Philip W. Boyko Business Law Blog on Lawyers.com

We often hear about relationships resulting in a breach of "fiduciary duty."  But does the general public know what type of relationship gives rise to a fiduciary duty in the first place?  The purpose of this post is to provide the reader with a better understanding of the type of relationship to which will attach a "fiduciary duty."

Perhaps it would be beneficial to approach the topic from the back end, i.e., to first start with a clear understanding of what a "fiduciary duty" is.  A good definition of the term under Texas Law can be found in the 1997 Arce v. Burrow opinion out of the Fourteenth Court of Appeals.  There, the court stated that "[A] fiduciary duty is a formal, technical relationship of confidence and trust imposing great duties upon a fiduciary as a matter of law." 

We can go all the way back to the 1942 Texas Supreme Court case of Kinzbach Tool Co. v. Corbett-Wallace Corp. for a description of the type of relationship necessary to create a fiduciary duty.   There, the court stated the following:

"[T]he term "fiduciary is derived from the civil law.  It is impossible to give a definition of the term that is comprehensive enough to cover all areas.  Generally speaking, it applies to any person who occupies a position of peculiar confidence towards another.  It refers to integrity and fidelity.  It contemplates fair dealing and good faith, rather than legal obligation, as the basis of the transaction. The term includes those informal relations which exist whenever one party trusts and relies upon another, as well as technical fiduciary relations."

A fiduciary duty may arise formally, as a matter of law, or informally, through moral, social, domestic, or purely personal relationships of trust and confidence.  As a matter of law, Texas recognizes the following relationships as giving rise to fiduciary duties:

• attorney-client, a highly fiduciary relationship in which the dealings between the attorney and the client are subject to exacting scrutiny;
• partners, where the Texas Supreme Court has commented that "[W]e have long recognized as a matter of common law that the relationship between partners is fiduciary in character, and imposes upon all participants the obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to the matters pertaining to the enterprise;"
• spouses, where one spouse breaches the relationship of trust and commits fraud on the community by conveying community property to third parties;
• agent/principal, as Texas follows the common law of most jurisdictions in holding that agency is a special relationship that gives rise to a fiduciary duty because the agent, in agreeing to act on behalf of the principal, causes the agent to be a fiduciary;
• officers and directors to a corporation, with the courts of Texas generally holding that the officers and directors are, while exercising their official actions,  held to an extreme measure of candor, unselfishness, and good faith;
• trustee of trust/executor of estate, as both owe full disclosure of all material facts known to them that might affect the rights of the beneficiaries; and
• employer to employee (in certain cases), where some employees have been required to disgorge the profit they received from a person with whom they were dealing on behalf of their employer.

The list is not necessarily exhaustive, but does highlight those relationships that the law has clearly attached fiduciary duties. 

One final note concerning the existence of one of these relationships and a breach of fiduciary claim.  The plaintiff is in an enviable position because Texas courts apply a rebuttable presumption of unfairness to transactions between the fiduciary and the party to whom he owes a duty of disclosure. 

 On the other hand, there are informal relationships that the law has declared not to be fiduciary as a matter of law.  That list includes:

• insurer and third-party claimant;
• lender and borrower (unless the borrower is able to show extraordinary circumstances such as excessive control and influence by the lender on the borrower's business);
• general contractor and subcontractor; and
• mortgagor-mortgagee.

In holding that these relationships do not impose fiduciary duties on one of the parties, the courts have held that the law must examine "whether influence has been acquired and abused" and "whether confidence has been reposed and betrayed."  Quite simply, the law doses not recognize a fiduciary relationship lightly, with the ultimate determination predicated on the circumstances of each case.  In most of these cases, the existence of an informal fiduciary relationship is a question of fact for the jury.  More often than not, the party that asserts a claim for breach of a fiduciary duty arising from an alleged informal relationship fails to overcome the high threshold required to assert such a claim.

So now you know, or if you already knew, perhaps you have a better understanding of what makes a fiduciary relationship.  Quite simply, it's not easy to attain the status of a fiduciary relationship, but once there, significant duties attach.

Nothing in this post should be considered legal advice.  Let's face it, chances are good that you may not know me and I may not know you. My aim is simply to provide the reader with some useful, but general, information about the topic.  You should not rely on any information in this post without some assurance that the material is still current and applicable at the time it is read.  If you want a legal opinion that has teeth, consult your personal lawyer about your particular circumstances.  If you don't have a lawyer and like what you see here, perhaps you should contact my law office to determine if I might be a good fit for you.  To do so, simply click on my name above and you will be directed to my website, or you can reach me by telephone at(713) 626-2221.  When responding please refer to this Blog No. 43.