Key points
- Fraudulent inducement claims can survive even when the contract contains a merger clause, unless the contract clearly and specifically disclaims reliance.
- Statutory fraud under Bus. & Com. Code § 27.01 applies to transactions involving real estate or corporate stock and allows attorney’s fees.
- A fiduciary who breaches duties may have to disgorge profits or forfeit compensation, even without proof of other damages.
- The Texas Uniform Fraudulent Transfer Act (Bus. & Com. Code ch. 24) lets creditors unwind transfers made to put assets out of reach.
Claims we handle
- Fraud in the sale or purchase of a business: misstated financials, hidden liabilities, inflated customer bases (see our case result on a nearly $650,000 award for breach of a business sale agreement);
- Fraudulent inducement into contracts, investments and loans;
- Breach of fiduciary duty by partners, officers, directors, managers, agents and trustees;
- Usurpation of business opportunities and self-dealing;
- Diversion and misappropriation of funds, including claims under the Texas Theft Liability Act;
- Departing employee misconduct: taking customers, trade secrets and confidential information (see trademark and trade secrets); and
- Fraudulent transfers to insiders or shell entities to avoid creditors.
Fraud vs. breach of fiduciary duty
| Fraud | Breach of fiduciary duty | |
|---|---|---|
| Relationship required | None. Applies between strangers. | A formal fiduciary relationship (partners, agents, trustees, officers to the company) or, rarely, an informal relationship of trust that predates the transaction. |
| Core wrong | A knowing or reckless misrepresentation or concealment. | Disloyalty, self-dealing, or failure to disclose to the person owed the duty. |
| Burden | The plaintiff proves each element. | In self-dealing cases, the fiduciary may bear the burden of proving fairness. |
| Special remedies | Exemplary damages; rescission. | Disgorgement, fee forfeiture, constructive trust; exemplary damages. |
| Limitations (general) | 4 years | 4 years |
Suspect fraud? Preserve before you confront.
Secure emails, financial records and devices, and avoid tipping off the other side until you have a plan. Then talk to us or call (346) 363-0334.
Damages and remedies
- Actual damages: out-of-pocket or benefit-of-the-bargain losses, and consequential damages;
- Exemplary (punitive) damages under Civil Practice and Remedies Code ch. 41, on clear and convincing evidence of fraud, malice or gross negligence. These are generally capped at the greater of two times economic damages plus non-economic damages up to $750,000, or $200,000, with exceptions for certain felonious conduct (see our article on exemplary damages);
- Equitable remedies: rescission, disgorgement, fee forfeiture, constructive trusts and accountings;
- Attorney’s fees where a statute or contract allows, including statutory fraud and the Theft Liability Act; and
- Injunctions and, in appropriate cases, receiverships to stop ongoing harm or asset dissipation.
Defending fraud and fiduciary claims
Fraud allegations are serious, and they’re also frequently overpled. We defend businesses and individuals by attacking reliance and disclaimer-of-reliance issues, the existence and scope of any fiduciary duty, causation, damages models, and limitations, and by holding plaintiffs to the clear-and-convincing standard for exemplary damages.
Related practice areas
Fraud and fiduciary claims often travel with breach of contract and partnership and shareholder disputes. In real estate transactions, see seller disclosure fraud and broker and agent disputes.