Trust is often integral in business relationships. But what happens when someone placed in a position of trust makes a mistake, neglects their obligations, or fails to perform their duties in some way? If that person is a fiduciary, then their actions could constitute a breach of fiduciary duty.
What is fiduciary duty?
Someone trusted to act on behalf of another person (the principal) might be called a fiduciary. The principal expects the fiduciary to act in the principal’s best interests, putting their own interests aside.
Fiduciaries are expected to use discretion and act responsibly. A breach of fiduciary duty often has grave consequences for the principal, leading to business litigation or other actions against the fiduciary.
Who are fiduciaries?
Anyone could be a fiduciary for another person. However, you will often see the following people shouldering fiduciary duty:
- Lawyers for their clients
- Guardians for their wards
- Trustees for beneficiaries of a trust
- Personal representatives for the beneficiaries of an estate
- Financial and investment advisors for their clients
- Executives for stockholders and other business owners
General fiduciary duties were discussed above. But individual fiduciaries have different types of duties. For example, the guardian of a ward is responsible for the wellbeing of an incapacitated or minor person. A business executive’s duties are vastly different but still involve matters of trust. However, they are all bound to avoid breach of fiduciary duty for their respective principals.
What constitutes a breach of fiduciary duty?
We could consider any time a fiduciary does not act on behalf of the principal as a breach. However, here are some specific examples:
- A financial advisor buys stock for his client. However, the advisor has a financial interest in the company selling the stock. Is the advisor doing what’s best for him or what’s best for his client?
- Trustees are expected to manage trust assets efficiently. A trustee might neglect property owned by the trust, thereby reducing its value.
- The CEO of a company circulates rumors about the reduced value of a business asset. He then arranges to sell it to his best friend at a greatly reduced price.
A breach of fiduciary duties probably occurred in each of these examples. However, will such a breach lead to business litigation?
What are the consequences of breaching fiduciary duties?
As noted above, a fiduciary can be sued because of a breach of fiduciary duty. But plaintiffs have to prove the breach damaged them. Other than getting sued, fiduciaries could:
- Damage their reputation,
- Lose clients because no one trusts them anymore,
- Lose their license to practice.
If a fiduciary’s actions have harmed you or your company, talk to a business attorney as soon as possible. You might be able to minimize damage or recover any losses you suffered.
Call to Discuss What to Do if There’s Been a Breach of Fiduciary Duty
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.