Quick Take on the Interplay Between Fiduciary Duties and Contractual Rights in Partnerships
A partner does not breach a fiduciary duty by acting in accordance with his/her/its contractual rights.
A Partner Acting Pursuant to a Contractual Right Does Not Breach a Fiduciary Duty.Under Texas law, joint venturers owe each other a fiduciary duty "in their mutual endeavor." Deauville Corp. v. Federated Dept. Stores, Inc., 756 F.2d 1183, 1194 (5th Cir. 1985) (applying Texas law). However, "[t]his fiduciary duty does not extend so far as to create duties in derogation of the express terms of the joint venture agreement." AON Properties, Inc. v. Riveraine Corp., No. 14-96-00229-CV, 1999 WL 12739, at *10 (Tex. App.--Houston [14th Dist.] Jan. 14, 1999, no pet.) (not designated for publication). Thus, joint venturers that abide by and enforce the terms of an agreement with other joint venturers cannot simultaneously breach fiduciary duties to those joint venturers. In AON Properties, the court held that a joint venturer's exercise of its contractual right to terminate the joint venture was "[c]learly" not a breach of fiduciary duty." 1999 WL 12739, at *10. Similarly, in John Masek v. Davis, the court concluded that a partner was not liable to its co-partners for breach of fiduciary duty when the partnership agreement granted the partner the unilateral right to withdraw its capital. 848 S.W.2d 170, 174 (Tex. App.--Houston [1st Dist.] 1992, writ denied).
Justification Defense GenerallyThe affirmative defense of justification relieves a party of liability for his actions if he was acting pursuant to a legal right or in the good faith pursuit of a colorable legal right. See Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 80 (Tex. 2000). If a trial court finds as a matter of law that the a party had a legal right to interfere with a contract, it has conclusively established the justification defense. Prudential Ins. Co. of Am., 29 S.W.3d at 80. "Alternatively, if the defendant cannot prove justification as a matter of law, it can still establish the defense if the trial court determines that the defendant interfered while exercising a colorable right, and the jury finds that, although mistaken, the defendant exercised that colorable right in good faith." Id. Of justification, the Texas Supreme Court said: "Whatever a man has a legal right to do, he may do with impunity, regardless of motive, and if in exercising his legal right in a legal way damage results to another, no cause of action arises against him because of a bad motive in exercising the right." Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 211 (Tex. 1996) (quoting Montgomery v. Phillips Petroleum Co., 49 S.W.2d 967, 971 (Tex. Civ. App.--Amarillo 1932, writ ref'd). Although a tortious interference case, the Court in Texas Beef did not indicate that the above principle was limited to the tortious interference context. To the contrary, the case the Court quoted, Montgomery, was a fraud case, in which the civil court of appeals rejected the claim, holding: "Fraud cannot be predicated upon acts which the party charged has a right by law to do . . . ." 49 S.W.2d at 971-72 (also noting that "[t]he exercise of a right conferred by a valid contract in the manner provided by its terms cannot be the ground of an action").
Justification Defense Applied to Fiduciary DutyJustification has been applied to a claim of inducing a fiduciary duty breach. Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 863 (Tex. App.--Houston [14th Dist.] 2001, pet. denied). In Baty, two former officers of an insurance agency (Baty) formed a competing agency (ProTech) and entered into agency agreements with four other insurance companies. Baty sued the four insurance companies for, among other things, inducing the former officers into breaching their fiduciary duties by entering into contracts with the officers. Id. at 846. The four insurance companies argued that they could not be held liable for inducing any fiduciary duty breach because they were legally justified to enter into contracts. The court agreed, holding: "It is settled as the law of this State that where a third party knowingly participates in the breach of duty of a fiduciary, such third party becomes a joint tortfeasor with the fiduciary and is liable as such. This rule, however, does not apply where the third party is doing that which he has a legal right to do." Id. at 863 (citing Texas Beef, 921 S.W.2d 211); see also Bluebonnet Petroleum, Inc. v. Kolkhorst Petroleum Co., Inc., No. 14-07-00380-CV, 2008 WL 4527709, *8 (Tex. App.--Houston [14th Dist.] Oct. 9, 2008, pet. denied) (mem. op.) (affirming summary judgment on an inducement to breach fiduciary duty claim because the evidence did not show that the third party "was doing anything other than what it was legally entitled to do"); Joe N. Pratt Ins. v. Doane, No. V-07-07, 2009 WL 3157335, *3 n. 1 (S. D. Tex. Sept. 25, 2009) (same).
Justification Defense Applied to ConspiracyJustification is also applicable to conspiracy claims. See Great Nat'l Life Ins. Co. v. Chapa, 377 S.W.2d 632, 635 (Tex. 1964) (a "civil action for conspiracy will lie if the acts of the conspirators are not only malicious but without legal justification or excuse and are performed with the intent of injuring another") (emphasis added); Lang v. Lee, 777 S.W.2d 158, 162-63 (Tex. App.--Dallas 1989, no writ) (same). In Williams v. Stansbury, a noteholder sued a judgment creditor and assignee for tortious interference and conspiracy to deny him the benefit of his note regarding a garnishment proceeding instituted by the judgment creditor. 634 S.W.2d 924, 926-27 (Tex. App.--El Paso 1982), modified on other grounds and aff'd, 649 S.W.2d 293 (Tex. 1983). The court held that filing the garnishment proceeding was not wrongful conduct, but was the exercise of a legal right. Id. at 928. As a result, the conspiracy claim failed because "there was a legal basis for the conduct . . . ." Id.