Fiduciary duties are the cornerstone of trust and integrity in many relationships. A fiduciary who breaches one of their duties can cause significant pain and loss to others. But how do you prove a breach of fiduciary duty? The methods for proving a breach can differ depending on the facts of each case. This article will provide a general overview of options for proving breach of fiduciary duty.
Massingill has one of the best legal teams to address fiduciary disputes. Our firm has several decades of combined experience and the legal and business acumen to protect plaintiffs’ interests effectively.
What Fiduciary Duties Apply?
A fiduciary duty is a legal obligation of one party to act in the best interests of another. Fiduciaries are held to specific standards of care and loyalty when dealing with the concerns of those to whom they owe a duty to. Common fiduciary relationships in Texas include the following.
Trustees and Beneficiaries
Trustees must manage trust assets for the benefit of the trust’s beneficiaries. They must handle property in the trust in good faith and with due care. If a trustee administers the trust in bad faith or with gross negligence, they may be liable to the beneficiaries for damages.
Managers and Owners of Businesses
Owners and managers of a business owe fiduciary duties to the company. The duties apply regardless of whether owners or managers are partners in a partnership, directors or officers of a corporation, or members of a limited liability company (LLC).
Texas law dictates that many business owners and officers fulfill duties of loyalty and care to the business. Officers or owners might also have to discharge their duties in good faith. All of this can mean that a fiduciary must:
- Refrain from conducting business with an individual who has an interest adverse to the business;
- Make an accounting regarding profits, property, or benefits they derive from the business;
- Refrain from competing with or dealing adversely with the business;
- Hold benefits, profits, or property for the partnership; and
- Act with the type of care an ordinarily prudent person would use to handle any business matter in question.
A breach may occur when a fiduciary fails to fulfill one or more of the above-listed obligations and causes harm. Breaches can range from self-dealing and mismanagement of funds to outright fraud. For example, a business partner making decisions that only benefit themselves could be a clear breach.
Maintaining a Strong Breach of Fiduciary Duty Lawsuit
Determining whether a fiduciary has breached one of their duties is a case-by-case undertaking that someone with significant legal knowledge and focus should handle. Each Texas estate and Texas business litigation lawyer at Massingill is a knowledgeable and skilled advisor who can make legal issues simple for plaintiffs.
Proving the Existence of a Fiduciary Relationship
Not every financial interaction between individuals is a fiduciary relationship. The first step to maintaining a breach of fiduciary duty lawsuit is proving that the defendant was the plaintiff’s fiduciary.
A plaintiff might prove that they had a fiduciary relationship with a defendant by presenting the following evidence:
- Business formation documents, such as articles of incorporation or articles of organization;
- Copies of contracts;
- Business management documents, partnership agreements, bylaws, or membership agreements;
- Trust documents;
- Business correspondence, such as emails, texts, or formal letters; or
- Witness testimony.
After proving a fiduciary relationship existed, a plaintiff needs to prove that the defendant committed a breach.
Proving the Breach of a Fiduciary Duty
A plaintiff can use much of the same evidence listed above to prove that the defendant breached a fiduciary duty. Business documents, trust documents, and correspondence can show the court the obligations the defendant had to fulfill at the time of the breach. The correspondence and witness testimony can provide proof of how the defendant fell short of those standards.
In breach of fiduciary duty claims, plaintiffs can also provide the following proof to support their cases:
- Testimony from a business professional regarding whether the defendant acted reasonably in discharging their duties;
- Financial records from the business, trust, or defendant to prove financial mismanagement;
- Property records to show mishandling of assets; and
- Third-party agreements or correspondence to prove self-dealing or disloyalty.
These are just a handful of ways a plaintiff might prove their case. For a customized plan, plaintiffs can speak to Massingill about the best proof in any breach of fiduciary duty case.
Legal Remedies
Victims of fiduciary breaches in Texas have several options for recourse, including:
- Monetary damages—these damages compensate harmed parties for financial losses resulting from breaches;
- Disgorgement of profits—this remedy can force a fiduciary to surrender any profits they gained from their breach;
- Injunctive relief—to prevent further harm, a court might order a fiduciary to start or stop engaging in certain activities;
- Removal of the fiduciary—trustees or business fiduciaries can be removed from their positions; and
- Exemplary damages—this type of relief may be awarded to punish a defendant for egregious conduct.
A plaintiff seeking exemplary damages has a hefty legal task in front of them. Exemplary damages are only available if the plaintiff can prove that the defendant’s breach was the result of one of the following:
- Malice,
- Gross negligence, or
- Fraud.
Plaintiffs seeking exemplary damages must also prove their right to these damages by clear and convincing evidence.
Proving Damages
Generally, a plaintiff who wants monetary damages must prove that the defendant’s breach caused financial harm. Evidence that a plaintiff may need to support their request for damages could include:
- Financial statements,
- Receipts or invoices,
- Healthcare records,
- Pay stubs,
- Business appraisals, and
- Witness testimony.
A plaintiff might also need the help of several professionals who can interpret the evidence for them. Massingill has extensive experience and can analyze clients’ business documents. We can also refer clients to other appropriate professionals for additional support.
Contact our Texas business litigation lawyers for a free consultation
Talk to Massingill for Help
If you suspect a breach of fiduciary duty, a Texas business litigation lawyer from Massingill is here to help. The firm provides top-rated legal representation tailored to each client’s unique circumstances. Visit Massingill’s website or give the firm a call today. We can help you navigate fiduciary duty issues with confidence and clarity.
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Resource List
- Texas Business Organizations Code, section 22.221, link
- Texas Business Organizations Code, section 152.204, link
- Texas Business Organizations Code, section 152.205, link
- Texas Business Organizations Code, section 152.206, link
- Texas Business Organizations Code, section 101.052, link
- Texas Business Organizations Code, section 21.057, link
- Texas Business Organizations Code, section 3.104, link
Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
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