What is Fiduciary Duty Litigation And How Does it Work?

Per the U.S. legal system, fiduciary legal agreements arise when two parties agree to allow one to act in the sole financial interest of the other party. The person (or party) that acts as the fiduciary is trusted by the principal party to make well-informed decisions on their behalf. In some cases, profits are not gained from this agreement (unless is explicitly stated when the agreement begins). C-Suite executives (CEO, CFO, CTO, etc.), directors, trustees of estates, financial managers, stockbrokers, etc. may have specifically defined fiduciary responsibilities with regard to their organizations. In general, a fiduciary must uphold certain fiduciary duties that are designed to protect the beneficiary’s rights. A fiduciary is required to take informed actions (conduct due diligence), put the interests of the principal over their own interests, avoid conflicts of interest, disclose any actions that are in conflict with the beneficiary’s best interest as well as ask permission before taking such actions.

What is a Breach in Fiduciary Duty

When a fiduciary is suspected of violating their fiduciary duty, it often leads to litigation. A breach of duty can lead to significant financial losses for the beneficiary or principal party. In some circumstances, a breach in fiduciary duty occurs when there is a general misunderstanding. In other cases, breaches happen as a result of negligence on the behalf of the fiduciary. Generally, if a fiduciary takes any action that violates a binding contract and/or is contrary to the best interest of the principal party it is considered a breach of fiduciary duty. Furthermore, conflicts of interest or important information that is not disclosed can also result in a breach of fiduciary duty, leading to litigation. 

Elements of a Breach of Fiduciary Duty Claim 

Accusing a fiduciary of a breach and proving that a breach has occurred are two different things. The latter is much more difficult to prove. This is especially true of those that choose to litigate a breach in fiduciary duty claim without the help of an experienced business attorney like the professionals at thebusinessbreakupattorney.com. Listed below are the main elements of a breach of fiduciary duty claim. 

  • Contractual Duty: A fiduciary must have had a duty or many duties to the beneficiary. Duties must be conducted in good faith. Furthermore, fiduciaries have the duty to fully disclose their actions as well as potential conflicts of interest. Exact duties are determined by the contractual agreement and will vary depending on the specific responsibilities defined in the contract. 
  • Breach of Contract by Fiduciary: For a claim to be successful, plaintiffs must prove that the defendant (former fiduciary) breached one or more of the aforementioned duties in some way. Common examples of fiduciary duty breaches include failure to disclose pertinent information, embezzling money, misuse of influence, neglecting to take responsible actions, etc. 
  • Incurred Damages: If the beneficiary did not suffer financial damages, they cannot mount a successful claim. Furthermore, they must prove that the money that they lost happened as a result of the specifically accused breaches of fiduciary duties. If there are breaches in duty but no damages, beneficiaries are not able to seek damages (in most cases). 

Working With a Business Lawyer

Breaches in fiduciary duties can have a catastrophic impact on your personal and/or business finances. Contract laws are complex and often time confusing. It can be difficult to prove that a breach has occurred and that you suffered losses specifically due to that breach. When a dispute arises with a business partner, director, trustee, or any other person acting in a fiduciary capacity,  it is recommended that you connect with an experienced business attorney to protect your finances as well as reputation. An attorney can significantly increase the likelihood of recovering actual damages in addition to punitive damages.