Trust is the cornerstone of business partnerships, often reinforced by a fiduciary duty—a legal obligation to act with honesty, loyalty, and integrity. A breach of this duty can have far-reaching consequences, affecting individuals both financially and personally for years.
At Wadler Perches & Kerlick, we work with clients who feel betrayed by someone they once trusted in a business relationship. That trust, in many cases, stems from a fiduciary duty. If you have experienced a breach of fiduciary duty in Southeast Texas, including Wharton County, Fort Bend County, and Matagorda County, call today to schedule a consultation.
Let’s walk through what it takes to prove a breach of fiduciary duty in a business partnership.
What Is Fiduciary Duty in a Business Partnership?
When two or more people enter into a business partnership, they don’t just share profits—they share responsibilities. That includes the legal obligation to act in one another’s best interest. This is where fiduciary duty comes in.
A fiduciary duty in a business partnership includes:
Loyalty to the partnership: Partners should never put personal interests ahead of the partnership’s success.
Disclosure of material facts: All relevant business decisions or financial concerns should be openly shared.
Avoidance of conflicts of interest: If a decision or action could benefit a partner personally at the expense of the business, it must be disclosed or avoided altogether.
Fair dealing: All actions taken on behalf of the partnership should be fair and transparent.
Fiduciary duties are baked into the partnership relationship under Texas law. Breaching these duties can lead to significant liability.
When Do Fiduciary Duties Arise?
Fiduciary duties aren’t inherent in every business relationship, but in partnerships, they’re typically implied by law. These duties arise as soon as a formal or informal business partnership is established, regardless of whether there's a written or verbal agreement.
Common relationships where fiduciary duties may apply include general partnerships, where all partners owe duties to each other and the partnership itself. Joint ventures, even temporary arrangements, can also trigger fiduciary obligations.
In limited partnerships, while limited partners may have less control, general partners are still bound by fiduciary duties. These obligations remain in effect throughout the partnership's duration and can even extend beyond its conclusion, particularly when unresolved financial responsibilities arise during dissolution.
Signs a Fiduciary Duty May Have Been Breached
Many business disputes stem from misunderstandings. But in some cases, there are clear warning signs that a fiduciary duty was broken. Recognizing those signs is the first step toward proving it.
Some red flags include:
Withholding financial records: When one partner blocks access to bank accounts, financial statements, or tax documents, it may indicate misconduct.
Self-dealing: If a partner is funneling opportunities, clients, or profits to a personal business without consent, that’s a potential breach.
Unauthorized withdrawals: Money moving out of the business account without explanation is a major concern.
Excluding partners from decisions: A pattern of leaving others out of critical business choices can point to a betrayal of fiduciary duty.
Misinformation or false statements: Lying about profits, losses, or liabilities breaches the duty of honesty and transparency.
We often tell clients to trust their instincts. If something feels off and communication has broken down, it’s worth looking into whether a fiduciary duty has been breached.
The Elements Required to Prove a Breach of Fiduciary Duty
Once we suspect a breach, the next step is proving it. Texas courts require that four key elements be shown to succeed in a fiduciary duty claim:
A fiduciary relationship existed: First, we have to confirm that a fiduciary relationship was legally recognized between the parties. In business partnerships, this is often straightforward, but not always. For informal partnerships or ventures without written agreements, we may need evidence like shared profits, joint accounts, or written communications that show a mutual intent to run a business together.
The duty was breached: This is the heart of the case. We must show that one partner acted in a way that violated their obligations of loyalty, honesty, or fairness. This could include financial misconduct, concealment of material facts, or using partnership resources for personal gain.
The breach caused damages: There needs to be a direct link between the wrongful behavior and financial or reputational harm to the partnership or the partner bringing the claim. This might be a drop in profits, a lost client, or damage to the company’s reputation.
Actual damages occurred: Finally, we must calculate the loss. This can include lost income, repayment of wrongfully spent funds, or, in some cases, punitive damages for particularly bad behavior.
If even one of these elements is missing, the case may fall apart. That’s why gathering strong evidence is so important.
How to Build a Strong Case for Breach of Fiduciary Duty
Building a strong claim for breach of fiduciary duty takes time, patience, and strategy. The earlier you start gathering evidence, the better your chances of proving what happened.
First, gather all relevant documentation, including financial statements, tax filings, emails, partnership agreements, and bank records, as these can reveal patterns of behavior. Second, interview witnesses; statements from vendors, clients, or employees who observed misconduct can be very useful.
Third, review the partnership agreement, especially if it's a written document, as it may outline specific duties and expectations. Fourth, create a timeline to lay out the sequence of events, which can help pinpoint when and where the duty was breached.
Finally, consider hiring a forensic accountant in some cases, as a trained financial professional may be able to trace missing funds or hidden transactions.
These steps aren’t merely helpful; they’re often essential to successfully proving that a breach of fiduciary duty occurred.
Defenses to Breach of Fiduciary Duty Claims
While one partner may feel wronged, the other might argue that no duty was breached—or that the conduct was justified. Understanding potential defenses can help us anticipate obstacles.
Some common defenses include:
No fiduciary relationship existed: The defendant might argue they weren’t a true partner or owed no legal duty.
Business judgment rule: If the partner made a decision in good faith and with reasonable care, courts may defer to that judgment even if the outcome was poor.
Informed consent: If other partners agreed to the action at issue, it may not be a breach.
Lack of damages: If the plaintiff cannot demonstrate harm, even evident misconduct may not result in compensation.
Statute of limitations: Texas law sets deadlines for filing breach of fiduciary duty claims. If too much time has passed, the case could be barred.
Knowing these defenses helps us build a more thorough and credible case from the beginning.
Remedies Available for Breach of Fiduciary Duty
When a breach of fiduciary duty is proven, Texas courts offer several ways to try and make things right. These remedies depend on the specific facts but can include:
Monetary damages: Courts can award compensation for lost profits, stolen funds, or other economic harm.
Disgorgement of profits: If the breaching partner benefited personally, they may be ordered to give up those gains.
Rescission of contracts: Deals made in bad faith or lacking proper disclosure can be invalidated by courts.
Injunctive relief: A court may mandate a partner to cease certain actions or perform specific duties.
Dissolution of the partnership: In severe cases, the only fair outcome may be to end the business relationship altogether.
These remedies aim to restore fairness and accountability to the business relationship.
Why Timing Matters in Fiduciary Duty Cases
Time isn’t just a detail—it can make or break a claim. Texas law generally gives us four years to file a lawsuit for breach of fiduciary duty. But in some cases, that time limit can be shorter or extended, depending on when the breach was discovered.
That’s why it’s important not to wait. As memories fade and evidence disappears, building a solid case becomes harder. The longer misconduct goes unchecked, the more damage it can do to the business and personal relationships.
Speak to Our Attorneys Today
If you believe your business partner has violated a fiduciary duty, you don’t have to fight it out alone. With offices in Wharton, Fulshear, Richmond, and Bay City, our attorneys help resolve business disputes across Southeast Texas, including Fort Bend County, Wharton County, and Matagorda County. Contact Wadler Perches & Kerlick today. You won’t regret it.
