Fiduciary Duty of Directors, and Shareholders
A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, a majority shareholder has a duty to the minority shareholder, an attorney has a fiduciary duty to a client, and agent acting under a power of attorney for the principal, an executor of an estate has a fiduciary duty to the probate estate, a partner owes fiduciary duty to another partner. Fiduciary duty may be owed to multiple persons, whose interest conflict with each other.
A fiduciary obligation exists whenever the relationship with another person involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for that person, and not for the self interest of the fiduciary . The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client's behalf.
When one person does agree to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the principal, or from acting for his own benefit in relation to the subject matter. The person is entitled to the best efforts of the fiduciary who is to act on his behalf . The fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.
Fiduciary duty is a combination of:
- Duty of honesty
- Duty of care
- Duty of loyalty
- Duty of fairness
- Duty of Impartiality
- Duty to act in good faith
- Duty to Account
Duty of loyalty calls upon each fiduciary (each partner, majority shareholder, member of the board of directors, executor, etc) to be loyal to the business, to the other partners, or to the other shareholders, to the estate and to the beneficiaries of the estate above everything else.
Duty of care requires each partner to provide the best possible service or advice. In all cases, fiduciary duty requires partners to disclose any necessary, relevant information to the rest of the partners within the scope of the relationship. Also, each partner must act in a reasonably prudent manner when managing or directing operations for the partnership.
Fiduciary duty falls under Equity Law which states when a fiduciary relationship is agreed upon; it is illegal for the fiduciary to act contrary to the best interests of the principle. Sometimes a fiduciary relationship may be difficult to define because it can be based on a subjective concept of trust.
Rectifying a Breach of Fiduciary Duty
Someone hurt by the failure of a fiduciary may be entitled to damages. Courts have several ways of fixing breaches. Injured parties may receive compensation, including either money or punitive damages. Every case is different, and damages may hinge on the nature of the abuse, the fiduciary relationship, and other factors specific to the case. Here are a few of the penalties a court could impose:
- Removal of the fiduciary – A court might order the removal or replacement of a fiduciary.
- Punitive – If a breach is proven, a court could require a fiduciary to pay punitive damages.
- Denial of fees – A fiduciary may be denied the right to collect fees.
- Surcharges – A court could require a fiduciary to pay money to a trust.
Getting Help for Breach of Fiduciary Duty
Proving a breach of fiduciary duty involves showing misconduct by a defendant and establishing that damages resulted from the neglect or misbehavior. If you need help with an abuse of trust claim, we welcome the chance to discuss the matter and if the case is properly founded then to represent you.