Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Thursday, May 19, 2011

Breach of fiduciary duty based on informal vs formal relationship


To recover on a breach of fiduciary duty claim, the plaintiff must first establish the existence of a duty, that is, the existence of a fiduciary relationship. See Meyer v. Cathey, 167 S.W.3d 327, 330–31 (Tex. 2005) (discussing interchangeably whether fiduciary relationship exists and whether fiduciary duty existed); Priddy v. Rawson, 282 S.W.3d 588, 599 (Tex. App.—Houston [14th Dist.] 2009, pet. denied) (identifying first element of fiduciary duty claim as existence of fiduciary relationship and second element as breach of duty created by that relationship).

There are two categories of fiduciary relationships. Meyer, 167 S.W.3d at 330–31; Priddy, 282 S.W.3d at 599. The first is a formal fiduciary relationship, such as attorney-client, principal-agent, and trustee-beneficiary relationships, as well as partners in a partnership. Chapman Children’s Trust v. Porter & Hedges, L.L.P., 32 S.W.3d 429, 439 (Tex. App.—Houston [14th Dist.] 2000, pet. denied). The second is an informal fiduciary relationship, “where one person trusts in and relies on another, whether the relation is a moral, social, domestic, or purely personal one.” Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 176 (Tex. 1997). This second category is also known as a “confidential relationship.” Chapman Children’s Trust, 32 S.W.3d at 439.

Kelly’s live petition asserted a claim for breach of a partnership agreement. This claim was not submitted to the jury, however. Accordingly, it has been waived. See Tex. R. Civ. P. 279 (providing “[u]pon appeal all independent grounds of recovery or of defense not conclusively established under the evidence and no element of which is submitted or requested are waived”). For purposes of this appeal, then, there was no partnership agreement between the parties and, by extension, no formal fiduciary relationship based on any such partnership.

A fiduciary relationship is an extraordinary one and will not be lightly created. Hoggett v. Brown, 971 S.W.2d 472, 488 (Tex. App.—Houston [14th Dist.] 1997, pet. denied). “It is well settled that ‘not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship.’” Meyer, 167 S.W.3d at 330 (quoting Schlumberger, 959 S.W.2d at 176–77). “A person is justified in placing confidence in the belief that another party will act in his or her best interest only where he or she is accustomed to being guided by the judgment or advice of the other party, and there exists a long association in a business relationship, as well as personal friendship.” Hoggett, 971 S.W.2d at 488.

Additionally, courts remain cautious to create informal fiduciary relationships in business arrangements.
The fact that one businessman trusts another, and relies upon his promise to perform a contract, does not rise to a confidential relationship. Every contract includes an element of confidence and trust that each party will faithfully perform his obligation under the contract. Neither is the fact that the relationship has been a cordial one, of long duration, evidence of a confidential relationship.Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594–95 (Tex. 1992), superseded by statute on other grounds as noted in Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 225–26 (Tex. 2002).

Courts review a variety of facts for determining whether an informal fiduciary relationship exists. The overarching consideration, however, is the nature of the relationship between the parties. See Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962) (holding “[t]he existence of the fiduciary relationship is to be determined from the actualities of the relationship between the persons involved”).

In reviewing the relationship between the parties, one factor we consider is whether the party claiming to be owed a fiduciary relationship justifiably placed special confidence in the other party to act in his best interest. See Trostle v. Trostle, 77 S.W.3d 908, 915 (Tex. App.—Amarillo 2002, no pet.) (holding, to establish fiduciary relationship, evidence must demonstrate plaintiff actually relied on purported fiduciary “for moral, financial, or personal support or guidance”); Lee v. Hasson, 286 S.W.3d 1, 14–15 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (same). An informal fiduciary relationship requires proof that, because of a close or special relationship, the plaintiff “is in fact accustomed to be guided by the judgment or advice” of the other. Thigpen, 363 S.W.2d at 253.

SOURCE: Houston Court of Appeals – NO. 01-09-00685-CV – 5/19/11