Recent Rulings on Informal Fiduciary Duty Claims in Texas

Sidley examines the judicial treatment of formal and informal fiduciary relationships in Texas, as elucidated by Tall v. Vanderhoef, a recent decision in the Business Court of Texas.

Texas law recognizes both formal and informal fiduciary relationships. Formal relationships arise automatically due to their nature. Those between attorneys and clients or partners in a partnership are examples.

Informal fiduciary relationships emerge from trust and confidence that develop over time, even in contexts not traditionally recognized as fiduciary. Those relationships provide plaintiffs with a flexible tool to allege fiduciary breaches, but Texas courts have been increasingly reluctant to find that they exist, especially in commercial disputes.

Historically, Texas courts have recognized that informal fiduciary duties may arise from personal or business relationships if they are characterized by a long-standing trust.

However, Justice Huddle of the Texas Supreme Court, joined by three other justices, has openly questioned the viability of informal fiduciary duties, arguing that fiduciary duties should be limited to relationships defined by objective legal authority rather than subjective interpersonal trust.

This signals growing skepticism at the highest levels of Texas jurisprudence about continuing to recognize informal fiduciary duties.

In Pitts v. Rivas, the Texas Supreme Court held that, despite a long personal and professional history between an accountant and his client, their relationship did not rise to the level of a fiduciary relationship.

Likewise, on April 21, in Tall v. Vanderhoef, the Texas Business Court rejected fiduciary duty claims between LLC members where no pre-existing trust relationship existed beyond contractual obligations.

Both courts emphasized the high threshold for proving informal fiduciary duties.

For lawyers advising clients in Texas with respect to contract and partnership disputes, these rulings underscore the importance of carefully structuring business relationships and agreements to either encompass or avoid fiduciary obligations.

Litigators can expect continued use of informal fiduciary duty claims by plaintiffs, but they will frequently fail.