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Suing a Business for Breach of Fiduciary Duty

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What is a Fiduciary Duty in a Business Relationship?

A fiduciary duty is a legal relationship between at least two parties, where there is a fiduciary (the person who has the duty) and the principal (the person who benefits from the duty). The concept of fiduciary duty was developed to give businesses stability. For a stable business, partners must be able to trust and rely on each other to promote the best interests and success of the business.

How Can A Fiduciary Duty Be Breached?

A fiduciary duty consists of two equal parts: duty of loyalty and duty of care. The duty of loyalty means that the agent must be loyal to the client above all others, including the agent’s own. So, a fiduciary cannot have more than one fiduciary relationship if their duties would conflict. The duty of care means that the agent must provide the best possible service or advice that the agent can provide.

The elements of a cause of action for breach of fiduciary duty are:

  1. Plaintiff and Defendant share a relationship and fiduciary relationship existed;
  2. Plaintiff has trust and confidence in Defendant;
  3. Defendant undertakes such trust and assumes a duty to advise and protect Plaintiff;
  4. Defendant breaches its duties to Plaintiff; and
  5. Plaintiff suffers damages because of the Defendant’s breach

What Fiduciary Duties Might Affect my Business?

Regardless of the structure of your company, it is likely that some fiduciary duty exists between the members or partners. If you are unsure of the exact duty owed by each person involved, it is likely that your company's organizational documents or partnership agreement may outline these duties.  

1) Fiduciary Duty Between Partners:

If you are involved in a partnership, your fiduciary duty will include a duty of loyalty to the other partners, duty to fully disclose any information regarding the partnership and its affairs, and a duty to operate in good faith and fair dealing. You must also avoid engaging in any transactions outside of the company that might conflict with the interests of the partnership.

2) Fiduciary Duty Between a Manager and the Members of a Limited Liability Company:

In an LLC, the manager owes to the members of the company the highest duty of care, loyalty, and disclosure, and the members may owe a similar duty to the manager. Each party is expected to always act in the best interest of the company as a whole and avoid any potential conflicts of interest with the company.   
3) Fiduciary Duty of Loyalty

Under this duty, business partners must act with honesty and show good faith and fairness to each other in all business transactions. The duty continues from the time the business starts and continues through the business's ongoing daily operations and ultimately through the partnership's sale or dissolution.

What Are the Possible Remedies for Breach of Fiduciary Duty?

The remedies available to you will depend upon the breach, and the severity of it, that has occurred, but the solution varies by state. If the partner has concealed profits or not placed the company's earnings in trust for the partners, you may recover actual monetary damages. The plaintiff can also recover for punitive damages, particularly if the plaintiff proves that the defendant’s breach was due to malice or fraud. 

What Defenses Do I Have If I am Accused of Breaching a Fiduciary Duty?

A typical breach of fiduciary duty defense consists of proving that the agent acted within the boundaries and agreements of his or her position.  The following defenses can be used for breach of fiduciary duty:

  • Lack of fiduciary duty
  • The statute of limitation has passed for plaintiff to bring suit
  • The fiduciary actions are within the bounds of the relationship
  • The other party was also contributing to the wrong and also committed a breach

Should I Contact a Lawyer?

If you are accused of breaching a fiduciary duty within your company, of if you believe a duty owed to you has been breached and experienced business lawyer can represent you and protect your rights in any action brought against you, as well as advise you of the duties owed to you and what remedies you may have in the event of a breach.

Photo of page author Ki Akhbari

, LegalMatch Legal Writer

Last Modified: 03-12-2018 07:21 PM PDT

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