What is a Fiduciary Duty?
When one party owes a fiduciary duty to another, that party can be sued for violating that fiduciary duty. The existence of a fiduciary duty can mean that one party has a heightened obligation to care for, or keep the person’s word, towards the other party. But what is a fiduciary duty? Do you need to have some sort of contract or agreement for a fiduciary duty to arise?
What’s a Fiduciary Duty?
What makes a fiduciary duty so unique is that when it exists, the party that owes the duty has a duty to act on behalf of, and for the good of, the other person, or business, even if doing so is against his or her interest.
Fiduciary duties usually arise when one party has greater knowledge or expertise, and the other party is relying on that expertise, and both parties are aware of the reliance. There is dependency involved, and the parties have accepted that one party is dependent on the other. Because this is such a broad definition, more relationships than can be listed here can give rise to fiduciary duties.
This is unique in business and in life. Usually, parties contract at arm’s length. They deal in business looking out for themselves. Publix doesn’t have an obligation to act in Whole Food Market’s best interest. Fedex doesn’t have an obligation to act in UPS’ best interest. And you, who may contract with someone else, don’t have to look out for the other side or act in their best interest outside your contractual obligations.
When Duties Arise
Think of a real estate broker. Certainly, the real estate broker has a right to protect himself, and get paid, and the broker is performing a service for the client. But the broker also owes a fiduciary duty to the client, and has some obligation to protect, safeguard, and watch out for the client.
Fiduciary duties arise between business parties, professional relationships (lawyer-client, investment banker-investor, etc), and in many other industries. Sometimes, the duties owed between fiduciaries are spelled out specifically in the law, such as they are with business partners, but other times they are not.
Corporate Fiduciary Duties
Corporate officers have a fiduciary duty to their company. They must work for the benefit of shareholders, keep the company safe, not engage in business relationships which could hurt the company or benefit themselves at the expense of the company.
In a typical breach of contract case, parties can win whatever damages are contemplated by the contract, and damages which would naturally flow from the contract. But when there is a breach of fiduciary duty, the aggrieved party can sue for additional damages, and can even win punitive damages. Parties can be disgorged of profits, and be subject to an injunction.
Call the West Palm Beach business litigation lawyers at Pike & Lustig for help today if you have any type of business dispute, or are involved in any business litigation case.