You may have heard the terms “fiduciary” or “fiduciary duty.” Understanding these concepts, and any relevance they may have for you or those around you, can help you safeguard your interests and the interests of important people in your life. Although relatively complex, there are essential points of fiduciary duty you must know, especially if you have invested in a business.
What Is a Fiduciary Duty?
A fiduciary duty is a legal obligation imposed on a person by virtue of their position to act reasonably and in the best interest of another. The duty is based on a relationship of trust and confidence. The individual on whom the fiduciary duty is imposed is called the fiduciary, while the individual to whom the duty is owed is called the beneficiary.
An example of a fiduciary relationship is that between the board of directors of a corporation and the shareholders. Generally, these officials are selected to make decisions for the corporation, including managing investment assets. If the board members fail to act as prudent professionals in the same position would, resulting in losses, they may be liable for a breach of fiduciary duty. The shareholders could then seek legal remedies, although the nature and effect of the legal action would depend on the specific case.
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Fiduciary relationships exist between partners, professionals and clients, principals and agents, and trustees and beneficiaries. The laws regarding fiduciary relationships are important because they protect parties’ interests, especially financially.
What Are the Duties of a Fiduciary?
Some examples of the duties of a fiduciary are:
- Duty of care: Fiduciaries must exercise diligence when making decisions, including evaluating the potential outcomes of their actions before taking any steps.
- Duty of prudence: Fiduciaries must act with a degree of care, caution and skill required of a prudent individual in a similar situation.
- Duty of loyalty: Fiduciaries must act without personal economic conflict. They must refrain from engaging in activities for personal gain at the beneficiaries’ expense. In the business context, for example, fiduciaries must act in the best interest of the business and shareholders.
- Duty of good faith: Fiduciaries must advance the corporation’s interests and fulfill their responsibilities per the law. For example, in a business setting, fiduciaries must manage business assets, including investments. They must also keep accurate and complete records, including returns and expenses.
- Duty of disclosure: Fiduciaries must act with complete candor. In certain instances, they must disclose material information relevant to beneficiaries.
- Duty of confidentiality: Fiduciaries must keep information confidential unless legally required.
What Constitutes Breach of Fiduciary Duties?
Here are examples of actions that constitute breaches of fiduciary duty:
- Sharing the business’s trade secrets and other vital information without legal justification.
- Disobeying instructions or directions.
- Failing to account for funds.
- Profiting at the business’ expense.
- Using a position of trust and confidence to further private interests.
- Acting on behalf of a competitor to the detriment of the business.
How Do You Prove a Breach of Fiduciary Duty?
Establishing a breach of fiduciary duty will involve several key elements:
- Fiduciary duty: The beneficiary or person instituting legal action must demonstrate the existence of a special relationship based on trust. An example is the relationship between the officers of a corporation and shareholders.
- Breach: The beneficiary must establish that the fiduciary breached the duty by doing something contrary to their interest.
- Damages: The beneficiary must demonstrate that the breach caused them damages or losses.
- Causation: The beneficiary must demonstrate that the fiduciary’s breach resulted in the loss. In other words, there must be a causal connection between the breach and the damage suffered.
To establish these elements, the beneficiary must produce evidence, such as:
- Documentation, including contracts detailing the duties of the fiduciary.
- Financial records
- Emails and correspondence
- Witnesses
It’s essential to consult an attorney specializing in fiduciary law to understand the specific requirements given your situation. Legal professionals can assess your claim’s validity and help you build a strong case.
What Is the Legal Recourse to a Breach of Fiduciary Duty?
The legal remedies for a breach of fiduciary duty include:
- Damages: The monetary compensation awarded to the winning party. There are different types of damages, including compensatory, nominal and punitive damages.
- Injunction: An order that compels the fiduciary to do or refrain from doing a particular act.
- Constructive trust: A unique remedy that arises when the fiduciary unlawfully profits from the breach. If a fiduciary wrongfully possessed property through a breach of their fiduciary duty, the court may require the fiduciary to hold the property in trust for the benefit of the beneficiary.
There are other forms of relief that parties may seek in a breach of fiduciary duty lawsuit. For example, the plaintiff can ask the court to order the fiduciary to make accounts of monies received or spent or transfer properties obtained to the beneficiary. There are also non-judicial remedies, such as removing a director from their position.
What Is a Derivative Action?
A derivative action is a lawsuit brought by shareholders on behalf of the corporation to seek legal remedies. This approach is often used when the board of directors fails to sue or where a suit is impractical because the directors are responsible for the wrongdoing. In shareholder derivative suits, the claim belongs to the corporation, not the members. Thus, the suit is brought in the name of the corporation.
What Should You Do if a Fiduciary Breaches a Duty?
Here are steps to take when a fiduciary breaches their duty:
- Gather evidence: Collect documentary and non-documentary evidence demonstrating the fiduciary’s misconduct, including contracts, emails, text messages, financial statements, and details of witnesses.
- Review the governing document: Examine the legal documents detailing the fiduciary’s duties, including agreements and corporate bylaws.
- Consult an attorney: Contact a lawyer immediately to assess the situation and suggest the appropriate steps.
- Pursue legal recourse: If you have a valid claim, you can take legal action to remedy the defect. An attorney can help you develop a practical strategy.
Why Choose Calabrese Law Associates
Calabrese Law Associates provides efficient legal services to individuals and businesses in the Greater Boston Area and throughout Massachusetts. Our breach of fiduciary duty attorneys will listen to your case, assess your legal rights and help you find a practical solution. When you turn to us for your legal needs, you receive the following:
- Experience: The breach of fiduciary duty lawyers at Calabrese Law Associates have handled cases of varying magnitude and complexity. We know the laws regarding fiduciary relations and can help you through such challenges.
- Client relations: Our supportive and transparent approach has enabled us to form longstanding client relationships. The lawyers at Calabrese Law Associates are responsive, caring and efficient.
- Personalized solutions: Our lawyers treat each case on its merits, considering the law and client needs. We can personalize our services to suit your demands.
- Effective legal representation: We provide aggressive legal representation to protect our client’s interests in and out of court. We aim to deliver the best possible results in accordance with the law.
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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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