Breach of Fiduciary Duty Lawyer Tennessee: Remedies When Owners, Officers, or Managers Betray the Company
When someone entrusted with running or managing a Tennessee business turns that trust into an opportunity for personal enrichment, the financial and operational damage can be severe. This article breaks down how breach of fiduciary duty claims work in Tennessee, what remedies are available, and what business owners, shareholders, and members need to do to protect their companies and their investments.
Key Takeaways
DZ Law, PLLC helps Tennessee businesses and owners pursue or defend breach of fiduciary duty claims when insiders misuse their position for personal gain. Whether you are a majority shareholder frozen out of information, a minority member watching distributions disappear, or a company harmed by an officer's self dealing, the firm brings document-driven litigation experience to every stage of the case.
A breach of fiduciary duty occurs when a person in a position of trust within a business-such as a partner, LLC manager, corporate officer, or key employee-puts their own interests ahead of the company's best interest and causes financial harm. In simple terms, breach of fiduciary duty occurs when trust is violated by someone who was obligated to act loyally.
Here are common examples relevant to East Tennessee businesses:
A managing member diverts contracts to a competing company they own, without disclosing the conflict to the other members.
A partner secretly takes cash distributions from a construction firm, hiding the withdrawals in vague expense categories.
A corporate officer misuses confidential pricing or customer data to launch a competing venture before resigning.
A majority shareholder in a family business systematically freezes a minority owner out of financial information and distributions.
An LLC manager sells core assets to a related entity at below-market prices without proper approval.
Tennessee law provides powerful remedies-money damages, injunctions, accountings, and in extreme circumstances, removal or forced buy-out of the bad actor-but these cases are fact- and document-intensive. Fiduciary duty cases often involve complex cases requiring document-heavy discovery, and the timeline to file is strict.
If your business is in Blount, Knox, Sevier, Loudon, Jefferson, or Cocke County and you suspect misconduct, call DZ Law at (865) 259-0020 or message DZ Law online for a confidential consultation.
How DZ Law Handles Breach of Fiduciary Duty Disputes in Tennessee
This section explains DZ Law's practical, litigation-focused approach to fiduciary duty disputes in East Tennessee, drawing on the firm's Business & Commercial Litigation and Business Transactions & Contracts practices.
Typical clients in these cases include:
Closely held corporations, LLCs, and partnerships
Minority and majority owners, investors, and shareholders
Key employees, managers, and officers in Blount, Knox, Sevier, Loudon, Jefferson, and Cocke Counties
DZ Law represents both plaintiffs-the company, shareholders, or members bringing fiduciary duty claims-and defendants-officers, managers, or owners accused of a breach. The firm provides conflict-free representation in each matter.
The firm combines trial strategy with contract and governance experience. Operating agreements, bylaws, shareholder agreements, and buy-sell agreements all shape whether a fiduciary relationship exists and what duties apply. Cases may be filed in Tennessee Chancery Court, Circuit Court, or federal court, depending on the parties, amount in controversy, and any arbitration or forum selection clauses in company documents.
In urgent situations-such as a manager siphoning customers or diverting revenue in real time-DZ Law can seek temporary restraining orders or injunctions to stop ongoing harm. Lawsuits may include requests for temporary restraining orders when the damage is active and accelerating.
If you notice red flags, contact DZ Law at (865) 259-0020 or reach out online before key evidence disappears.
What Is a Breach of Fiduciary Duty in a Tennessee Business?
A fiduciary duty is a legal obligation to act in the best interest of another person or entity in certain high-trust business relationships. It is among the highest standards of care the law imposes, and it goes well beyond ordinary commercial dealing. A fiduciary duty requires acting in the best interest owed to the other party-not merely avoiding outright fraud, but affirmatively putting that party's interests first.
In Tennessee businesses, fiduciary duties commonly arise for:
Corporate directors and officers toward the corporation and its shareholders. Common fiduciary relationships include corporate directors and shareholders.
Managing members or managers in limited liability companies toward the LLC and sometimes other members.
Partners in general partnerships or limited partnerships toward each other and the partnership. Partners in a business owe fiduciary duties to each other.
Key agents and employees entrusted with significant discretion or confidential information, particularly where one party is expected to act on behalf of the other.
A breach of fiduciary duty occurs when a fiduciary fails in that responsibility to act loyally or with appropriate care, pursues personal gain at the company's expense, or misuses a business opportunity or confidential information. Breach of the duty can involve actions like self dealing or embezzlement-anything that puts the fiduciary's interests above the company's.
Tennessee courts recognize several core fiduciary duties: the duty of loyalty, the duty of care, and the duty of good faith and fair dealing. These duties can be shaped by statutes and by contract (operating agreements, shareholder agreements, etc.).
Not every disagreement or bad business result amounts to a breach. Sometimes the business judgment rule protects good faith decisions that turn out poorly. And determining whether a fiduciary relationship exists and whether it was breached is highly fact-specific, requiring close review of governance documents and the actual course of dealing between the parties.
Core Fiduciary Duties in Tennessee: Loyalty, Care, and Good Faith
Tennessee law focuses on a handful of core fiduciary duties that apply to corporate officers, corporate directors, partners, and LLC managers. Fiduciary duties include loyalty, care, and good faith-each carrying distinct obligations.
Duty of Loyalty
The duty of loyalty is the fiduciary obligation to place the company's interests above personal gain when acting in a fiduciary capacity. Fiduciaries owe a duty of loyalty to beneficiaries, requiring them to avoid self dealing, undisclosed conflicts of interest, and diversion of corporate or LLC opportunities.
Concrete examples include:
Secretly steering contracts to a competing company owned by the fiduciary or their family
Taking a business opportunity you first learned about in your role as an officer or manager
Soliciting the company's customers and employees for a competing venture while still employed, as occurred in the Tennessee case B L Corporation v. Thomas Thorngren (2005)
Duty of Care
The duty of care mandates informed decision-making by fiduciaries. It requires making business decisions with the prudence and diligence a reasonably careful person would use in a similar position. Under Tennessee Code § 48-249-403, this includes avoiding gross negligence, reckless conduct, intentional misconduct, or knowing violation of law.
Examples of care failures:
Approving a major asset sale without reviewing basic financial information
Ignoring readily available red flags about a transaction partner's creditworthiness
Failing to seek appropriate expert input before committing the company to a high-risk obligation
Duty of Good Faith and Fair Dealing
Good faith is part of the obligations fiduciaries owe under the company’s governing documents, requiring them to act honestly and in a manner consistent with the company’s purposes. It means not sabotaging the company or other owners for leverage in a dispute, and not intentionally withholding critical information to benefit personally at others' expense.
Directors owe fiduciary duties to their corporation and shareholders, and these obligations extend beyond mere compliance with the letter of the law. Directors owe fiduciary duties to shareholders under Delaware law as well, but Tennessee has its own statutory and case-law framework that governs local entities.
Tennessee LLC, corporate, and partnership statutes allow some modification of fiduciary duties, including duties affecting corporate fiduciaries, in operating agreements or shareholder agreements. However, duties cannot usually be waived so completely that fraud or bad faith conduct becomes acceptable. Under Tennessee Code § 48-249-404, conflict-of-interest transactions are not automatically void if properly disclosed and approved-but manifestly unreasonable waivers will not hold up.
One of the first things DZ Law will do in a fiduciary duty litigation matter is analyze the governing documents to determine what specific fiduciary duties apply and whether they were limited, expanded, or clarified by agreement.
Elements of a Breach of Fiduciary Duty Claim Under Tennessee Law
Although terminology varies by case, a breach of fiduciary duty lawsuit requires proof of four elements that the plaintiff must establish in court. A civil suit is the typical process for breach of fiduciary duty.
The elements are:
Existence of a fiduciary relationship (such as director–corporation, member–manager, or partner–partner)
Breach of one or more fiduciary duties (loyalty, care, good faith, etc.)
Causation (a direct link between the breach and the harm suffered)
Damages (actual, provable losses or unjust enrichment of the fiduciary)
Damages must be proven to recover from a fiduciary breach. Without quantifiable harm or provable benefit to the wrongdoer, even a clear breach may not yield a recovery, and there is no damages award if the misconduct did not affect the plaintiff in a tangible way.
Evidence of a fiduciary relationship may come from:
Tennessee statutes (corporate and LLC acts)
Written contracts (operating agreements, shareholder or partnership agreements)
The history of the relationship, where one party placed special trust and confidence in another
Some Tennessee breach of fiduciary duty claims are brought as direct actions for harm suffered personally by an owner, while others are derivative actions on behalf of the company. Shareholders can sue for breaches by board members through derivative claims when the company itself is the injured party. Correctly characterizing the claim as direct or derivative is strategic and procedural-it affects who can sue, what remedies are available, and how any recovery is distributed. DZ Law evaluates this at the outset.
Proof in these cases relies heavily on documents and data: bank statements, internal emails, contract drafts, minutes, text messages, accounting records, and cloud-based files. Preserving evidence early is critical.
Common Examples of Breach of Fiduciary Duty in Tennessee Businesses
The following scenarios are common in East Tennessee shareholder and member disputes, partnership fallouts, and corporate officer conflicts:
A managing member of an LLC in Maryville diverts key customers to a new company owned by their spouse and fails to disclose the conflict of interest.
A corporate officer in Knoxville uses confidential pricing information to start a competing company and solicits employees and vendors before resigning.
A partner in a Sevier County construction firm routinely pays personal expenses from the company account and hides those withdrawals in "miscellaneous" categories on the books.
A majority shareholder in a family business in Blount County systematically freezes a minority shareholder out of information and distributions while taking excessive salary and perks. Majority stockholders have fiduciary obligations to minority stockholders, and this kind of freezeout is a textbook violation. Majority stockholders owe fiduciary duties to minority stockholders regardless of the form of the entity.
An LLC manager sells core business assets to a related entity at below-market prices, without proper disclosure or independent approval, leaving the company undercapitalized.
In practice, alleged breaches of fiduciary duty often appear alongside other business torts-fraud, conversion, unjust enrichment, or civil conspiracy-and DZ Law frequently pleads these together.
When the alleged conduct is ongoing-customers still being diverted, data still being misused-emergency motions for temporary restraining orders or preliminary injunctions may be necessary to stop the harm immediately.
If you recognize these patterns in your own business, call (865) 259-0020 or contact DZ Law online for an early case assessment.
Who Owes Fiduciary Duties in a Tennessee Business?
Understanding who qualifies as a fiduciary is crucial. Some roles are fiduciary by statute, while others depend on the specific circumstances and level of trust involved. Fiduciary relationships often arise in professional contexts where one person holds authority or discretion over another's interests.
Primary fiduciaries in the Tennessee business context include:
Corporate officers and directors of Tennessee corporations. Directors owe fiduciary duties to shareholders and the corporation, and they can be sued when those duties are violated.
Managing members and managers in LLCs governed by Tennessee's LLC statutes.
General partners and, in some circumstances, limited partners in partnerships.
Majority owners who exercise effective control over closely held corporations or LLCs.
Key employees and agents may also owe fiduciary duties when:
They are entrusted with confidential information or trade secrets
They regularly negotiate or sign contracts on the company's behalf as an agent of the principal
They effectively function as officers or managers even without a formal title
Fiduciary relationships often exist between agents and principals in these settings. Fiduciary duties can also arise in employer-employee relationships where the employee holds significant discretion or access to sensitive business information.
Common fiduciary relationships include attorney-client and trustee-beneficiary. Common fiduciary relationships also include trustees and beneficiaries or corporate directors and shareholders. While professional fiduciaries like attorneys, trustees, or investment advisors have their own specialized duties, this article focuses primarily on business insiders-owners, officers, managers, and high-level employees.
Tennessee courts look at the level of trust and dependence between the parties. If one side was expected to use superior knowledge or control exclusively for the other party's benefit, a fiduciary relationship may be found even if not explicitly labeled in a contract. DZ Law carefully analyzes both the written documents and how the business actually operated to determine whether fiduciary duties exist and to which parties they are owed.
The Business Judgment Rule: When Bad Results Are Not a Breach
The business judgment rule is a doctrine that protects corporate fiduciaries, including corporate directors, board members, and similar decision-makers, from liability when they act on an informed, good-faith basis and their business decisions later turn out poorly. It draws a line between honest mistakes and disloyal conduct.
Under the business judgment rule:
Courts generally will not second-guess a decision just because it led to losses
As long as the decision was made in good faith, after reasonable inquiry, and without conflicts of interest, the law presumes it was valid
However, the business judgment rule may not protect decisions where:
The decision-maker stood on both sides of the transaction
Material information was concealed or ignored
The decision was made in bad faith or for personal gain unrelated to the company's best interest
Illustration: A director approving a risky but well-researched expansion plan after reviewing detailed projections and expert input is usually protected, even if the project fails. But a manager selling assets cheaply to a company they secretly own, without disclosure, is not protected by the business judgment rule. In Franklin Capital Associates v. Almost Family, Inc., the Tennessee Court of Appeals emphasized that the rule does not apply in duty of loyalty cases involving self-interested transactions.
DZ Law assesses whether the business judgment rule might protect a client's decisions when defending a claim or whether exceptions apply when bringing a breach of fiduciary case on behalf of the injured party.
Remedies for Breach of Fiduciary Duty in Tennessee
Tennessee courts and arbitrators have broad authority to craft remedies when fiduciary duties are breached, aiming both to compensate the injured party and to prevent the wrongdoer from profiting. A violation of fiduciary duty can lead to remedies including injunctive relief or removal of the fiduciary from their position.
Monetary Relief
Compensatory damages for lost profits, wasted assets, or increased costs caused by the breach. Claimants may seek compensatory and punitive damages for breaches.
Disgorgement of profits or benefits the fiduciary wrongfully obtained. Legal action can recover profits made by the fiduciary through the breach.
Punitive damages in cases of willful, intentional, or reckless misconduct. In the Robert A. Martin case (2025), the Tennessee Court of Appeals upheld compensatory damages, transfer of property interests, and punitive damages for misappropriated funds. However, in 4 Points Hospitality, LLC, punitive damages were denied because the conduct, while clearly a breach, was not "egregious" enough.
Quantifying damages may involve monetary recovery or accounting for financial transactions-often requiring forensic accountants to trace how funds moved.
Equitable (Non-Monetary) Remedies
Injunctions or restraining orders to stop ongoing misconduct such as diverting customers or using confidential data
Accounting and inspection rights, requiring the fiduciary to open the books and provide detailed financial information
Rescission or reformation of unfair transactions, unwinding deals tainted by conflicts of interest. Equitable relief can include rescission and restitution.
Removal of the fiduciary from their position or role in managing the business
In shareholder or member disputes, relief may also take the form of:
Forced buy-outs of an owner's interest under court supervision
Judicial dissolution or sale of the business in extreme deadlock or oppression cases
Enforcement of rights under buy-sell or operating agreement provisions that were previously ignored
Remedy selection is strategic and fact-specific. DZ Law helps clients weigh what outcomes are realistically achievable, cost-effective, and aligned with long-term business goals.
How Breach of Fiduciary Duty Claims Intersect with Other Business Litigation
Breach of fiduciary duty rarely appears in isolation. It often overlaps with other business litigation claims within DZ Law's practice.
Fiduciary duty issues commonly arise in:
Shareholder and member disputes: disagreements over control, distributions, and access to information
Partnership disputes: allegations that a partner has misused partnership assets or opportunities
Commercial contract disputes: contract breach combined with misuse of confidential information or conflicted decision-making within business relationships
In construction litigation and arbitration, breach of fiduciary duty may appear when a project manager or insider diverts jobs to a related entity, or when a managing member of a construction LLC manipulates billings or change orders for personal gain.
Fiduciary duty allegations can also surface in disputes involving commercial leases-for example, a managing member benefiting personally from lease terms negotiated on behalf of the LLC-or in business fraud cases involving false statements by insiders in control positions.
DZ Law's experience across business litigation, construction disputes, and business transactions allows the firm to coordinate strategy across all related claims, including appeals and federal court litigation if needed.
If you are involved in a complex, multi-issue dispute, contact DZ Law at (865) 259-0020 or through the online contact form to evaluate all your claims together.
Defending Against Breach of Fiduciary Duty Allegations
DZ Law also defends officers, corporate directors, managing members, and partners accused of breach of fiduciary duty-especially where business decisions were made in good faith or where no true fiduciary relationship existed.
Key defense themes include:
No fiduciary relationship existed under Tennessee law or the governing documents-the party alleging breach must show that the other party owed fiduciary duties, not merely contractual or commercial obligations.
Business judgment rule applies: the conduct in question was a good faith, informed business decision, not self dealing or bad faith.
No actual damages: the plaintiff suffered no provable harm, and there is no recovery where the alleged breach did not affect the plaintiff in a provable way or where the claimed damages are speculative and not traceable to the alleged breach.
Proper disclosure and consent: the accused fiduciary disclosed conflicts and obtained valid approval from disinterested members or directors, consistent with Tennessee's conflict-of-interest transaction statutes.
In some cases, the real dispute is contractual rather than fiduciary. Reframing the issues can narrow the lawsuit and focus on what is provable and enforceable under written agreements.
Defending these cases requires gathering favorable documents and communications, documenting decision-making processes, and often retaining experts in accounting, valuation, or industry standards. Early legal guidance can help current officers or managers adjust their conduct, improve documentation, and reduce exposure while a dispute is still developing.
If you have received a demand letter or lawsuit, call DZ Law at (865) 259-0020 promptly for a confidential defense strategy session.
Preventing Breach of Fiduciary Duty Disputes Through Better Governance Documents
Many fiduciary duty disputes can be reduced or better managed through careful planning and drafting at the front end-an area where DZ Law's Business Transactions & Contracts practice is directly relevant.
Key governance documents that shape fiduciary responsibilities and expectations include:
LLC operating agreements
Shareholder agreements and bylaws
Partnership agreements and joint venture agreements
Buy-sell agreements and succession plans
These documents can:
Clarify the scope of fiduciary duties and what conduct is permitted
Establish procedures for dealing with conflicts of interest or related-party transactions
Define triggers and mechanisms for buy-outs if trust breaks down among owners
Set up information and inspection rights that reduce suspicion and secrecy
Litigation-informed drafting-based on real-world disputes DZ Law has seen in Tennessee courts-reduces ambiguity and limits the risk of future fiduciary duty litigation. Business owners forming or restructuring Tennessee entities should consult DZ Law early to align contracts and operating documents with their actual business practices and risk tolerance.
What to Do If You Suspect a Breach of Fiduciary Duty in Your Business
Quick, thoughtful action can preserve your options and improve your leverage if you think a partner, officer, or manager is misusing their position. Here are concrete steps:
Preserve documents and data immediately: emails, text messages, accounting records, payroll, bank records, cloud storage, and messaging apps used for business.
Do not confront the suspected fiduciary in a way that might cause them to delete data or move assets-get legal advice first.
Review your governing documents (operating agreement, shareholder agreement, bylaws, partnership agreement) to understand your rights and procedures.
Quietly identify key witnesses: bookkeepers, employees, vendors, and customers who may have relevant information.
Avoid self-help actions that could create legal exposure:
Changing locks or cutting off access in violation of agreements
Diverting business revenue yourself without clear legal authority
Making public accusations that could lead to defamation claims
Contact an experienced Tennessee business litigation attorney early-before signing anything or agreeing to a "quick" internal resolution proposed by the suspected wrongdoer. Experienced attorneys should understand Tennessee-specific law and procedures for fiduciary claims before advising on strategy.
Schedule a consultation with DZ Law by calling (865) 259-0020 or messaging the firm online with copies of relevant contracts and financial documents in hand.
How DZ Law Guides Clients Through the Litigation Process
DZ Law handles breach of fiduciary duty cases from initial assessment through potential appeal. Here is what the process typically looks like.
Pre-Litigation Assessment
Reviewing key contracts, ownership documents, and financial records
Analyzing whether the claim should be direct or derivative
Evaluating whether emergency relief (like an injunction) is necessary
Early Litigation
Preparing a detailed complaint or answer and any counterclaims
Filing in the appropriate Tennessee trial court or federal court, or initiating an arbitration if required by contract
Seeking or defending against temporary restraining orders or preliminary injunctions when urgent relief is needed
Discovery
Exchanging documents, emails, and electronic records
Taking depositions of owners, officers, accountants, and key employees
Working with forensic accountants or valuation experts to quantify damages and trace funds
Many fiduciary duty cases resolve through negotiation or mediation after the facts are developed, but DZ Law prepares from the beginning as if the case may proceed to trial or final arbitration hearing. If the case leads to an appeal or involves complex federal issues, DZ Law's Appeals & Federal Court Litigation practice protects the client's interests beyond the trial court.
Why Choose DZ Law for Breach of Fiduciary Duty Litigation in East Tennessee?
DZ Law, PLLC is a focused East Tennessee litigation and business law firm with deep experience in ownership and fiduciary duty disputes. The firm helps clients pursue justice when insiders betray their company-and defends clients who are wrongfully accused.
Key differentiators:
Concentration on business & commercial litigation and business transactions & contracts, providing both courtroom experience and contract insight for making business decisions under pressure
Document-driven, detail-oriented case development suited to complex financial and governance issues
Familiarity with local courts in Blount, Knox, Sevier, Loudon, Jefferson, and Cocke Counties, as well as federal courts handling business disputes
Related practice strengths:
Construction litigation & arbitration for disputes within construction and development businesses
Premises liability and medical malpractice, demonstrating broader civil litigation skills that carry over to complex discovery and trial work
Appeals & federal court litigation for cases that evolve beyond the trial level
DZ Law provides practical, business-oriented counseling-helping clients weigh litigation risks, settlement options, and long-term business consequences rather than focusing solely on legal theory. The right guidance at the right time can mean the difference between preserving a business and watching it unravel.
Contact DZ Law at (865) 259-0020 or via the firm's online contact form to discuss your fiduciary duty concerns.
Frequently Asked Questions About Breach of Fiduciary Duty in Tennessee
The following FAQ addresses common, practical questions that go beyond what is covered in the main article.
Can I sue personally, or does the company have to bring the breach of fiduciary duty claim?
It depends on the nature of the harm. A direct claim is available when you, as an individual owner, suffered harm distinct from the entity-such as being denied distributions owed under an agreement. A derivative claim is brought on behalf of the company when the harm was done to the business as a whole, such as misappropriation of company assets.
Tennessee courts scrutinize this distinction carefully, and filing in the wrong posture can delay or weaken the case. In Michael Sanford v. Waugh & Co. (2010), the Tennessee Supreme Court held that only a derivative claim was proper because the duties ran to the corporation, not to the individual creditor. Getting early legal advice on whether to file directly or derivatively is essential.
How long do I have to file a breach of fiduciary duty lawsuit in Tennessee?
Tennessee law has strict statutes of limitations for breach of fiduciary duty claims. For many fiduciary claims in Tennessee, the limitation period is one year from discovery under Tennessee Code § 48-249-407. The clock may begin when the breach occurred or when it reasonably should have been discovered.
In Jim Spangler v. Mack McClung (2025), the Tennessee Court of Appeals dismissed a fiduciary breach claim as time-barred because the plaintiff waited too long after discovery to file. Depending on how the claim is framed-as a tort, contract, or statutory violation-different limitation periods may apply (three years for tort, six years for contract). Prompt consultation is critical; waiting can forfeit your rights entirely.
Does an operating agreement or shareholder agreement override fiduciary duties?
Tennessee law allows parties in LLCs and other entities to modify some fiduciary duties by contract, especially in sophisticated commercial settings. However, governing documents cannot usually authorize outright fraud or bad faith conduct. Each agreement must be read closely to see what duties were limited or clarified. DZ Law routinely analyzes these documents before advising on next steps, because the scope of your fiduciary responsibilities may be narrower-or broader-than the statutory default.
What if the person who breached their fiduciary duty is also essential to running the business?
This is a common and difficult situation. Practical options include:
Negotiated buy-outs of the wrongdoer's interest
Reallocation of management authority to reduce their control
Carefully structured standstill or transition agreements while litigation proceeds
Courts can craft remedies that keep the business operating while addressing misconduct. DZ Law helps clients balance legal enforcement with business continuity, because removing a key person without a plan can sometimes cause as much harm as the original breach.
Will my breach of fiduciary duty dispute have to go to trial?
Many cases settle after key facts come out in discovery or mediation, especially when damages and risks become clearer to both sides. An established record of the fiduciary's misconduct often creates settlement pressure that resolves the case without a full trial.
DZ Law prepares each case as if it may go to trial or final arbitration hearing, which strengthens settlement positions and, if necessary, allows the firm to present a compelling case in court. Whether your case settles early or proceeds through a full trial, having a litigation team that is trial-ready from day one affects the outcome at every stage.
East Tennessee.