Durable Power of Attorney Creates Fiduciary Relationship

A recent court of appeals discussed the significance of the fiduciary relationship created when someone signs a power of attorney authorizing another to act as their agent.  (Jordan v. Lyles, 485 S.W.3d 785 (Tex. App. - Tyler 2015)).  In this case, Bud executed a durable power of attorney appointing his stepdaughter as his agent. Subsequently, Bud, with the help of his stepdaughter, completed some forms making his stepdaughter the sole beneficiary of Bud's bank and annuity accounts.  As a result, when Bud died these accounts vested in the stepdaughter and did not become part of Bud's probated estate.

After Bud's death, the stepdaughter withdrew the money from the accounts and liquidated the annuities.  Bud's heirs sued the stepdaughter for breach of fiduciary duty.  The court held that the power of attorney created a fiduciary relationship between Bud and his stepdaughter as a matter of law. Even in the case of a gift between parties with a fiduciary relationship, the law presumes the gift to be unfair and invalid.  The recipient of the gift must prove that the transaction was fair and reasonable.

The jury found that Bud's stepdaughter breached her fiduciary duty, under the circumstances of this case, and awarded damages to the heirs. The court of appeals upheld the jury award.

Fiduciary Duties Owed by Members of Texas Limited Liability Companies

The Texas Supreme Court has made it clear in a recent opinion that majority shareholders do not owe formal fiduciary duties to minority shareholders, even in closely held corporations. Cardiac Perfusion Services, Inc. v. Hughes, 436 S.W.3d 790 (Tex. 2014). However, a recent Texas appellate court held that managing members of a limited liability company (LLC) may owe a fiduciary duty to the non-managing member when the company agreement vests sole control of the company in the managing members.  Guevara v. Lackner, 447 S.W.3d 566 (Tex. App.—Corpus Christi 2014), reh'g overruled (Dec. 11, 2014).

The moral of the story is that in forming an LLC, careful attention should be paid to drafting the company agreement that governs the operation of the LLC.