Elements of breach-of-fiduciary-duty claim under Texas law

"The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship between the plaintiff and defendant, (2) a breach by the defendant of his fiduciary duty to the plaintiff, and (3) an injury to the plaintiff or benefit to the defendant as a result of the defendant's breach." Lundy v. Masson, 260 S.W.3d 482, 501 (Tex. App.-Houston [14th Dist.] 2008, pet. denied).

Fiduciary duties may arise from formal and informal relationships and may be created by contract. Cotten v. Weatherford Bancshares, Inc., 187 S.W.3d 687, 698 (Tex. App.-Fort Worth 2006, pet. denied) disapproved on other grounds by Ritchie v. Rupe, 443 S.W.3d 856, 866 (Tex. 2014). 

Fiduciary duties arise as a matter of law in certain formal relationships, including attorney-client and trustee relationships. Meyer v. Cathey, 167 S.W.3d 327, 330-31 (Tex. 2005). But an informal fiduciary duty may arise from a moral, social, domestic, or purely personal relationship of trust and confidence, and these types of relationships are generally called a confidential relationship. Hubbard v. Shankle, 138 S.W.3d 474, 483 (Tex. App.-Fort Worth 2004, pet. denied). 

A confidential relationship exists where influence has been acquired and abused and confidence has been extended and betrayed. Cotten, 187 S.W.3d at 698. The existence of a confidential relationship is ordinarily a question of fact. Id.

SOURCE: FORT WORTH COURT OF APPEALS - No. 02-14-00294-CV. - 1/16/2017 

Fiduciary Duty and Constructive Fraud in the Context of Marriage

FIDUCIARY DUTY AND CONSTRUCTIVE FRAUD BETWEEN SPOUSES

A fiduciary duty exists between a husband and a wife as to the community property controlled by each spouse. Knight v. Knight, 301 S.W.3d 723, 731 (Tex. App.—Houston [14th Dist.] 2009, no pet.). “The breach of a legal or equitable duty which violates this fiduciary relationship existing between spouses is referred to as „fraud on the community,‟ a judicially created concept based on the theory of constructive fraud.” Id. Any such conduct in the marital relationship is termed fraud on the community because, although not actually fraudulent, it has all the consequences and legal effects of actual fraud. Id. Such conduct tends to deceive the other spouse or violate confidences that exist as a result of the marriage. Id.

A presumption of constructive fraud arises when a spouse unfairly disposes of the other spouse‟s interest in community property. Jean v. Tyson-Jean, 118 S.W.3d 1, 9 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). The burden is upon the disposing spouse or his donee to prove the fairness of a disposition of the other spouse‟s one-half community property. Id. In considering a claim of constructive fraud, the court may consider three factors: (1) the size of the gift in relation to the total size of the community estate; (2) the adequacy of the remaining estate; and (3) the relationship of the donor to the donee. Knight, 301 S.W.3d at 731.

SOURCE: HOUSTON COURT OF APPEALS - NO. 14-10-01081-CV - 10/4/11

Can a family relationship or connection give rise to a fiduciary duty for purposes of breach of fiduciary duty?

CAUSE OF ACTION FOR BREACH OF A FIDUCIARY DUTY REQUIRES EXISTENCE OF A QUALIFYING RELATIONSHIP OF CONFIDENCE AND TRUST BETWEEN THE PARTIES

When does a family relationship -- such as between cousins -- constitute a fiduciary relationship? 

Elements of fiduciary duty claimTo recover under a cause of action for breach of fiduciary duty, a plaintiff must show that the defendant owed her a fiduciary duty and breached that duty, and that the breach proximately caused her damages. See, e.g., Plotkin v. Joekel, 304 S.W.3d 455, 479 (Tex. App.—Houston [1st Dist.] 2009, pet. denied).

Muske and Menke do not have the kind of special relationship that gives rise to a fiduciary duty, such as an attorney-client or trustee-beneficiary relationship. See, e.g., Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 199 (Tex. 2002).

Did relationship between cousins have fiduciary character?

Absent a special relationship, co-tenants do not owe each other a fiduciary duty. Scott v Scruggs, 836 S.W.2d 278, 282 (Tex. App.—Texarkana 1992, writ denied).

Muske also alleged that she and Menke were partners, but absent other evidence of an agreement, their joint dealings in leasing their undivided interests in Live Oaks do not transform their co-tenancy into a partnership. See Tex. Bus. Orgs. Code Ann. § 152.052(b)(2) (West Supp. 2010).

Informal fiduciary relationship?

“An informal fiduciary duty may arise from a moral, social, domestic or purely personal relationship of trust and confidence, generally called a confidential relationship.” Assoc. Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998). This duty is not lightly created. Id. at 288. “To impose an informal fiduciary duty in a business transaction, the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit.” Id. “[M]ere subjective trust does not . . . transform arm’s-length dealing into fiduciary relationship.” Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997). “Although . . . the existence of a confidential relationship is ordinarily a question of fact, when the issue is one of no evidence, it becomes a question of law.” Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 594 (Tex. 1992).

SOURCE: Houston Court of Appeals - 01-10-00479-CV - 8/18/11

In her second and third issues, Muske contends that the trial court erred in granting summary judgment because the evidence raises a fact issue on whether Menke owed her a fiduciary duty.

[case law discussion]

Muske primarily relies on her lifelong family friendship with Menke as the source of his alleged fiduciary duty to her.

[case law discussion]

The evidence before the trial court shows that Muske and Menke, though cousins, did not have a close relationship during adulthood and that Muske managed her business affairs without input or guidance from Menke. She made independent decisions with respect to Live Oaks, often in conflict with Menke. These facts belie any suggestion that Muske has the kind of trust and confidence in Menke that demonstrates the existence of a fiduciary relationship. Further, despite Muske’s profession of continued familial affection, her willingness to extend generous credit terms, and Menke’s close relationship with her father, the evidence shows that their relationship is not the kind of “close family relationship” that gives rise to a fiduciary duty. See Consolidated Gas & Equip. Co. v. Thompson, 405 S.W. 2d 333, 336–37 (Tex. 1966) (“The usual cases of fiduciary relationship have been attorney-and-client, partners, close family relationships such as that of parent-and-child, and joint adventurers, particularly when there is an agreement . . . to share gains and losses.”). Muske’s expressed love for and trust in Menke, including her trust that he would repay an unsecured loan, “is not enough to transform arms-length dealing into a fiduciary relationship.” Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962). Therefore, the trial court correctly granted summary judgment on the breach of fiduciary duty claim. Muske’s second and third issues are overruled.

SOURCE: Houston Court of Appeals - 01-10-00479-CV - 8/18/11

Aiding & Abetting Breach of Fiduciary Duty (BoFD)

AIDING AND ABETTING BREACH OF FIDUCIARY DUTY When a defendant knowingly participates in the breach of a fiduciary duty, he becomes a joint tortfeasor and is liable as such. Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571, 580 (Tex. App.--Dallas 2007, no pet.); see also Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 513-14 (Tex. 1942). Knowing participation in actionable conduct A cause of action based on a contribution to a breach of fiduciary duty must involve the defendant's knowing participation in such a breach. Kaster, 231 S.W.3d at 580; Cox Tex. Newspapers, L.P. v. Wootten, 59 S.W.3d 717, 722 (Tex. App.--Austin 2001, pet. denied). A claim that a defendant knowingly participated in a breach of fiduciary duty by a third party necessarily hinges on the existence of a fiduciary duty owed by the third party to the plaintiff. Cox Tex. Newspapers, 59 S.W.3d at 722. In addition to the existence of a fiduciary duty, the plaintiff must show the defendant knew of the fiduciary relationship and was aware of his participation in the third party's breach of its duty. Id. SOURCE: Dallas Court of Appeals - 05-10-00369-CV - 5/26/11

Not every relationship involving trust entails fiduciary duty

CONFIDENTIAL RELATIONSHIP OF TRUST: Does it give rise to fiduciary duty? Fiduciary duties arise as a matter of law in certain formal relationships, such as attorney-client or trustee relationships. See Meyer v. Cathey, 167 S.W.3d 327, 330 (Tex. 2005) (per curiam); Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 593-94 (Tex. 1992). In addition, an informal fiduciary duty may arise from a moral, social, domestic, or purely personal relationship of trust and confidence. Associated Indem. Corp. v. Cat Contracting Co., 964 S.W.2d 276, 287-88 (Tex. 1998). However, "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 Tech. Corp. v. Swanson, 959 S.W.2d 171, 176-77 (Tex. 1997)). The existence of a confidential relationship giving rise to an informal fiduciary duty is ordinarily a question of fact, but it becomes a question of law when there is no evidence of such a relationship. Crim Truck & Tractor, 823 S.W.2d at 594. The existence of fiduciary relationship must be based on "actual facts of the relationship between the persons," rather than subjective beliefs. Trostle v. Trostle, 77 S.W.3d 908, 914 (Tex. App.--Amarillo 2002, no pet.) SOURCE: Austin Court of Appeals - 03-09-00452-CV - 6/3/11

The DISCOVERY RULE in the context of a FIDUCIARY RELATIONSHIP and FIDUCIARY DUTY

WHEN DOES THE DISCOVERY RULE APPLY? EXISTENCE OF FIDUCIARY RELATIONSHIP AND FIDUCIARY DUTY IS RELEVANT A variation to the inherently undiscoverable element arises when applying the discovery rule to a fiduciary relationship. Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex. 1996); see also S.V. v. R.V. , 933 S.W.2d 1, 8 (Tex. 1996). In the fiduciary context, "a person to whom a fiduciary duty is owed is either unable to inquire into the fiduciary's actions or unaware of the need to do so." S V., 933 S.W.2d at 8. When a trustee breaches its duty to a beneficiary, the nature of the injury is considered inherently undiscoverable because of the fiduciary nature of the relationship. See id. However, the person owed a fiduciary relationship still must exercise reasonable diligence "when the fact of misconduct becomes [so] apparent it can no longer be ignored." (1) Id.; see also Computer Assocs. Int'l, 918 S.W.2d at 456; Slay v. Burnett Trust, 187 S.W.2d 377, 394 (Tex. 1945); G. Prop. Mgmt., Ltd. v. Multivest Fin. Servs. of Tex., Inc., 219 S.W.3d 37, 48-49 (Tex. App.--San Antonio 2006, no pet.). Because Jones owed fiduciary responsibilities to Polk Mechanical, the inherently undiscoverable requirement for applying the discovery rule is satisfied. See S V., 933 S.W.2d at 8. Moreover, the injury in this case is objectively verifiable as it can be objectively established through bank records and cancelled checks. See HECI Exploration Co., 982 S.W.2d at 886. Accordingly, we hold the discovery rule applied to Polk Mechanical's claim against Jones, and Jones was required to conclusively negate its application to be entitled to summary judgment. See Pustejovsky, 35 S.W.3d at 646. To conclusively negate the discovery rule, Jones was required to prove as a matter of law that there was no genuine issue of fact about when Polk Mechanical discovered or should have discovered the nature of the injury. See Potter, 137 S.W.3d at 704. Inquiries involving the discovery rule usually entail questions for the trier of fact because when a plaintiff knew or should have known of an injury is generally a fact question. Childs v. Haussecker, 974 S.W.2d 31, 44 (Tex. 1998); Cadle Co. v. Wilson, 136 S.W.3d 345, 352 (Tex. App.--Austin 2004, no pet.). However, if reasonable minds could not differ about the conclusion to be drawn from the facts in the record, the start of the limitations period may be determined as a matter of law. Childs, 974 S.W.2d at 44; Cadle Co., 136 S.W.3d at 352; Zacharie v. U.S. Nat. Resources, Inc., 94 S.W.3d 748, 753 (Tex. App.--San Antonio 2002, no pet.). SOURCE: 04-08-00509-CV (4th Court of Appeals) (7/1/09, pet. denied Oct. 16, 2009)

Breach of Fiduciary Duty: The Damages Element

Establishing Breach of Fiduciary Duty

Generally, to recover for the breach of a fiduciary duty, a plaintiff must show: 1) the existence of a fiduciary duty, 2) a breach of the duty, 3) causation, and 4) damages. See Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 508 (Tex. App.-Houston [1st Dist.] 2003, no pet.). When, however, the plaintiff seeks fee restitution or benefit disgorgement, he need not prove actual damages. Burrow v. Arce, 997 S.W.2d 229, 240 (Tex. 1999); Alavi v. MCI Worldcom Network Services, Inc., 2007 WL 274565, at *3 (Tex. App.-Beaumont, Feb. 1, 2007, pet. denied). Because Richard's claim for breach of fiduciary duty sought damages as his remedy, he was required to prove them. See Alavi, 2007 WL 274565, at *3; Lee v. Lee, 47 S.W.3d 767, 780-81 (Tex. App.-Houston [14th Dist.] 2001, pet. denied); Longaker v. Evans, 32 S.W.3d 725, 733 n.2 (Tex. App.-San Antonio 2000, pet. withdrawn).

ABSENCE OF EVIDENCE ON DAMAGES PROVED FATAL TO CLAIM

Cynthia's no-evidence motion asserted there was no evidence that: 1) she owed a fiduciary duty to Richard, or 2) that damages resulted from the alleged breach. Richard's response contended that a DTA creates a fiduciary relationship by its "very nature," that such beneficiaries typically are unaware of delinquencies until foreclosure proceedings have begun, that beneficiaries often (as in his case) do not have adequate funds to bring the note current, and that the unavoidable foreclosure results in a "major hit" on the beneficiary's credit. Richard further argued that he did not have to prove damages to recover on his breach of fiduciary claim. On appeal, Richard maintains this Court should determine whether a DTA creates a fiduciary duty. We need not reach the issue concerning whether Cynthia owed Richard a duty. Even if we assumed that Cynthia owed Richard a fiduciary duty, which she disputes, Richard is required to have presented evidence raising a genuine fact issue on his damages. See Grant, 73 S.W.3d 215. Because Richard failed to present any evidence proving that he had been damaged, the trial court did not err in granting summary judgment to Cynthia on Richard's breach-of-fiduciary-duty claim. We overrule issue two. Having overruled both of Richard's issues, we affirm the trial court's judgment.

SOURCE: 07-08-08833 CV (7/16/09)

The Discovery Rule: When does it apply?

THE DISCOVERY RULE: WHEN CAN IT BE INVOKED TO GOOD EFFECT TO AVOID LIMITATIONS BAR ?

"The discovery rule has been applied in limited categories of cases to defer accrual of a cause of action until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to a cause of action." HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998). The application of the discovery rule is generally limited to those cases where the nature of the injury is inherently undiscoverable and the evidence of the injury is objectively verifiable. Id. The applicability of the discovery rule is determined categorically, i.e., not based on whether the particular injury in the case at hand may not have been discovered but whether the injury is of a type that generally is discoverable by the exercise of reasonable diligence. Id.

INHERENTLY UNDISCOVERABLE INJURY & EXISTENCE OF FIDUCIARY DUTY 

A variation to the inherently undiscoverable element arises when applying the discovery rule to a fiduciary relationship. Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex. 1996); see also S.V. v. R.V. , 933 S.W.2d 1, 8 (Tex. 1996). In the fiduciary context, "a person to whom a fiduciary duty is owed is either unable to inquire into the fiduciary's actions or unaware of the need to do so." S V., 933 S.W.2d at 8. When a trustee breaches its duty to a beneficiary, the nature of the injury is considered inherently undiscoverable because of the fiduciary nature of the relationship. See id. However, the person owed a fiduciary relationship still must exercise reasonable diligence "when the fact of misconduct becomes [so] apparent it can no longer be ignored." (1) Id.; see also Computer Assocs. Int'l, 918 S.W.2d at 456; Slay v. Burnett Trust, 187 S.W.2d 377, 394 (Tex. 1945); G. Prop. Mgmt., Ltd. v. Multivest Fin. Servs. of Tex., Inc., 219 S.W.3d 37, 48-49 (Tex. App.--San Antonio 2006, no pet.).

FIDUCIARY DUTY CONTEXT

Because Jones owed fiduciary responsibilities to Polk Mechanical, the inherently undiscoverable requirement for applying the discovery rule is satisfied. See S V., 933 S.W.2d at 8. Moreover, the injury in this case is objectively verifiable as it can be objectively established through bank records and cancelled checks. See HECI Exploration Co., 982 S.W.2d at 886. Accordingly, we hold the discovery rule applied to Polk Mechanical's claim against Jones, and Jones was required to conclusively negate its application to be entitled to summary judgment. See Pustejovsky, 35 S.W.3d at 646.

NEGATING THE DISCOVERY RULE 

To conclusively negate the discovery rule, Jones was required to prove as a matter of law that there was no genuine issue of fact about when Polk Mechanical discovered or should have discovered the nature of the injury. See Potter, 137 S.W.3d at 704. Inquiries involving the discovery rule usually entail questions for the trier of fact because when a plaintiff knew or should have known of an injury is generally a fact question. Childs v. Haussecker, 974 S.W.2d 31, 44 (Tex. 1998); Cadle Co. v. Wilson, 136 S.W.3d 345, 352 (Tex. App.--Austin 2004, no pet.). However, if reasonable minds could not differ about the conclusion to be drawn from the facts in the record, the start of the limitations period may be determined as a matter of law. Childs, 974 S.W.2d at 44; Cadle Co., 136 S.W.3d at 352; Zacharie v. U.S. Nat. Resources, Inc., 94 S.W.3d 748, 753 (Tex. App.--San Antonio 2002, no pet.).

 SOURCE: 04-08-00509-CV (7/1/09) (San Antonio Court of Appeals)

How to establish breach of fiduciary duty

To begin with, a fiduciary duty must first exist.

In order to prevail on a breach of fiduciary duty claim, a plaintiff must prove: (1) the existence of a fiduciary relationship between the plaintiff and the defendant, (2) a breach by the defendant of his or her fiduciary duty to the plaintiff, and (3) an injury to the plaintiff or benefit to the defendant as a result of the breach. Lundy v. Masson, 260 S.W.3d 482, 501 (Tex. App.-Houston [14th Dist.] 2008, pet. denied).
 
An attorney can breach his or her fiduciary duty to a client by, among other things, failing to disclose a conflict of interest, failing to deliver the client's funds, placing his or her personal interests over those of the client, misusing client confidences, taking advantage of the client's trust, self‑dealing, and making misrepresentations. See Goffney v. Rabson, 56 S.W.3d 186, 193 (Tex. App.-Houston [14th Dist.] 2001, pet. denied). An attorney only owes a duty of care to his clients and not to third parties, even if they may have been damaged by the attorney's representation of the client. Barcelo v. Elliott, 923 S.W.2d 575, 577-78 (Tex. 1996); Stancu v. Stalcup, 127 S.W.3d 429, 432 (Tex. App.-Dallas 2004, no pet.); see also Swank v. Cunningham, 258 S.W.3d 647, 661-62 (Tex. App.-Eastland 2008, pet. denied) (holding that former corporate officers and shareholders could not maintain legal malpractice action in their individual capacities against law firm that represented corporation).
 
SOURCE: Brown v. Green (Tex.App.- Houston [14th Dist.] Sep. 1, 2009)(Hedges)(legal malpractice, breach of fiduciary duty) (summary judgment for attorney affirmed)

Elements of breach of fiduciary duty (BoFD)

 
BREACH OF FIDUCIARY DUTY ELEMENTS OF CLAIM UNDER TEXAS LAW

The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship must exist between the plaintiff and defendant; (2) the defendant must have breached this duty; and (3) the breach must result in injury to the plaintiff or benefit to the defendant. Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App.—Dallas 2006, pet. denied).
 
SOURCE: Hill v. Hoelke (Tex. App.- Houston [1st Dist.] Mar. 12, 2009)(Taft) (investment dispute, breach of fiduciary duty, breach of contract, fraud, and promissory estoppel)