David Johnson co-authored a paper entitled “Voir Dire (In a Post COVID World)” with Jason Smith of the Law Offices of Jason Smith for the State Bar of Texas’s Business Disputes Course, held in Austin, Texas, on September 15-16, 2022. The paper covered the waterfront of voir dire topics in Texas litigation, including preservation of error, selecting the array, size of the jury, jury shuffle, questions to the venire, comments by venire members, challenges for cause, preemptory challenges, and Batson issues. Most trial attorneys will say that selecting a jury is the most important part of a trial. This paper provides important guidance to trial attorneys on what is allowed or not allowed in the selection process and what is necessary to preserve error.

Read David’s Paper

In Trench Tech Int’l, Inc. v. Tech Con Trenching, Inc., the son of an owner of a company, who was an employee, downloaded design plans and other information and went to another company who used that information. No. 4:19-cv-00201-O, 2022 U.S. Dist. LEXIS 100280 (N.D. Tex. June 6, 2022). The company and the company that owned it sued the son for trade secret misappropriation and breach of fiduciary duty. The defendant moved for summary judgment, and the federal district court denied the motion. Regarding the breach of fiduciary duty claim, the defendant argued that he was only an employee of the first company and not its owner and therefore did not owe fiduciary duties to the owner. The court disagreed:

Trench Tech asserts a claim against Smith for breach of fiduciary duties, and it asserts claims against Tech Con, Conlon, and Smith for conspiracy to have Smith and Jeremy breach their fiduciary duties. Defendants argue that they are entitled to summary judgment on Trench Tech’s breach-of-fiduciary-duty claims because (1) Trench Tech cannot establish a fiduciary relationship with Smith or Jeremy, and (2) the claims are barred by the statute of limitations. First, Defendants argue that Trench Tech cannot establish a fiduciary relationship. Under Texas law, “[a]n informal relationship may give rise to a fiduciary duty where one person trusts in and relies on another, whether the relation is a moral, social, domestic, or purely personal one.” But “to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from, the agreement made the basis of the suit.” Trench Tech has presented sufficient evidence for a jury to find that Smith and Jeremy owed fiduciary duties to Trench Tech. They were longtime employees of the family business and entrusted with confidential material. “Texas courts have long recognized that entrustment of trade secrets gives rise to a fiduciary relationship.” Defendants recycle their argument that Smith and Jeremy worked for Trench-Tech, Ltd., not Trench Tech International, and thus they owed no fiduciary duties to Trench Tech International. Once again, Defendants cite no authority restricting fiduciary duties to employer-employee relationships. The formalities of Trench Tech’s entity formation do not preclude a jury finding that Smith and Jeremy owed and breached fiduciary duties to Trench Tech.

Id. The court also held that the statute of limitations did not bar the plaintiff’s breach of fiduciary duty claim.

In In re Mijares, a plaintiff claimed that a defendant defrauded him and breached fiduciary duties owed to him by charging improper, excessive, and unauthorized expenses to their medical practice, causing the plaintiff’s distributions from the practice to be reduced during the roughly six years that they practiced medicine together. Case No. 19-33121-hdh7, Adv. Proc. No. 19-03243,2022 Bankr. LEXIS 1542 (N.D. Tex. Bankr. June 1, 2022). The plaintiff sought a declaration that his claims for fraud and breach of fiduciary duty were not dischargeable pursuant to sections 523(a)(2)(A) and (a)(4) of the Bankruptcy Code. The court found that the plaintiff held a valid claim against the defendant for fraud and that such claim was not dischargeable.

Regarding the plaintiff’s breach of fiduciary duty claim, the court held:

Under Texas law, to prevail on a breach of fiduciary duty claim, a plaintiff must show (1) a fiduciary relationship between the plaintiff and the defendant, (2) that the defendant breached his fiduciary duty to the plaintiff, and (3) that the defendant’s breach resulted in injury to the plaintiff or benefit to the defendant.

It is not clear whether there was a fiduciary relationship directly between the Plaintiff and the Defendant. Courts generally hold that a managing member of a limited liability company does not necessarily owe fiduciary duties to other members. Although “the Texas statute governing limited liability companies implies that certain duties may be owed, it does not define any such duties, but rather allows the contracting parties to specify the breadth of those duties in the company agreement.”

Per the Company Agreement, both the Plaintiff and the Defendant served as Manager-Members. Article VIII of the Company Agreement provides various rights, duties, and powers of the Managers. Per this section, the Managers “shall have the full, sole, exclusive and complete discretion in the management and control of the business, operations and affairs of the Company; shall make all decisions that are necessary to carry out the business of the Company . . . .” The same section goes on to require that “[a]ll decisions and actions by the Managers shall be made in the best interests of the Company.” Thus, the Company Agreement makes it clear that the Defendant owed a fiduciary duty to MD Request but does not resolve the issue of whether the members owed fiduciary duties to each other because it neither disclaims nor expressly imposes such duties.

Nevertheless, Texas law recognizes that an informal fiduciary relationship, “may arise where one person trusts in and relies upon another, whether the relationship is a moral, social, domestic, or purely personal one.” The existence of a fiduciary duty is a fact-specific inquiry that takes into account the contract governing the relationship as well as the particularities of the relationships between the parties. Some courts have taken into account the “unequal” positions of power of members in a limited liability company, such as when one member exercises superior control over the company.

Both parties testified during trial that the Defendant almost exclusively handled the finances for MD Request. The Defendant did the calculations and remitted payments to the Plaintiff. Through an established course of dealing for the better part of six years, the Plaintiff placed a special confidence in the Defendant to compensate the Plaintiff accurately and honestly for his revenue, which was to be measured as his monthly collections less his half of the shared expenses.

Based on these facts, the Court believes there is a reasonable argument that the Defendant owed fiduciary duties directly to the Plaintiff, but the Court need not make that determination since the Court has already determined the Plaintiff has a claim for fraud, and the damages for breach of fiduciary duty would be the same as those previously identified for fraud.

Id.

Settlors often place some or all of the ownership in a closely-held business in a trust. A trustee managing a trust with an interest in a closely held business has difficult management issues to address and this often raises disputes. This presentation will address: (1) considerations in placing closely-held business interests in trusts, (2) considerations that a trustee should undertake in managing a closely-held business interest, (3) managing an ownership interest versus being a controlling person in the entity and the risks associated with holding both roles, (4) best practices for addressing conflicts of interest and for avoiding breaches of fiduciary duties, (5) attorney-client communication and privilege issues, (6) disclosure obligations to beneficiaries, (6) directed trust issues, and (7) co-trustee issues.

Date: Tuesday, September 27, 2022
Time: 10:00 – 11:00 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson

Continuing Education Credit Information:
This course has been approved by the State Bar of Texas Committee on MCLE in the amount of 1 credit hour. This course has also been approved for 1.25 CTFA credit by the American Bankers Association, attendees can self report.

Who should attend:
In-house counsel and other litigation contacts, trust officers, risk management contacts, and wealth advisors

Register for the webinar.

In Power v. Power, one brother sued the other brother for breach of fiduciary duty related to their partnership in real estate investing. No. 05-19-01557-CV, 2022 Tex. App. LEXIS 2926 (Tex. App.—Dallas May 3, 2022, no pet. history). The trial court found for the plaintiff, and the defendant appealed. Continue Reading Partner Had Capacity To Sue Other Partner For Breach Of Fiduciary Duty

In In re Estate of Poe, shortly before his death, Dick, who was the sole director of Poe Management, Inc. (PMI), authorized the corporation to issue new shares that he bought for $3.2 million. No. 20-0178, 2022 Tex. LEXIS 544 (Tex. June 17, 2022). This made Dick the majority owner of PMI, which was the general partner of several Poe-owned businesses. Continue Reading Texas Supreme Court Holds That A Director Of A Corporation Cannot Hold An Informal Fiduciary Duty To A Stockholder

It is not uncommon for an attorney to execute all or part of his or her client’s wishes, which may be in breach of a fiduciary duty owed by the client to a third party. The third party can certainly sue the client for breaching fiduciary duties. But can the third party also sue the attorney for participating in the client’s actions? Continue Reading Suing Attorneys In Texas For Participating in Fiduciary Breaches

In this presentation David F. Johnson covers trust issues that arise in divorce disputes, such as spouses creating an irrevocable trust, fraud claims to void a trust, conflict of interest issues raised by the same attorney drafting both spouse’s estate/trust documents, characterization of trust assets and distributions as separate or community, settlor standing to complain about trust administration issues, trust construction issues, adoption-in and adoption-out issues, spouse/settlor liability for controlling a trust, capacity issues raised by spouses being involved as trustees and director/officer of a closely held business, spouses’ co-trustee management issues, and the new Texas trust code provisions dealing with the effect of dissolution of marriage on certain transfers in trusts.

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This presentation covers trust issues that arise in divorce disputes, such as spouses creating an irrevocable trust, fraud claims to void a trust, conflict of interest issues raised by the same attorney drafting both spouse’s estate/trust documents, characterization of trust assets and distributions as separate or community, settlor standing to complain about trust administration issues, trust construction issues, adoption-in and adoption-out issues, spouse/settlor liability for controlling a trust, capacity issues raised by spouses being involved as trustees and director/officer of a closely held business, spouses’ co-trustee management issues, and the new Texas trust code provisions dealing with the effect of dissolution of marriage on certain transfers in trusts.

Date: Tuesday, May 24, 2022
Time: 10:00 – 11:00 a.m. Central Time
Cost: Complimentary
Speaker: David F. Johnson

Continuing Education Credit Information:

This course has been approved by the State Bar of Texas Committee on MCLE in the amount of 1 credit hour. This course has also been approved for 1.25 CTFA credit by the American Bankers Association, attendees can self report.

Who should attend:

In-house counsel and other litigation contacts, trust officers, risk management contacts, and wealth advisors

 

Register for the webinar.