Obligations associated with the fiduciary duty apply to a wide range of situations and settings. Understanding the responsibilities of the position is key to protecting your rights and the rights of others.
It is also important to know the consequences of a breach of the fiduciary duty and the remedies that arise from it. If you need help understanding your duties as a fiduciary, or have been harmed by someone who has breached their fiduciary duty, our firm has experienced Massachusetts attorneys ready to fight for you.
A. The Fiduciary Duty
Fiduciary duties arise from fiduciary relationships. These relationships occur between two people when one person is under a duty to act on behalf of or give advice to another for their benefit on matters within the scope of that relationship. Fiduciaries are expected to act with the utmost good faith and loyalty while acting on behalf of another.
These duties may arise from a specific statutory provision or may arise out of the common law. In many cases, it also may arrive through a contractual or agency relationship wherein one party agrees to work for the benefit of another. This duty may arise from a wide range of circumstances. The following include common examples where a fiduciary duty may exist:
- Trustee of a Trust - The trustee has a fiduciary duty to exercise good faith and act for the benefit of the trust's beneficiaries.
- Guardians - Guardians are people appointed to protect certain people and conduct their affairs because they are unable to do so themselves. This is common with children and the elderly.
- Business Disputes - Owners in a business owe a duty of loyalty to one another in that they may not act for their own gain at the expense of others. Certain duties may even be owed between individuals in different businesses as a result of their relationship. Litigation between businesses may result from such a breach.
- Public Officials - Those who work for the public, e.g. a mayor, have a fiduciary duty to act in the public's best interest.
- Shareholders - Shareholders of a corporation have fiduciary duties to one another to act in good faith and loyalty. This area is ripe for breach; often, majority shareholders act in their own best interest with little or no regard for minority shareholders. A breach of fiduciary duty action can easily arise from these kinds of situations.
- Employer/Employee - Employers may owe a duty of good faith to act in their employee's best interests in certain situations. Employees may also owe a duty of loyalty not to compete with their employer. Employer/Employee litigation may arise as a result.
2. Breach of the Fiduciary Duty
To sustain an action for a breach of fiduciary duty, a plaintiff must show:
- The existence of a fiduciary duty. A plaintiff must show that a fiduciary duty existed between him or her and another person. It is not enough to show that the defendant owes a fiduciary duty to others, or is simply in a position in which a fiduciary duty exists. That duty must apply to the plaintiff as well. The fiduciary duty may be limited or altered by the parties to a limited degree, usually through a contract. However, Massachusetts law generally does not enforce language that eliminates the duty or so limits it as to render it meaningless.
- Breach of duty. The fiduciary must have breached the duty to sustain this cause of action. The plaintiff must prove that the breach was within the scope of the fiduciary relationship. This determination is fact-based, and the individual circumstances of the alleged breach are significant.
- Causation. The plaintiff must prove that the breach caused harm and that that harm may be redressed under the law. It is not enough to prove that a fiduciary's actions were a breach if there is no harm to the plaintiff.
- Damages. The plaintiff must also prove that damages arose from the fiduciary's breach.
If a plaintiff fails to prove any of the above elements, his or her claim for breach of fiduciary duty will not succeed.
3. Legal Process
If a fiduciary breach his or her obligations, an individual may file a complaint in court which sets forth the facts of the case and alleges a breach of fiduciary duty. In which court the action must be filed depends on the facts of the case, including where the alleged breach took place and the number of expected damages should the lawsuit succeed.
Once the lawsuit is started, the parties will exchange information relevant to the lawsuit through a process called discovery. Before trial, the parties may participate in settlement negotiations or may attempt mediation rather than take the case to trial. If no agreement can be reached, the parties will go to trial to argue their cases.
4. Remedies for Breach
Should a plaintiff succeed in proving a breach of fiduciary duty claim, various remedies exist to attempt to make the plaintiff "whole." Generally speaking, remedies for breach of fiduciary duty are equitable in nature, meaning they are intended to put the plaintiff in the position they would have been had the breach not occurred.
- Money Damages - A plaintiff may be entitled to money damages arising from a breach of fiduciary duty under a wide array of circumstances. The amount is intended to provide the plaintiff the amount he or she would have had but for the fiduciary's breach. For example, this may arise when the trustee has used the trust for their own benefit rather than the benefit of the beneficiaries. The beneficiaries would be entitled to the amount the trustee wrongfully gained and any additional loss that occurred because of the trustee's breach.
- Injunctive Relief - In certain situations, a plaintiff may be entitled to an injunction - a legal order to refrain from or to perform a particular action. This compels a defendant to cease certain acts or requires the defendant to perform an act that will fulfill the fiduciary's obligations in order to remedy the breach.
- Transfer of Property - In many instances, the breach comes as a result of the fiduciary wrongfully obtaining property as a result of a breach. This may occur when an accountant embezzles funds or a trustee signs documents that transfer property to him or herself without authorization. In such a case a court may order the defendant to transfer the property back to the plaintiff.
- Constructive Trusts - Constructive trusts are a special remedy imposed on a fiduciary who has earned illicit profits as a result of their actions in breach of the fiduciary duty. This is an equitable remedy a court may use to protect and compensate a plaintiff.
At the Katz Law Group, we actively pursue those who have breached their fiduciary duties in order to protect your rights. Please feel free to call us at 508-480-8202 or contact us on our website.