When Someone You Trusted With the Business Put Themselves First

A fiduciary duty is the highest duty Texas law recognizes between private parties. It requires the fiduciary to act in the principal's interest, to disclose fully, to avoid self-dealing and to account for what is entrusted. This page concerns duties owed inside a relationship and their remedies; fraud, which concerns false statements made to anyone, is covered on its own page.

Who owes a fiduciary duty

Texas recognizes formal fiduciary relationships as a matter of law: partners to the partnership and each other, trustees to beneficiaries, agents to principals, attorneys to clients, and corporate officers and directors to their corporation. For general partnerships, Sections 152.204 through 152.206 of the Business Organizations Code set out the duties of loyalty and care. The duty of loyalty includes accounting for any profit derived from partnership business, not dealing with the partnership as an adverse party, and not competing with it. The duty of care is that of an ordinarily prudent person in similar circumstances, and an error in judgment alone does not breach it.

For limited liability companies, the Code leaves the duties of members and managers largely to the company agreement. Section 101.401 allows the agreement to expand, restrict or, since the 2025 amendment, eliminate duties and the liabilities that go with them, subject to the provisions that Section 101.054 makes non-waivable. Texas also recognizes an informal fiduciary duty arising from a confidential relationship of trust, but courts require that relationship to have existed before and apart from the transaction in dispute. Ordinary business dealings, even long and friendly ones, do not create it.

What the claimant must show

A breach of fiduciary duty claim requires a fiduciary relationship, a breach of the duty, and either injury to the claimant or benefit to the fiduciary. When the fiduciary engaged in a transaction with the principal and profited, Texas law presumes the transaction was unfair and shifts the burden to the fiduciary to prove fairness, full disclosure and good faith.

Remedies

Actual damages are available for the loss caused. Texas also allows equitable remedies that do not depend on proving loss. In Burrow v. Arce, decided in 1999, the Texas Supreme Court held that a client may obtain forfeiture of an attorney's fee for a breach of fiduciary duty even without proving actual damages, because the remedy protects the relationship of trust rather than compensating a loss. Forfeiture is neither automatic nor necessarily total, and the trial court, not the jury, sets the amount after weighing the gravity of the breach. Texas courts apply the same principles to other fiduciaries, allowing disgorgement of profits gained from the breach and forfeiture of compensation earned during it. A constructive trust may be imposed on property traceable to the breach, and exemplary damages are available under Chapter 41 of the Civil Practice and Remedies Code on clear and convincing proof.

Deadlines

Section 16.004 of the Civil Practice and Remedies Code gives four years to sue for breach of fiduciary duty. Because fiduciaries are expected to disclose, Texas courts often apply the discovery rule or fraudulent concealment, so the period may not begin until the principal knew or should have known of the breach.