Fiduciary Duties and Fiduciary Litigation

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

What to Know About Fiduciary Duties and 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.[1]

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.

Texas law recognizes two categories of fiduciary relationships or duties: formal and informal.[2] Under Texas law, formal fiduciary duties arise as a matter of law as a result of certain formal and special relationships.  For example, corporate directors and officers,[3] employees,[4] partners,[5] 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.’”[6]

The Fiduciary Duty

Courts have recognized that “[a] fiduciary duty is the highest duty recognized by law.”  Rawhide Mesa-Partners, Ltd. v. Brown McCarroll, L.L.P., 344 S.W.3d 56, 60 (Tex. App.— Eastland 2011, no pet.)   As such, a fiduciary owes the beneficiary the duties of ” . . . loyalty and good faith, integrity of the strictest kind, fair, honest dealing, and the duty not to conceal matters which might influence his actions to his principal’s prejudice.” Hartford Cas. Ins. v. Walker County Agency, Inc., 808 S.W.2d 681, 688 (Tex. App. – Corpus Christi 1991, no writ) (citing Douglas v. Aztec Petroleum Corp., 695 S.W.2d 312, 318 (Tex.App. – Tyler 1985, no writ)).

In general, a fiduciary owes his principal a high duty of good faith, fair dealing, honest performance, and strict accountability. Among the agent’s fiduciary duties to his principal are the duty not to compete with the principal on his own account in matters relating to the subject matter of the agency and the duty to deal fairly with the principal in all transactions between them. Commonly cited fiduciary duties include the duties of: (1) care, (2) loyalty, (3) accountability, (4) confidentiality, (5) full disclosure, (6) fairness, and (7) good faith and fidelity.

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.

The Elements of a Breach of Fiduciary Duty

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.” First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017); Punts v. Wilson, 137 S.W .3d 889, 891 (Tex. App.–Texarkana 2004); Kelly v. Gaines, 181 S.W.3d 394, 414 (Tex. App.–Waco 2005).

Damages for Breach of Fiduciary Duty

A successful plaintiff may recover the following types of damages for a breach of fiduciary duty claim in Texas:

Common scenarios that may give rise to fiduciary claims include misappropriation of assets by a trustee or agent, as well as embezzlement, commingling of assets, and self-dealing in the context of a fiduciary relationship.

Our experienced attorneys at Freeman Law represent parties in fiduciary duty litigation. Contact our legal team for a consultation at (214) 984-3410 or contact us online.

[1] Rawhide Mesa-Partners, Ltd. v. Brown McCarroll, L.L.P., 344 S.W.3d 56, 60 (Tex. App.— Eastland 2011, no pet.) (“A fiduciary duty is the highest duty recognized by law.”).

The fiduciary owes the beneficiary the duties of ” . . . loyalty and good faith, integrity of the strictest kind, fair, honest dealing and the duty not to conceal matters which might influence his actions to his principal’s prejudice.” Hartford Cas. Ins. v. Walker County Agency, Inc., 808 S.W.2d 681, 688 (Tex. App. – Corpus Christi 1991, no writ) (citing Douglas v. Aztec Petroleum Corp., 695 S.W.2d 312, 318 (Tex.App. – Tyler 1985, no writ)).

[2] Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App.–Dallas 2006) (“A fiduciary relationship may be formal or informal. Fiduciary duties arise as a matter of law in certain formal relationships, including attorney-client and trustee relationships.”)

[3] Courts have recognized a fiduciary duty owed by corporate officers and directors to the corporation, which prohibits officers and directors from usurping corporate opportunities for personal gain and requires them to exercise their “uncorrupted business judgment for the sole benefit of the corporation.”

[4] When a fiduciary relationship of agency exists between employee and employer, the employee has a duty to act primarily for the benefit of the employer in matters connected with his agency. The employee has a duty to deal openly with the employer and to fully disclose to the employer information about matters affecting the company’s business.

[5] Fitz–Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 264 (1951) (“The relationship between … partners … is fiduciary in character, and imposes upon all the participants the obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise.”)

[6] Most informal relationships, such as friendships or even familial relationships, will not necessarily give rise to any special relationship that imposes fiduciary duties on the parties. Jones v. Thompson, 338 S.W.3d 573, 583–84 (Tex. App.—El Paso 2010, pet. denied) (mere subjective trust resulting from an informal and confidential relationship does not create a fiduciary relationship) (citing Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997) (Texas courts are reluctant to recognize informal fiduciary relationships)).

 

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