Breach of Fiduciary Duty

Self-dealing occurs when a fiduciary—such as a corporate officer, director, partner, or trustee—takes action that benefits themselves at the expense of those to whom they owe a duty of loyalty. Texas law requires fiduciaries to act in the best interests of their principals, and self-dealing transactions are subject to heightened judicial scrutiny. Remedies can include disgorgement of profits, compensatory damages, removal of the fiduciary from their position, and in cases of egregious conduct, punitive damages.

A conflict of interest arises when a fiduciary has a personal or financial interest that could impair their ability to act in the best interests of the party they serve. Texas courts impose a duty on fiduciaries to disclose all material conflicts and obtain informed consent before proceeding with any interested transaction. Undisclosed conflicts can void transactions, expose the fiduciary to damages, and in cases involving corporate officers or directors, give rise to derivative litigation by shareholders seeking to recover on behalf of the company.

The corporate opportunity doctrine prohibits officers and directors from diverting business opportunities that rightfully belong to the company for their personal benefit. When a fiduciary learns of a business opportunity through their role and pursues it personally—or diverts it to a competing entity—the company may seek to recover the profits realized and obtain equitable relief. Texas courts examine whether the opportunity fell within the company’s line of business and whether the fiduciary had the capacity to exploit it on the company’s behalf.

Texas does not recognize a standalone common-law cause of action for minority shareholder oppression. The Texas Supreme Court eliminated the doctrine in Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014), reversing more than 25 years of appellate court precedent and holding that courts may not order forced buyouts under an oppression theory. Minority owners who are frozen out, denied distributions, or excluded from management must instead pursue available claims including breach of fiduciary duty, breach of the governing agreement, fraud, and—where the majority’s conduct rises to abuse of authority that creates a serious risk of harm to the entity itself—limited statutory relief through appointment of a rehabilitative receiver under TBOC § 11.404. Shareholders also retain rights to inspect books and records and to bring derivative actions on behalf of the entity.