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.

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Photo of David Fowler Johnson David Fowler Johnson

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David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary…

[email protected]

David maintains an active trial and appellate practice and has consistently worked on financial institution litigation matters throughout his career. David is the primary author of the The Fiduciary Litigator blog, which reports on legal cases and issues impacting the fiduciary field in Texas. Read More

David’s financial institution experience includes (but is not limited to): breach of contract, foreclosure litigation, lender liability, receivership and injunction remedies upon default, non-recourse and other real estate lending, class action, RICO actions, usury, various tort causes of action, breach of fiduciary duty claims, and preference and other related claims raised by receivers.

David also has experience in estate and trust disputes including will contests, mental competency issues, undue influence, trust modification/clarification, breach of fiduciary duty and related claims, and accountings. David’s recent trial experience includes:

  • Representing a bank in federal class action suit where trust beneficiaries challenged whether the bank was the authorized trustee of over 220 trusts;
  • Representing a bank in state court regarding claims that it mismanaged oil and gas assets;
  • Representing a bank who filed suit in probate court to modify three trusts to remove a charitable beneficiary that had substantially changed operations;
  • Represented an individual executor of an estate against claims raised by a beneficiary for breach of fiduciary duty and an accounting; and
  • Represented an individual trustee against claims raised by a beneficiary for breach of fiduciary duty, mental competence of the settlor, and undue influence.

David is one of twenty attorneys in the state (of the 84,000 licensed) that has the triple Board Certification in Civil Trial Law, Civil Appellate and Personal Injury Trial Law by the Texas Board of Legal Specialization.

Additionally, David is a member of the Civil Trial Law Commission of the Texas Board of Legal Specialization. This commission writes and grades the exam for new applicants for civil trial law certification.

David maintains an active appellate practice, which includes:

  • Appeals from final judgments after pre-trial orders such as summary judgments or after jury trials;
  • Interlocutory appeals dealing with temporary injunctions, arbitration, special appearances, sealing the record, and receiverships;
  • Original proceedings such as seeking and defending against mandamus relief; and
  • Seeking emergency relief staying trial court’s orders pending appeal or mandamus.

For example, David was the lead appellate lawyer in the Texas Supreme Court in In re Weekley Homes, LP, 295 S.W.3d 309 (Tex. 2009). The Court issued a ground-breaking opinion in favor of David’s client regarding the standards that a trial court should follow in ordering the production of computers in discovery.

David previously taught Appellate Advocacy at Texas Wesleyan University School of Law located in Fort Worth. David is licensed and has practiced in the U.S. Supreme Court; the Fifth, Seventh, and Eleventh Federal Circuits; the Federal District Courts for the Northern, Eastern, and Western Districts of Texas; the Texas Supreme Court and various Texas intermediate appellate courts. David also served as an adjunct professor at Baylor University Law School, where he taught products liability and portions of health law. He has authored many legal articles and spoken at numerous legal education courses on both trial and appellate issues. His articles have been cited as authority by the Texas Supreme Court (twice) and the Texas Courts of Appeals located in Waco, Texarkana, Beaumont, Tyler and Houston (Fourteenth District), and a federal district court in Pennsylvania. David’s articles also have been cited by McDonald and Carlson in their Texas Civil Practice treatise, William v. Dorsaneo in the Texas Litigation Guide, and various authors in the Baylor Law ReviewSt. Mary’s Law JournalSouth Texas Law Review and Tennessee Law Review.

Representative Experience

  • Civil Litigation and Appellate Law