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Breach of Fiduciary Duty

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The law recognizes the existence of fiduciary duties resulting in special relationships of trust or confidence in certain individuals. Fiduciary duties can arise out of formal relationships, such as a lawyer or partner, or even informal relationships if the specific facts or circumstances require the imposition of fiduciary duties. Courts in Texas have commonly recognized the existence of fiduciary duties in the following relationships: Attorneys, employees, agents, escrow agents, insurance agents, holders of a power of attorney, corporate officers, joint ventures', executors and trustees, securities brokers, taxpayers, class representatives, mineral-rights holders, and condominium board members—just to name a few.

A fiduciary owes duties of loyalty and utmost good faith, the duty to refrain from self-dealing, duty to act with fairness and honesty, and the duty of full disclosure. When these duties are breached, the victims of the breach often need to act swiftly to seek legal action to reverse course. A breach of fiduciary duty not only gives rise to a tort, but it also gives rise to special damages and remedies that are unique to fiduciary cases apart from common economic loss damages, such as disgorgement of ill-gotten gains or a constructive trust. In the case of misapplication of fiduciary property, many states, including Texas, recognize potential criminal exposure for these torts. These torts can manifest in all sorts of relationships from employees stealing information from their employer to a sophisticated partnership relationship deteriorating because the intellectual property has been misappropriated.

What Does it Mean to Have Fiduciary Duty?

Many different business transactions must be undertaken by a neutral third party or by someone who is not the party involved but instead is acting on their behalf. To make sure this third party acts in the best interest of the party they are representing, they are granted what is legally known as “fiduciary duty.” In essence, fiduciary duty is a relationship between two parties that makes one legally obligated to act in the best interests of the other. While there are ways to ensure that someone entrusted with fiduciary duty acts in the best interest of their principal, it’s still crucial that a fiduciary be someone who has no conflicts of interest with any transaction they may be required to partake in. They also should not be able to profit off any of these transactions, unless explicit consent is granted at the start of the relationship.

The three primary types of fiduciary relationships that could apply to businesses: trustee/beneficiary, attorney/client, and principal/agent. Let’s look at each of these in more detail.

Trustee/Beneficiary Relationships

These are primarily used in estate planning law but can lean into the business law world as well depending on the nature of a trust. In this instance, an individual named in a trust is named the fiduciary and given the role of trustee. At this point, they take legal ownership of property included in the trust and are given the power to handle the assets in the name of the trust. However, as a trustee, they are required to make decisions regarding that property in the best interest of the trust itself, including ceasing to distribute property from the trust should its beneficiary break its terms. In many cases, business assets or control over a business can be placed into a trust and then held by a trustee on behalf of a beneficiary.

Attorney/Client

For an attorney to properly represent their client and provide them with the best possible counsel and representation, they must have the full confidence and trust of their clients. For this reason, the Supreme Court has ruled that an attorney is not required to testify against their client and is not required to expose any information that might incriminate them. In return, attorneys must also act in the best interests of their clients, being completely loyal to their cause. Any attorney who fails to do this or guides a client wrongfully to gain has broken their fiduciary duty and could face serious charges in court for their conduct.

Principal/Agent

The principal/agent relationship is the most generic type of fiduciary relationship and the most common in business litigation law. Anyone or anything with the legal capacity to act on their own may act as a principal, and the agent may be any one of their choosing that does not have a conflict of interest. One common example in business is when a group of shareholders for a corporation act as principals when selecting management, who then act as agents on behalf of the company. Obviously, in this instance, you’ll want to make sure the management does not have any conflicts of interest, such as investment banking on the success of a competitor.

If you would like to learn more about fiduciary duty and how it can apply to your business, speak with a Dallas business litigation attorney from Lyons & Simmons, LLP today. We know the business world can be complex, and that means it’s important to have an ally who can help you navigate through any issues you might face. We strive to protect your best interests and your future through careful strategy, decisive action, and aggressive representation should your issue ever need to escalate further.

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The breach of fiduciary duty lawyers at Lyons & Simmons, LLP have handled large, complex cases, as well as other business tort and business litigation cases for plaintiffs and defendants in a wide range of circumstances. Call us for an evaluation of your business tort case involving a breach of fiduciary duties.

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