The new Texas business courts recently opened their doors on Sept. 1, 2024 in Dallas, Fort Worth, Austin, San Antonio, and Houston. The courts have jurisdiction concurrent with district courts over, among other cases, actions alleging that a corporate director breached a duty owed to the corporation, generally subject to a $5 million minimum amount in controversy, unless a party to the action is a publicly traded company (in which case there is no minimum amount in controversy). Tex. Gov’t Code Sections 25A.004(b)(5), (c). Unlike the Delaware Court of Chancery, the Texas business courts do not have the benefit of dozens of precedent-setting opinions in breach of fiduciary duty litigation from the state’s court of last resort in civil matters. But this area of the law is not completely uncharted in Texas. Below are 10 principles that will guide the Texas business courts in breach of fiduciary duty litigation against corporate directors, as well as a few questions that the courts may address in their early days.
1. Tripartite Duties
Under Texas law, corporate directors owe three fiduciary duties to their corporation: loyalty, obedience, and due care. In the Matter of Estate of Poe, 648 S.W.3d 277, 287 (Tex. 2022); Gearhart Indus. v. Smith Int’l, 741 F.2d 707, 719 (5th Cir. 1984). While these duties are not expressly defined in the Texas Business Organizations Code (TBOC), they are recognized in case law, and the statute creating the business courts expressly references actions for “breach of a duty of loyalty or good faith.” Tex. Gov’t Code Section 25A.004(b)(5).