In CBIF v. TGI Friday’s, a joint venture partner sued the other partner for breaching fiduciary duties for unreasonably withholding consent regarding amending a lease and by acting out of its own self-interest in threatening the venture and its constituents with the total loss of the venture’s business existence if it was not paid millions of dollars in order to buy out its interest in the venture. No. 05-15000157-CV, 2016 Tex. App. LEXIS 12844 (Tex. App.—Dallas December 5, 2016). The defendant claimed that it could not be held liable for breach of fiduciary duty because it was merely exercising its contractual right to vote against proposed changes to the venture’s governing documents and that its refusal to agree to the proposed modifications did not constitute a breach of fiduciary duty.
The court of appeals affirmed a finding that the defendant breached its fiduciary duty. The court held: “The relationship between partners is fiduciary in character, and imposes on all the participants the obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise.” Id. at *48. The court concluded that partners in a joint venture owed each other fiduciary duties. Regarding the defendant’s argument that it did not breach any duty because it was just enforcing its contractual rights, the court stated that: “contracts do not exist in a vacuum. Rather, contractual rights, such as those claimed by CBIF, do not operate to the exclusion of fiduciary duties. Instead, where the two overlap, contractual rights must be exercised in a manner consistent with fiduciary duties.” Id. at *43. The court reviewed the evidence and held:
CBIF refused to amend the venture’s governing documents to give the disadvantaged business entities the requisite level of control, placing TGIFJV in default of the lease’s compliance requirement, which jeopardized the entire venture. The evidence also establishes that CBIF pursued its own self-interest at the expense of the joint venture by conditioning its waiver of its right of first refusal to purchase the 10% interest Friday’s sold to Domain, to maintain a 35% DBE ownership interest in the joint venture, upon payment of $109,000. Considering and weighing all of the evidence in the record pertinent to the finding CBIF breached its fiduciary duty to Friday’s, we conclude there is more than a scintilla of competent evidence to support the finding and the finding is not contrary to the overwhelming weight of all the evidence as to be clearly wrong and unjust.
Id.
Further, an agent of the defendant appealed a finding that he knowingly participated in the breach of fiduciary duty. He argued that he could not be held individually liable for the partner’s (CBIF’s) breach of fiduciary duty because he acted only in his capacity as manager of the general partner (Columbia) of the partner (CBIF), and acted in good faith, believing that what he did was for the best interest of both entities. He cited to Holloway v. Skinner, 898 S.W.2d 793, 795 (Tex. 1995), in which the Texas Supreme Court held that generally a representative of a party cannot tortiously interfere with that party’s contract:
To establish a prima facie case under such circumstances, the alleged act of interference must be performed in furtherance of the defendant’s personal interests so as to preserve the logically necessary rule that a party cannot tortiously interfere with its own contract. We hold that to meet this burden in a case of this nature, the plaintiff must show that the defendant acted in a fashion so contrary to the corporation’s best interests that his actions could only have been motivated by personal interests.
Holloway v. Skinner, 898 S.W.2d at 795. The court in CBIF distinguished the Holloway case thusly: “But Holloway was a breach-of-contract and tortious-interference case, not a breach-of-fiduciary-duty case. Thus, Flory’s reliance on it is misplaced.” 2016 Tex. App. LEXIS 12844 at *48-49.
The court then stated that “When a defendant knowingly participates in the breach of a fiduciary duty, he becomes a joint tortfeasor and is liable as such.” Id. The court affirmed the finding of knowing participation by the representative of the joint venture partner:
CBIF was a partner in TGIFJV… [T]he evidence supports the jury’s finding CBIF breached its fiduciary duty to Friday’s. Evidence of Columbia’s and Flory’s roles and involvement in CBIF’s actions relative to Terminal A—including their oversight and management of CBIF, their knowledge of the Airport’s concern over DBE compliance, and their thwarting Friday’s efforts to preserve TGIFJV’s space in Terminal A—all likewise support the jury’s findings Columbia and Flory knew of the fiduciary relationship and knowingly participated in CBIF’s failure to comply with its fiduciary duty to Friday’s… When viewed under the appropriate standards, there is legally and factually sufficient evidence to support the jury’s finding of knowing participation.
Id. See also Darocy v. Abildtrup, 345 S.W.3d 129, 138 (Tex. App.—Dallas 2011, no pet.) (evidence of the agent’s central “role and involvement in” the principal’s operations constituted “legally and factually sufficient evidence to support” knowing participation finding).
The court also affirmed the trial court’s refusal to submit a legal justification defense question that was requested by the representative of the defendant. The court state that to have a legal justification defense a party must act in good faith. “Columbia and Flory, however, cite no authority extending this good-faith defense to a claim of knowing participation—which would seem logically antithetical to good faith—and we find none.” Id. at *51.
The court also affirmed other breach of fiduciary duty findings regarding other entities. For example, the court noted that CBIF was a limited partner that exercised control of a limited partnership, and thus owed fiduciary duties to the other partners. The court also held that the trial court did not err in refusing an instruction that contractual rights supplant fiduciary duties, which the court held was not a correct statement of the law: “Under Texas law, contractual rights do not operate to the exclusion of fiduciary duties, as noted previously. Consequently, Columbia’s and Flory’s requested instructions directing jurors to the contrary were not substantially correct and the trial court’s refusal to submit the instructions is not reversible error.”
The court did reverse certain declaratory relief and attorney’s fees awards, but otherwise affirmed the judgment for the plaintiff.
