In Cruz v. Ghani, a limited partner sued a general partner over breach of fiduciary duty claims arising from, among other allegations, that the general partner should not have compensated himself from the business in addition to regular distributions. No. 05-17-00566-CV, 2018 Tex. App. LEXIS 6557 (Tex. App.—Dallas August 20, 2018, no pet. history). The jury found that the general partner failed to comply with his fiduciary duties with respect to the payments made to himself, but awarded $0 in damages. The trial court did not award damages on this claim, and the limited partner appealed and argued the trial court should have entered judgment ordering disgorgement of the compensation.
The court of appeals first discussed the equitable remedies of disgorgement and forfeiture:
Courts may fashion equitable remedies such as disgorgement and forfeiture to remedy a breach of a fiduciary duty. Disgorgement is an equitable forfeiture of benefits wrongfully obtained. A party may be required to forfeit benefits when a person rendering services to another in a relationship of trust breaches that trust… A claimant need not prove actual damages to succeed on a claim for forfeiture because they address different wrongs. In addition to serving as a deterrent, forfeiture can serve as restitution to a principal who did not receive the benefit of the bargain due to his agent’s breach of fiduciary duty. However, forfeiture is not justified in every instance in which a fiduciary violates a legal duty because some violations are inadvertent or do not significantly harm the principal.
Whether forfeiture should be imposed must be determined by the trial court based on the equity of the circumstances. However, certain matters may present fact issues for the jury to decide, such as whether or when the alleged misconduct occurred, the fiduciary’s mental state and culpability, the value of the fiduciary’s services, and the existence and amount of harm to the principal. Once the factual disputes have been resolved, the trial court must determine: (1) whether the fiduciary’s conduct was a “clear and serious” breach of duty to the principal; (2) whether any monetary sum should be forfeited; and (3) if so, what the amount should be.
Id. The court noted that the jury found a breach of fiduciary duty, and that the limited partner sought “disgorgement/fee forfeiture” in his pleadings and argued for same at the hearing on a motion for judgment notwithstanding the verdict, but that the record did not show whether the trial court considered an equitable forfeiture award. The court held: “Because Cruz requested the remedy and it was timely brought to the trial court’s attention, we conclude the request for equitable relief should be remanded to the trial court for consideration of the factors described by the Texas Supreme Court in ERI Consulting Engineers, Inc. v. Swinnea, 318 S.W.3d 867, 875 (Tex. 2010).” Id.
