To recover against a defendant for a claim of breach of fiduciary duty, you must prove all the following by a preponderance of the evidence:
- The defendant was acting as a fiduciary of the plaintiff with respect to the subject matter involved;
- The defendant breached a fiduciary duty owed to the plaintiff;
- The plaintiff suffered an injury; and
- The defendant’s breach of fiduciary duty caused the plaintiff’s injuries.
What follows is a brief discussion of how Texas courts analyze each element of a fiduciary duty breach.
Element #1: Fiduciary Duty
In Texas, establishing the breach of fiduciary duty elements is contingent upon the existence of a fiduciary relationship. A fiduciary relationship exists whenever an individual (fiduciary) is entrusted to advise or act primarily for the benefit of or in the interests of another individual.
In addition, the fiduciary must have the legal authority to act. Authority is typically established by contract.
A fiduciary is required to act in good faith and with loyalty, unaffected by personal motives. Examples of fiduciary relationships recognized by Texas courts include:
- 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, and
- Certain employer-employee relationships where the employee has a high level of authority
However, fiduciary duties only arise as to matters within the scope of the fiduciary relationship. For example, a pastor may owe a fiduciary duty to a parishioner with respect to divorce counseling.
However, the fiduciary relationship would not extend to matters outside the scope of such services. If the pastor wanted to date the parishioner’s ex-spouse after the divorce, there would be no fiduciary relationship and thus no duty to breach.
Element #2: Breach of Duty
A fiduciary duty ranks among the highest levels of legal obligation owed to another. Fiduciaries owe the utmost level of good faith to those whom they act on behalf. In general, there are two types of fiduciary duties: the duty of care and the duty of loyalty.
The duty of care requires the fiduciary to act with reasonable prudence and diligence in carrying out their duties to further the best interest of the one to whom they owe that duty. Examples of a breach of the fiduciary duty element include:
- a CEO’s failure to regularly attend board meetings,
- an attorney’s failure to communicate adequately with their client, or
- an asset manager mismanaging client funds.
The duty of loyalty generally requires the fiduciary to place the interest of the one to whom they owe a duty above their own. Fiduciaries should also disclose any conflicts of interest. The duty of loyalty prohibits self-dealing and direct competition with the one they are acting on behalf of.
An example of a conflict of interest and self-dealing would be an executive stealing trade secrets from their own company and using them to set up a competing business across the street.
Element #3: Damages
Plaintiffs who have sustained a personal noneconomic injury may sue for breach of fiduciary duty. Examples include emotional distress and even imprisonment (for example, resulting from attorney malpractice). With respect to business relations, courts typically require the plaintiff to have suffered some form of economic loss. Common injuries include:
- lost profits,
- future losses, and
- reputational damage.
In some cases, you may be able to seek a court order to recover any benefits the fiduciary wrongfully acquired by breaching their fiduciary duty. In addition, a plaintiff may be able to recover punitive damages if they can show that the defendant’s breach was intentional or flagrant.
Element #4: Causation
The final breach of fiduciary duty element requires the plaintiff to show that the fiduciary’s careless or disloyal act caused the injuries alleged. Texas courts have held that the element of causation is satisfied when the plaintiff proves that the fiduciary’s conduct was a “substantial contributing cause” of the injury.
This means that simple reliance on an intentional misrepresentation will suffice to establish causation, even when the reliance is not the sole factor—or even the predominant factor—leading to the injury.
How Can an Attorney Help?
Hunnicutt Law Group is experienced in business litigation and other legal matters involving elements of breach of fiduciary duty. The Dallas, Texas firm has represented businesses of all sizes and has recovered substantial amounts on behalf of clients. If you have suffered an injury because of a breach of fiduciary duty, contact Hunnicutt Law Group today for a consultation.