In Fornesa v. HSBC Bank USA, N.A., plaintiff sought a damage award against a defendant mortgagor for compensatory and punitive damages, based on alleged predatory lending practices. 2016 Bankr. LEXIS 2011 (S.D. Tex. May 13, 2016). Plaintiff asserted that the defendant breached fiduciary duties in refinancing one or more notes executed by the plaintiff. Plaintiff asserted that defendant filled in fictitious figures on plaintiff’s loan application, and refinanced his note twice within one year, in order to charge unreasonable interest rates and fees. The defendant filed a motion to dismiss for failure to state a claim upon which relief can be granted.

The court held that: “In order to prevail on a cause of action for breach of fiduciary duty under Texas law, a plaintiff must plead and prove that a fiduciary relationship exists, that the defendant breached the duty, and that the breach caused damages to the plaintiff.” The court also concluded that: “Texas law does not recognize a fiduciary duty between a mortgagor and mortgagee.” Id. (citing Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667 (5th Cir. 2013) and FDIC v. Coleman, 795 S.W.2d 706 (Tex. 1990)). The court granted the motion to dismiss, holding that the plaintiff did not state a claim upon which relief could be granted.

Interesting Note: Borrowers often claim that lenders breach fiduciary duties. This is a common lender liability claim. But the relationship between a bank and its customers does not create a special or fiduciary relationship. See Bosch v. Frost Nat’l Bank, No. 01-14-00191-CV, 2015 Tex. App. LEXIS 7481, *13 (Tex. App.—Houston [1st Dist.] July 21, 2015, no pet.); Crutcher v. Continental Nat’l Bank, 884 S.W.2d 884 (Tex. App.—El Paso 1994, writ denied); Manufacturers Hanover Trust Co. v. Kingston Investors Corp., 819 S.W.2d 607, 610 (Tex. App.—Houston [1st Dist.] 1991, no writ); Victoria Bank & Trust Co. v. Brady, 779 S.W.2d 893, 902  (Tex. App.—Corpus Christi 1989), aff’d in part, rev’d on other grounds, 811 S.W.2d 931 (Tex. 1991). For example, in Johnson v. Bank of America, N.A., the court held that a bank, who had many various relationships with a customer, did not have a special relationship with the customer, stating: “The record supports that the relationship between Johnson and BOA can be described a number of different ways: borrower and lender, bank and customer, mortgagor and mortgagee, mortgagor and mortgage servicer, and escrow agent and escrow account holder. These types of relationships are not, as a matter of law, fiduciary or otherwise special.”  No. 09-12-00477-CV, 2014 Tex. App. LEXIS 11900 (Tex. App.—Beaumont October 30, 2014, no pet.).

Because of the general, no-fiduciary duty rule between lender and borrower, borrowers often allege that these duties arise because of an informal, confidential relationship. Such an informal relationship may arise from “a moral, social, domestic or purely personal relationship of trust and confidence.'” Meyer v. Cathey, 167 S.W.3d 327, 331 (Tex. 2005). However, such a relationship is not created lightly, and “not every relationship involving a high degree of trust and confidence rises to the stature of a fiduciary relationship.” Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 176-77 (Tex. 1997). To avoid dismissal on a breach of fiduciary duty claim, a plaintiff is required to allege in his petition specific facts showing a fiduciary or special relationship existed between a bank and its customer. Berry v. First Nat’l Bank of Olney, 894 S.W.2d 558, 560 (Tex. App.—Fort Worth 1995, no writ) (court dismissed fiduciary claim where plaintiff’s statement that he trusted lender did not transform their business relationship into a fiduciary relationship). For example, in Farah v. Mafrige & Kormanik, P.C., the court dismissed a claim of a special relationship between lender and borrower even though the plaintiff alleged that its lenders forced the election of a new chief executive officer, installed directors loyal to the banks, and interfered with the company’s corporate governance:

Admittedly, the record indicates a long-standing relationship between Farah and the First City entities that extended beyond a normal debtor-creditor relationship. However, the fact a business relationship has been cordial and of long duration is not by itself evidence of a confidential relationship. The fact one businessman trusts another and relies upon another to perform a contract does not rise to a confidential relationship.  Subjective trust is not enough to transform arms-length dealing into a fiduciary relationship

927 S.W.2d 663, 675 (Tex. App.—Houston [1st Dist.] 1996, no writ). So, even long-standing relationships and protestations of trust do not create a confidential relationship between a bank and its customer. The test for a special relationship is whether the plaintiff has objectively reasonable expectations that the defendant will act in the plaintiff’s best interest and above the interests of the defendant. In the Estate of Abernethy, 390 S.W.3d 431 (Tex. App.—El Paso May 30, 2012, no pet.). The mere fact that one party subjectively trusts another party does not alone indicate that confidence is placed in another in a sense demanded by fiduciary relationships because something apart from the transaction between the parties is required. Id. Rather, a fiduciary relationship may arise if the dealings between the parties have continued for such a period of time and a party is objectively justified in relying on another to act in his best interest. Id. A party is justified in placing confidence in the belief that another party will act in his or her best interest only where he or she is accustomed to being guided by the judgment or advice of the other party in legal, financial, and accounting matters, and there exists a long association in a business relationship as well as personal friendship. Id. To “impose such a relationship in a business transaction, there must be a fiduciary relationship before, and apart from, the agreement made the basis of the suit.” Chambers v. First United Bank & Trust Co., No. 02-11000047-CV, 2012 Tex. App. LEXIS 3561 (Tex. App.—Fort Worth May 3, 2012, no pet.) (citing Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 675 (Tex. 1998)).

Finally, some Texas courts have also categorized certain relationships as “special relationships” that give rise to a tort duty of good faith and fair dealing. Chambers v. First United Bank & Trust Co., 2012 Tex. App. LEXIS 3561 at *10. However, “Although a fiduciary duty encompasses at the very minimum a duty of good faith and fair dealing, the converse is not true. The duty of good faith and fair dealing merely requires the parties to ‘deal fairly’ with one another and does not encompass the often more onerous burden that requires a party to place the interest of the other party before his own, often attributed to a fiduciary duty.” Id. (citing Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591, 593-94 (Tex. 1992), superseded by statute on other grounds as stated in Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 225-26 (Tex. 2002)). Courts generally state that a special relationship has only been found between a borrower and a lender when there are extraneous facts and conduct such as excessive lender control over, or influence in, the borrower’s business activities. Id. (citing Davis v. West, 317 S.W.3d 301, 312 (Tex. App.—Houston [1st Dist.] 2009, no pet.)). Yet, the author has not found a case in the past twenty years where the extraneous facts were so bad that it created a special relationship between the lender and the borrower.