June 14, 2023
The Strategies for Proving Breach of Fiduciary Duty in Texas
According to legislation, those in positions of trust and confidence must act in the other party’s best interests. This requirement is called a fiduciary duty. In Texas, a failure to uphold this obligation that results in harm or financial loss to somebody is termed a breach of fiduciary duty. To pursue justice and obtain financial compensation, such a breach must be shown.
As you read on, we will examine the methods for demonstrating a breach of fiduciary responsibility in Texas and emphasizes the significance of working with a Callender Bowlin attorney to handle these intricate legal concerns.
What is a fiduciary relationship?
An arrangement where one party (the fiduciary) is given a position of trust and confidence in the perspective of the other party and operates on their behalf or in some way on their behalf. There are several forms of fiduciary relationships that are legally recognized (including the relationships between an agent and principal and a director and the pertinent corporation).
In other cases, a relationship of this kind can be created based on the individual facts and circumstances of the case. If a fiduciary relationship is determined to exist, the fiduciary bears the other party’s fiduciary duties
Fiduciary Duty in Texas
The study of fiduciary obligations in the context of Texas corporate organizations has been altered by statutory developments that started in the 1990s. Today, legislative rules that outline the obligations of general partners do so without using the term “fiduciary” and make it clear that partners are not to be held to the same standards as trustees.
Although it is unclear whether limited partners in a limited partnership have fiduciary obligations, the Texas Business Organizations Code (BOC) makes it clear that a limited partner does not automatically owe the obligations of a general partner.
Although many facets of corporate legislation are pertinent to the application of fiduciary-duty notions in the corporate context, the common law still serves as the primary definition of the directors’ fiduciary obligations.
There is some uncertainty regarding the duties in this area because limited liability companies (LLCs) are a relatively new phenomenon and the Texas LLC statutes do not specifically state those of managers and members; however, the LLC statutes point to or indicate they have duties, and managers in a manager-managed LLC as well as members in a member-managed LLC ought to be held to fiduciary responsibilities comparable to those imposed on company directors, general partners, etc.
When a Fiduciary Is in Breach of Duty
A fiduciary in Texas must act with the utmost loyalty, good faith, and due diligence to guarantee that the needs and interests of the other party are fulfilled. Any of these duties that a fiduciary violates constitutes a breach of that relationship. A breach of fiduciary duty ought to be proven by these subsequent factors:
- The parties are in a fiduciary relationship;
- The fiduciary failed in his obligations; and
- The other party was directly harmed by the breach, and/or the fiduciary was directly benefited.
Before you can file a claim for a breach of fiduciary duty, all three of the previously mentioned requirements must be satisfied.
Elements of Breach of Fiduciary Duty
Duty of Loyalty
Fiduciaries have a responsibility of loyalty to work only in their beneficiaries’ best interests, abstaining from conflicts of interest and self-dealing. The beneficiary’s interests must have come second to the fiduciary’s own interests for them to establish a breach of this duty.
Duty of Care
Fiduciaries have a duty to care and act with the degree of expertise, diligence, and caution required by their line of work or position. When the fiduciary fails to offer the required level of care, incurring harm or loss to the beneficiary, a breach of this duty has occurred.
Duty of Good Faith and Fair Dealing
The duty of good faith and fair dealing obligates fiduciaries to act honestly, fairly, and in line with the reasonable expectations of who they work. It must be proven that the fiduciary behaved dishonestly or in bad faith so as to go against this obligation.
The following are examples of frequent breaches:
- Inability to appropriately disclose or secure sensitive information;
- Misappropriate or theft of funds;
- Provide inaccurate or deceptive business advice;
- Improperly mismanage resources, like company funding or annuities for retirement; or
- Misrepresent critical data that affected a commercial decision or transaction.
Formal vs. Informal Fiduciary Relationships
There are mainly two kinds of fiduciary relationships:
- Statutory, where the relationship is explicitly laid down in the legislation;
- Common law, according to the courts, established that some relationships have a fiduciary element.
Fiduciaries are bound by the same obligations, such as loyalty, the highest degree of good faith, candor, etc., whether the relationship is formal or informal. Depending on the sort of relationship at hand, the precise list of fiduciary obligations will change (and possibly grow), but each fiduciary owes these fundamental obligations to the beneficiary.
Formal Fiduciary Relationships
Legal contracts or specialized legal positions are used to create formal fiduciary relationships. They have definite obligations and responsibilities and are governed by legal statutes. Some examples involve trustee-beneficiary and attorney-client relationships. The fiduciary is required to fulfill rigorous care and loyalty standards while acting in the beneficiary’s greatest interests.
Informal Fiduciary Relationships
Instead of formal legal agreements, informal fiduciary relationships are founded on trust and personal connections. Despite the absence of specific legal requirements, they are nonetheless subject to ethical obligations. In instances when one person relies on another to behave in their best interests, like in close friendships or familial relationships, informal fiduciary relationships frequently arise.
Although not required by legislation, the fiduciary ought to put the beneficiary’s interests first and behave fairly and transparently. Relational and personal repercussions may result from breaching the trust in these relationships.
Establishing a Fiduciary Duty Breach
To successfully establish a breach of fiduciary duty, a thorough strategy that includes:
Building a solid case requires gathering evidence. For the purpose of showing the fiduciary obligation and the breach, this might involve accounting records, communication records, witness testimony, contracts, and other pertinent documents.
Establishing the Existence of a Fiduciary Duty
Establishing a fiduciary relationship is crucial for demonstrating a breach of fiduciary duty. This can be completed with proof of a legally binding contract, a contractual or other obligation, or even merely the essence of the relationship.
Demonstrating Breach of the Duty
It is essential to offer proof that unequivocally shows the fiduciary duty was broken. The fiduciary’s duties are breached by exhibiting instances of self-dealing, conflicts of interest, negligence, fraud, or other unlawful acts.
Showing Damages Caused by the Breach
It is crucial to demonstrate that the beneficiary suffered actual damages or financial harm as an outcome of the fiduciary obligation breach. The argument for requesting compensation is strengthened by determining and demonstrating the scale of these damages.
Rescission and Restitution
Rescission is the cancellation or termination of an agreement or contract that was made as an outcome of a fiduciary responsibility violation. Whilst restitution entails giving back any goods or assets obtained as a result of the breach.
The Importance of Hiring a Lawyer
A thorough understanding of Texas law and previous experience with fiduciary obligation matters are necessary to successfully prove a breach of fiduciary duty. Choosing a lawyer from Callender Bowlin has several benefits:
- Experience in Fiduciary Cases: The attorneys at Callender Bowlin have experience with cases involving breaches of fiduciary responsibility and are knowledgeable about the complexities of such claims and successful defense tactics.
- Knowledge of Texas Laws: A qualified attorney is knowledgeable about the fiduciary obligation statutes and case law that apply specifically to Texas. We are able to navigate the legal system and construct a compelling argument based on the rules of the relevant jurisdiction.
- Expertise in Litigation and Negotiation: A lawyer with experience in breaches of fiduciary responsibility cases is aware of the value of settlement talks and negotiations. We can effectively represent their clients in court if that becomes required.
CB Trial Represents Businesses And Individuals In Claims For Fiduciary Breach
Proving a breach of fiduciary duty is critical for holding people who fail to perform their commitments in positions of trust responsible. Important aspects of the legal process include comprehending the elements of the breach, acquiring strong proof, and establishing the losses incurred.
Every person and company who becomes a client of Callender Bowlin is treated with the utmost respect. For years, alongside breach of contract lawsuits, we have litigated a multitude of claims involving fiduciary duty breaches in almost every major industry in Texas, covering a range of situations, from corporate partnerships to employers and employees.