Breach of Fiduciary Duty

A fiduciary is a person or entity entrusted with a particular position of responsibility to another. This includes an obligation to act in the principal's or beneficiary's best interest, which is the highest standard of care required by law. A fiduciary relationship is characterized by the reliance and trust placed in the fiduciary by the principal or beneficiary, due to their expertise or authority. Some examples of fiduciaries include executors, personal representatives, administrators, trustees, agents, partners, and attorneys.

Texas law recognizes both formal fiduciary relationships and informal fiduciary relationships in which one person places special confidence in another who, in equity and good conscience, is bound to act in good faith and with due regard for the interest of the person placing the confidence.

Certain formal relationships create fiduciary relationships as a matter of law. Some of the more commonly recognized fiduciary relationships arise in the context of relationships involving the following: (a) attorneys; (b) partners; (c) agents; (d) spouses; (e) holders of powers of attorney; (f) corporate officers and directors; (g) joint venturers; (h) trustees and personal representatives; (i) securities brokers; (j) real-estate brokers and agents; (k) class representatives; (l) mineral-rights holders; (m) condominium board members; and, (n) employees.

In some instances, the Texas courts find that a fiduciary duty exists based on an informal relationship. An informal fiduciary duty arises from a moral, social, domestic, or purely personal relationship of trust and confidence. However, not every relationship involving a high degree of trust, influence, or confidence is an informal fiduciary relationship. A fiduciary relationship may arise either as a result of dominance on the part of one or weakness and dependence on the part of the other. These informal fiduciary relationships are decided on the particular set of circumstances of each case. To prove an informal fiduciary relationship, the plaintiff must establish the dealings between the plaintiff and the fiduciary continued long enough to justify the plaintiff’s reliance on the fiduciary to act in the plaintiff’s best interest. Subjective trust alone does not create fiduciary relationships. Instead, the nature of the relationship must be determined from the objective facts. The plaintiff must also show that the plaintiff is accustomed to being guided by the fiduciary’s judgment or advice. Other factors considered in determining the existence of an informal fiduciary relationship include whether the plaintiff relied on the defendant for support, the plaintiff’s age and health, and evidence of the plaintiff’s trust.

For there to be a fiduciary relationship in a business transaction, the fiduciary relationship must exist before and apart from the agreement that is the basis of the suit. Subjective trust between the parties to an arms-length transaction does not transform the business relationship into a fiduciary relationship. There must be some evidence that the plaintiff relied on the fiduciary for moral, financial, or personal support or guidance. The length of the relationship between the parties may also be a factor in determining whether a fiduciary relationship exists.

Texas courts have held that fiduciary duties are not owed in the following instances:

• banks do not owe a fiduciary duty to their customers;

• a shareholder in a closely held corporation generally does not owe a fiduciary duty to another shareholder;

• hedge-fund investment managers do not owe a fiduciary duty to investors in the hedge fund;

• insurance companies, agencies, brokers, and agents do not owe a fiduciary duty to those they insure;

• an oil and gas lessee does not have a fiduciary duty to the overriding royalty interest holder;

• a settlor of a trust does not owe a fiduciary duty to the trust’s beneficiaries once control of the trust’s assets is vested with the trustee;

• a franchisor does not owe a fiduciary duty to prospective franchisees;

• a cotenant does not owe a fiduciary duty to another cotenant.

A fiduciary duty is the responsibility of looking out for the interests of another person and prioritizing them before your own. Although everyone must act reasonably to prevent harm to others, we aren't usually obligated to care for strangers. A fiduciary duty can arise when one person has a special relationship with another person in which they take on the responsibility of acting for the other person's benefit. Due to that special relationship, the fiduciary has special duties towards the other person beyond the duties it owes to the world at large.

Although there are general duties that every fiduciary owes to its beneficiary or client, the list of duties varies with the type of relationship. Fiduciaries owe the following general duties:

• duty of loyalty and utmost good faith;

• duty of candor;

• duty to refrain from self-dealing, which extends to dealings with a fiduciary’s spouse, agents, employees, and other persons whose interests are closely identified with those of the fiduciary;

• duty to act with integrity of the strictest kind;

• duty of fair, honest dealing;

• duty of full disclosure

Some of the relationships in which specific fiduciary duties, beyond the general fiduciary duties, are owed include the following:

• trustees and personal representatives;

• attorneys;

• partners;

• corporate officers and directors;

• escrow agents;

• holders of executive rights to mineral interests

The elements of a breach of fiduciary duty claim are:

• the plaintiff and the defendant had a fiduciary relationship;

• the defendant breached its fiduciary duty to the plaintiff;

• the defendant’s breach of its fiduciary duty (a) approximately caused injury to the plaintiff, or (b) resulted in a benefit to the defendant.

A plaintiff in Texas may recover actual and exemplary damages in a breach of fiduciary duty case. Actual damages consist of both economic and intangible damages. The economic damages that are recoverable are: (a) out-of-pocket losses, (b) lost profits, and (c) lost business value. Intangible damages that are recoverable include mental anguish damages if the damages are a foreseeable result of the breach of fiduciary duty. Exemplary damages are recoverable if the plaintiff can establish by clear and convincing evidence that the injury resulted from the defendant’s fraud, malice, or gross negligence. The victim of a breach of fiduciary duty might also, depending on the factual circumstances, be able to pursue certain equitable remedies such as the establishment of a constructive trust, forfeiture of fees, profit disgorgement, or accounting. Typical scenarios include misappropriation of assets, embezzlement, commingling of assets, and self-dealing.

Breach of fiduciary duty claims must be brought within four years after the day the claim accrues. A breach of fiduciary duty claim accrues when the breach causes injury. Generally, the “discovery rule” defers the accrual of claims for breach of fiduciary duty. Under the “discovery rule”, the limitations period does not begin to run until the plaintiff knew, or should have known through reasonable diligence, about the plaintiff’s injury. When the statute of limitations begins to run on a breach of fiduciary duty claim may not be immediately obvious. Accordingly, it is important to consult with an experienced business torts attorney as soon as you have an inkling that you may have been the victim of a breach of fiduciary duty so your legal rights may be protected as soon as possible.