUNDY, Tulsa
for any reason. Legal articles carried in THE
OKLAHOMA BAR JOURNAL are selected LORI RASMUSSEN CASSANDRA L. COATS, Vinita
by the Board of Editors. Information about Managing Editor
submissions can be found at www.okbar.org. lorir@okbar.org W. JASON HARTWIG, Clinton
BAR CENTER STAFF EMILY BUCHANAN HART JANA L. KNOTT, El Reno
Janet K. Johnson, Executive Director; Assistant Editor
Gina L. Hendryx, General Counsel; emilyh@okbar.org MELANIE WILSON RUGHANI,
Chris Brumit, Director of Administration; Oklahoma City
Jim Calloway, Director of Management LAUREN RIMMER
Advertising Manager SHEILA A SOUTHARD, Ada
Assistance Program; Beverly Petry Lewis,
advertising@okbar.org
Administrator MCLE Commission;
EVAN ANDREW TAYLOR, Norman
Lori Rasmussen, Director of Communications;
Richard Stevens, Ethics Counsel; Robbin Watson, ROY TUCKER, Muskogee
Director of Information Technology; Julie A.
Bays, Practice Management Advisor; DAVID E. YOUNGBLOOD, Atoka
Loraine Dillinder Farabow, Peter Haddock,
Tracy Pierce Nester, Katherine Ogden,
Steve Sullins, Assistant General Counsels
OFFICERS &
Barbara Acosta, Les Arnold, Gary Berger,
Jennifer Brumage, Craig Combs, Cheryl BOARD OF GOVERNORS
Corey, Alisha Davidson, Nickie Day,
Ben Douglas, Melody Florence, Johnny Marie BRIAN T. HERMANSON, President, Ponca City;
Floyd, Matt Gayle, Emily Buchanan Hart, D. KENYON WILLIAMS JR., Vice President, Tulsa; MILES T. PRINGLE,
Suzi Hendrix, Jamie Jagosh, Debra Jenkins, President-Elect, Oklahoma City; JAMES R. HICKS, Immediate
Rhonda Langley, Durrel Lattimore, Brian Past President, Tulsa; ANGELA AILLES BAHM, Oklahoma City;
Martin, Renee Montgomery, Lauren Rimmer, JOHN E. BARBUSH, Durant; S. SHEA BRACKEN, Edmond;
Tracy Sanders, Mark Schneidewent, Kurt DUSTIN E. CONNER, Enid; ALLYSON E. DOW, Norman;
Stoner, Krystal Willis, Laura Willis & BENJAMIN R. HILFIGER, Muskogee; JANA L. KNOTT, El Reno;
Roberta Yarbrough
TIMOTHY L. ROGERS, Tulsa; KARA I. SMITH, Oklahoma City;
NICHOLAS E. THURMAN, Ada; MICHAEL R. VANDERBURG,
Oklahoma Bar Association 405-416-7000
Ponca City; RICHARD D. WHITE JR., Tulsa; CAROLINE M.
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THE OKLAHOMA BAR JOURNAL JANUARY 2023 | 5
Transactional Law
Virtual Currencies Explainer
By Miles Pringle
I F YOU WATCHED THE 2022 SUPER BOWL, you may be excused for concluding that the
virtual currency revolution was here, and you were missing out. In fact, it was reported
in February 2022 by Bloomberg News, “$112.9 million has been spent on national crypto-
related ads since the start of 2020.” For perspective, the number of Americans with expo-
sure to crypto assets is estimated to be 12%,1 while approximately 58% own stock.2 Since
the Super Bowl, digital assets have experienced a “crypto winter” in which many notable
digital assets were more than 70% off their highs3 – and that was before the epic collapse of
FTX and its sister company, Alameda Research. Here, we will discuss some of the concepts
behind virtual currencies so you can have a better understanding of what is occurring.
The best way to think about a dollar value of any crypto- non-fungible tokens, or “NFTs,” are
virtual currency is as a virtual currency can fluctuate quite unique, one-of-a-kind digital tokens
token. The U.S. Commodity dramatically, e.g., bitcoin, that are managed on a blockchain
Futures Trading Commission ethereum and cardano. (unlike other virtual currencies
defines virtual currencies as “a 3) Central Bank Digital that are fungible, i.e., one token is
digital representation of value Currency (CBDC): A fiat fundamentally the same as any
that functions as a medium of currency issued in the form other token of the same issuance).9
exchange, a unit of account, and/ of a digital token by a central Theoretically, instead of a car title
or a store of value.”4 There are three bank.7 being recorded on paper, it could be
main types of virtual currencies: in the form of a digital token.
Virtual currencies often utilize Bitcoin is the original cryp-
1) Stablecoin: A virtual cur- “blockchain” technology. “At its tocurrency, and it was created
rency that is secured by core, a blockchain is just a database by Satoshi Nakamoto, a pseud-
another form of value – that is maintained by a network onym for an unknown person
typically the U.S. dollar.5 For of users and secured through or group, in 2008-2009.10 Bitcoin
example, USD coin, a prod- cryptography.”8 The information was intended as a response to the
uct of the FINTECH Circle, being maintained can be a ledger 2008 financial crisis to circumvent
trades at a 1-to-1 rate with of virtual tokens, but it does not the role of banks in the financial
the U.S. dollar. Circle holds have to be. Also, the users main- system. According to Satoshi
reserves, so it can always taining the network do not need Nakamoto, reliance on financial
exchange with anyone who to be controlled by a single entity – institutions as trusted third par-
wants to exchange their the basis of the term “DeFi” or ties to process electronic payments
USD coin. Theoretically, the decentralized finance. “suffers from the inherent weak-
value of a stablecoin should A ledger is only one type of nesses of the trust-based model.
be “stable.” information that can be main- Completely nonreversible transac-
2) Cryptocurrency: A privately tained. Blockchain technology may tions are not really possible since
issued virtual currency6 that have practical uses beyond virtual financial institutions cannot avoid
is not tied to any other form currency, such as virtual real estate mediating disputes.”11 Whether
of value. As a result, the or medical records. For example, or not Satoshi’s premise is true is
THE OKLAHOMA BAR JOURNAL JANUARY 2023 | 7
another question, as anyone who “[a]round 95.5% of cryptocurren- This has borne out with digital
deals with international payments cies fall[ing] by more than 99.99% assets, particularly cryptocurrencies.
would disagree with this premise. from their peaks, with the vast “According to one private sector
Moreover, people seem to want majority effectively plummeting estimate, there was $14 billion worth
mediation or intervention if they to zero.”18 To put that into context, of crypto-asset-based crime,”24 and
are a victim of fraud or theft. during that timeline, the S&P 500 2022 appears on track to surpass that
While a speculative investment fell about 25% and the composite record again. For example, it was
that some have profited from, NASDAQ about 35%. reported in August 2022, “Nomad,
bitcoin has never operated well The crypto winter has affected a bridge protocol for transferring
as a currency. It has some inher- stablecoins as well. Tether, the crypto tokens across different block-
ent weaknesses, such as there is world’s biggest stablecoin, dropped chains, lost close to $200 million in a
a limit on the number of bitcoin below its $1 peg in May 2022.19 security exploit.”25 To address these
that will ever be created.12 That Other stablecoins that were backed issues, the Department of Justice has
can be good for an investment by crypto assets and not more formed the National Cryptocurrency
but can create liquidity issues as a stable investments or cash have Enforcement Team to serve as the
currency if ever widely adopted. cratered entirely. Terra coins, for focal point for tacking the growth
Bitcoin is also very price volatile, example, saw $60 billion go up in in crime involving virtual curren-
making it difficult to price goods “algorithmic smoke.”20 Thus, despite cies and digital assets.26
and services for both the vendor its name, stablecoins can be very Private actors are not alone in
and the customer. More impor- unstable, and their value very much issuing virtual currencies – central
tantly, bitcoin is incredibly ineffi- depends on the quality of the firm banks are also dipping their
cient. “The Bitcoin network uses standing behind their issuance. toes into the proverbial water. In
about the same amount of elec- As a result of the crypto winter, October 2020, the Central Bank of
tricity as Washington State.”13 As several crypto companies have The Bahamas issued the “Sand
a result of its design, the Bitcoin filed for bankruptcy, including Dollar.”27 China, the world’s second-
network can process about seven crypto exchanges. For example, largest economy, has been piloting
transactions per second.14 Visa, on the crypto exchange Voyager its digital yuan, coupled with a
the other hand, can process 24,000 Digital filed for Chapter 11 in July crackdown on users of private
transactions per second.15 2022, following “the collapse of virtual currencies.28 El Salvador
Many of the successor virtual Three Arrows Capital, a so-called adopted bitcoin as a national cur-
currencies build on the open- hedge fund that took loans from rency.29 All these issuances appear
source software created by bitcoin. other institutions, like Voyager to have little adoption to date.
According to SoFi Technologies Inc. Digital, to make risky gambles In the United States, the Board
(an online personal finance com- on tokens – including the col- of Governors of the Federal Reserve
pany), there are more than 18,000 lapsed stablecoin terraUSD.”21 System has also been exploring a
different types of cryptocurren- Interestingly, or concerningly, peo- “digital dollar.” In January 2022, the
cies.16 Some have made significant ple who purchased crypto assets Federal Reserve published a white
modifications to the bitcoin struc- through the Voyager Digital plat- paper titled “Money and Payments:
ture to solve some of the problems form were (at least initially) being The U.S. Dollar in the Age of
outlined above. In September 2022, treated as account holders and Digital Transformation” outlining
for instance, etherum switched not actually owners of the assets several of the policy implications
from a proof-of-work model to a they thought they purchased (or of issuing a CBDC. The paper was
proof-of-stake model that it claims secured parties).22 clear that the “Federal Reserve
will cut its energy use by 99%.17 If We must also address the illicit does not intend to proceed with
and which cryptocurrencies are activity associated with cryptocur- issuance of a CBDC without clear
prevalent in the future is anyone’s rencies and digital assets. support from the executive branch
guess at this point. As noted by the U.S. Department and from Congress, ideally in the
Crypto assets hit their peak of the Treasury, “Crypto-assets and form of a specific authorizing law.”
value in November 2021 and have markets that operate out of com- Many, including past governors
come crashing down since, coin- pliance with applicable laws and of the Federal Reserve, have ques-
ing the phrase “crypto winter.” In regulations, or are unregulated, tioned the utility of a U.S. CBDC.
total, crypto assets fell from about can breed fraud, abusive market Former Vice Chair Randal Quarles
$3 trillion to about $1 trillion with practices, and disclosure gaps.”23 has observed: “The general public
8 | JANUARY 2023 THE OKLAHOMA BAR JOURNALalready transacts mostly in digital meaningful counterparty risk into contract (which is a type of security)
dollars – by sending and receiv- the payments system.” exists. Under the Howey test, an
ing electronic balances in our Banking trade associations investment contract exists if there is:
commercial bank accounts … the have pushed back hard on a 1) an investment of money, 2) a com-
dollar is already highly digitized. U.S.-issued CBDC. In its state- mon enterprise and 3) a reasonable
The Federal Reserve provides a ment before the House Financial expectation of profits to be derived
digital dollar to commercial banks, Services Committee, the American from the efforts of others. In 2021,
and commercial banks provide Bankers Association stated that a the SEC’s Crypto Assets and Cyber
digital dollars and other financial CBDC was not necessary to “digi- Unit (formerly known as the Cyber
services to consumers and busi- tize the dollar.” It went on to state, Unit) in the Division of Enforcement
nesses. This arrangement serves “There is a growing recognition grew to 50 dedicated positions. In
the nation and the economy well: that the deployment and use of September 2022, the SEC announced
The Federal Reserve functions in CBDCs would be weighed down plans to add an Office of Crypto
the public interest by promoting by very significant real-world Assets and an Office of Industrial
the health of the U.S. economy trade-offs. The main policy obsta- Applications and Services to the
and the stability of the broader cle to developing, deploying, and Division of Corporation Finance’s
financial system, while commer- maintaining a CBDC in the real Disclosure Review Program. The
cial banks compete to attract and economy is the lack of compelling SEC has filed many enforcement
effectively serve customers.”30 use cases where CBDC delivers lawsuits, particularly targeting
Other board members have benefits above those available alleged Ponzi schemes.
been more open to the potential from other existing options.” The Commodity Futures Trading
for CBDC. In her testimony to It is the early days for virtual Commission (CFTC) has deter-
Congress, current Vice Chair Lael currencies when it comes to laws mined that even if virtual curren-
Brainard stated, “It is prudent to and regulations. By and large, cies can be securities, they can also
consider how to preserve ready the Securities and Exchange meet the definition of commodities.
public access to safe central bank Commission (SEC) has taken the While the CFTC does not have
money, perhaps through the digital lead in regulating virtual curren- authority over “spot transactions”
analogue of the Federal Reserve’s cies. In 2019, the SEC published (transactions for instant delivery
issuance of physical currency … its “Framework for ‘Investment on a specific date), it does have
New forms of digital money such as Contract’ Analysis of Digital oversight over futures, options and
stablecoins that do not share these Assets,” which applies the Howey derivatives contracts. The CFTC’s
same protections could reintroduce test31 to determine if an investment jurisdiction is also triggered if
there is fraud or manipulation in
interstate commerce. The CFTC has
acted against unregistered cryp-
tocurrency futures exchanges and
has, like the SEC, pursued virtual
currency Ponzi schemes.
Other regulators have assumed
authority regarding virtual
currencies as well. The Office of
Foreign Assets Control (OFAC)
has determined that U.S. “sanc-
tions compliance obligations apply
equally to transactions involv-
ing virtual currencies and those
involving traditional fiat curren-
cies.” The Office of the Comptroller
of the Currency (OCC), which
regulates nationally chartered
banks, has issued several inter-
pretive letters determining that
banks under its supervision were
THE OKLAHOMA BAR JOURNAL JANUARY 2023 | 9authorized to engage in certain ABOUT THE AUTHOR 13. Huang, Jon, O’Neill, Claire, and Tabuchi,
Hiroko, “Bitcoin Uses More Electricity Than Many
crypto-related activities such as Miles Pringle is executive Countries. How Is That Possible?” The New York
1) custodial services for virtual vice president and Times, Sept. 3, 2021.
14. Bhalla, Anshika, “Top Cryptocurrencies
currencies, 2) holding reserve general counsel for With Their High Transaction Speeds,” Blockchain
deposits for certain stablecoins and The Bankers Bank in Council, Sept. 8, 2022, available at
https://bit.ly/3H1x7zH.
3) operating independent node Oklahoma City. He is 15. Visa, VisaNet: The technology behind
verification networks (INVNs) and president-elect of the OBA, having Visa, June 30, 2012, Pg. 2, available at
https://bit.ly/3WpzWPk.
stablecoins for payment activities. previously served as a governor and 16. Tardi, Carla, “Understanding the Different
However, a bank must demonstrate vice president. Mr. Pringle is past Types of Cryptocurrency,” available at
https://bit.ly/3izOehG.
to the OCC that it has controls in chair of the Financial Institutions and 17. Howcroft, Elizabeth, Ponnezhath, Maria,
place to conduct these activities in a Commercial Law Section and the “Ethereum blockchain slashes energy use with
safe and sound manner. ‘Merge’ software upgrade,” Reuters, Sept. 15, 2022.
Legislative Monitoring Committee. 18. Stankovic, Stefan, “Almost Every Crypto
While the regulatory frame- Asset Is Down Over 90% From Peak,” Crypto
work is still being established, a Briefing, Jun. 15, 2022.
19. Browne, Ryan, “The world’s biggest
significant step toward obtaining ENDNOTES stablecoin has dropped below its $1 peg,”
1. U.S. Department of the Treasury, “Crypto- CNBC, May 13, 2022.
clarity came on March 9, 2022, Assets: Implications for Consumers, Investors, 20. Shen, Muyao, “How $60 Billion in
when President Biden issued the and Businesses,” September 2022, pg. 1. Terra Coins Went Up in Algorithmic Smoke,”
2. Saad, Lydia, Jones, Jeffery M., “What
“Executive Order on Ensuring Percentage of Americans Owns Stock?” Gallup,
Bloomberg, May 20, 2022.
21. Browne, Ryan, “Bankrupt crypto lender
Responsible Development of Digital May 12, 2022. Voyager to sell assets to Sam Bankman-Fried’s
3. Ponciano, Jonathan, “Crypto Winter Watch:
Assets.” The priorities included All The Big Layoffs, Record Withdrawals And
FTX for $1.4 billion,” CNBC, Sept. 27, 2022.
22. In re: Voyager Digital Holdings, Inc. et al.,
1) protection of consumers, inves- Bankruptcies Sparked By The $2 Trillion Crash,” Case No. 22-10943, Bankr. S.D.N.Y., joint plan of
Forbes.com, Aug. 18, 2022.
tors and businesses, 2) protection of 4. U.S. Commodity Futures Trading
reorganization of Voyager Digital Holdings Inc.
and its debtor affiliates pursuant to Chapter 11 of
financial stability and mitigation of Commission, “An Introduction to Virtual the Bankruptcy Code, filed July 6, 2022.
Currency,” available at https://bit.ly/3gX6voI.
system risk, 3) illicit activity, 4) U.S. 5. President’s Working Group on Financial
23. See endnote No. 1.
24. Id.
competitiveness, 5) financial inclu- Markets, the Federal Deposit Insurance Corporation 25. Shukla, Sidhartha, “Crypto Firm Nomad
and the Office of the Comptroller of the Currency,
sion, 6) financial innovation and Report on Stablecoins, November 2021, p. 1,
Loses Nearly $200 Million in Bridge Hack,”
Bloomberg, Aug. 2, 2022.
7) international coordination. The available at https://bit.ly/3UrcoZ9. “Stablecoins 26. Department of Justice, “Justice
executive order requires multiple are digital assets that are designed to maintain Department Announces First Director of National
a stable value relative to a national currency or Cryptocurrency Enforcement Team,” Feb. 17, 2022.
federal agencies, particularly the other reference assets.” The author notes that 27. Bharathan, Vipin, “Central Bank Digital
Department of the Treasury, to issue several writers define stablecoins as a type of Currency: The First Nationwide CBDC In The
cryptocurrency; however, because speculative World Has Been Launched By The Bahamas,”
several reports and recommenda- versus fixed-price assets operate so differently, Forbes.com, Oct. 21, 2020.
tions. Some of those reports have it is important not to conflate the two. 28. Dorn, James, “China’s Digital Yuan: A
6. Frankenfield, Jake, “Cryptocurrency Threat to Freedom,” CATO Institute, Aug. 25, 2021.
already been published and are Explained With Pros and Cons for Investment,” 29. Lopez, Oscar, Livni, Ephrat, “In Global
relied upon in this article, but there Investopedia, Updated Sept. 26, 2022, available First, El Salvador Adopts Bitcoin as Currency,”
at https://bit.ly/3VqGspd. The New York Times, published Sept. 7, 2021,
are many more to come. 7. Board of Governors of the Federal Reserve updated Oct. 7, 2021.
It is the author’s interpretation System, Money and Payments: The U.S. Dollar in 30. Vice Chair for Supervision Randal K.
the Age of Digital Transformation, p. 3, January Quarles, “Parachute Pants and Central Bank
that President Biden’s executive 2022, available at https://bit.ly/3gVIrmd. “For Money,” speech at the 113th Annual Utah
order will develop the concepts the purpose of this paper, a CBDC is defined as Bankers Association Convention, Sun Valley,
a digital liability of the Federal Reserve that is
and priorities to bring the regu- widely available to the general public.”
Idaho, June 28, 2021.
31. SEC v. W. J. Howey Co., 328 U.S. 293 (1946).
lation of virtual currencies into 8. Oberhaus, Daniel, “The World’s Oldest
Blockchain Has Been Hiding in the New York
focus. It will likely require one or Times Since 1995: This really gives a new
more acts of Congress to ensure meaning to the ‘paper of record,’” Vice.com,
Aug. 27, 2018.
such regulations have been prop- 9. Conti, Robyn, Schmidt, John, “What Is
erly delegated. Thus, while we are An NFT? Non-Fungible Tokens Explained,”
Forbes.com, Updated April 8, 2022.
still in the early days of virtual 10. Vigna, Paul, “Who Is Bitcoin Creator
currencies and other digital assets Satoshi Nakamoto? What We Know – and Don’t
Know,” The Wall Street Journal, Dec. 7, 2021.
and we do not know what the 11. Satoshi Nakamoto, “Bitcoin: A Peer-to-
future holds, the legal and regu- Peer Electronic Cash System,” Oct. 31, 2008,
available at bitcoin.org.
latory framework is beginning to 12. Prathap, Madana, “Nearly 90% of all
come into focus. Stay tuned! Bitcoin has already been mined – here’s how its
limited supply has driven up its value,” Business
Insider – India, Dec. 24, 2021.
10 | JANUARY 2023 THE OKLAHOMA BAR JOURNALTransactional Law
Remedies for the Freeze-Out:
Employment Rights of Minority
Shareholders of Close Corporations
By D. Benham Kirk and Alexandra J. Gage
A “FREEZE-OUT,” ALSO KNOWN AS A “SQUEEZE-OUT,” is a classic problem in the
world of close corporations in which a minority shareholder is ousted by the major-
ity. Depending on the state in which you reside, there are remedies currently available to
minority shareholders in this situation. However, this issue is currently unsettled under
Oklahoma law. This article explores how the issue may be decided under Oklahoma law in
the future and provides options lawyers may consider to protect their clients in the interim.
WHAT IS A FREEZE-OUT? 50% of the shares, minority share- shareholders’ agreement or any
To understand the issues holders are subject to situations employment agreements.
involved in a freeze-out, one must like a freeze-out by the majority It is now 10 years later, and
first have a basic understanding of shareholders. A freeze-out can be the business has flourished.
close corporations. A close corpo- explained by the following example: The company has never paid
ration (also commonly referred a dividend. Any amounts not
to as a “closely held corporation”) Steve, Jon and Audra start their paid out to the shareholders in
is a privately held corporation own manufacturing business by the form of salaries have been
whose shares are owned by a incorporating under Oklahoma retained to grow the business.
small group of investors and are law using the standard form Steve and Audra suddenly have
not available to the public.1 This of certificate of incorporation a serious falling out with Jon
is also known as a privately held available from the secretary regarding a matter unrelated to
corporation. Within a close cor- of state’s office. Each founder Jon’s performance. At the next
poration, there may be minority contributes $5,000 for one-third annual meeting of the share-
shareholders and majority share- of the authorized stock and holders, after giving proper
holders. However, the expectations begins working full time for notice and following all corpo-
of a minority shareholder are the company as an officer and rate procedures correctly, Steve
generally similar to those of the employee. The bylaws provide and Audra amend the bylaws
majority shareholder: 1) an active that the board will consist of to reduce the number of direc-
participating role in management, three directors elected annually tors to two and elect only them-
2) an employment or consulting by majority vote of the share- selves as directors. They fire
role for compensation and 3) a holders, all officers and employ- Jon as an officer and employee,
return on investment. A minority ees will serve at the pleasure of change the locks to the plant
shareholder holds less than 50% the board, and the bylaws may and issue orders to the compa-
of the shares, while a majority be amended by majority vote ny’s security guards to refuse
shareholder holds more than 50% of the board or shareholders. Jon admittance to the premises.
of the shares. By holding less than The founders do not enter into a They also give themselves
12 | JANUARY 2023 THE OKLAHOMA BAR JOURNALsubstantial raises. The aggre- treatment before it happens? What the standards of fair dealing, and
gate increase in their salaries can lawyers do to ensure their cli- a violation of fair play on which
is equal to the salary formerly ents’ interests are protected in such every shareholder who entrusts
paid to Jon. They comply with situations? These questions are his money to a company is enti-
all of Jon’s requests for inspec- further examined in this article. tled to rely.”4 Other courts have
tion of the books and records expanded that definition to also
of the corporation; however, DEFINING OPPRESSIVE include conduct that substantially
they refuse his demands for CONDUCT defeats the minority shareholder’s
declaration of dividends, saying States have defined “oppres- reasonable expectations.5
the company needs to retain sion” in different ways, but it These definitions leave the
earnings for future capital generally includes a violation of court with the task of subjectively
needs. They also decline Jon’s the standards of fair dealing and determining whether sharehold-
request that either they or the fair play, a violation of a fiduciary ers’ actions are oppressive. Terms
company purchase his stock. duty owed to the minority share- such as “burdensome,” “harsh,”
Jon attempts to find other buy- holder or conduct that results “wrongful” and “fair” in these
ers for his one-third interest but in frustration of the minority definitions all lend themselves to
can find no one interested in shareholder’s reasonable expecta- any number of subjective inter-
purchasing a minority interest tions.3 For example, the Colorado pretations and applications. What
in a closely held corporation.2 courts have defined oppression as could be “wrongful” to one court
“burdensome, harsh and wrongful may be completely tolerable to
What protections or remedies conduct; a lack of probity and fair another. Courts appear reluctant to
are available for Jon, who was a dealing in the affairs of the com- suggest a list of elements or even
victim of the classic freeze-out? Is pany to the prejudice of some of its a “bright line” test for determin-
it possible to protect Jon from such members; or a … departure from ing the presence of such behavior,
THE OKLAHOMA BAR JOURNAL JANUARY 2023 | 13preferring instead to consider disenfranchised minority share- corporation wishes to be pro-
factors, as applied to each case holder.9 The draconian remedy of tected by the close corporation
in the context of the applicable dissolution can certainly affect statute, it must incorporate under
jurisdictional law. As a result, the much more than simply the share- such statute or forfeit those protec-
broad term can be used to cover holders, who were acting in bad tions.16 Second, minority sharehold-
a multitude of cases in which faith or in violation of their fidu- ers have the chance to contract for
improper conduct occurred. In ciary duties. In pursuit of a less protections prior to purchasing
acknowledgment of this fact, the extreme remedy, Massachusetts shares in a close corporation.17 The
New Mexico Supreme Court has developed a judicial remedy that court declared, “The tools of good
stated, “The absence of a rigidly may be a middle ground to the corporate practice are designed to
defined standard for determin- harsh statutory schemes of the give a purchasing minority stock-
ing what constitutes oppressive majority of states.10 holder the opportunity to bargain
behavior enables courts to deter- In Wilkes v. Springside Nursing for protection before parting with
mine, on a case-by-case basis, Home, Inc., the Massachusetts consideration.”18 Since the close
whether the acts complained of Supreme Judicial Court was trying corporation statute and contract law
serve to frustrate the legitimate to determine whether a close preempt the field in their respective
expectations of minority share- corporation can fire one of four areas, the court determined it would
holders, or whether the acts are shareholders for the sole purpose be inappropriate to fashion a special
of such severity as to warrant the of denying him income from the judicial remedy when plaintiffs fall
requested relief.”6 Although these corporation.11 The court deter- outside the provided statutes.19
broad, subjective and expansive mined the majority shareholders The Supreme Court of Texas
definitions allow courts to conduct failed to advance a legitimate has followed Delaware’s lead and
a case-by-case analysis of wrong- business reason for firing the denied judicial relief outside of the
ful behavior, they provide very shareholder and frustrated the close corporation statute and other
little guidance as to what the court minority stockholders’ purposes.12 statutory schemes that already
will likely include as oppressive The fired shareholder, therefore, exist in its law.20 The Texas court
conduct. Courts continue to refine could recover from the other three further noted that other causes of
their jurisprudence on the subject, shareholders the salary he would action exist for minority sharehold-
but shareholder “oppression” will have received had he not been ers, including breach of fiduciary
likely never be distinctly defined. fired.13 Under this scheme, a more duties, breach of contract, fraud,
moderate form of relief replaces conversion, etc., which warrant a
PROTECTIONS AND the extreme measures enacted by further judicial remedy for “share-
REMEDIES PROVIDED IN statutory dissolution schemes. holder oppression” unnecessary.21
OTHER STATES The Massachusetts court, rather
Oklahoma currently has no than dissolving the corporation, WILL OKLAHOMA COURTS
statutory protection for minority provided a judicial remedy to the ACCEPT JUDICIAL RELIEF?
shareholders absent “misman- minority shareholder to recover To date, Oklahoma has no
agement, collusion, or fraud.”7 damages due to the wrongful statutory grounds to seek involun-
However, 60% of states now pro- conduct or “oppression” by the tary dissolution of a corporation
vide some form of statutory relief majority shareholders. for shareholder oppression of
for minority shareholders of closely However, other jurisdictions minority shareholders. Oklahoma
held corporations in the form of a have rejected the idea of both statu- has also chosen not to implement
petition to the court for dissolution tory and judicial relief for minority a close corporation chapter in its
of the corporation on the grounds shareholders in a freeze-out. The corporation laws. Since Oklahoma
of “oppression” or similar conduct Delaware courts have affirmed has not dealt with the issue of
by the majority shareholders.8 that minority shareholders in close shareholder oppression, at least
The states that have not enacted corporations have two protections within its body of reported case
oppression into their corporation available to them, which will not be law, minority shareholders are
statutes seek out a remedy that distracted by judicial relief.14 provided essentially no protection
may be less severe than dissolu- First, Delaware maintains a close or remedy for oppression outside
tion. One ambitious state Supreme corporation statute that contains of contractual schemes. Under
Court listed no less than 10 poten- certain protections to minority such circumstances, is it likely
tially available remedies for the shareholders.15 If a closely held Oklahoma will accept judicial
14 | JANUARY 2023 THE OKLAHOMA BAR JOURNALrelief against oppression? Previous any “corporate act or transaction circumstances: 1) where there
Oklahoma decisions may provide that has the effect of involuntarily is bad faith, 2) where there is a
a clue as to how Oklahoma will eliminating the eligible holder’s failure to disclose an enhancement
decide this issue. equity interest” or an amendment in stock value or 3) where there
In general, Oklahoma’s corpo- of the charter documents whose is a misuse of power to promote
rate law is derived from the corpo- effect is to exclude or limit the personal interests at the expense of
rate law of Delaware.22 Therefore, voting rights of shares.24 Oklahoma the corporation.27 In making such
it seems Oklahoma would likely courts could use this provision for determination, the court stated, “A
follow Delaware’s law on the issue. authority to provide a judicial rem- court of equity will not enforce
Much like Delaware, Oklahoma edy in freeze-out situations should stock transfer restrictions adopted
does not have a statutory provision the Legislature continue to decline under circumstances which indi-
to petition for dissolution in cases to do so. However, in as much as cate bad faith and inequitable treat-
of oppression. However, unlike the above principles are not spe- ment of stock purchasers. …
Delaware, Oklahoma elected to cifically codified in Oklahoma [Further], a majority shareholder
exclude the statutory close corpo- statutory law, Oklahoma’s juris- has a fiduciary duty not to mis-
ration chapter of corporate law. prudence may veer away from the use his power by promoting
The Delaware case law denying corporate laws of Delaware and his personal interests at the
a judicial remedy for oppression perhaps accept a judicial remedy expense of the corporation, and
specifically relied upon the fact for minority shareholders experi- the majority shareholder has the
that statutory schemes for close encing a freeze-out.25 duty to protect the interests of
corporations already existed and Another indication that the minority.”28 The court makes
preempted the field on this issue. Oklahoma may choose to imple- it clear that Oklahoma seeks to
Thus, if Oklahoma were to follow ment a judicial remedy for minority protect minority shareholders from
Delaware’s lead, it would have to shareholders stems from reasoning oppression. However, it is less clear
rely on separate reasoning. One similar to that in Renberg v. Zarrow.26 if that protection extends to a judi-
potential resource upon which Although this decision does not cial remedy for such oppression.
Oklahoma could rely would be the discuss a freeze-out situation, Other points of Oklahoma
American Law Institute’s Principles it does provide insight into the law seem to suggest that no such
of Corporate Governance, which Oklahoma Supreme Court’s stance judicial remedy will be enacted in
seems to provide a remedy for on minority shareholder rights. Oklahoma. For instance, minority
a freeze-out of minority share- In Renberg, the court determined shareholders of farming and ranch-
holders.23 Section 7.21 states that that mandatory buy-sell provi- ing corporations may petition the
a shareholder is entitled to a fair sions in a stock agreement may be court for dissolution of the corpo-
value of their shares in the event of unenforceable under the following ration “for good cause shown” if
Since Oklahoma has not dealt with the issue of
shareholder oppression, at least within its body
of reported case law, minority shareholders are
provided essentially no protection or remedy for
oppression outside of contractual schemes.
THE OKLAHOMA BAR JOURNAL JANUARY 2023 | 15the shareholder owns 25% or more lawyer should discuss the possibil- If a lawyer represents a minority
of the shares in the corporation.29 ity of oppression with their client. shareholder who did not negotiate
Neither the Legislature nor the The client should know the risks of contractual provisions to protect the
judiciary have explained what is freeze-out in such circumstances client’s interests, it may be possible
considered “good cause” under and be able to make an informed to utilize an argument for a judi-
this statute. Oklahoma courts have decision on whether to enter into cial remedy in case of a freeze-out.
noted that, in general, dissolu- this kind of business venture. If Since Oklahoma provides essen-
tion may occur if the minority the client desires to move forward, tially no protection for minority
shareholder proves fraudulent providing provisions to protect shareholders in either statutory or
mismanagement or misappropri- the client in a subscription and/or case law, a fair argument could be
ation of funds by the officers.30 shareholder agreement, corporation made for the implementation of a
Although mismanagement and bylaw or another governing docu- judicial remedy to the freeze-out,
misappropriation are not the same ment may evidence the parties’ not unlike the authorities discussed
as oppression, it does correspond intent to guard against oppressive within this article.32
to the majority shareholders’ conduct and minimize the prospect
fiduciary duties.31 The existence of litigating an unsettled issue in
of this statute for a specific type the future. ABOUT THE AUTHORS
of corporation may be evidence However, a client can also end D. Benham Kirk is an
that Oklahoma will enact further up as a majority shareholder on experienced transactional
statutory protections for minority some issues. In these instances, the attorney for Doerner,
shareholders in close corporations protection of minority rights could Saunders, Daniel &
rather than implementing judicial hinder the majority’s aims. Be sure Anderson LLP and is an
relief for the issue. to discuss with your client which active member of the firm’s Executive
assets and issues need the high- Committee. Mr. Kirk focuses
A LAWYER’S RESPONSE est levels of protection. Instead of his practice on a broad range of
No matter how Oklahoma doing a general or overall protec- acquisitions, divestitures, mergers,
ultimately decides, lawyers should tion of minority rights, it may be restructures, reorganizations,
utilize what they know to best best to simply protect the interests secured financing and commercial
protect the interests of their clients and assets most important to them real estate, including extensive
incorporating under Oklahoma and accept the business risk with work in lease negotiation and
law. If a client is seeking to set up the people whom the client has drafting. Most recently, he has been
a close corporation or purchase chosen to do business with respect nationally recognized by reputable
shares of a close corporation, a to other minor issues. organizations and publications for
his outstanding achievements in real
estate law, along with bankruptcy
and creditor debtor rights/insolvency
and reorganization law.
Alexandra J. Gage
is a skilled attorney for
Doerner, Saunders, Daniel &
Anderson LLP. Her
practice includes a variety
of transactional matters involving
employment law, corporate law and
contract disputes. When she’s not
helping clients fulfill their business
objectives, Ms. Gage applies
her leadership skills as an active
board director of the OBA Young
Lawyers Division for District 6. She
also attends educational leadership
development seminars for the YLD
Leadership Academy of the Tulsa
County Bar Association.
16 | JANUARY 2023 THE OKLAHOMA BAR JOURNALENDNOTES 23. Principles of Corporation Governance
1. “Close Corporation,” Black’s Law Dictionary, §7.21 (Am. L. Inst. 1994) (further codification of
(11th Ed. 2019). these principles are anticipated due to the ALI’s
2. M. Thomas Arnold and H. Wayne Cooper, ongoing work regarding the Restatement of the Law,
“Protection of Employment Rights of Minority Corporate Governance, Tentative Draft No. 1, 2022).
Shareholders of Close Corporations,” Vernon’s 24. Id.
Okla. Forms 2d, p. 2 (November 2021). 25. Oklahoma Supreme Court frequently
3. Id. relies on the ALI doctrinal restatements of law
4. Polk v. Hergert Land & Cattle Co., 5 P.3d for guidance in applying Oklahoma law. See e.g.,
402, 404-05 (Colo. App. 2000). Schovanec v. Archdiocese of Oklahoma City, 188
5. Argo Data Resource Corp. v. Shagrithaya, P.3d 158, 2008 OK 70; Panama Processes, S.A. v.
380 S.W.3d 249, 265 (Tex. App. Ct. 2012); Litle v. Cities Service Co., 796 P.2d 276, 1990 OK 66.
Waters, 18 Del. J. Corp. L. 315, 328 (Del. Ch. 26. 667 P.2d 465 (Okla. 1983).
1992); Gee v. Blue Stone Heights Hunting Club 27. Id.
Inc., 604 A.2d 1141, 1145 (Penn. 1992); Brenner v. 28. Id. at 471-72.
Berkowitz, 634 A.2d 1019, 1029 (N.J. 1993). 29. 18 O.S. §953(D).
6. McCauley v. Tom McCauley & Son, Inc., 30. Sutter v. Sutter Ranching Corp., 14 P.3d
724 P.2d 232, 236 (N.M. 1986). 58, 62, n.18 (Okla. 2000).
7. Western v. Acme Tool, Inc., 441 P.2d 959, 31. Whether acts of oppression equate to
962 (Okla. 1968). a breach of fiduciary duty would necessarily
8. See M. Thomas Arnold and H. Wayne require a subjective case-by-case analysis given
Cooper, “Protection of Employment Rights of applicable law on fiduciary duty. See Lowrance v.
Minority Shareholders of Close Corporations,” Patton, 710 P.2d 108, 111 (Okla. 1985).
Vernon’s Okla. Forms 2d, p. 2 (November 2021); 32. For a more in-depth understanding of the
See generally Ala. Code §10-2A-195 (1987); issues related to a “freeze out,” one may wish to
Alaska Stat. §10.06.628 (1989); Ark. Code Ann. consult the following additional sources: M. Thomas
§4-27-1430 (1989); Cal. Corp. Code §1800 (1990); Arnold and H. Wayne Cooper, “Protection of
Conn. Gen. Stat. §34-267(5) (2017) Ga. Code Employment Rights of Minority Shareholders
Ann. §14-2-940 (1989); Idaho Code §30-1-97(A) of Close Corporations,” Vernon’s Okla. Forms
(2) (1980); Ill. Ann. Stat. Ch. 32, Para. 12.50 (1992); 2d, p. 2 (November 2021); F. Hodge O’Neal and
Iowa Code Ann. §490.1430 (1991); Md. Code Ann., Robert B. Thompson, O’Neal and Thompson’s
Corps. & Ass’ns §3-413 (1993); Mich. Comp. Laws Oppression of Minority Shareholders and LLC
Ann. §450.1489 (1990); Miss. Code Ann. §79-4-14.30 Members §1:2 (Rev. 2d ed. 2005); Douglas K.
(1992); Minn. Stat. Ann. §302a.751 (1992); Mo. Moll, “Shareholder Oppression in Texas Close
Ann. Stat. §351.494 (1991); N.H. Rev. Stat. Ann. Corporations: Majority Rule (Still) Isn’t What it
§293-A:98 (1987); N.D. Cent. Code §10-19.1-115 Used to Be,” 9 Hous. Bus. Tax L.J. 33 (2004);
(1985); N.J. Stat. Ann. §14a:12-7; N.M. Stat. Ann. Daniel S. Leinberger and Douglas K. Moll,
§53-16-16 (1983); N.Y. Bus. Corp. Law §1104-A(A) Oppression in LLCs, 2020 LLC Institute.
(1) (1986); Or. Rev. Stat. §60.661 (1992); Pa. Stat.
Ann. Tit. 15, §1981 (1992); S.C. Code Ann.
§33-14-300 (1990); S.D. Codified Laws Ann.
§47-7-34 (1983); Tenn. Code Ann. §48-24-301
(1992); Utah Code Ann. §16-10a-1430(2) (1992);
Vt. Stat. Ann. Tit. 11, §2067 (1984); Va. Code
Ann. §13.1-747 (1989); Wash. Rev. Code Ann.
§23b.14.300 (1992); Wis. Stat. Ann. §180.1430
(1992); Wyo. Stat. §17-16-1430 (1989).
9. Baker v. Commercial Body Builders, Inc.,
507 P.2d 387, 395 (Or. 1973). The Supreme Court
of Oregon’s list of potential remedies included
appointing a receiver to continue the operation of
the corporation for the benefit of all shareholders
until the oppressive conduct ceases, issuance
of an injunction to prohibit continuing acts of
oppressive conduct, an order for affirmative relief
of a distribution of capital, an order requiring
majority stockholders to purchase the minority
shares at a price deemed fair and reasonable and
an award of damages to minority shareholders for
the oppressive conduct.
10. Wilkes v. Springside Nursing Home, Inc.,
370 Mass. 842, 353 N.E.2d 657 (1976).
11. Id.
12. Id. at 662-63.
13. Id.
14. See generally Nixon v. Blackwell, 626 A.2d
1366 (Del. 1993).
15. Id. at 1380.
16. Id.
17. Id.
18. Id.
19. Id. at 1381.
20. Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014).
21. Id. at 882.
22. Watkins v. Hamm, 419 P.3d 353, 356 (OK
Civ App 2017); Woolf v. Universal Fidelity Life Ins.
Co., 849 P.2d 1093 (OK Civ App 1992).
THE OKLAHOMA BAR JOURNAL JANUARY 2023 | 17Transactional Law
You Shall Not Pass …
Or Shall You?
Should a Title Examiner Object to a Conveyance Wherein a
Trustee Conveys Trust Property to or From Themselves?
By Rhonda J. McLean
A S A TITLE EXAMINER,1 YOU SEE MANY THINGS THAT MAKE YOU GO, “HMM.”
Some of them you do not like, but you have the protection of certain presumptions,
the Marketable Record Title Act or the Simplification of Land Titles Act to rely on. Other
times, you must make a judgment call about whether something that feels “icky” rises to a
level of litigious uncertainty that prevents the grantee’s title from being marketable.2
One of those judgment calls is OKLAHOMA TITLE and limitations having been
when you see a conveyance from a EXAMINATION STANDARDS recorded in the county where
trustee to themselves, individually – When determining whether to the real estate is located.
particularly when the trustee is not make objection to an instrument,
the settlor of the trust, or the trust the Oklahoma Title Examination This standard is based on the
is irrevocable. Often, a successor Standards (OTES) are, or should language of 60 O.S. §§171 et seq.,
trustee is also the sole beneficiary be, a title examiner’s first stop.5 175.7 and 175.45. These statutes,
of that property, so a deed from the OTES §15.1 states: in summary, provide that when
trustee to themselves is not only dealing with an express trust, any
warranted, it is required. But when The trustee of an express trust conveyance by the trustee is binding
reviewing the record, a title exam- has the power to grant, deed, upon the trust in favor of purchas-
iner 1) likely hasn’t reviewed the convey, lease, grant easements ers without notice of any restrictions
terms of the trust and 2) cannot tell upon, otherwise encumber and or limitations established upon
from the face of the document that execute assignments or releases the trust by the trustee. Further,
it is for the purpose of distributing with respect to the real property 60 O.S. §175.24(2) states a trustee has
the trust asset to the sole benefi- or interest therein which is sub- the power to grant options and sell
ciary.3 Further, without specific ject to the trust. A trustee’s act is real or personal property at public
language in the conveyancing binding upon the trust and all auction or private sale.
document, a title attorney has no beneficiaries thereof, in favor of All of this would lead one to
way to distinguish a deed made for all purchasers or encumbranc- believe OTES §15.1 is spot on, and
distribution purposes versus a sale ers without actual knowledge without anything to the contrary
of trust assets.4 of restrictions or limitations in the record, a title examiner
upon the trustee’s powers by the should presume the trustee’s
terms of the trust, and with- conveyance is valid. However, the
out constructive knowledge standard does not address or refer
imposed by the trust instru- to 60 O.S. §175.11, which states:
ment containing restrictions
18 | JANUARY 2023 THE OKLAHOMA BAR JOURNALNo trustee shall directly or indi- rectly buy or sell any property for the trust from or to itself or an affiliate; or from or to a direc- tor, officer, or employee of such trustee or of an affiliate; or from or to himself, a relative, employer, partner, or other business associate; provided a national banking association or a state bank and trust company performing trust functions, where acting as exec- utor, administrator, guardian, or trustee, may sell stock of itself to one or more of its officers, stockholders, or directors upon a court of competent jurisdiction finding that such sale will be for the best interest of the trust estate and making an order for such sale. [emphasis added] Further, the OTES are built upon the Model Title Standards devel- oped in 1960 by the University of Michigan Law School in Ann Arbor. Model Title Standard 11.2 recites: Since a conveyance by a fidu- ciary to himself, either directly or indirectly, cannot be set aside after the five-year period of limitation on such a proceed- ing has expired, no objection THE OKLAHOMA BAR JOURNAL
should be made to a title on COBB V. NEWMAN participate, share and share alike,
this ground after the expiration This author found no Oklahoma in such gas, oil or valuable mineral
of five years from the date of case law interpreting the inter- and in all profits and royalty arising
record of such instrument.6 section between these seemingly therefrom.”9
competing statutes. One case that In 1932, all the shareholders
One can presume from this may yield some insight is Cobb v. agreed to convey the lands owned
language that within the five-year Newman,8 wherein the court dis- by the corporation to the individ-
period, a title examiner either can cussed cestui que trusts in relation ual children based on the distribu-
or should make such an objection. to stockholders of a corporation. tions in the will, so each child was
In Oklahoma, the “five-year period” J.O. Kuyrkendall owned several the owner of one or more divided
presumably would be 10 years tracts of land that included min- tracts. The shareholders further
under the Simplification of Land erals interests. Some tracts were agreed that any royalties received
Title Act (SLTA), which protects a owned by himself individually and would be used to pay off certain
purchaser for value, without notice, some by D.O.K. Land and Cattle corporate debt if there were not
from one claiming under a convey- Co., of which he owned 879 of 1,200 sufficient corporate funds to do
ance by a trustee where the trust shares. His will gave specific tracts so. In 1934, one child leased her
agreement is not of record.7 to specific children and distributed minerals and received a bonus, but
As a title examiner, within the specific numbers of shares of the she did not turn the bonus money
10-year period between the record- corporation to specific children. over to the corporation to apply
ing of the conveyance and the The will stated a child could sell toward the agreed debt. In 1936,
application of the SLTA, should one their tract before discovery of min- the same child requested that the
rely on OTES §15.1 and pass the erals (or discovery and production, other children join her in a lease of
title without objection, or does the depending on how you read it), but the minerals. At least some of the
prohibition in 60 O.S. §175.1 pre- after the minerals were discovered other children refused to join the
vent the application of OTES §15.1? (or discovered and produced), the lease unless they received a share
Further, does said prohibition “oil, gas or valuable mineral shall be of the bonus. The lessor child did
prevent the application of the SLTA the property of all my said chil- not agree to share the royalties,
even after 10 years have passed? dren above named and they shall and the suit was filed to void the
conveyances from the corporation
to the children and to determine
rights to the bonus and royalty
money from both the 1934 and
1936 leases.10
The court declined to void
the conveyances based on the
trial court’s finding that all the
children were stockholders and,
as such, gave full assent to the
conveyances.11 However, the court
extensively discussed the general
prohibition on self-dealing by quot-
ing at least three prior decisions:
It makes no difference what the
consideration of deeds made
in the execution of such an
agreement was, even though
it was adequate and full, and
no actual injury was done to
the stockholders. The principle
will still be strictly adhered to
that, against the dissent of any
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