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June 6, 2023 | BusinessLitigation

Understanding Breach of Fiduciary Duties Claims

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There are various business relationships that can create a fiduciary duty from one party to another. This includes partnerships, company officers and directors, principals, and agents. Breaching this duty can lead to litigation. It’s important for parties to understand the responsibilities owed and the circumstances that may lead to a breach, in order to prevent and address problems.

What is a Fiduciary Duty?

A fiduciary duty is an obligation to act in the best interests of a company or another person, usually a business partner or client. This duty arises when there is a relationship involving special trust or reliance on the fiduciary to use their discretion or expertise for the benefit of the other party. Fiduciary duties are not only common in business situations, but also in estate and financial planning settings, and between attorneys and clients.

There are generally three types of fiduciary duties: duty of care, duty of loyalty, and duty of candor.

  • Duty of care requires a fiduciary to act as a reasonable and prudent person would in similar circumstances.
  • Duty of loyalty requires a fiduciary to act in the best interests of the party owed the duty and in good faith.
  • Duty of candor requires a fiduciary to fully disclose material information that may harm the business or individual owed the duty.

When does a breach of fiduciary duty occur?

Breaches of fiduciary duty occur when the fiduciary does not act in the best interests of the other party. This can include poor decision making, failure to provide important information, failure to disclose conflicts of interest, pursuing opportunities meant for the company without informing the party owed the duty, misappropriating assets, self-dealing, competing with the party owed the duty, borrowing company funds as a personal loan, and using insider or non-public information in a stock market transaction.

In order to bring a legal claim for breach, three basic elements must be proven: (1) a fiduciary relationship and duty existed, (2) a breach occurred, and (3) damages were suffered as a result of the breach.

If the fiduciary is a director or officer of a company, the plaintiff must overcome the business judgment rule, which presumes that the defendant acted in good faith and with the same degree of care as an ordinarily prudent person in a similar position.

What are the remedies for breach?

Remedies for breach can include direct and indirect damages, injunctions, restitution, rescission, legal fees, and other appropriate remedies as provided under the law.

Breach of fiduciary duty claims are common in business litigation and often involve complex factual situations. It’s recommended to seek guidance from an experienced attorney to determine the strength of a claim or defense and to successfully resolve the matter.

 

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