Thursday, February 21, 2019

First, Who Owes What Fiduciary Duties To Whom?

First, Who Owes What Fiduciary Duties To Whom?
      The recent decision from Texas highlights the importance of clarifying exactly who owes fiduciary duties to whom. If no duty is owed to the plaintiff, it follows there can be no breach of duty. Jang Won Cho v. Kum Sik Kim, No. 14-16-00962-CV, 2018 WL 6836199 (Tex. Ct. App. 14th Dist. Dec. 28, 2018).
      This case arose out of a failed real estate venture organized through a limited partnership. The three persons involved, Lee, Cho and Kim, were all shareholders in a corporation that was in turn the general partner of the limited partnership. Cho was the sole director of that corporation. When the venture ultimately failed, Kim and Lee brought suit against Cho alleging breach of fiduciary duty and other claims. The court would dismiss the claims based upon the breach of fiduciary duty.
      With respect to the assertion that Cho, as a corporate director, breached a fiduciary duty, the court found that Cho owed fiduciary duties to the corporation, but not to the individual shareholders. Further, Kim and Lee could not bring claims against Cho in his capacity as a shareholder because Texas law does not recognize fiduciary obligations amongst the shareholders of a closely held corporation.
      With respect to the limited partnership, the court acknowledged that the corporate general partner would owe fiduciary duties to the individual limited partners, citing in support Crenshaw v. Swenson, 611 S.W.2d 886, 890 (Tex. Civ. App. - Austin 1980). From there, however, the court noted that the general partner was the corporation, not Cho as an individual. Thus, while the corporation may have owed fiduciary duties to Lee and Kim in their capacities as limited partners, Cho the individual did not.

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