Fiduciary Litigation

A fiduciary is a person or entity that stands in a particular position of trust and responsibility to another. A fiduciary has a legal duty to the fiduciary’s principal or beneficiary.  This fiduciary duty describes an obligation to act in the interest of the principal or beneficiary.  It represents the highest standard of care imposed by the law.

A fiduciary relationship is typically marked by a relationship that involves a principal or beneficiary who places confidence, reliance, and trust in the fiduciary due to the fiduciary’s position, expertise, or authority. Typical examples of fiduciaries include executors, personal representatives, administrators, trustees, agents, partners, and powers of attorney.

A fiduciary duty is the highest duty recognized under state law.  A fiduciary duty is an obligation to act in another party’s best interest.  Fiduciary duties arise in relationships of trust and confidence.

A fiduciary lawsuit involves a suit in court involving persons with a fiduciary legal duty.  Texas law creates legal duties based on relationships and the fiduciary duty is recognized as the strongest duty under the law.  Examples of fiduciary relationships include trustee and beneficiary; agent and principal; and guardian and ward.  Fiduciary lawsuits often involve a cause of action for breach of fiduciary duty.

Texas law, for example, recognizes two categories of fiduciary relationships or duties: formal and informal. Formal fiduciary duties arise as a matter of law as a result of certain formal and special relationships.  For example, corporate directors and officers, employees, partners, trustees, principals, and other formal relationships may give rise to formal fiduciary duties.

Fiduciary duties can also arise “informally.”  Informal fiduciary duties “arise from ‘a moral, social, domestic, or purely personal relationship of trust and confidence.’”

To recover on a breach of fiduciary duty claim, a plaintiff must prove that (1) a fiduciary relationship existed between the plaintiff and the defendant, (2) the defendant breached his or her fiduciary duty to the plaintiff, and (3) the defendant’s breach resulted in an injury to the plaintiff or a benefit to the defendant.

In Texas, a fiduciary’s duties are generally described as the following: a duty of loyalty, a duty of care, a duty of obedience, and a duty of good faith and fair dealing.

• Duty of Loyalty. Under the duty of loyalty, the fiduciary must act in good faith and not allow personal interests to prevail over corporate or other interests.
• Duty of Care. Under the duty of care, the fiduciary must perform his duties with the care that an ordinarily prudent person would use under similar circumstances.  The duty of care requires diligence and prudence in managing the corporations’ or others’ affairs.
• Duty of Obedience. The duty of obedience requires a director or officer to avoid ultra vires actions.
• Duty of Good Faith. The duty of “good faith and fair dealing” is one of many duties that fiduciaries owe to each other.  The duty of good faith and fair dealing requires parties to deal fairly with one another. As a fiduciary duty, it requires a party to place the interest of the other party before his own.

A claim for breach of fiduciary duty under Texas law requires the plaintiff to plead the following elements: (1) the existence of a fiduciary duty, (2) breach of the duty, (3) causation, and (4) damages.

Under the duty of loyalty, a director must act in good faith and not allow personal interests to prevail over corporate interests. This requires an extreme measure of honesty, selflessness, and good faith by the director.

Corporate directors are fiduciaries to the corporation, owing duties of care and loyalty.