Breach of Fiduciary Duty Claims

Houston Breach of Fiduciary Duty Attorneys

Over a Century of Legal Experience Helping Businesses in Texas

The "fiduciary" 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.

Resolve a Breach of Fiduciary Duty. Call (713) 909-7323

Managing shareholder Simon W. "Trey" Hendershot, III is one of "Houston's Top Lawyers" (H-Texas Magazine). Since 1987, Mr. Hendershot has successfully resolved a wide variety of fiduciary duty cases for his clients.

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The Basics of Fiduciary Duties

If you look up "fiduciary duty" in a legal dictionary, the definition will look like this: "An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for the benefit of another."

Under Texas law, a person who has the responsibility of a fiduciary duty has a strict requirement to place the interest of the person they are responsible for above their own personal interests. Steven G. Blum, lecturer on ethics and law at the University of Pennsylvania's Wharton School, explains that a fiduciary "commits to using technical proficiency in the service of clients, but also honors the complex trust placed in them by those they serve."

What Is a Fiduciary Relationship?

Fiduciary is a broad term for someone who is acting on behalf of another person under circumstances which create a relationship of trust and confidence. The term includes those holding custody and control of the property of others, such as trustees, administrators, executors, or those acting under powers of attorney. It may also include escrow agents, brokers, corporate directors and officers, partners, or condominium board members. 

When determining the existence of a fiduciary relation, the courts may consider factors such as the inequality of the parties, age, mental capacity, or other factors making one person dependent upon, or having an advantage over, another.

Fiduciary duties frequently arise in formal, legal relationships, such as attorney-client, business, or trustee relationships. But an informal fiduciary relationship may exist in situations where a particular relationship of trust and confidence exist, whether the relationship is a social, domestic or personal one. But relationships of trust do not always create a fiduciary duty. In a business setting, there are often elements of trust and confidence, or relationships that go back for many years, however, it can be tricky to determine whether such a confidential relationship exists. Mere subjective feelings of trust on one side are not enough.

Fiduciary duties also apply to married couples in some circumstances. The court may also take fiduciary duties into consideration in cases of prenuptial agreements.

Types of Fiduciary Relationships: Formal vs. Informal

In general, there are two types of fiduciary relationships:

  1. Statutory, in which the law explicitly describes the relationship;
  2. Common law, in which courts decided that certain relationships are fiduciary in nature.

Fiduciary relationships are also formal or informal, yet the same duties – loyalty, utmost good faith, candor, etc. – are imposed upon the fiduciary. The specific list of fiduciary duties will vary (and may increase) based on the type of relationship at hand, but every fiduciary owes these general duties to the beneficiary.

What Are Formal Fiduciary Relationships?

Examples of formal relationships include business partnerships, the attorney-client relationship, the relationship between an agent to his or her principal, the duty corporate officers and directors owe to the corporation, those acting together within the scope of a joint venture, executors and trustees as administrators of an estate or trust, and the typical employer/employee relationship.

What Are Informal Fiduciary Relationships?

Informal relationships, on the other hand, arise from the facts and circumstances of the situation. In a business transaction, one could be held liable for breach of fiduciary duty if the aggrieved party can establish that a relationship of trust and confidence existed before the transaction occurred, and that many such deals had been done in the past. In such a case, the aggrieved party could base a claim of breach upon an accusation that the fiduciary took advantage of the other party's trust.

What Duties Does a Fiduciary Owe to the Beneficiary?

Fiduciary duties generally fall into two categories: the duty of care and the duty of good faith. Duties within these categories vary depending on the many types of relationships between fiduciaries and beneficiaries (also called entrustors). These duties include:

  • Acting with strict integrity in all matters relating to the fiduciary relationship
  • Adhering to any applicable professional standards regarding ethics.
  • Complete honesty and accountability when handling finances.
  • Fair and honest dealing. The fiduciary must not take any action that could be seen as contrary to the beneficiary's interest without the full knowledge and consent of the beneficiary.
  • The fiduciary must always place the welfare of the beneficiary above their own interests.

Business Partners Owe a Fiduciary Duty

At Hendershot Cowart P.C., we represent business partners in a wide array of industries, from software to medical, who were harmed because of a partner's breach of fiduciary duty or fraudulent misrepresentation - or who themselves were accused of breach.

Case examples:

  • In a partnership engaged in developing software, one partner leaves the firm and begins selling the software on his own, in competition with his former partners.
  • One partner learns about a significant contract opportunity and fails to inform her partners. This partner instead forms a new company and takes the business for herself.
  • In the oil and gas industry, a partner learns about certain fields that become available for lease, develops the fields on his own, and cuts the other partners out of the deal.

Some cases involve what we characterize as "business through litigation," in which breach of fiduciary duty claims arise out of heavy-handed competition. As mentioned in the section above about damages and equitable remedies, intentional breach can result in exemplary or punitive damages.

Agents Owe a Fiduciary Duty

Certain types of agents owe a fiduciary duty to those who employ them. In any type of principal/agent relationship, the agent is to act in the principal's best interest at all times.

Insurance agents, for example, owe a fiduciary duty to the insurers (to the company they are selling the contract on behalf of). Escrow agents owe a fiduciary duty to both parties under contract. If an escrow agent releases funds before the time for doing so has come, the escrow agent has committed breach.

Former Employees Owe a Fiduciary Duty

Employees owe a common law fiduciary duty to their employers. By law, employees are obligated to act in their employer's interests. At Hendershot Cowart P.C., we have represented business clients against former employees who breached their fiduciary duty to their employers, as well as defended former employees accused of breach.

We have represented business clients in the employer/employee context in a variety of industries, including medical billing, manufacturing, software, and chemicals.

Employer/Employee Fiduciary Relationship

In the employer-employee context, a breach of fiduciary duty may involve:

  • Helping a competitor form a new business or improve an existing business
  • Ending his or her employment and creating a startup that directly (and in some cases indirectly) competes with the former employer's business
  • Divulging trade secrets to the detriment of a former employer in return for compensation, employment, or both
  • Otherwise using trade secrets for the employee's own benefit, even if the employee is not bound by a confidentiality agreement
  • Competing for the business of the former employer's clients or customers

Many of our cases over the years have involved salespeople, as one example. Former sales employees may leave the company, take client lists and trade secrets with them, and go to a competitor with the information. A case such as this could involve the breach of a number of fiduciary duties, including breach for taking proprietary information and breach for tortious interference.

Shareholders in a Closely Held Corporation Do Not Owe a Fiduciary Duty

A significant focus of our practice at Hendershot Cowart P.C., is representing shareholders of closely held corporations. Shareholders generally do not owe a fiduciary obligation to the corporation or to the other shareholders-absent other facts, such as a shareholder who acts to purchase a controlling interest. (Corporate officers and directors, however, do owe a fiduciary duty to the corporation.)

At Hendershot Cowart P.C., we analyze the particular type of action in the context of the person's role in the corporation. A shareholder who wears "multiple hats," or who takes certain actions, may be in essence both a corporate officer and a shareholder, and may owe a fiduciary duty.

What Is a Violation of Fiduciary Duty?

There is no easy answer to this question. A breach of fiduciary duty frequently occurs when company directors violate their fiduciary duty towards shareholders, or when a person acting as a guardian does not act in the best interests of the individual. For anyone acting in a fiduciary capacity, the standards are high. They require undivided loyalty and the obligation to avoid even the appearance of inappropriate behavior.

The main questions to consider are:

  • Was there a fiduciary relationship when the misconduct occurred?
  • If yes, then what was the scope of the relationship?
  • Was there a violation of the duties within the scope of the relationship? -

A violation of fiduciary duty may give rise to a number of legal penalties, including a tort, special damages or, in Texas, even possible criminal exposure.

At Hendershot Cowart P.C., we represent clients with breach of fiduciary claims, which is what happens when a fiduciary abuses or falls below the standard imposed on them when they are acting from a position of trust. We represent both those who claim a breach and those who must defend themselves against such accusations.

Breach of Fiduciary Duty Damages and Equitable Remedies

The prevailing party in a case involving breach of fiduciary duty may obtain a number of types of damages and/or one or more equitable remedies.

Possible Damages:

  • Actual damages, which generally refer to a calculation of the loss directly associated with the breach of fiduciary duty.
  • Lost profits - the subsequent economic injuries that result from breach - such as disruption to third party customer relationships.
  • If the damages are a foreseeable result of breach, a calculation for mental anguish may be added to the overall damages award.
  • In some cases, an intentional breach of fiduciary duty may result in exemplary or punitive damages.

Possible Equitable Remedies for Breach of Fiduciary Duties:

  • In a constructive trust, the court places a "hold" on proceeds, funds, or other property obtained as a result of the breach. The court controls the property and ultimately decides what happens to it.
  • Some cases involve fee forfeiture, in which the fiduciary forfeits his or her fees. This generally occurs in typical professional fiduciary/client relationships in law, accounting, finance, and elsewhere.
  • Profit disgorgement is similar to fee forfeiture, in that the party is ordered to return any profits that were obtained as a result of the breach.
  • The court may force an accounting. As an equitable remedy, this can be a crucial step in proving the extent of damages. In some cases, forcing an accounting can prove or disprove whether a breach of fiduciary duty took place.
  • In rescission, the court nullifies or cancels the transaction. It is as though the parties had never entered into an agreement. This generally places the parties in the position they were prior to the contract.
  • In some cases, the court may order an injunction, which will generally compel the defendant to take an action or to stop taking a certain action.
  • In applicable cases, such as those involving trust funds, a court-appointed receiver may assert control over the trust. Conversely, the court may suspend or remove a trustee who breached his or her fiduciary duties.

Representing Companies and Individuals in Breach of Fiduciary Duty Claims

At Hendershot Cowart P.C., our goal is to provide the utmost in value to every individual and business who becomes our client. For years, we have litigated all types of claims involving breach of fiduciary duties in nearly every major industry in Texas, involving a variety of scenarios, from business partnerships to employers/employees - in addition to breach of contract cases.

Let us prove our value to you. Call (713) 909-7323 or contact us online to arrange a consultation with our Texas breach of fiduciary duty attorneys.

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