Use It or Lose It: Texas Courts Take a Close Look at the Concept of Informal Fiduciary Relationships
Under Texas law, there are two categories of fiduciary relationships: formal and informal.
Formal fiduciary relationships arise as a matter of law from certain relationships recognized as inherently fiduciary in nature. Classic examples include the relationship between trustee and beneficiary, attorney and client, partners in a partnership, and corporate directors and the corporation. These duties are not dependent on the particular facts of the relationship, but instead arise automatically, as a matter of law, based on the type of relationship the parties share.
On the other hand, informal fiduciary relationships are not limited to previously recognized categories, but can arise from any moral, social, domestic, or purely personal relationship of trust and confidence. Under this doctrine, fiduciary duties may be found when a party has dealt with another in a certain manner for a long period of time such that they justifiably expect the other to act in their best interest.
Claims based on the alleged existence of an informal fiduciary relationship are a common issue in Texas litigation. Conceptually, they are more flexible than their formal counterpart in that they are not categorically limited. An informal fiduciary relationship could (at least theoretically) arise in virtually any context, even where courts have held that a particular type of relationship is not ordinarily a fiduciary one. It all depends on the surrounding facts and circumstances, and that type of fact-intensive framework can have appeal to plaintiffs seeking to stave off pre-trial disposition. But the ubiquity of such claims does not correspond to their success rate. In a recent concurrence in the Texas Supreme Court, Justice Huddle (joined by three others) observed that the Court has not recognized an informal fiduciary relationship in nearly 50 years and formally called for the doctrine to be abandoned entirely.
Despite this call for its elimination, the concept of informal fiduciary duties is alive and well under Texas law, as shown by a recent decision from the Texas Business Court. But that court, as with most lower courts to address the issue, continue to apply the doctrine narrowly, particularly in business contexts, and only if the parties’ special relationship of trust and confidence existed prior to, and apart from, the agreement made the basis of the suit. With increased skepticism coming from the State’s highest court, this will be an area to keep an eye on as Texas’ body of business law continues to grow.
I. Pitts v. Rivas
In Pitts v. Rivas, 2025 WL 568114 (Tex. Feb. 21, 2025), the Texas Supreme Court addressed claims of professional malpractice, fraud, and breach of fiduciary duty brought by a client against his accountants. The defendant (Pitts) and his wife had provided accounting services for plaintiff (Rivas) for 10 years, and the parties’ families had developed a personal friendship. The parties had dinners together, their sons were roommates, Rivas built a house for Pitts at a discount, and the Pitts provided accounting services without charge and (for a period) without a written agreement. Nonetheless, after Rivas discovered that certain financial statements prepared by Pitts were erroneous, he sued for breach of fiduciary duty, among other things.
The Texas Supreme Court observed that, unlike the attorney-client relationship, “Texas courts have not held that an accountant-client relationship automatically gives rise to fiduciary duties under Texas law.” But Rivas argued that an informal fiduciary relationship arose due to his close personal business relationship with his accountants. And indeed, the parties’ professional and business relationship had preceded the parties’ written agreement.
The Court’s majority opinion held that, while informal fiduciary relationships can arise from special relationships of trust and confidence, the standard for imposing such duties is high and the Court will not lightly do so. Having analyzed the nature of the relationship between the parties, the Court held that the evidence “comes nowhere close to creating a fiduciary relationship.” The fact that a relationship is especially cordial or of long duration is itself insufficient. Further, the language of the written contract between the parties provided a strong indication that however friendly their relationship may have been, they contemplated that the law would treat them as having an arm’s-length business relationship. Accordingly, the Court found that no informal fiduciary relationship existed.
The concurring opinion went a step further. Justice Huddle, joined by three others, questioned the continued viability of the informal fiduciary duty doctrine, describing it as a “fiction we should no longer entertain.” He reasoned that fiduciaries are subject to heightened duties because the law affords the fiduciary the power to exercise “a high degree of control over the legal, financial, and, in some cases, deeply personal affairs of another.” And he disagreed that such “weighty duties” should “sprout into existence absent evidence that one has undertaken a role that Texas law recognizes as fiduciary in nature” and where the “informal fiduciary wields no legal authority to direct another’s affairs.” He argued that fiduciary duties should be limited to those formal relationships that the law recognizes as fiduciary and where the relationship is defined by the fiduciary’s “precise, objective role and accompanying legal authority to undertake actions on behalf of others . . . without regard to the parties’ subjective feelings about the relationship.” Conversely, allowing parties to invoke, with the benefit of hindsight, the vague label of a “relationship of special trust and confidence” to describe a business, family, or personal relationship gone awry undermines predictability and fairness in commercial dealings.
But the Texas Supreme Court has not done away with the doctrine yet, and an April 2025 Texas Business Court decision shows that it continues to be advanced (and rejected).
II. Tall v. Vanderhoef
In April, the Texas Business Court (8th Division) took up the issue of informal fiduciary relationships in Tall v. Vanderhoef, 2025 Tex. Bus. 15 (Apr. 21, 2025). The plaintiff, Jaime Tall, was a minority member of Direct Care Source, LLC while the defendant, Scott Vanderhoef, was the majority member and sole manager. After Tall was expelled from the LLC, she brought a variety of claims against Vanderhoef and the company, including claims for breach of fiduciary duty.
Vanderhoef argued that he did not owe Tall a fiduciary duty for two reasons: (1) members of an LLC do not owe formal fiduciary duties to other members; and (2) the LLC agreement eliminated all fiduciary duties he would have owed to her. Tall responded that even if Vanderhoef did not owe a formal fiduciary duty as an LLC member, an informal fiduciary relationship existed.
The Court observed that under Texas common law, “members of an LLC do not owe broad formal fiduciary duties to each other.” As to an informal fiduciary relationship, the Court explained that Tall had not alleged that a special relationship of trust and confidence existed between the parties “before, and apart from, the agreements made the basis of the suit”—noting that the Texas Supreme Court in Pitts “recently reiterated” this standard. Further, the Court held the parties’ LLC agreement expressly eliminated any fiduciary duties. As such, the Court held that it “must honor the contractual terms that parties use to define the scope of their obligations and agreements, including those that restrict fiduciary duties that might otherwise exist.”
Tall shows that informal fiduciary relationships still exist under Texas law, but in light of the Supreme Court’s narrow application and the concurrence’s skepticism of the informal fiduciary doctrine, its future is unclear. For now, the informal fiduciary doctrine remains good law in the state of Texas. As Justice Huddle’s concurrence in Pitts points out; however, the doctrine is “routinely advanced” and “routinely fails.” Pitts and Tall are two recent examples.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
