What is a Fiduciary Duty?
A fiduciary relationship is about trust and confidence; it exists where one or more parties are bound to act in good faith toward and for the benefit of one or more other parties. A fiduciary relationship is often comprised of the duties of care, loyalty, confidentiality, and obedience, i.e., fiduciary duties to the parties in the relationship.
Before a person can be charged with a fiduciary obligation, he or she or it must either knowingly undertake an agreement on behalf of and for the benefit of another, or enter into a relationship which imposes a fiduciary duty as a matter of law. Some of the relationships in which a fiduciary duty arises as a matter of law include:
- principals and agents
- business partnerships
- attorneys and clients
- joint venturers
- corporate officers/directors and corporations
- corporations and shareholders
- controlling shareholders and minority shareholders
An example of where a fiduciary relationship exists under California law is the duty of loyalty that prohibits an agent, during the course of his or her or its agency, from undertaking activities adverse to the interests of his or her or its principal. Similarly, a director also owes a duty of care that requires him or her to manage an entity, its property, or subject matter of the relationship with due care. The duty of obedience requires a fiduciary’s actions to be consistent with the organization’s articles of incorporation, bylaws, mission statement, and tax-exemption documents, where applicable. In other circumstances, a fiduciary owes the client an utmost duty of confidentiality, such as the fiduciary relationship between attorneys and their clients.
Generally, a breach of a fiduciary duty will entail a breach of the duty of care, loyalty, obedience, and/or confidence. To establish such a breach, a plaintiff will have to prove the existence of a fiduciary duty, show that the duty was breached, and establish what damages were suffered as a result of that breach; such damages may simply be all profits that were earned as a result of the breach. Intentional wrongs such as fraud and negligent misrepresentation also may constitute a breach of fiduciary duty. The measure and types of damage or other relief available in breach of fiduciary claims depend on the nature of the breach. In certain egregious cases, punitive damages may be available to a plaintiff.
Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.