Sometimes it can be difficult to prove a breach of fiduciary obligation. The defendant (i.e., attorney, consultant or investment broker) must have committed a breach of duty in order for it to be proven. The defendant (i.e. attorney, consultant or investment broker, trustee) must have had a fiduciary obligation to the plaintiff.
A breach of fiduciary obligation occurs when the plaintiff has a fiduciary responsibility to the defendant and they did not act in client’s best interests.
Fiduciary have many duties.
- Duty to Care: The duty to exercise all due diligence when making decisions, giving counsel, or taking actions.
- Duty to Loyalty: A fiduciary cannot represent someone who has a conflict of interests.
- Duty to Good Faith: Fiduciaries are bound by the law when they deal on behalf of clients.
- Duty to Confidentiality: A fiduciary is prohibited from disclosing any information without consenting clients.
- Duty to Prudence: The duty to prudence is similar to the duty to care. It requires that the fiduciary assess all options and identify risks before taking any action.
- Duty To Disclose: Fiduciaries are required to disclose any information that could affect the well-being or health of their client.
A breach of fiduciary obligation occurs when the plaintiff has a fiduciary responsibility to their client and the defendant does not act in the client’s best interests.
Types of fiduciary relationships
To establish a breach of fiduciary obligation, the first step is to show that there was a fiduciary obligation. There are many types of fiduciary relationships. However, there are not necessarily any absolutes. Some contract language, like that which creates a commission for an agent, may negate the fiduciary nature the relationship.
However, if a contract fails to address fiduciary duties, the courts will usually agree that there is a fiduciary relation. This can be in business or legal relationships.
Attorney/Client
In Upjohn Co. v. United States, the U.S. Supreme Court case of 1981 established that attorney/client confidentiality is a relationship of trust. Attorneys have an obligation to act in the best interest of their clients and keep any information confidential.
In certain financial matters, the attorney may have a fiduciary obligation. These are:
- Executor of the estate/client
- Executor of the estate/heir
- Trustee/beneficiary
Agent/Principal
A principal/agent fiduciary relationship is one in which an entity or individual is reasonably liable for acting in the principal’s best interests. This can include many relationships such as:
- Executive/Shareholder
- Majority Shareholder/Corporation
- Consultant/Company
- Personal investor/Fund manager
- Financial advisor/Advisee
- Accountant/Client
- Employer/Employee or visa versa
Fiduciary relationships are often a two-way street, as you can see. The employer/employee relationship is typically mutual. However, the fiduciary obligations of shareholders, executives, or companies are often mutual.
Summarized from an article by Stone & Sallus LLP.
