Houston Breach of Fiduciary Duty Attorneys

Protecting Your Interests When Texas Fiduciaries Breach Their Legal Duties

When someone in a position of trust betrays that trust, the consequences can be devastating. That’s why a fiduciary – someone with a legal obligation to act in the best interests of another – is held to a higher legal standard. Fiduciaries owe numerous duties to the beneficiary: loyalty, utmost good faith, candor, to refrain from self-dealing, to act with integrity of the highest standards, and full disclosure.

At Hendershot Cowart P.C., our Houston fiduciary litigation attorneys have spent over 35 years representing clients in complex breach of fiduciary duty cases. We handle both sides of these disputes – pursuing claims against fiduciaries who have violated their duties and defending fiduciaries against unfounded allegations.

On This Page

• What Is a Breach of Fiduciary Duty?
• Who Owes Fiduciary Duties in Texas?
• Common Examples of Breach of Fiduciary Duty
• Formal vs. Informal Fiduciary Relationships
• How to Prove Breach of Fiduciary Duty
• Damages & Remedies in Fiduciary Litigation
• Defenses to Breach of Fiduciary Duty Claims
• When to File a Breach of Fiduciary Duty Lawsuit
• FAQs

Facing a breach of fiduciary duty? Whether you need to file a lawsuit against a fiduciary or defend yourself against breach allegations, contact Hendershot Cowart P.C. at (713) 783-3110 or contact us online for a confidential consultation.

What Is a Breach of Fiduciary Duty?

A breach of fiduciary duty occurs when someone in a position of trust – like a trustee, executor, business partner, or corporate officer – violates their legal obligations to act in your best interests. Texas law recognizes specific duties these fiduciaries owe – independent of any written agreement – and violations can result in personal liability, removal from their position of trust, and financial damages.

A fiduciary relationship exists when one person (the fiduciary) has a legal obligation to act in the best interests of another (the beneficiary). This relationship creates specific legal duties that, when violated, can give rise to a breach of fiduciary duty claim.

Who Owes Fiduciary Duties in Texas?

Fiduciary relationships arise in many contexts:

Trust and Estate Fiduciaries:

• Trustees managing trust assets for beneficiaries
• Executors and administrators handling estate property
• Guardians controlling assets for a person who is incapacitated
• Powers of attorney managing another's financial affairs

Business Fiduciaries:

• Partners in general and limited partnerships
• Members and managers of limited liability companies (LLCs)
• Corporate officers and directors
• Employees owe a duty of loyalty to employers while employed

Shareholders generally do not owe a fiduciary obligation to the corporation or to the other shareholders, but it depends on the person’s role in the corporation. A shareholder who wears “multiple hats” or who takes certain actions may, in essence, be both a corporate officer and a shareholder, and may owe a fiduciary duty.

Professional Fiduciaries:

• Attorneys representing clients
• Financial advisors managing client investments
• Real estate agents representing buyers or sellers
• Accountants handling client financial matters

Common Examples of Breach of Fiduciary Duty

Understanding what constitutes a breach helps you recognize when legal action may be necessary. Common examples include:

Self-Dealing and Conflicts of Interest

• Using fiduciary position for personal gain
• Engaging in transactions that benefit the fiduciary at the beneficiary's expense
• Failing to disclose personal interests in business transactions
• Competing with the entity they're supposed to serve

Misappropriation of Assets or Opportunities

• Taking corporate opportunities for personal benefit
• Diverting business to competing entities
• Using confidential information for personal gain
• Unauthorized use of entity funds or property

Failure to Disclose Material Information

• Concealing conflicts of interest
• Withholding financial information from beneficiaries or co-owners
• Hiding transactions or business developments
• Failing to provide required accountings

Negligent Management

• Failing to exercise reasonable care in business decisions
• Ignoring obvious risks to the entity
• Delegating critical duties without proper oversight
• Making uninformed decisions without adequate investigation

Breach of Loyalty

• Favoring one beneficiary over others
• Placing personal interests above fiduciary obligations
• Accepting kickbacks or secret commissions
• Engaging in undisclosed side arrangements

Formal vs. Informal Fiduciary Relationships: 

Texas courts recognize that an informal fiduciary duty may arise from a “moral, social, domestic or purely personal relationship of trust and confidence.” However, Texas courts do not accept the existence of an informal fiduciary relationship lightly. 

In Schlumberger Technology Corporation v. Swanson, 959 S.W.2d 171 (Tex. 1997), the Texas Supreme Court held that, “not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship.”

Courts place the burden of proof on the party bringing the claim and require a fact-intensive analysis of whether one party justifiably relied on another's superior judgment or advice. Courts examine:

• Pre-existing relationship – The special trust must exist before the disputed transaction, not arise from it
• Superiority and influence – Whether one party exercised control or dominance based on greater expertise, knowledge, or access to information
• Justified reliance – Whether the dependent party reasonably relied on the other to manage their affairs or protect their interests
• Inequality factors – Disparities in business sophistication, age, mental capacity, or other vulnerabilities creating dependence

In commercial settings, Texas courts set a high bar. Ordinary business relationships are presumed to be arms-length dealings, and subjective trust in a business associate alone is not sufficient to create fiduciary duties.

How to Prove Breach of Fiduciary Duty in Texas

Understanding how Texas courts analyze fiduciary breach claims is essential to both prosecuting and defending these cases.

To prevail on a breach of fiduciary duty claim in Texas, you must prove four elements:

1. A fiduciary relationship existed. You must establish that the defendant owed you fiduciary duties. Some relationships create fiduciary duties automatically (trustee-beneficiary, attorney-client, partner-partner), while others require proof of special circumstances creating a relationship of trust and confidence.
2. The fiduciary breached their duties. You must show the fiduciary violated one or more of their specific duties – loyalty, care, good faith, or disclosure. The breach must be more than mere negligence in most cases; it typically involves intentional wrongdoing, self-dealing, or gross negligence.
3. The breach caused you harm. There must be a causal connection between the fiduciary's breach and your damages. You can't recover merely because a fiduciary breached their duty if that breach didn't actually harm you.
4. You suffered damages. You must prove actual financial harm resulting from the breach. Damages can include lost profits, diminished asset value, or other measurable losses.

A violation of fiduciary duty may give rise to a number of legal penalties, including emergency relief, financial damages, or other equitable remedies such as replacing a trustee.

Damages & Remedies in Fiduciary Litigation

Texas law provides multiple remedies for fiduciary breaches, depending on the nature of the violation and the relief sought.

Injunctive Relief

Courts can issue emergency injunctions ordering the fiduciary to take specific actions or stop harmful conduct.

• Temporary Restraining Orders (TROs) can be obtained within 24 to 48 hours to freeze assets, stop harmful conduct, and preserve evidence. TROs typically last 14 days before a temporary injunction hearing.
• Temporary Injunctions require a hearing with both parties but can remain in effect throughout the lawsuit, compelling specific actions like providing accountings or stopping competition while preventing irreparable harm.

Financial Remedies

• Actual Damages. You can recover the financial harm directly caused by the breach, such as lost profits or income from mismanaged assets or diminished value of trust, estate, or business property. 
• Disgorgement of Profits. When a fiduciary profits from their breach, courts can order them to disgorge (return) those profits even if you can't prove actual damages. This applies when fiduciaries take corporate opportunities for themselves, receive unauthorized compensation, or make improper use of trade secrets of confidential information.
• Exemplary (Punitive) Damages. Texas allows exemplary damages in fiduciary breach cases involving fraud or malicious conduct. These damages can be substantial (capped at the greater of two times economic damages plus non-economic damages up to $750,000, or $200,000) and are designed to punish the wrongdoer and deter similar conduct.

Equitable Remedies

• Accounting. Courts can order fiduciaries to provide detailed accountings of all transactions involving trust, estate, or business property. This remedy is particularly important when beneficiaries have been denied financial information.
• Constructive Trust. When a fiduciary has wrongfully obtained or retained specific property, courts can impose a constructive trust, requiring the fiduciary to return the property or its proceeds to the rightful owner.
• Removal and Appointment of Successor. Courts have authority to remove fiduciaries – including trustees, executors, and corporate officers or directors – who have breached their duties and appoint a successor or a receiver to manage business operations.

Attorney Fees

Texas law allows recovery of attorney fees in certain fiduciary cases:

• Trust Cases: The Texas Trust Code allows successful parties to recover reasonable attorney fees in trust litigation, at the court's discretion.
• Estate Cases: The Texas Estates Code similarly permits fee awards in probate litigation.

Attorney fees are generally not recoverable in business cases unless the partnership or business agreement (the source of the fiduciary duty) contains a "prevailing party" attorney fees clause. 

In trust and estate cases, courts allow fiduciaries who successfully defend against baseless claims to recover their defense costs from the trust or estate, rather than personally. This protects fiduciaries acting in good faith.

Defenses to Breach of Fiduciary Duty Claims

Fiduciaries facing allegations have several potential defenses:

Business Judgment Rule

Corporate directors, officers, and LLC managers may benefit from a presumption that they acted in good faith and with the care an ordinarily prudent person would exercise. Corporations (unless publicly traded), LLCs, and limited partnerships must opt in for this legal protection by amending their governing documents. 

Plaintiffs can overcome this presumption by showing:

• Gross negligence (not mere negligence)
• Conflicts of interest or self-dealing
• Fraud or intentional misconduct
• Failure to act in good faith

Informed Consent

If the fiduciary fully disclosed a conflict of interest or proposed transaction to the beneficiary, and the beneficiary gave informed consent, this can defeat a breach claim. The disclosure must be:

• Complete and accurate
• Made before the transaction
• Given to someone with capacity to consent
• Free from undue influence or pressure

Operating Agreement Modifications

In the LLC and partnership context, properly drafted operating or partnership agreements can:

• Eliminate certain fiduciary duties (except the implied covenant of good faith and fair dealing)
• Define duties more narrowly
• Create safe harbors for specific types of conduct
• Limit remedies available for breaches

These modifications must be clear and conspicuous to be enforceable.

Statute of Limitations for Fiduciary Breach Claims

Texas generally imposes a four-year statute of limitations for breach of fiduciary duty claims, but shorter periods may apply for specific contract violations or other related claims.

In trust cases, the statute of limitations varies based on Texas Trust Code provisions. If a trustee provides an adequate accounting, beneficiaries generally have one year to object. Without a proper accounting, the standard limitations periods apply, but may be extended significantly.

Ratification

If a beneficiary, with full knowledge of a fiduciary's breach, accepts the benefits of a transaction or otherwise ratifies the conduct, they may be barred from later challenging it.

When to File a Breach of Fiduciary Duty Lawsuit in Texas

You should consider filing a breach of fiduciary duty lawsuit when:

• A fiduciary has engaged in self-dealing that harmed you financially
• Business opportunities were diverted from the company for personal gain
• Financial information has been concealed or misrepresented
• Assets have been misappropriated or wasted through negligent management
• The fiduciary refuses to account for their actions despite your demands
• Ongoing breach threatens to cause additional harm

Don’t Miss the Statute of Limitations Deadline!

Once the statute of limitations expires:

• Your claim is permanently barred
• Courts have no discretion to extend it (absent extraordinary circumstances)
• You lose all right to recovery, regardless of how clear the breach
• The fiduciary can assert limitations as a complete defense

The sooner you consult with an attorney, the more options you have for recovery and the stronger your evidence preservation.

If you suspect a breach of fiduciary duty, contact Hendershot Cowart P.C. immediately at (713) 783-3110. We'll evaluate your claim, determine applicable deadlines, and protect your rights before time runs out.

Serving clients throughout the Houston metro area, Harris County, and Texas in breach of fiduciary duty litigation, business disputes, partnership conflicts, trust litigation, and estate disputes.

Frequently Asked Questions About Breach of Fiduciary Duty in Texas

How long do I have to file a breach of fiduciary duty claim in Texas?

Texas law provides a four-year statute of limitations for breach of fiduciary duty claims, starting from when the breach occurred or when you discovered (or should have discovered) the breach through reasonable diligence. The discovery rule may extend this period if the fiduciary concealed their wrongdoing. 

For trustee breaches, special rules apply under the Texas Trust Code – you may have only one year from receiving a proper accounting that disclosed the breach, or four years if no accounting was provided. 

Because statute of limitations periods vary based on specific circumstances, consult an attorney immediately if you suspect a breach.

What is the difference between breach of trust and breach of fiduciary duty?

Breach of trust specifically refers to a trustee violating duties owed to trust beneficiaries under the Texas Trust Code. Breach of fiduciary duty is broader and includes trustees but also applies to business partners, corporate officers, executors, agents, employees, and others in positions of trust. 

Breach of trust cases are governed by specific statutes in the Texas Trust Code and are typically filed in probate court, while other fiduciary breach cases follow common law principles and are usually filed in district court.

Can I sue my business partner for breach of fiduciary duty in Texas?

Yes. Business partners owe each other fiduciary duties of loyalty, good faith, and fair dealing under Texas law. You can sue if your partner engaged in self-dealing, usurped business opportunities, competed against the partnership, diverted partnership assets for personal use, or otherwise placed their interests above the partnership's interests. The same applies to LLC members and managers, though operating agreements may modify these duties. 

What damages can I recover in a Texas fiduciary breach case?

Texas law allows recovery of actual damages (direct financial losses from the breach), consequential damages (lost profits, lost business opportunities, damaged relationships), attorney fees and costs (limited to trust and estate matters), and in cases involving fraud, malice, or gross negligence, exemplary (punitive) damages up to two times actual damages, capped at $750,000.

You may also obtain equitable remedies like constructive trust (recovering specific property), accounting (forcing disclosure of transactions), injunctions (stopping harmful conduct), and removal (replacing the fiduciary). 

The specific damages depend on the type of breach, the harm caused, and whether the breach was negligent or intentional.

Do I need to prove intent to win a breach of fiduciary duty case?

No. While intentional breaches may result in higher damages including punitive awards, you can prevail by showing negligent breach – that the fiduciary failed to meet their duty of care even without malicious intent. For example, a trustee who makes poor investment decisions through carelessness rather than self-dealing can still be liable for breach. 

However, proving intentional breach, fraud, or malice strengthens your case significantly because it opens the door to exemplary damages and makes it easier to overcome defenses like the business judgment rule. 

The level of intent affects damages and remedies, not liability itself.

What is the business judgment rule in Texas?

The business judgment rule is a legal presumption that corporate officers and directors for public corporations – and private corporations, LLCs, and limited partnerships that opt in – made decisions in good faith, with reasonable care, and in the corporation's best interests. This rule protects directors from personal liability for business decisions that turn out poorly in hindsight. 

The business judgment rule does not protect fraudulent conduct, self-interested transactions without disclosure, or decisions made in bad faith. It applies primarily to corporate contexts, not to trustees, partners, or other fiduciaries.

Can an LLC operating agreement eliminate fiduciary duties in Texas?

Texas law allows operating agreements to modify or eliminate certain fiduciary duties owed by LLC members and managers, giving parties significant flexibility to customize their internal relationships. A carefully crafted operating agreement can clarify the scope of duties, specify when conflicts of interest are permitted, and create safe harbors for certain business activities. 

Even with contractual modifications, members and managers cannot engage in fraud, intentional misconduct, or knowing violations of law. Any provision attempting to shield this conduct would likely be unenforceable as against public policy.

Can I be held personally liable for breach of fiduciary duty?

Yes. A fiduciary is liable for any loss or damages suffered by the plaintiff as a result of the breach, even if they were acting on behalf of a corporation, partnership, LLC, trust, or estate. Personal liability means your own assets (home, savings, investments) may be at risk to satisfy a judgment. Corporate status does not shield individual officers or directors from personal liability for their own fiduciary breaches. The same applies to trustees, executors, partners, and agents. 

If you hold a fiduciary position and face potential liability, seek legal counsel immediately to protect yourself.

Do shareholders owe fiduciary duties to other shareholders in Texas?

Generally, no. In Texas, shareholders of a corporation do not owe fiduciary duties to other shareholders or to the corporation itself – only corporate officers and directors owe these duties to the corporation. However, controlling shareholders in closely held corporations may owe duties to minority shareholders in specific circumstances, such as when purchasing shares, conducting freeze-out mergers, or exercising control in ways that harm minorities. Texas courts examine whether the shareholder was acting in a capacity that creates fiduciary obligations, such as serving as both shareholder and officer. LLC members may owe duties to each other depending on the operating agreement and whether the LLC is member-managed or manager-managed.

Can I sue for breach of fiduciary duty if I only have an informal business relationship?

Possibly. Texas courts recognize informal fiduciary relationships based on facts and circumstances showing a special relationship of trust and confidence beyond ordinary business dealings. To establish an informal fiduciary duty, you must prove: (1) the relationship involved special trust and confidence, (2) one party was in a superior position allowing influence over the other, (3) the relationship created dependency or justifiable reliance, and (4) factors like inequality of knowledge, age, mental capacity, or sophistication support the relationship. However, mere friendship, long-term business dealings, or subjective feelings of trust are insufficient. Arms-length commercial transactions between sophisticated parties typically do not create fiduciary duties. The determination is highly fact-specific and requires legal analysis.

What is a constructive trust in a fiduciary breach case?

A constructive trust is an equitable remedy where the court places property or funds obtained through breach of fiduciary duty under court control, then orders the property returned to the rightful owner. Unlike an actual trust created by agreement, a constructive trust is imposed by the court to prevent unjust enrichment and remedy fraud or breach of duty. The court "constructs" a trust over the disputed property to ensure the breaching fiduciary cannot profit from their wrongdoing. Constructive trusts are particularly useful when you want to recover specific property rather than just monetary damages.