Fiduciary duty cases are some of the highest-value claims in Texas business litigation. The duties are demanding, and the remedies are expansive, including disgorgement of the fiduciary’s gains, constructive trusts on specific property, equitable forfeiture of compensation, and exemplary damages. A claim that looks like an ordinary contract dispute turns into a much larger matter once fiduciary duty theories are added.
The threshold question in any fiduciary duty case is who owes the duty and to whom. Texas recognizes fiduciary relationships in multiple categories, corporate directors and officers, general partners, LLC managers, trustees, agents, attorneys, and a smaller set of relationships of trust and confidence established by the specific facts. Each category has its own duty contours, and the case starts by pinning down which one you are in.
Who owes fiduciary duties
Corporate directors and officers. TBOC Chapter 21 codifies the duties of directors and officers to the corporation. The duties include loyalty (acting in the corporation’s best interest, avoiding conflicts), care (exercising reasonable care in decisions), and good faith.
General partners. TBOC Chapter 152 (governing general partnerships) provides that partners owe duties to the partnership and to fellow partners. The duties cover loyalty (no self-dealing, no competition, no taking partnership opportunities), care, and good faith.
LLC managers and members. TBOC section 101.401 makes the company agreement the controlling source. Where the agreement is silent, default duties analogous to corporate duties apply.
Trustees. Trust beneficiaries are owed extensive duties by trustees, governed by the Texas Trust Code (Texas Property Code Chapter 111-117).
Agents. Agents owe duties to principals at common law, including loyalty, care, and obedience within the scope of the agency.
Attorneys. Attorneys owe fiduciary duties to clients, covering loyalty, confidentiality, competent representation, and disclosure.
Special relationships of trust and confidence. Texas recognizes informal fiduciary duties arising from relationships of trust and confidence in specific factual settings. The duty is fact-intensive and not lightly imposed.
Controlling shareholders in some contexts. Texas has recognized that controlling shareholders can owe fiduciary duties to minorities in specific contexts, particularly in self-dealing transactions.
The duties
Duty of loyalty. The fiduciary must act in the entity’s or principal’s best interest. The duty includes:
- No self-dealing without full disclosure and proper authorization.
- No competing with the entity or principal.
- No taking opportunities that belong to the entity or principal.
- Full disclosure of material information.
Duty of care. The fiduciary must exercise reasonable care, skill, and diligence. The standard is contextual, what care a similarly situated reasonable person would exercise.
Duty of good faith. The fiduciary must act with honest intent toward the proper purposes of the relationship.
Duty of disclosure. Distinct from loyalty, the duty of disclosure requires the fiduciary to share material information with the entity or principal.
Duty to account. The fiduciary must keep accurate records and account for entity or principal property and transactions.
The business judgment rule
The business judgment rule provides important protection for honest business judgment. Texas applies the rule to insulate directors and officers from second-guessing of decisions made:
- In good faith.
- On an informed basis.
- In the honest belief that the action was in the corporation’s best interest.
When the rule applies, courts defer to the management’s judgment rather than substituting judicial assessment of whether the decision was wise.
The rule does not protect:
- Breaches of the duty of loyalty.
- Self-dealing transactions.
- Decisions made without adequate information.
- Bad-faith decisions.
- Decisions outside the scope of authority.
Most fiduciary duty cases attack the rule’s applicability before attacking the merits. Cases where the rule applies tend to be hard to win for plaintiffs; cases where it does not apply tend to be harder to defend.
Damages and remedies
Fiduciary duty cases have an expansive damages framework:
Compensatory damages. Losses caused by the breach, including direct loss and consequential loss.
Disgorgement. The fiduciary’s profits from the breach are recoverable even when those profits exceed the principal’s losses. This is one of the most powerful features of fiduciary duty practice.
Constructive trust. Specific property acquired through breach can be subjected to a constructive trust for the benefit of the principal. The remedy allows recovery of the specific property rather than just damages.
Equitable forfeiture. Compensation paid during periods of breach can be subject to forfeiture. The remedy applies to salaries, bonuses, and other compensation paid during the breach.
Exemplary damages. Under Chapter 41 on a clear and convincing showing of malice, fraud, or gross negligence. The Chapter 41 caps apply. See Exemplary Damages in Business Cases.
Equitable injunctive relief. Ongoing breaches can be enjoined.
Pre-judgment interest. Available on most damages.
The combination of compensatory damages, disgorgement, and constructive trust often makes fiduciary duty recovery substantially larger than parallel contract damages would be.
Attorney’s fees are not generally available on fiduciary duty claims under any general Texas fee-shifting statute. Cases that combine fiduciary duty with contract or specific statutory claims can capture fees through those theories.
Common breaches
Self-dealing transactions. The fiduciary entered into a transaction with the entity or principal at terms favorable to the fiduciary. The TBOC’s interested-director provisions in section 21.418 govern the validity of these transactions.
Misappropriation of corporate opportunity. The fiduciary took a business opportunity that belonged to the entity. The doctrine has specific elements and defenses.
Competition with the entity. The fiduciary operated a business that competed with the entity, often diverting opportunities, employees, or customers.
Misappropriation of confidential information. The fiduciary used confidential information of the entity for personal benefit or for the benefit of competing interests.
Excessive compensation. The fiduciary paid itself compensation disproportionate to the value provided to the entity.
Failure to disclose material information. The fiduciary withheld information that the entity or principal needed for informed decisions.
Negligent performance. The fiduciary’s negligent conduct caused losses that reasonable care would have avoided.
Defenses
The principal defenses in fiduciary duty cases:
No fiduciary relationship. The defendant did not owe a fiduciary duty in the first place. Particularly contested in informal fiduciary relationships and in cases where the company agreement modified default duties.
Business judgment rule. The decision was made in good faith, on an informed basis, and in the honest belief it was in the entity’s interest.
Authorization or ratification. The transaction was authorized by disinterested directors or shareholders.
Statute of limitations. Four years under section 16.004, subject to discovery rule and continuing fiduciary disclosure tolling.
Comparative responsibility. The principal’s own conduct contributed to the loss.
No causation. The breach did not cause the claimed harm.
Chasing the equitable remedies
We pin down the precise fiduciary relationship at intake, because the duties owed turn on the category and generic pleading invites a motion to dismiss. From there the value is in the equitable remedies. We develop disgorgement and constructive trust aggressively, since they often dwarf compensatory damages. We meet the business judgment rule head-on, loyalty and self-dealing breaches usually fall outside it, care issues often within. And we pair the claim with a contract theory where the facts allow, because contract carries fee shifting that the fiduciary duty claim does not.
The reason to build these cases carefully is the upside. Disgorgement and forfeiture can return far more than the loss the breach caused.
Frequently Asked Questions
Who owes fiduciary duties under Texas law?
Several categories. Directors and officers of Texas corporations owe fiduciary duties to the corporation. General partners owe duties to the partnership and to fellow partners. Managers and managing members of LLCs owe duties to the LLC subject to the company agreement. Trustees owe duties to beneficiaries. Agents owe duties to principals. Controlling shareholders may owe duties in specific contexts. Attorneys, accountants, and certain other professionals owe fiduciary duties to clients. The scope of the duties varies by relationship.
What are the duties of loyalty and care?
The duty of loyalty requires the fiduciary to act in the entity's or principal's best interest, without self-dealing or pursuing personal interests at the expense of the duty. The duty includes avoidance of conflicts of interest, full disclosure of material information, and refraining from taking corporate or partnership opportunities for personal benefit. The duty of care requires the fiduciary to exercise reasonable care, skill, and diligence in performing fiduciary functions, including making informed decisions and reasonable business judgments.
What is the business judgment rule in Texas?
The business judgment rule is a doctrine that protects directors and officers from liability for honest mistakes in business judgment. Texas courts apply the rule to decisions made in good faith, on an informed basis, and in the honest belief that the action was in the corporation's best interest. The rule does not protect breaches of the duty of loyalty, self-dealing transactions, or decisions made without adequate information. When the rule applies, courts defer to the business judgment of management rather than substituting judicial second-guessing.
What damages are available on Texas fiduciary duty claims?
Compensatory damages for losses caused by the breach. Disgorgement of profits the fiduciary gained from the breach, even when those profits exceed the principal's losses. Constructive trust on specific property acquired through breach. Equitable forfeiture of compensation paid during periods of breach. Exemplary damages under Chapter 41 on a clear and convincing showing of malice, fraud, or gross negligence. Pre-judgment interest. Attorney's fees are not generally available on fiduciary duty claims unless captured through specific statutory frameworks or contract provisions.
What is the statute of limitations on fiduciary duty claims in Texas?
Four years under Texas Civil Practice and Remedies Code section 16.004(a)(5). The discovery rule applies in many fiduciary contexts, the cause of action accrues when the plaintiff discovers or should have discovered the breach. Where a confidential or fiduciary relationship exists, courts may toll limitations based on the fiduciary's continuing duty of disclosure. Limitations defenses in fiduciary duty cases are often heavily contested and turn on when the plaintiff had sufficient information to investigate.