Federal District Court Holds That A Former Director Of Nonprofit Did Not Have Standing To Sue For The Board’s Breach Of Fiduciary Duty And That Employers Do Not Owe Fiduciary Duties To Employees

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In Garcia v. Communities in Schools of Brazoria County, a director sued a nonprofit’s board for breach of fiduciary duty arising from his removal. 2019 U.S. Dist. LEXIS 97017 (S. D. Tex. June 10, 2019). The board alleged that he did not have standing to bring such a claim, and the district court agreed:

Garcia lacks standing to bring a derivative claim for the Joint Venture Board’s alleged breach of fiduciary duty or ultra vires acts. Under Texas law, a shareholder of a for-profit corporation may bring a derivative suit under the Business Organizations Code. Tran v. Hoang, 481 S.W.3d 313, 316 (Tex. App.—Houston [1st Dist.] 2015, pet. denied) (citing Tex. Bus. Orgs. Code §§ 21.551-21.563). However, “[n]o parallel provision confers this status upon the members of a nonprofit who are not otherwise authorized to sue by the organization itself.” Id. Garcia’s former executive director position does not give him standing to assert these claims.

Id. (citing Swain v. Wiley College, 74 S.W.3d 143 (Tex. App.—Texarkana 2002, no pet.)). The court also held that the director failed to state a claim for breach of a fiduciary duty owed to him as an employee because Texas law does not recognize a fiduciary duty or a duty of good faith and fair dealing owed by an employer to an employee. Id. (citing Beverick v. Koch Power, Inc., 186 S.W.3d 145, 153 (Tex. App.—Houston [1st Dist.] 1997, pet. denied) and City of Midland v. O’Bryant, 18 S.W.3d 209, 216 (Tex. 2000)).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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