Breach of Fiduciary Duty in Florida
Florida law recognizes that some business relationships create additional responsibilities for one party (the “fiduciary”) toward the other party. If the fiduciary fails to fulfill his or her legal obligations, it is a breach of fiduciary duty and can result in a civil lawsuit with a claim for significant monetary damages in Florida. Understanding when fiduciary duties are owed, what they consist of and the circumstances that may lead to a breach can help parties avoid and/or address problems should they arise.
What Is a Fiduciary Duty?
A fiduciary duty is an obligation that one person act in the best interests of another person or an entity. The person who has a fiduciary duty is called the fiduciary, and the person to whom the duty is owed is typically known as a principal or beneficiary. Typically, such duty exists when there is a relationship between the parties involving special trust or reliance on the fiduciary to exercise his or her discretion or expertise for the benefit of the other party. Examples of such relationships include those between:
- Corporate directors / shareholders
- Business partners
- Agent / principal
- Attorney / client
- Financial advisor / client
- Trustee / beneficiary
What Types of Fiduciary Duties Exist?
Fiduciary duties may vary depending on the type of fiduciary relationship. In a business relationship, some of the most commonly seen fiduciary duties in Florida include:
Duty of Care
A duty of care requires that a fiduciary act as a reasonable and prudent person in a similar circumstance would act. Within a company, this is typically interpreted to mean that the fiduciary must exercise informed business judgment in conducting a transaction or in their oversight of the company.
Duty of Loyalty
A fiduciary must act in the best interests of the principal and with honesty and good faith and fair dealing. Generally, this means the fiduciary cannot put his or her personal financial interests ahead of the principal.
Duty of Candor
A fiduciary is obligated to fully disclose material information that may harm the business or individual that is owed the duty. It typically arises in corporate settings between management, board members and shareholders.
When Does a Fiduciary Duty Arise?
Fiduciary duties can arise by law, contract or by the circumstances underlying the relationship between the parties and the nature of the transaction at issue. Examples of Florida business laws that specifically establish fiduciary duties include:
Under Florida law, business partners owe the partnership and the other partners the duty of loyalty and the duty of care. These duties prohibit partners from competing with the partnership; acting on behalf of a party having an interest adverse to the partnership; or engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of the law. Further, partners have a duty to account to the partnership for any property, profit or benefit derived by the partner from conducting partnership business or using partnership property, including the appropriation of a partnership opportunity.
Limited Liability Companies (LLCs) Law
As a general rule, each LLC member owes duties of loyalty and care to the LLC and its members. As in many other states, Florida law allows an LLC to modify such duties to a certain extent in its LLC operating agreement. Nevertheless, there are certain limitations. For instance, the operating agreement may not eliminate the obligation of good faith and fair dealing. An operating agreement may also alter or limit certain aspects of the duty of loyalty, such as the standards of how to a member’s performance, but such provisions cannot be “manifestly unreasonable.” Whether a term is manifestly unreasonable is a matter of law determined by the court.
In Florida, officers of a corporation have a fiduciary duty to the corporation and its shareholders. They must act in good faith and exercise their powers in a manner they reasonably believe to be in the best interests of the corporation. Florida law also requires that they disclose any conflicts of interest and get approval from the board or shareholders for any transactions in which the corporate officer has an interest.
Special Consideration for Closely Held Corporations
A closely held corporation is often treated differently than other types of corporations. A majority of states have viewed that the duties between the shareholders of a close corporation are akin to that between the partners of a partnership; thus, all shareholders in a close corporation, including a minority shareholder, owe fiduciary duties to the corporation and the other shareholders. In contrast, other states take the position that minority shareholders do not owe fiduciary duties by virtue of owning shares unless they have actual control over the corporation. Florida law is not completely settled on this issue. While certain cases seem to follow the majority approach, Florida courts have been reluctant to treat a closely held corporation as a partnership. Given the uncertainty on the subject, the best approach for the shareholders of a Florida close corporation might be to have a carefully drafted shareholders’ agreement in place to spell out the duties owed among the shareholders.
How Can Fiduciary Duties Be Waived?
Fiduciary duties can be waived or limited in certain instances. For example, corporations often insure and indemnify their directors and officers against breaches of the duty. They may also limit or eliminate their personal liability for specific duties. As noted above, LLCs similarly can limit or eliminate the personal liability of the managers or members within the LLC operating agreement.
What are examples of a breach of fiduciary duty?
A breach can result anytime a fiduciary fails to act in the best interests of the other party. However, most breaches tend to involve a fiduciary who puts their own or a third party’s interest before the party who was owed the duty. Common examples include:
- Self-dealing – Fiduciaries cannot accept excessive payments, sell or gift assets to themselves, borrow company funds as a personal loan, compete with the party owed the duty or use insider or non-public information in a stock market transaction.
- Usurping a corporate opportunity – Pursuing for personal benefit a business opportunity meant for the company without consent is a breach of fiduciary duty.
- Failure to disclose information – A breach can occur if the fiduciary fails to provide important or sufficient information that may lead to misunderstandings, disclose conflicts of interest or inform the party owed the duty about pursuing an opportunity meant for the company.
What Are the Requirements for Bringing a Claim for Breach of Fiduciary Duty?
Florida requires a plaintiff to establish the following elements in order to sue for breach of fiduciary duty:
- Existence of a fiduciary relationship and duty;
- A breach of the duty occurred; and
- Damages were suffered as a result of the breach.
What Remedies Are Available for Breach of a Fiduciary Duty?
Plaintiffs suing for breach of fiduciary duty under Florida law may recover monetary damages, including direct, indirect and punitive damages. Equitable relief may also be available, such as injunctions, restitution, rescission and other appropriate remedies as provided under the law.
A breach of fiduciary duty is a serious matter in Florida, often with significant money at stake. Our experienced attorneys can provide appropriate guidance regarding the strength of your claim or defense, advocate for your best interests and help resolve your matter successfully. Additionally, even before a breach may arise, you should consider consulting an attorney to review your business entity’s operating agreement or shareholders agreement to spell out the duties among the members to reduce risks and liabilities. Our team has extensive experience providing legal advice tailored to your situation and drafting relevant corporate agreements. Contact us today to better understand your duties and options.
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