Business Disputes: What is a Breach of Fiduciary Duty?

There are a number of business and legal relationships where one party has an obligation to act in the best interest of another. This obligation is known as a fiduciary duty, and it may exist in a number of ways, including some of the following examples:

  • A corporation’s board members’ duty to company shareholders
  • Principal / agent
  • Trustee / beneficiary
  • Attorney / client

There are two ways a fiduciary duty may exist and become legally enforceable, and they involve the way the relationship is created and the duties owed:

  • Through law, such as through statute, contracts, or other legal proceedings. Known as formal relationships, these can include business partnerships, attorney – client relationships, employer – employee relationships, and the obligations owed by the officers or board members of a corporations to its shareholders.
  • Through common law, which occurs when courts establish certain types of relationships are fiduciary in nature based on the facts and circumstances involved in the situation. For example, parties in a business transaction (without a contract) may allege that a relationship of trust and good faith existed between the parties, particularly when many deals have been made in the past.

If the party which owes the fiduciary duty fails to act in the best interests of the other, this failure is known as a breach of fiduciary duty. As a business tort – or cause of action that can allow for a civil lawsuit – a breach of duty can lead to legal action in legal court, as well as legal remedies, including a recovery of damages, when successful.

Breach of Fiduciary Claims

At Fleming | Nolen | Jez, L.L.P., our commercial litigation lawyers represent clients who wish to bring breach of fiduciary duty claims against a party that failed in some capacity to act in accordance to the standard imposed upon them when operating from a position of trust, as well as individuals and businesses that wish to defend themselves against such claims.

In order to build an effective claim, the following elements must be established:

  • A duty existed – Plaintiffs must prove they were owed a duty (such as good faith, fair dealing, full disclosure, or duty relevant to the facts of the case) by a defendant. This establishes the existence of a fiduciary relationship at the time of the dispute.
  • Breach of duty – Plaintiffs must prove the defendant breached their fiduciary duty in some way. This can occur in any number of ways when a party acts contrary to the interest of the other (i.e. neglects responsibilities), acts in their own self-interest (i.e. misappropriation of funds), or fails to disclose certain information.
  • Damages – Plaintiffs must have suffered actual damages as a result of the breach of fiduciary duty. Without damages, a claim cannot be brought.

When successful, breach of fiduciary claims can provide plaintiffs with a number of remedies, including a recovery of their damages. In some cases, particularly when a fiduciary duty is breached through fraud or malice, punitive damages may also be available. Depending on the circumstances, plaintiffs may also seek certain equitable remedies, including an injunction to stop a defendant’s actions, forcing an accounting, formation of a constructive trust, fee forfeiture or profit disgorgement, appointment of a court receiver over a trust, and removal of a trustee.

Our legal team is committed to protecting the rights and interests of our clients, and to securing the best possible outcome on their behalves – whether this be a recovery of damages and securement of equitable remedies, or successful defense against claims. To discuss a potential case during a free consultation, contact Fleming | Nolen | Jez, L.L.P. Our Houston-based lawyers serve clients nationwide.

Categories: Commercial Litigation