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

On Thursday, February 11, Winstead Shareholder David F. Johnson presents his 2020-2021 Fiduciary Litigation Update at the UT Law CLE 18th Annual Changes and Trends Affecting Special Needs Trusts. David’s presentation will cover recent statutory changes and case law updates.

Date: Thursday, February 11, 2022 at 9:30 a.m.
CLE Credit: 0.75 hr
Location: AT&T Conference

In R.P. Small Corp. v. Land Dep’t, Inc., the plaintiff sued the defendant for breaching fiduciary duties due to a confidential relationship regarding oil and gas development. No. H-20-14902021 U.S. Dist. LEXIS 133695 (S. D. Tex. July 19, 2021). The plaintiff alleged that the defendant took advantage of his relationship, lied about his qualifications and experience, and overbilled and had self-dealing transactions. The defendant filed a motion to dismiss based on the economic loss rule, arguing that the plaintiff’s claims all arose from oral and written contracts. The federal district court denied the motion to dismiss. The court first discussed the economic loss rule:

Under Texas law, the “economic loss rule generally precludes recovery in tort for economic losses resulting from a party’s failure to perform a contract when the harm consists only of the economic loss of a contractual expectancy.” In determining if the economic loss rule applies, Texas courts look to both the “source of the alleged duty and the nature of the claimed injury.” “[A] party may elect a recovery in tort if the duty breached stands independent from the contractual undertaking, and the alleged damages are not solely the result of a bargained-for contractual benefit.” This is because “‘[t]ort obligations are in general obligations that are imposed by law—apart from and independent of promises made and therefore apart from the manifested intention of the parties—to avoid injury to others.’”


Continue Reading Federal Courts Deny Motions To Dismiss Breach Of Fiduciary Duty Claims Due To The Economic Loss Rule

David F. Johnson presented his paper “Litigating Self-Interested Transactions Involving Fiduciaries” to the State Bar of Texas’s Fiduciary Litigation Course on December 2-3, 2021, in San Antonio, Texas. This presentation discussed a fiduciary’s duty of loyalty, the right to compensation and other benefits, the concept of self-interested transactions, the presumption of unfairness that attaches to

In Hotze v. In Mgmt., LLC, family members sued each other over control of a family business. No. 14-18-00995-CV, 2021 Tex. App. LEXIS 5821 (Tex. App.—Houston [14th Dist.] July 22, 2021, no pet. history). Three of the brothers ended up with greatly increased control of the company after debt the company owed to a partnership formed by the three brothers was partially converted into company stock. Id. Two other brothers and other associated parties filed two lawsuits, bringing both individual and derivative claims, which were consolidated for trial. “A key issue in the case was whether the promissory note between Troika and CECO authorized a partial conversion of debt for stock.” Id. The trial court concluded that it did, and instructed the jury to that effect. The two brothers appealed.
Continue Reading Court Holds That Promissory Note Did Not Allow Partial Conversion To Equity

David F. Johnson presented “Breach of Fiduciary Duty Claims Against Trustees/Managers of Closely-Held Businesses” with Kenneth J. Fair of Wright Close & Barger, LLP, on July 22, 2021, for Strafford Webinars to a national audience. This presentation covered various issues involved in a trustee owning an interest in a closely-held business when disputes arise. The

In Villareal v. Saenz, two co-owners of a limited liability company sued each other regarding conduct surrounding a business divorce. 5-20-CV-00571-OLG-RBF, 2021 U.S. Dist. LEXIS 94183 (W.D. Tex. May 18, 2021). After the parties asserted allegations against each other, they entered into a release agreement. The parties agreed that “Saenz would assign his entire interest to ZroBlack LLC to Villarreal.” After the release, Saenz refused to return certain property to the company. Villarreal sued for breach of fiduciary duty and other claims.
Continue Reading Exiting Member of LLC May Still Owe Fiduciary Duties

In Adam v. Marcos, an attorney and his client agreed to a joint venture/partnership. No. 14-18-00450-CV, 2021 Tex. App. LEXIS 2060 (Tex. App.—Houston March 18, 2021, no pet. history). The attorney sued the client for breaching the agreement. The trial court ruled for the client on the attorney’s breach of the partnership agreement claim and a breach of fiduciary duty claim. The court of appeals affirmed. The court of appeals first held that the partnership agreement was presumptively invalid because the attorney owed fiduciary duties to the client when it was entered into:

Contracts between attorneys and their clients negotiated during the existence of the attorney-client relationship are closely scrutinized. Because the relationship is fiduciary in nature, there is a presumption of unfairness or invalidity attaching to such contracts. The burden is on the attorney to prove the fairness and reasonableness of the agreement. Moreover, as a fiduciary, Marcos had the burden to establish that Adam was informed of all material facts relating to the agreement. Additional important factors in determining the fairness of a transaction involving a fiduciary include whether the consideration was adequate and whether the beneficiary obtained independent advice.

Id. The court of appeals held that the jury’s finding of breach of duty by the attorney supported invalidating the partnership agreement: “Because the jury found that Marcos failed to fulfill his fiduciary duties to Adam in regard to the alleged partnership agreement, and the evidence supports that finding, the presumption that the contract was invalid applies. Thus, the trial court did not err in holding the agreement was invalid and unenforceable.” Id.
Continue Reading Partnership Agreement Was Invalid Where IT Was Entered Into Between A Fiduciary And Principal And Was Otherwise Unfair And The Principal Did Not Owe Fiduciary Duties As A Partner Where There Was No Enforceable Partnership