Fiduciary Duties
What is a Fiduciary Duty?
In order to comprehend what constitutes a breach of fiduciary duty, it is necessary to have an understanding of who is considered a fiduciary and the circumstances in which a fiduciary owes a duty.
A fiduciary is an individual or organization entrusted with significant trust to manage another’s assets and interests. Fiduciaries are bound to act in the best interests of their clients and are prohibited from considering their own interests when making decisions or providing advice. They have a duty of loyalty and care and are required to act in good faith while safeguarding their clients’ interests.
The duty of a fiduciary to act in the best interest of another can arise either through express or implied means. For instance, statutory provisions define express fiduciary duties for attorneys, stockbrokers, trustees, corporate directors, and partners, among others.
An implied fiduciary duty emerges from unique circumstances where the parties have a confidential or trusting relationship with one another. One example of an implied fiduciary duty could be a situation where an individual consults with a financial advisor on a regular basis for many years, confiding in the advisor about their personal and financial affairs and relying on the advisor’s expertise to make important investment decisions. In such a scenario, the financial advisor may be deemed to owe an implied fiduciary duty to act in the client’s best interest, given the confidential and trusting relationship between them.
Under Florida law, a breach of fiduciary duty claim can proceed in court if the plaintiff can establish that one party has assumed a position of trust and obligation to protect a more vulnerable party.
Examples of fiduciaries
Key Clauses in a Stock Purchase Agreement
| Fiduciary Role | Description / Responsibility |
|---|---|
| Investment Advisors | Manage clients’ investments with loyalty and care, putting clients’ financial interests first. |
| Trustees | Manage trust assets for the benefit of beneficiaries, ensuring proper administration and distribution. |
| Personal Representatives | Administer estates of deceased individuals, acting in the best interest of heirs and beneficiaries. |
| Company Directors or Officers | Oversee company operations while acting in the best interest of shareholders and the corporation. |
| Majority Shareholders | Owe fiduciary duties to minority shareholders due to their control and influence over the company |
| Attorneys-in-Fact (via Power of Attorney) | Authorized to make legal or financial decisions on behalf of another, with strict duties of loyalty and care. |
| Joint Venturers or Business Partners | Owe duties of loyalty, fairness, and full disclosure to one another within the venture. |
| Agents | Act on behalf of principals and must follow instructions while protecting the principal’s interests. |
| Employees | Owe employers a duty of loyalty, confidentiality, and to act in the employer’s best interest. |
| Contractual Fiduciaries | In certain contracts, where one party is expected to protect or act in the best interest of the other party. |
When fiduciaries breach their duty, they are essentially acting against the best interests of the person or entity they represent. A breach of fiduciary duty occurs when the fiduciary acts in a way that benefits themselves at the expense of the person they represent. This can take many forms, including self-dealing, where the fiduciary engages in transactions that benefit themselves at the expense of the person they represent.
For example, a financial advisor who recommends a high-risk investment to their client because it will earn them a larger commission, even though it is not in the client’s best interest, would be in breach of their fiduciary duty. Similarly, a trustee who uses trust assets for their own benefit or a corporate director who engages in insider trading would also be breaching their fiduciary duty.
When a breach of fiduciary duty occurs, the person or entity that has been harmed by the breach can take legal action to recover damages. This can include monetary damages, such as the amount of money lost as a result of the breach, as well as punitive damages to punish the fiduciary for their wrongful conduct.
What constitutes a breach of fiduciary duty?
To put it simply, a breach of fiduciary duty occurs when a fiduciary fails to uphold their duty of loyalty and care owed to their client or beneficiary. This breach can happen when the fiduciary acts against the best interests of their client or beneficiary, resulting in harm or damage to the client or beneficiary. It is important to note that a breach of fiduciary duty is distinct from negligence, which refers to a mistake or failure to meet obligations rather than intentional actions or actions motivated by self-interest.
Here are several examples of actions that can be considered a breach of fiduciary duty:
- Using confidential information obtained from an employer for personal gain
- Making decisions on behalf of a company as a director or officer that do not align with the best interests of the company or shareholders
- Stealing funds from clients or partners
- Cheating beneficiaries of a will or trust
- Mishandling assets of a company or trust
- Concealing critical information required to make a decision from the individual to whom you owe a duty
- Failing to disclose conflicts of interest
- Creating debt on behalf of a company while knowing that the company will not be able to pay for it.
- Stealing business opportunities from your company or employer.
Identifying a breach of fiduciary duty can be challenging and may necessitate a comprehensive examination of the circumstances and the fiduciary’s relationship with the party concerned, as the repercussions of such breaches can be significant.
The consequences of a breach of fiduciary duty can vary depending on the specific circumstances and the severity of the breach. In general, the consequences may include:
- Legal action: The aggrieved party may file a lawsuit seeking damages resulting from the breach of fiduciary duty.
- Monetary damages: If a breach of fiduciary duty is proven, the aggrieved party may be entitled to recover monetary damages, which can include lost profits, restitution, and other financial losses.
- Disgorgement: The fiduciary may be required to disgorge any profits or benefits they received as a result of the breach.
- Injunction: The aggrieved party may seek an injunction to prevent the fiduciary from engaging in further wrongful conduct.
- Removal: If the fiduciary breached their duty, they might be removed from their position and barred from holding similar positions in the future.
- Criminal charges: In some cases, breaches of fiduciary duty can rise to the level of criminal activity, resulting in criminal charges and penalties.
For an assessment of whether you have a breach of fiduciary duty claim and to see what course of action you may have to deal with it: