Possession is Nine-Tenths of the Law

In the mid-1990s, Hydroscience Technologies, Inc. (“HTI”) sold shares of its preferred stock to Hydroscienc, Inc. (“HSI”).  HTI alleges that in 2001, in order to settle an unrelated dispute between Whitehall Corporation (HSI’s parent corporation) and itself, Whitehall orally agreed during a mediation session to transfer the HTI shares held by HSI back to HTI.  But the parties never reduced this agreement to writing and HSI never transferred the original stock certificate back to HTI.  The parties didn’t raise the question of HSI’s stock ownership  again until 2010, when HSI, as purported shareholder, requested to inspect the books and records of HTI.  When HTI refused, HSI filed a lawsuit seeking a declaratory judgment that HSI remained an HTI shareholder.  After the trial court granted HSI’s motions for summary judgment, HTI appealed.

The Court of Appeals addressed a number of issues in its opinion.  Most relevant, however, was its holding that while delivery of a stock certificate was not required to show a transfer of stock, the fact that HSI still possessed the certificate establishes its ownership unless HTI can present evidence of the stock transfer agreement the parties purportedly came to during the 2001 mediation.  But the Court found that HTI could not demonstrate that intent because, under Texas law, HTI is prohibited from using as evidence statements of the parties during a mediation session.  It explained that “to allow HTI to used alleged discussions from the mediation regarding the stock would undermine the very purpose of confidentiality in the mediation process.  Parties must not be allowed to use evidence from mediation to dispute terms of a settlement agreement, particularly years later, as is the case here.”  According to the Court, to hold otherwise would chill the overall purpose of mediation.   Thus, because the final 2001 settlement agreement did not show the stock transfer agreement, and because HTI could not show that the parties had orally agreed to make such a transfer, the Court upheld the trial court’s ruling.

Hydroscience Technologies, Inc. v. Hydroscience, Inc.