For decades, Texas’ appellate courts have recognized the anti-fracturing rule in professional malpractice cases. However, not until its February 2025 opinion in Pitts v. Rivas, Cause No. 23-0427, 2025 WL 568114, Feb. 21, 2025, did the Texas Supreme Court officially adopt the rule. In doing so, it attempts to provide clarity on the rule’s application. In a concurring opinion, four justices advocate for the rejection of the informal fiduciary duty.
For many years, Pitts & Pitts (referred to herein as the “Accountants”) served as the accountants for Randolph Rivas in his home building business. During their ten-year relationship, the Accountants and Rivas families developed a strong personal friendship in addition to their professional relationship.
In 2016, Rivas provided his lenders financial statements prepared by the Accountants. The financial statements allegedly overstated shareholder equity. When the errors were revealed, the lenders demanded additional deposits and refused to extend credit. Additionally, Rivas alleged that the errors caused him to overpay taxes and drain his cash reserves.
Rivas sued the Accountants alleging negligence, gross negligence, professional malpractice, fraud, breach of fiduciary duty and breach of contract. The district court granted the Accountants’ summary judgment on all claims. The court of appeals reversed as to Rivas’ claims of breach of fiduciary duty and fraud. In doing so, it found that there were fact issues as to those two claims which barred the application of the anti-fracturing rule.
The supreme court reversed. The court first defined the anti-fracturing rule as follows: “plaintiffs in professional negligence cases may not convert ‘what are really negligence claims” into other claims such as fraud, breach of contract or breach of fiduciary duty in order to gain a litigation advantage. Id. at *3 (quoting Murphy v. Russell, 167 S.W.3d 835, 838 (Tex. 2005)). It went on to say that: “[c]ourts . . must look not merely to the labels chosen by the plaintiff but instead to the gravamen of the facts alleged to determine how to treat the claim. Id. at *3. And, “under the anti-fracturing rule, if the crux or gravamen of the plaintiff’s claim is a complaint about the quality of the professional services provided by the defendant, then the claim will be treated as one for professional negligence even if the petition also attempts to repackage the allegations under the banner of additional claims.” Id. The court went on to hold that the:
anti-fracturing rule is not limited to the subject matter of the client’s engagement letter and does not require detailed analysis of whether the allegedly deficient professional services were, in a technical sense, accounting services (or legal services or other services, as the case may be.) The rule extends to any allegations that traditionally sound in professional negligence.
Id. at *5.
In its opinion, the court made clear that other claims, such as fraud, can consist with a professional negligence claim, but the facts supporting those other claims must be distinct and stand on their own—without the existence of a professional negligence claim.
In Pitts, Rivas’ fraud claim boiled down to the allegations that (i) the Accountants misrepresented their proficiency with Quickbooks and (ii) the Accountants did not disclose their errors to Rivas sooner. The court of appeals found those allegations sufficient to bar the application of the anti-fracturing rule. The supreme court disagreed. It first found that “overstating one’s professional competence is a classic example of malpractice.” Id. at 6. Second, it found that failure to timely disclose errors is professional malpractice – not fraud. Id.
As to Rivas’ breach of fiduciary duty claim, the court noted that this claim does not trigger the anti-fracturing rule because no fiduciary duty existed. Texas courts have not found that the accountant-client relationship automatically gives rise to a fiduciary relationship. Id. at *7. Thus, the only basis for fiduciary duties to arise would be under the informal fiduciary relationship. The Pitts Court found that the facts that (i) Rivas and his family developed a long standing personal and familial relationship with the Accountants and their family and (ii) that Rivas’ held deep trust in the Accountants was insufficient for a fiduciary relationship to arise. For these reasons, the supreme court reversed the court of appeals decision on breach of fiduciary duty.
In a concurring opinion, four justices attacked the so-called “informal fiduciary relationships” the Texas Supreme Court established in 1942. The concurrence argues that the concept is inherently flawed because the fiduciary in such a context wields no legal authority to direct another’s affairs that could justify a corresponding heightened fiduciary duty. And the fiduciary in such a relationship would only come to know that he had heightened duties to his friend or acquaintance after the fact, following costly litigation. The concurrence urges that this rule be disavowed.
Pitts v. Rivas should provide litigants and lower courts clearer guidance on when and how causes of action relating to a professional relationship such as accountant/client, attorney/client, etc. can be fractured from a professional malpractice claim.