The True Meaning of Fiduciary Duty

The highest duty owed by one person to another, recognized by law. That is a scary legal requirement as it applies in corporate law. Texas Corporate Law, similar to the corporate law of other States, such as Delaware, imposes a heightened duty upon a director, officer, or senior employee of a company to the company. Fiduciary duty is broken down into two components: a duty of loyalty and a duty of care to the corporation. This duty is not merely a passive duty owed by an individual to the corporation. It is a duty to ensure that a corporate opportunity or corporate benefit is not illegally taken by a person in a position of trust. In short, it prevents someone from “feathering their own nest” at the expense of the company with which he or she is affiliated. While the law imposes fiduciary duties on corporate directors and senior officers of a company, a fiduciary duty may be recognized under Texas law depending on the nature of the relationship. If an individual is in a position of trust and confidence of the company, has controlled of the company or its information, a jury may determine that a fiduciary duty exists.

In cases involving claims for a breach of fiduciary duty, the moving party, whether it is the corporation, or someone suing derivatively on behalf of a corporation, alleges that an individual has taken something that does not belong to him or her, and has injured the corporation. In such a case, the remedies that a Court may impose is not only a disgorgement of all benefits, regardless of whether part of the benefit taken by the wrongdoer was valid, but may also impose punitive damages against the wrongdoer.

The question arises as to why this duty exists in the first place. Essentially, when acting as a corporate collective-hence the corporation-certain individuals are entrusted with information that is valuable to the survival and growth of a corporation, which is recognized as a distinctly new entity under the law. In breach of fiduciary duty cases, a business lawyer will bring a claim seeking to punish the wrongdoer and impose a constructive trust on all monetary benefit that has been improperly derived. It is an important consideration for all senior personnel in a corporation, before they involve themselves in taking advantage of a benefit that their principal may also benefit from, to obtain a statement of release or a statement of non-interest from the board of directors of the company. In doing so, any prospective endeavor, should it yield any significant return, will belong to the individual, without any claim made upon it by the corporation.

Charles M. R. Vethan
Managing Partner