Breach of Fiduciary Duty

The elements of an action for breach of fiduciary duty are: (1) the plaintiff and defendant had a fiduciary relationship, (2) the defendant breached its fiduciary duty to the plaintiff, and (3) the defendant’s breach resulted in (a) injury to the plaintiff, or (b) benefit to the defendant. Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509, 513-14 (Tex. 1942); Jordan v. Lyles, 455 S.W.3d 785, 792 (Tex. App.— Tyler 2015, no pet.).

"Directors, or those acting as directors, owe a fiduciary duty to the corporation in their directorial actions, and this duty ‘includes the dedication of [their] uncorrupted business judgment for the sole benefit of the corporation.'" Ritchie v. Rupe, 443 S.W.3d. 856, 868 (Tex. 2014) (quoting Int'l Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 577 (Tex. 1963)). Corporate officers also owe a fiduciary duty to their corporation. Lifshutz v. Lifshutz, 199 S.W.3d 9, 18 (Tex. App.—San Antonio 2006, pets. denied). These fiduciary duties include the duties of obedience, loyalty, and due care. Loy v. Harter, 128 S.W.3d 397, 407 (Tex. App.—Texarkana 2004, pets. denied) (citing Gearhart Indus., Inc. v. Smith Int'l, Inc., 741 F.2d 707, 719 (5th Cir. 1984)). In addition, they must act in good faith and deal fairly with the corporation. Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d at 512.

For example, officers and directors, as corporate fiduciaries, may not usurp corporate opportunities for their personal gain. Ritchie v. Rupe, 443 S.W.3d at 887 (quoting Int'l Bankers Life Ins. Co. v. Holloway, 368 S.W.2d at 576). Further, officers and directors may not appropriate the property of the corporation to their benefit.Ritchie v. Rupe, 443 S.W.3d at 887; Sw. Livestock & Trucking Co. v. Dooley, 884 S.W.2d 805, 809 (Tex. App.—San Antonio 1994, writ denied). “[T]hese types of actions may be redressed through a derivative action, or through a direct action brought by the corporation, for breach of fiduciary duty. ”Ritchie v. Rupe, 443 S.W.3d at 887.

“When directors breach their fiduciary duties by improperly withholding or failing to declare dividends, one or more shareholders can sue the directors for breach of those duties on behalf of the corporation through a derivative action. ”Ritchie v. Rupe, 443 S.W.3d at 883. See Tex. Bus. Orgs. Code §§ 21.551-.563.


If you believe you have a claim for breach of fiduciary duty as a shareholder or LLC member of a closely held domestic entity, or you or your corporation or LLC have been wrongly sued for breach of fiduciary duty, please contact Mr. Browning for a free phone consultation.