Fiduciary Duty by Corporation

Statute of Limitations for Breach of Fiduciary Duty by Corporation

The business owner responsibilities for a corporation's duties to shareholder. Majority shareholders and directors may be jointly and severally liable.

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Fiduciary Duty

Statute of Limitations for Breach of Fiduciary Duty

The general statute of limitations for breach of fiduciary duty is four years. Tex. Civ. Prac. & Rem. Code § 16.004(5). Because the corporations duties are quasi-fiduciary duties arising out of a relationship that courts analogize to a trust, it would seem that this limitations period would clearly apply. Also, the four-year statute of limitations applies generally applies to all actions seeking equitable relief.

The difficult issue is not deciding how long the limitations period is, but when it starts to accrue. In cases involving a pattern of disregard and impairment of the plaintiff’s rights that may go on over a long period of time, the accrual of the limitations period could become a significant issue. Often, oppressive disregard of a shareholder's rights may occur without the shareholder's immediate knowledge, such as in Yeaman v. Galveston City Co., where the plaintiffs were unaware of the fact that the corporation had cancelled their shares and was not paying them dividends for a period of 72 years. More frequently, conduct that constitues a breach of trust will not be one discrete act but will be comprised of a series of slights. First, the corporation ignores requests for information. Then the corporation begins to pay constructive dividends to the majority shareholder. Much later, the minority shareholder is fired. The minority shareholder will claim that the termination of employment coupled with no dividends, together with the other misconduct constitutes a breach of trust. However, the not paying of dividends may have been going on for decades. The first instance of withholding of information may have occured more than four years before the lawsuit. When did the cause of action for breach of trust accrue? Oppressive conduct might seem like isolated disagreements or minor overreaching at first, but when the conduct escalates over time, the question of when the breach of trust actually happened could become difficult.

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Requires Clear Notice

The Statute of Limitations for Breach of Fiduciary Duty Requires Clear Notice

Several doctrines ease the burden of the statute of limitations on victims of a long pattern of oppressive conduct. The Texas Supreme Court in Yeaman v. Galveston City Co. ruled that a “shareholder is entitled to rely upon [the corporation] not attempting to impair his interest. He is chargeable with no vigilance to preserve his stock or its fruits from appropriation by the corporation, but may confide in its protection for their security.”  Therefore, “statutes of limitation have no application until there is a clear and unequivocal disavowal of the trust, and notice of it brought to the cestui que trust.”  The shareholder must have notice of overt conduct by the corporation denying or repudiating his interests.

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One court noted: “Given that repudiation triggered accrual, it was conceivable that situations could arise, when dealing with dividends or preemptive rights, where the corporation did nothing to repudiate them and the shareholder did nothing to secure them. Should that circumstance have occurred, then limitations would never have begun. . . . Had that occurred, limitations would never have begun, and the corporation would have been perpetually liable.”  That result was exactly the situation in Yeaman in which the corporate defendant failed to recognize the ownership interests of a shareholder, and the claim brought 72 years later by his descendants was not time-barred.

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Continuing Tort

Continuing tort is tolling doctrine in which an ongoing wrong causing a continuing injury that does not accrue for limitations purposes until the tortious act ceases. A plaintiff may bring a single suit for the period of time it sustains injuries from a defendant's conduct. Therefore, even where the plaintiff has clear notice of the corporate misconduct, but delays suing in th hope that things will get better, may not be subject to a limitations bar for a continuing series of corporate violations of his rights and interests as a shareholder. Obviously, if the defendant’s oppressive conduct ceased more than four years before suit was filed, then there will be no basis for the court to hold that the breach of trust is not barred by limitations.  Similarly, if the plaintiff endures the same kind of conduct without complaint for many, many years, then the issue is not limitations, but more likely waiver, estoppel, or laches.