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 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
TOO MUCH FUN
Too much fun, what’s that mean?
It’s like too much money, there’s no such thing
It’s like a girl too pretty with too much class
Being too lucky, a car too fast
No matter what they say, I’ve done
But I ain’t never had too much fun
By Daryle Singletary
The lyrics of country songs share the heart of personal stories in a way like no other music genre. In the chorus above from his song “Too Much Fun,” Daryle Singletary croons that there is no such thing as too much money. His chorus got me to thinking whether the concept of too much money has any role to play in the operation of private companies. Specifically, would a Texas court ever hold that the officers and directors of a private company had breached their fiduciary duty by retaining excessive earnings? Or, have Texas judges taken Daryle’s words too much to heart and concluded that there is no such thing as too much money when it comes to the amount of profits that a company can retain and choose not distribute to its owners?
Continue Reading Too Much Money: Can a Minority Shareholder Succeed on a Breach of Fiduciary Duty Claim Based on The Company’s Excessive Retained Earnings
It is no longer news to report that Texas has become a hostile forum for corporate (and other) plaintiffs who recover large jury awards. For more than a decade, the press has featured numerous stories on Texas appellate courts (including the Supreme Court) overturning large jury verdicts after jury trials. One of the most recent, notable examples is a decision by the appellate court in San Antonio, which disregarded detailed jury findings in reversing a verdict awarding substantial damages to a corporate plaintiff harmed by two of its disloyal, outside directors. See Huff Energy Fund, LP, et. Al. v. Longview Energy Company, No. 04-12-003630-CV (Tex. App. – San Antonio, November 25, 2015).
Continue Reading The Danger From Within: Texas Appellate Court Sets Higher Bar For Companies to Succeed on Claims Made Against Disloyal Directors