The Texas Supreme Court decided a case in 2010 that answered the question of fee disgorgement. In the case, two business partners decided that one partner would sell his interest to the other partner. Partners are fiduciaries to the other partners. They also signed a non-compete clause so that the selling partner could not go into a business to compete with the remaining partner. The facts showed that before the sale, the selling partner’s wife had formed a new corporation that was going to and did compete with the old partnership. The trial court said that the selling partner breached his fiduciary duty and had to disgorge (pay back) the money that he had received for the sale of the partnership. The Court of Appeals reversed. It said that although there was a breach of fiduciary duty, the contract payment was for the selling partner’s interest in the business rather than a fee. It ruled that only a fee could be disgorged.
In reversing the Court of Appeals, the Supreme Court said that where there is no fee, the court can fashion a remedy, in this case disgorgement of the contract price, for breach of fiduciary duty. A fee is not required. If it were, there would be no remedy for a breach of fiduciary duty in non fee cases. NO. 07-1042.