Can You Sue for Breach of Fiduciary Duty?

Beneficiaries can sue fiduciaries who breach their duties. To succeed, you must understand the fiduciary’s responsibilities and how to conduct civil proceedings in court. Considering the complexity of such cases, it’s crucial to assess your claim’s validity and develop a practical strategy.

This guide discusses the duties of fiduciaries and grounds for commencing a lawsuit. You’ll also learn the step-by-step process of suing for breach of fiduciary, the available remedies, and tips for reducing future breaches.

Who Is a Fiduciary?

A fiduciary is a person who has a legal duty to act on behalf and in the best interest of another. In this context, the term “person” refers to an individual or corporate body, like a company or registered association. Parties can form a fiduciary relationship formally or informally. Formal methods include contract and legal proceedings, while informal methods are usually implied by law. When a fiduciary relationship is implied by law, the parties do not expressly agree to form a fiduciary relationship, but the surrounding circumstances suggest that one exists.

Fiduciary relationships are founded on essential principles such as trust, confidence, loyalty, openness, and good faith. These relationships are governed by statutes and case law. Where the parties execute a contract, the terms of that agreement also influence the relationship. If a fiduciary violates the law or contract, the beneficiary is entitled to seek legal remedies.

Common examples of fiduciary relationships include the following:

• Trustees and beneficiaries: The relationship between trustees and beneficiaries is one of the most common examples. Trustees entrusted with holding and managing assets must do so diligently and in the beneficiary’s best interest. Where the relationship arises from a contract, the trustee must generally obey the terms.
• Agent and principal: Agents have a fiduciary duty to perform their activities in their principal’s best interest. The agent must obey the principal’s instructions and not act in their own self-interest.
• Corporate officers and shareholders: Directors and other officers owe a fiduciary duty to the shareholders and the company. Depending on the situation, shareholders can sue for breaches in their capacity as shareholders or on behalf of the company through a derivative action.
• Partners and partnerships: Partners owe a fiduciary duty to each other and the partnership itself. The partners must prioritize the interest of the partnership and avoid situations like conflict of interest.

What Is a Fiduciary Duty?

A fiduciary duty is a legal obligation imposed on a fiduciary to act reasonably and in the best interest of beneficiaries. The responsibilities are broad but can generally be categorized as follows:

• Duty of care: Fiduciaries must act with the same level of care as any other reasonable fiduciary in similar circumstances.
• Duty of prudence: Fiduciaries must act with the skill, care, and diligence that a prudent person would exercise in the same situation.
• Duty of good faith: Fiduciaries must act with a conscious regard for their responsibilities. They must be honest in all their dealings and advance the interests of the beneficiaries.
• Duty of loyalty: Fiduciaries must always act in the beneficiary’s best interest. The beneficiary’s well-being is paramount.
• Duty of disclosure: Fiduciaries must act with candor and disclose material information to the beneficiaries.
• Duty of confidentiality: Fiduciaries must refrain from revealing confidential information, subject to legal exceptions.

Condo Association Trusts in Massachusetts

Most condominium homeowners associations (HOAs) in Massachusetts are established as trusts. In these arrangements, the unit owners execute a declaration of trust, which, among other things, details the process for nominating and electing board members. The board members act as trustees and manage the condo property. As fiduciaries, they must act in the best interest of the condo association.

The declaration of trust can be a standalone document or may include the bylaws. Regardless of the structure, the trustees must perform their obligations as stipulated in all relevant documents and laws. Depending on the circumstances, the condo unit owners may file a lawsuit to seek legal remedies if the board members breach their duties.

What Are the Grounds for Suing on Breach of Fiduciary Duty?

You may sue a fiduciary if they breach any of their duties. However, assessing whether you have a valid cause of action is vital. A cause of action is the combination of facts which entitles a person to a legal remedy. In the the case of a breach of a fiduciary duty, you must prove the following elements:

• Existence of fiduciary duty: You must demonstrate that a fiduciary relationship exists between you and the defendant. A classic example is unit owners suing the condo association.
• Breach of the fiduciary duty: You must establish that the defendant has breached their duties. For example, unit owners may demonstrate that the condo association has violated the bylaws.
• Damages: You must demonstrate you have incurred financial losses. For example, unit owners may demonstrate that the condo association failed to maintain the property, resulting in structural damage.
• Causation: You must demonstrate that your loss resulted from the fiduciary’s breach. The court may decline your claims if the damage is remote or not reasonably foreseeable.

The defendant may have a defense or simply assert that you have not satisfied the legal requirement to obtain relief. Examine your case closely before commencing legal proceedings. However, assessing the strength of your case can be complex. It’s best to consult an experienced attorney for tailored advice.

What Is the Process of Suing for Breach of Fiduciary Duty?

Suing for breach of fiduciary duty generally involves several steps:

1. Draft the Complaint

To initiate legal proceedings in Massachusetts, you need a complaint. The complaint states the facts of your case and the remedies you seek in court. Tell your story keeping in mind the elements of a breach of fiduciary claim. Also, be concise and clear with your statement of facts.

There are some procedural requirements you must comply with. For example, the complaint must indicate both parties’ names and addresses and the jurisdiction of the court. Failing to follow the rules can adversely affect your case, depending on the extent of irregularity.

2. File Your Complaint

To initiate the lawsuit, file your complaint with a court of competent jurisdiction. You will be required to pay a fee unless exempted by the court. You may need to present several copies, depending on the number of defendants in the suit. The court clerk will process the documents and assign a civil action number.

3. Serve the Complaint

You must serve the complaint and summons on the defendant. If you sue multiple defendants, serve each with the summons. Service prompts the defendants that the plaintiff has commenced a civil action against them. Depending on the circumstances, the defendants enter an appearance and file a defense or counterclaim.

4. Pretrial Proceedings and Interlocutory Motions

Rather than go to trial, parties may opt for settlement or alternative dispute resolution (ADR) methods such as mediation. Often, a complainant may pursue ADR before officially filing their complaint. However, settlement or ADR is always an option at any time.

If they decide to go to trial, pretrial proceedings will commence after the parties have filed their pleadings, including the complaint and defense. These proceedings may include discoveries and a pretrial conference. The parties may also file various motions depending on the situation. For example, the defendant can file a motion to dismiss because the suit lacks legal basis. Either party may also file a motion for summary judgment, which allows the court to decide on the legal issues in dispute without trial.

5. Trial and Judgment

During the trial, the parties present their cases and evidence to persuade the court. The plaintiff may call witnesses, and the defendant can cross-examine them. The plaintiff may also cross-examine the defendant’s witnesses. After evaluating the evidence on record, the judge will pass judgment. If any party disagrees with the decision, they can appeal.

What Are the Available Remedies in Breach of Fiduciary Cases?

Complainants can pursue several remedies in a breach of a fiduciary duty, including:

• Damages: The court may award monetary compensation to the winning party. Different types of damages include compensatory, nominal, and punitive damages.
• Injunction: The court may order the fiduciary to do or refrain from doing a particular act.
• Account and reimbursement: The court may order the fiduciary to account for monies spent and reimburse the beneficiary.
• Transfer assets: If the fiduciary acquired any asset due to the breach, the court may order the property be returned to the beneficiary. This can happen through a concept known as constructive trust.

How Do You Avoid Breaches of Fiduciary Duty?

There are many ways to avoid situations involving a breach of fiduciary duty. Here are some best practices:

1. Conduct proper due diligence when appointing a person into a fiduciary position.
2. Leverage contracts to deter breaches.
3. Implement policies to ensure transparency and accountability within your organization.
4. Seek legal advice promptly when you suspect breaches of fiduciary duties.

For condo association trusts, it’s best to ensure that documents like the declaration of trust, master deed, and bylaws are well prepared. Condo attorneys can help you draft these documents and review existing ones.

Calabrese Law Associates for Professional Assistance

Calabrese Law Associates provides comprehensive legal support to clients throughout the litigation process. Our attorneys are knowledgeable in fiduciary duty litigation and have years of experience handling complex cases. We provide tailored legal solutions to address each client’s unique situation. If you need professional legal assistance in Massachusetts, reach out to us today!

This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.

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