Breach of Fiduciary Duty- Ethics, Integrity, Trust.Introduction: When People You Have a Right to Trust Cheat You

Ours is a world of contractual relationships, written and oral.  We hire people to help us, and we hire people to act on our behalf.  We hire real estate agents and brokers to buy and sell our homes or other real estate.  We hire accountants to help us organize our business or personal finances.  We hire gardeners and housekeepers to keep our gardens and clean our houses.  We hire hair stylists to cut and style our hair.  We hire business lawyers to represent us in lawsuits and negotiations, and to give us advice. We enter into business associations, like becoming partners and shareholders of partnerships and corporations.

While there are a countless myriad of contractual relationships, only some of them are considered to be “fiduciary relationships”, i.e. which include a “fiduciary duty” of loyalty and honesty that goes beyond the specific contract. What happens when a fiduciary does not fulfill their obligation to you, when there has been a breach of fiduciary duty?

A Greedy Partner

A general partnership is a good example of a “fiduciary relationship”.  Let’s say Joe X and Tom Z are 50/50 partners in “CARZZRUS” a used car dealership, and have a written partnership agreement which describes their respective duties in managing their dealership. The agreement says nothing about their rights to invest in or participate in competing car dealerships, but let’s imagine that Tom Z has learned of an opportunity to purchase a fleet of used cars from a car rental company at an incredibly low price.  Rather than bringing this opportunity to the partnership’s attention, Tom Z decides to secretly purchase the fleet of cars for himself, and sell them on his own. This conduct, almost certainly, would be an actionable “breach of fiduciary duty” since partners are generally held to have a duty of loyalty and a responsibility not to divert partnership opportunities to their own private benefit.

Identifying Breach of Fiduciary Claims

Any contractual relationship that, under the specific facts of the case, is understood to include a special reliance on the honesty and loyalty of the other party can be characterized as a “fiduciary” relationship, and can potentially give rise to a legal claim for breach of fiduciary duty.

Some contractual relationships are generally understood to be fiduciary in nature, like the partners is our example of CARZZRUS. Or when we hire a business lawyer, it is usually for some important matter, and we typically have little understanding of the laws and rules that apply to our case. We trust and rely on the business lawyer’s expertise and honesty.  Likewise, when we hire an accountant to advise us in a complicated business deal, we are relying on his or her knowledge and integrity.

The trust and confidence we expect and rely on when he hire a “professional”, generally speaking, is more profound than that we expect and rely on when we hire someone to do a more menial, physical or clerical task.  When we hire an tax accountant or a business lawyer, for example, we frequently share very private, personal information, and we rely on them to use their special training and expertise, beyond our knowledge, to do their very best to serve our interests.  It is not the same when we hire someone to paint our house or move furniture.  However, there are no hard and fast rules.  Determination of whether a relationship imposes fiduciary duties is fact specific.  All sorts of contractual relationships, depending on the specific facts, can be found to be fiduciary and give rise to a claim for breach of fiduciary obligations.

Damages for “Breach of Fiduciary Duty”

While they almost always arise out of contractual relationships, legal claims for “breach of fiduciary duty” are not strictly contractual, legally speaking; they are not the same as a breach of contract.  As in the example above, where the written agreement of the partners in CARZZRUS was silent on the rights of the individual partners to individually exploit opportunities that could benefit the partnership, the nature of the relationship alone typically gives rise to an affirmative, broad duty of loyalty which is implied by law.  Significantly, because a breach of fiduciary duty is not strictly contractual, the intentional breach of this duty of loyalty can give rise to recovery of money damages greater than that which could be recovered for a simple breach of contract claim. Instead, damages are often determined by the same formula used to compensate for harm resulting from outright fraud, and can include punitive damages. In fact, California state law expressly provides for tort damages, including punitive damages, which may be recovered for an intentional breach of fiduciary duty under California Civil Code Section 3333 and California Civil Code Section 3294.

In the fictional case of CARZZRUS, above, assuming Joe X had filed suit and his competent business attorney was able to prove that Tom Z had intentionally failed to disclose to Joe X his purchase and sale of the fleet of used cars, knowingly breaching his duty of loyalty, Joe X might well be awarded damages which would include recovery of whatever profits Tom Z had made on the deal. However, under California law, Joe X could also seek an award of damages meant to punish Tom Z for breaching his fiduciary duty to the partnership and Joe X, which may far exceed Joe X’s actual damages, making this type of claim much more costly to Tom Z than a simple breach of contract claim—despite the fact he did not breach the express language of the partnership agreement.

A Business Attorney Can Help Determine If You Have a Claim for “Breach of Fiduciary Duty”

As noted above, the question of whether a particular contractual relationship gives rise to fiduciary duties, and the nature and breadth of those fiduciary duties, depends on the specific facts of the case, and can be a complicated and uncertain analysis.  An experienced business attorney can not only help you identify a potential claim for breach of fiduciary duty, but can help you marshal the facts and persuade a Court to rule in your favor.

If you feel you have been harmed in your business dealings, even if you think there was no breach of contract, don’t assume you have no remedies.  If you had a reasonable expectation of loyalty and honesty, you may have a viable claim. We’re here to help! At Gehres Law Library our trusted business lawyers will help you determine your rights and work aggressively to protect those rights. Contact us for a free evaluation or browse our website for more information.