What is a Breach of a Fiduciary Duty?

There are certain times when people have professional relationships with others that give rise to certain legal duties and obligations. There doesn’t need to be a contract (though there can or may be), and there doesn’t have to be an express agreement. There are just times when one person has the duty to look out for, protect, or give guidance to, someone else.

How Fiduciary Duties Arise

This is called a fiduciary duty. Fiduciary duties can arise by law or by statute, but they don’t have to. Fiduciary duties arise all the time, in “real life,” even if we don’t think of them that way.

For example, if you have ever used a realtor, or a financial advisor, those professionals had fiduciary duties towards you. In a probate and estate context, a personal representative or executor owes a fiduciary duty to beneficiaries (those who may inherit property), just as a guardian would owe such a duty to the ward.

There is a legal test to see if a fiduciary duty arises:

1. One person must have more knowledge or expertise, or be in a more advantageous position than the other person
2. The other person is relying on the first person’s knowledge or expertise, and that reliance is accepted

Think of, for example, a legal partnership with two partners. The partners are fiduciaries to one another—they both have knowledge or expertise, and are relying on each other to do their jobs in furtherance of the partnership’s mission.

What Fiduciaries Must and Must Not Do

Fiduciaries must act in the best interest of the other party. It doesn’t mean they have to be perfect—for example, your real estate agent can make an innocent mistake. It just means that the fiduciary needs to act with diligence, and in a responsible manner.

Fiduciaries cannot put themselves, or their own interests, ahead of their clients, because part of a fiduciary duty is being loyal to the person or entity relying on the fiduciary.

Imagine a financial advisor who doesn’t tell his client about a great financial opportunity, so that the advisor herself can take advantage of it. Or, imagine an architect who subcontracts out to his buddies, who are super expensive, to the detriment of the architect’s client.

Fiduciaries have to act with diligence, skill, and responsibility. For example, a CEO, who is a fiduciary to a company and its shareholders, can make business mistakes—so long as the mistakes were made while the CEO was exercising good judgment and due care.

Many shareholder derivative lawsuits entail allegations that higher level corporate executives acted carelessly, wantonly, or that the executives acted in their personal interests above the interests of the company or shareholders.

If you’ve relied on someone who has misled you or mismanaged the trust you put in them, get help. Let the West Palm Beach commercial litigation lawyers at Pike & Lustig help you.

Sources:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0673/Sections/0673.3071.html

floridabar.org/the-florida-bar-journal/understanding-fiduciary-duty/