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Breach of Fiduciary Duty


Breach of Fiduciary Duty in Texas


Fiduciary duty has a greater level of care than any other legal relationship. It involves one person putting their faith in another to handle their money, property, or well-being. As a result, a breach of fiduciary obligation is a serious offense.

Chargois Harper’s seasoned and professional probate litigation attorney understands the gravity of a fiduciary’s duty. We recognize how serious a violation of that obligation is. If you or your company has been affected as a result of a breach of fiduciary duty, we will fight for you and help you get the compensation you deserve.

What is a Breach of Fiduciary Duty?


Any action made by the fiduciary that affects the client is not in the best interest of the client, or simply benefits the fiduciary is considered a violation of fiduciary responsibility. A breach of duty can also occur if the fiduciary fails to disclose important information to the client.

A CEO of a firm, for example, may complete a deal to buy a faltering company owned by a buddy. The purchase affected the corporation’s share price since the acquired firm was suffering.

This might be considered a breach of fiduciary duty since the CEO, as fiduciary, acts in their personal best interests rather than that of the corporation’s shareholders.

What Are the Elements of Breach of Fiduciary Duty?


You must establish all of the following by a preponderance of the evidence to recover against a defendant for a claim of breach of fiduciary duty:

Fiduciary Duty

The presence of a fiduciary relationship is required in Texas to demonstrate the breach of fiduciary duty elements. When an individual (fiduciary) is entrusted to advise or act primarily for the benefit of or in the interests of another individual, a fiduciary relationship exists. Furthermore, the fiduciary must be legally empowered to act. Contractual authority is the most common method of establishing authority.

A fiduciary must behave in good faith and with loyalty, regardless of personal motivations. The following are examples of fiduciary relationships recognized by Texas courts:

  • An attorney-client relationship
  • Relationship between a religious leader and a congregant
  • Relationship between trustee and beneficiary
  • Relationship between business partners
  • Relationship between CEO and organization and shareholders
  • Relationship between homeowners’ association and members
  • Certain employer-employee relationships where the employee has a high level of authority 

Fiduciary duties, on the other hand, only apply to issues that fall within the scope of the fiduciary relationship. In the case of divorce counseling, a pastor may owe a fiduciary duty to a parishioner.

The fiduciary relationship, on the other hand, would not extend to topics beyond the scope of such services. There would be no fiduciary relationship and hence no duty to breach if the pastor decided to date the parishioner’s ex-spouse after the divorce.

Breach of Duty

A fiduciary duty is one of the highest degrees of legal responsibility owed to another person. Fiduciaries owe the highest level of trust to the people for whom they act. Fiduciary duties are divided into two categories: the duty of care and the duty of loyalty.

The fiduciary’s duty of care compels them to behave with reasonable caution and diligence in carrying out their responsibilities to serve the best interests of the person to whom they owe that duty.

A CEO’s inability to attend board meetings regularly, an attorney’s failure to communicate appropriately with their client, or an asset manager mismanaging client assets are all examples of a breach of the fiduciary duty element.

The fiduciary’s duty of loyalty demands them to prioritize the interests of the person to whom they owe an obligation over their own. Any conflicts of interest should also be disclosed by fiduciaries. Self-dealing and direct rivalry with the person for whom they are acting are prohibited under the duty of loyalty.

An executive obtaining trade secrets from their firm and utilizing them to start a competitor business across the street is an example of a conflict of interest and self-dealing.

Damages

Plaintiffs who have suffered noneconomic personal damage may file a breach of fiduciary duty lawsuit. The emotional discomfort and even jail are examples (for example, resulting from attorney malpractice).

In most cases involving commercial relationships, the plaintiff must have experienced some type of economic damage. Profits lost, potential losses and reputational harm are all common ailments.

You may be able to get a court order to recover any advantages the fiduciary unlawfully obtained by breaking their fiduciary duties in some situations. In addition, if a plaintiff can establish that the defendant’s violation was intentional or egregious, punitive damages may be available.

Causation

The plaintiff must establish that the fiduciary’s reckless or disloyal behavior produced the asserted harm in the final breach of fiduciary duty element. The plaintiff must show that the fiduciary’s behavior was a “significant contributing cause” of the harm to satisfy the causation element, according to Texas courts.

This means that just relying on a deliberate deception will serve to show causation, even if the reliance isn’t the only—or even the most important—factor contributing to the damage.

What is a Fiduciary Relationship?


Breach of Fiduciary Duty

Fiduciary is a broad term that refers to someone acting on behalf of another person under situations that foster trust and confidence. Trustees, administrators, executors, and individuals operating under powers of attorney are all examples of persons who have custody and control of the property of another.

Escrow agents, brokers, company directors and executives, partners, or condominium board members may also be included.

The courts may examine variables such as the parties’ inequality, age, mental ability, or other qualities that make one person dependent on, or have an advantage over, another when evaluating the existence of a fiduciary relationship.

What Are the Types of Fiduciary Relationships?


In general, there are two types of fiduciary relationships:

  • Statutory (in which the law explicitly describes the relationship)
  • Common-Law (in which courts decide that certain relationships are fiduciary)

Fiduciary relationships can be formal or informal, but the fiduciary is bound by the same obligations—loyalty, absolute good faith, truthfulness, and so on. The particular list of fiduciary duties owed to the beneficiary will vary (and may expand) depending on the type of relationship, but every fiduciary owes the beneficiary these broad duties.

Formal vs. Informal Fiduciary Relationships


Business partnerships, the attorney-client relationship, the relationship between an agent and his or her principal, the duty corporate officers and directors owe to the corporation, those acting together in the scope of a joint venture, executors and trustees as estate or trust administrators, and the traditional employer-employee relationship are all examples of formal relationships.

Informal relationships, on the other hand, are formed as a result of the situation’s facts and circumstances. In a commercial transaction, a party may be held accountable for a violation of fiduciary responsibility if the injured party can show that a relationship of trust and confidence existed before the transaction and that many such transactions have previously happened.

In such a circumstance, the aggrieved party might file a breach suit based on the assertion that the fiduciary abused the other party’s trust.

What Are Examples of Key Fiduciary Duties?


Fiduciary responsibilities, or trust obligations, arise when you structure your firm or organization as a corporation. Corporate directors and executives have always had fiduciary responsibilities to the corporation and its investors. Boards of directors set business policies and select and distribute specific responsibilities to corporate executives.

Your for-profit or nonprofit corporation’s everyday activities are carried out by corporate officials such as a chief executive officer or president, chief financial officer or treasurer, and a corporate secretary.

Fiduciary duties may apply to controlling stockholders with a majority stake in or control over corporate business operations in certain situations, but not to other ordinary shareholders. A director, officer, or controlling shareholder who breaches a fiduciary obligation may face personal legal culpability.

Corporate articles of incorporation and bylaws, as well as state statute legislation and court rulings, may influence a person’s fiduciary duty to a corporation. The following are the most important fiduciary duties owed to a business and its investors.

Fiduciary Duty of Obedience

Officers and directors of a corporation have varied obligations, which the fiduciary duty of obedience recognizes. Officers and directors must carry out their responsibilities within the area of their authorized power under the law and the appropriate corporate governing laws to fulfill this responsibility.

This duty may be of particular relevance for nonprofit companies when executives and directors are expected to carry out their responsibilities following the benevolent aims of the organization.

An office or director may, for example, breach their duty of obedience by failing to follow donor pledge limits or allowing nonprofit resources to be utilized for non-charitable reasons.

Fiduciary Duty of Loyalty

A corporation’s officers and directors owe a duty of loyalty to its shareholders. They are required to prioritize the corporation’s well-being and best interests over their own personal or professional goals. Disloyalty can take many forms, including conflicts of interest, attempts to compete with the firm, and covert earnings from corporate business operations.

Officers and directors are prohibited from surreptitiously diverting or profiting from company opportunities under the corporate opportunity theory.

Officers and directors, for example, may hear of a lucrative development opportunity being presented to their real estate firm secretly. Officers and directors must not profit surreptitiously from this circumstance or use it to undermine the company’s interests.

In certain states, officers and directors are allowed to take advantage of certain possibilities provided the company has waived its interest in such activities in its governing papers or if the board of directors has received proper previous disclosures. Officers and directors who violate this responsibility may be sued and ordered to fork up their hidden income to the business.

Fiduciary Duty of Care

Officers and directors in a business context are required to operate with care and attention while operating on behalf of their company. They should act with reasonable caution in carrying out their responsibilities to serve the corporation’s best interests. If an officer or director fails to use reasonable or ordinary care under the circumstances, he or she may be held personally accountable.

A lack of due care may be demonstrated, for example, when an officer or director fails to conduct a reasonable examination of a corporate subject, attend board meetings regularly, or appropriately manage personnel, resulting in the corporation’s detriment.

The business judgment rule states that an officer or director cannot be held accountable for business choices made in good faith and with reasonable care that hurt the company’s interests. Erroneous business judgments will be deferred by the courts if the officers or directors did not exhibit extreme carelessness in their review and decision-making process.

Many people would be hesitant to serve as officers and directors if this regulation did not exist, and business professionals may be hesitant to take commercial risks that might benefit a company in the long term if this rule did not exist.

Fiduciary Duty of Good Faith and Fair Dealing

This fiduciary duty is intertwined with the responsibilities of care, loyalty, and obedience. Officers and directors are required to handle corporate commitments with honesty, good faith, and fairness under this duty. This ongoing responsibility pervades their everyday activities and the company’s operations.

Fiduciary Duty of Disclosure

Officers, directors, and shareholders must be honest in their business discussions to analyze serious risks and make informed choices. Before obtaining board or investor approval of big corporate business transactions, such as mergers with or acquisitions of other firms, full and fair disclosure of important information is required.

Officers and directors should report any possible conflict of interest that may exist between their interests and those of the corporation as part of their duties of loyalty and care.

What Damages Can You Recover From a Breach of Fiduciary Duty Claim?


If you or your company has been the victim of a breach of fiduciary duty, you may be eligible to claim the following damages:

  • Compensatory Damages – these damages are intended to make up for the plaintiff’s loss as a result of the breach. 
  • Punitive Damages – these go beyond monetary compensation to penalize the party that has broken its fiduciary duty. They are intended to deter the defendant from repeating the violation, as well as to deter other fiduciaries from doing it. Punitive damages are normally imposed only if the plaintiff can show that the respondent behaved maliciously or fraudulently.

Who Can Sue for Breach of Fiduciary Duty?


Suing for breach of fiduciary duty is limited to those who have been owed a fiduciary duty. Trustees and executors, for example, have a fiduciary duty to trust beneficiaries or estate heirs, but they do not have the same duty to co-trustees and co-executors.

As a result, whereas heirs and beneficiaries can sue for breach of fiduciary duty, co-fiduciaries cannot, even if they feel one is being committed.

Co-trustees and co-executors, on the other hand, can apply for a fiduciary’s suspension or removal, as well as a surcharge to cover any losses, if they consider the fiduciary has breached their duties.

What is the Texas Breach of Fiduciary Duty Statute of Limitations?


For this sort of occurrence, the statute of limitations varies by state. The statute of limitations for a breach of fiduciary duty in Texas is four years. This implies that the case must be filed within four years of the breach of fiduciary duty cause of action arising.

How to Avoid a Breach of Fiduciary Duty?


Act in the best interests of the person or entity to whom you are obligated. It may appear unduly broad, but that’s because there are so many ways to violate this specific duty. That is why it is crucial to communicate. Don’t do anything that may be seen as a breach of fiduciary duty. This entails avoiding unpleasant shocks and, in general, consulting the other party.

Above everything, keep meticulous records. Keep minutes of every meeting, write down decisions and debates, and make sure that if any prospective choice comes back to get you, you’ll be able to establish that you didn’t act against your fiduciary’s best interests.

If you are concerned about a potential breach of fiduciary duty, or if you feel you are the victim of one, seek the advice of our experienced probate litigation attorney.

Experienced and Compassionate Representation From Us


If you believe you have a case against a trustee or executor for breach of fiduciary duty, you should contact our experienced probate litigation attorney as soon as possible. In matters involving breaches of fiduciary duties, we at Chargois Harper work closely with our clients. We take the time to properly explain your rights and the legal processes that are involved in your case.

Our experienced Houston probate litigation attorney can assess the case and decide if a breach has occurred. If a breach has occurred, we can also advise you on whether the matter is worth pursuing and the best course of action to take.

A lawsuit for breach of fiduciary duty may be required in certain cases, while others may be settled more quickly by simply dismissing the fiduciary from their position. Working with our skilled probate litigation attorney will give you the best chance of victory no matter what legal action you choose. Contact us now!

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