The constructive trust is a powerful weapon that plaintiffs can use against defendants who have breached their fiduciary duties or committed fraud. In one Texas case, the court of appeals actually affirmed the trial court’s award to the plaintiffs of all the assets in the business owned by the defendant who breached his fiduciary duties and committed fraud. Bright v. Addison, 171 S.W.3d 588, 595 (Tex. App.—Dallas 2005, pet. denied) .
In the Bright case, supra, Plaintiffs sued their attorney, Bright, and his law firm(s) for usurping a business opportunity to manage a casino in Aruba. Plaintiffs also sued the Aruban corporation set up by Bright to manage the casino. The factual record of the case is limited, but apparently, Plaintiffs were in the casino business and hired Bright to perform legal work related to Plaintiffs’ business operations. In connection with Bright’s representation of Plaintiffs, he allegedly learned of an opportunity to manage a casino in Aruba and did not disclose this opportunity to Plaintiffs Instead, Bright took advantage of this opportunity for himself by setting up his own corporation to manage the Aruba casino.
Plaintiffs later learned about Bright’s alleged misdeeds and sued Bright and his law firms for usurping this business opportunity. Plaintiff’s alleged causes of action against Defendants including for breach of fiduciary duty, fraud and tortious interference with a prospective contract. Plaintiffs requested that the trial court impose a constructive trust upon the assets of Bright’s corporation used to manage the Aruba casino, and also requested that the trial court award Plaintiffs lost profits and punitive damages against Defendants. Plaintiffs prevailed at trial and the Defendants appealed.
The court of appeals held that there was legally and factually sufficient evidence to show that Bright was Plaintiffs’ attorney so that Bright owed Plaintiffs a fiduciary duty of full disclosure. Bright had a duty to disclose the opportunity to Plaintiffs to manage the Aruba casino and intentionally chose not to disclose this opportunity to them. There was sufficient evidence to uphold the trial court’s determination that Bright breached his fiduciary duty, committed fraud and committed tortious interference.
The court of appeals also affirmed the trial court’s ruling that a constructive trust should be imposed in favor of Plaintiffs upon all the assets of the Aruban corporation set up by Defendant Bright to manage the Aruba casino. The court of appeals held that breach of fiduciary duty and fraud are grounds for imposing a constructive trust and the trial court did not abuse its discretion in imposing the constructive trust.
Defendants also challenged the trial court’s award of lost profits. Defendants grounds for appeal on this issue included that Plaintiff’s expert CPA was not qualified to testify as to lost profits. The Court found that the trial court did not abuse its discretion in finding that the CPA who had extensive experience in valuing casinos was qualified to testify. The court also upheld the trial court’s award of punitive damages against the Defendants.
In conclusion, Texas courts have the authority to award both equitable relief and damages against parties committing breach of fiduciary duty or fraud. One of the available equitable remedies is the imposition of a constructive trust upon assets that are obtained as a result a breach of fiduciary duty or fraud. As can be seen from the Bright case, this remedy can be harsh and extensive. Typically, an expert will need to be hired to trace the assets upon which the plaintiff seeks the imposition of the constructive trust as well as to support an award of lost profits. If the expert is qualified, and the plaintiff proves his case, a defendant may lose everything tainted by the breach of fiduciary duty or fraud.