Breach of Fiduciary Duty in Texas Business Disputes

By Hank FasthoffJuly 6, 2026

A breach of fiduciary duty claim begins with the relationship. Texas law imposes duties on directors, officers, partners, managers, agents, trustees, and other fiduciaries in defined settings. Ownership status or confidence between business associates may prove insufficient. The governing documents can also alter the analysis, particularly for a limited liability company.

Once a duty exists, the claimant generally must prove a breach, causation, and damages. First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017). Equitable relief follows different requirements in some cases. A court may consider forfeiture or disgorgement without proof of compensatory damages. Those remedies remain discretionary, and each depends on the conduct and benefit at issue.

The distinction between the entity and its owners affects almost every part of the case. It determines who owed the duty, who suffered the injury, who may sue, where any recovery goes, and which defenses apply.

The Relationship Determines the Duty

Texas recognizes fiduciary relationships as a matter of law in defined roles. The recognized pairs include attorney and client, trustee and beneficiary, and agent and principal. General partners owe statutory duties as well. Corporate directors and officers owe duties to the corporation when acting in those capacities.

An informal fiduciary relationship can arise from a personal relationship of special trust and confidence. Courts apply that doctrine narrowly in commercial disputes. The relationship must exist before and apart from the transaction that produced the dispute. Longstanding friendship, subjective trust, or one party's confidence in another person's business skill doesn't establish the duty by itself.

Pitts v. Rivas, 709 S.W.3d 517 (Tex. 2025), rejected an informal fiduciary theory built on one party's subjective trust. A business owner sued his longtime accountants over financial statement errors, and years of professional service with personal friendship didn't rise to the special relationship Texas law requires. The court also relied on the engagement letter, which disclaimed fiduciary duties and kept the parties at arm's length. Contracting parties can trust each other and remain commercial counterparts.

The pleading therefore has to identify the source and beneficiary of the duty. A statement that someone was a fiduciary leaves unanswered whether the duty was owed to the entity, an individual owner, or both.

Directors and Officers Owe the Corporation

Corporate directors and officers owe fiduciary duties to the corporation. Shareholders don't acquire broad fiduciary duties to each other merely because one holds a controlling interest and another holds a minority interest. A controlling shareholder who also serves as a director or officer may owe duties through that role, and a separate relationship can create another duty. Shareholder status alone supplies no general duty between owners.

Texas cases reject a common mistake in closely held corporation disputes. In Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014), the Supreme Court of Texas declined to recognize a common law claim for minority shareholder oppression. It also held that the receivership statute didn't authorize the forced buyout ordered by the trial court.

Conduct once described as oppression may support a different claim. Diverting corporate funds, taking a corporate opportunity, or approving an interested transaction can support a claim based on duties owed to the corporation. A shareholder challenging an injury to the corporation generally proceeds derivatively on the corporation's behalf. A personal claim requires an injury distinct from the entity's injury.

Sneed v. Webre, 465 S.W.3d 169 (Tex. 2015), confirms that shareholders have no direct claim for an injury to the corporation. Closely held corporations receive special treatment under the derivative statutes, including circumstances in which a court may treat the derivative proceeding as a direct action. The underlying claim remains the corporation's claim.

Limited Liability Company Duties Depend on Role and Contract

Texas law doesn't impose a broad fiduciary duty between members of a limited liability company merely because they are members. A manager may owe duties to the company, while a nonmanaging member may owe none through membership status. The certificate of formation, company agreement, management structure, and conduct provide the starting point.

The Supreme Court emphasized the distinction in Bertucci v. Watkins, 709 S.W.3d 534 (Tex. 2025). Duties owed to an entity differ from duties owed to an owner individually. A party can't treat individual and derivative claims as interchangeable merely because the same conduct affects both the entity and its owners.

The Texas Business Court applied the same principle in Tall v. Vanderhoef, 2025 Tex. Bus. 15. Membership status created no broad duty between the members, the pleadings established no earlier relationship supporting an informal duty, and the company agreement disclaimed duties while preserving liability for specified misconduct.

The court in Enosis Investments, LLC v. Jensen, 2026 Tex. Bus. 19, recognized that a manager of manager managed LLCs may owe duties to the companies, while a member without management authority generally doesn't. When an entity served as manager, the manager's duties didn't pass through to its president or controlling shareholder without a pleaded basis for disregarding the entity's separate existence.

Section 101.401 provides a Texas LLC with broad contractual freedom. As amended by Senate Bill 29 in 2025, a company agreement may expand, restrict, or eliminate duties, including fiduciary duties, and related liabilities. Depending on those terms, the claim may sound in fiduciary duty, contract, or both.

Senate Bill 29 Added Statutory Presumptions

Senate Bill 29 took effect on May 14, 2025 and changed the liability framework for specified corporations, limited liability companies, and limited partnerships. Its provisions don't apply to every Texas entity in the same way.

Section 21.419 applies to a corporation with voting shares listed on a national securities exchange and to a corporation that affirmatively elects the section in its governing documents. A director or officer receives presumptions of good faith, an informed basis, furtherance of the corporation's interests, and obedience to law and the governing documents.

A claimant under Section 21.419 must rebut at least one presumption and prove a breach involving fraud, intentional misconduct, an ultra vires act, or a knowing violation of law. The statute requires particularized allegations of that misconduct. It supplements common law and statutory defenses rather than replacing them.

Section 101.256 supplies a related framework for an LLC with voting membership interests listed on a national securities exchange. Another LLC can adopt a company agreement provision that duplicates the section's effect. The statute presumes that a governing person or officer acted in good faith and complied with applicable duties and governing documents. Recovery requires rebutting a presumption and proving a breach involving one of the same four categories of misconduct.

These sections supply presumptions and heightened liability conditions for covered entities. They don't establish that every director, officer, manager, or member owes every duty listed in the statutes. The source and scope of the duty remain separate questions.

Chapter 152 and the Agreement Govern Partnership Duties

General partners owe duties of loyalty and care. Business Organizations Code Sections 152.204 through 152.206 address the obligation of good faith and the duties of loyalty and care. Loyalty includes accounting for property, profit, or benefit derived from partnership business, refraining from adverse dealing, and refraining from competition before dissolution. The duty of care addresses grossly negligent or reckless conduct, intentional misconduct, and knowing violations of law.

Limited partners generally don't owe a general partner's duties solely because they hold limited partner status. Bertucci recognized that a limited partner's management conduct can present a different question, but the role, pleadings, and proof have to support the duty asserted.

Senate Bill 29 also amended the partnership statutes. For a limited partnership with interests listed on a national securities exchange, the partnership agreement may eliminate loyalty, care, and good faith obligations through stated terms. Other partnerships may adopt provisions duplicating that effect. A partnership analysis therefore requires both the statutory classification and the partnership agreement.

Breach Depends on the Duty That Exists

Loyalty claims often concern diversion of entity funds, secret compensation, undisclosed interests, competition with the entity, or appropriation of an opportunity the entity was pursuing. Care claims turn on the standard that governs the role under the applicable law. Disclosure obligations commonly arise when a fiduciary has a personal interest in a transaction or controls information required for informed approval.

Labels can't substitute for the governing duty. Texas doesn't treat a duty of good faith and fair dealing or a duty of candor as a universal freestanding obligation in every business relationship. The entity statute, common law role, and governing documents define the obligation.

Approval can affect a conflict claim when the decision makers receive complete information and the approval follows the applicable statute or agreement. A general reference to consent may prove inadequate when the record omits the conflict, the financial benefit, or the material transaction terms.

The Business Judgment Rule Has Defined Limits

Texas common law generally protects corporate directors and officers from liability for decisions within a protected exercise of business judgment and discretion. Sneed applied that rule to the merits of a derivative claim involving a closely held corporation.

The rule doesn't turn every fiduciary dispute into a review of whether the business decision succeeded. A claim involving diversion, an undisclosed personal benefit, or conduct outside the decision maker's authority presents different issues from a claim that a disinterested board made a poor forecast. For entities covered by Sections 21.419 or 101.256, the statutory presumptions and liability conditions require their own analysis.

Direct and Derivative Claims Require Separate Treatment

A reduced ownership value resulting from an injury to the entity generally supports an entity claim. Misappropriated company funds, lost company opportunities, and damage to enterprise value usually support a derivative claim. Withheld distributions that were declared and payable, interference with an owner's voting rights, or a separate contractual injury may support an individual claim.

Pike v. Texas EMC Management, LLC, 610 S.W.3d 763 (Tex. 2020), explains that a stakeholder seeking personal recovery must prove a personal cause of action and personal injury. The court examines the nature of the claim, the governing agreement, and the circumstances surrounding the injury.

Derivative procedures differ by entity type. Demand requirements, ownership requirements, governing document provisions, and statutory exceptions can affect the right to maintain the suit. Classifying the claim after discovery begins can waste the limitations period and produce a pleading dispute before the court considers the alleged misconduct.

The Proof and Equitable Factors Control the Remedy

Compensatory damages require proof that the breach caused the claimed loss. Lost profits, diminished value, diverted funds, and transaction costs each require a damages measure tied to the injury and supported with reasonable certainty.

Equitable forfeiture serves a different purpose. First United Pentecostal explains that a claimant seeking damages must prove causation, while certain equitable remedies may proceed without proof of compensatory loss. Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999), holds that forfeiture isn't automatic or necessarily total. The court considers the gravity and timing of the breach, the fiduciary's state of mind, the value of the services, the threatened or resulting harm, and the adequacy of other remedies.

Disgorgement focuses on a benefit obtained through disloyal conduct. The claimant has to identify the benefit and connect it to the breach. A request for every dollar the fiduciary received exceeds the remedy unless the evidence and equitable factors support that result.

A constructive trust requires identifiable property or proceeds connected to the wrong. In Longview Energy Co. v. Huff Energy Fund LP, 533 S.W.3d 866 (Tex. 2017), the court reversed a constructive trust because the evidence didn't connect specific leases to the assumed breaches. A general finding of wrongdoing couldn't replace proof linking the property to the conduct.

Injunctions, removal, receivership, and dissolution depend on separate legal requirements. Ritchie treats receivership as a narrow statutory remedy and rejects a general forced buyout remedy for shareholder oppression. The governing documents may create contractual purchase rights that Texas law otherwise doesn't supply.

Exemplary damages require the heightened proof specified for fraud, malice, or gross negligence under Civil Practice and Remedies Code Section 41.003. The fiduciary duty claim itself generally provides no independent right to recover attorney fees. A contract, declaratory claim, or another statute may provide a separate basis.

Limitations and Evidence Control the Case

Civil Practice and Remedies Code Section 16.004(a)(5) provides a period of four years for breach of fiduciary duty. Accrual and discovery questions depend on the injury, the relationship, the information disclosed, and warning signs in the records. A fiduciary's disclosure obligation can reduce the beneficiary's duty of inquiry, but it doesn't make the filing period indefinite.

Entity records often determine the claim. Company agreements, bylaws, partnership agreements, board materials, consents, financial statements, general ledgers, tax records, payment approvals, communications, and ownership records show who held authority and who received the benefit. Evidence supporting informed approval has to identify what the decision makers knew when they acted.

A sound claim or defense separates five questions from the beginning. Who owed the duty, who held its benefit, what source established it, who suffered the injury, and what remedy fits the proof. That sequence prevents a business grievance from becoming a fiduciary claim by label alone and prevents a valid entity claim from failing because the wrong owner pursued it.