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Fiduciary Duties

A fiduciary duty occurs in a relationship when one party is obligated to act entirely in the interest of the other. In these situations, the fiduciary owes a legal duty to the principal, and proper care must be taken to ensure that no conflict arises between the parties. Examples of fiduciary relationships include company executives acting for stockholders, financial advisers acting for investors, trustees acting for estate beneficiaries, and attorneys acting for clients—just to name a few.

Types of Fiduciary Duties. There are three primary fiduciary duties owed by fiduciaries:

  1. Duty of Loyalty: To satisfy the duty of loyalty, a fiduciary must always act with the principal’s best interests in mind. Fiduciaries may not act with their own interests in mind, and may not use their role as a fiduciary to benefit themselves.
  2. Duty of Care: To satisfy the duty of care, fiduciaries must consider all available information and avoid unreasonable risks when taking action on behalf of the principal or beneficiary. Fiduciaries must be reasonably informed of alternative options for action and may solicit input from others. This duty’s purpose is to prevent unreasonable actions by a fiduciary.
  3. Duty of Good Faith: Fiduciaries must employ prudence and care when making decisions; in other words, they must act “in good faith.”

Breaches of Fiduciary Duties:

Typically, breaches of fiduciary duties can occur when a fiduciary relationship is in effect and the fiduciary takes actions which violate, or are counterproductive to, the best interests of the principal. In these cases, the fiduciary’s actions are usually alleged to have benefited his or her own interests (or the interests of a third party) instead of the client’s/principal’s interests.  Sometimes, the alleged breach involves the fiduciary’s failure to provide important, relevant information to the client—leading to misunderstandings or misguided advice. It is important to note that fiduciaries should disclose any potential conflict of interest, because any perceived conflict can be interpreted as a breach of trust.

Elements of a Breach of Fiduciary Duties Claim. In order to prove that a fiduciary’s duties have been breached, several elements must be established in order for a plaintiff to prevail in a claim:

  1. Duty: The plaintiff must demonstrate that a fiduciary relationship actually existed;
  2. Breach: The plaintiff must prove that a breach of a fiduciary duty occurred (for example, negligence or illegal use of funds);
  3. Damages: The plaintiff must demonstrate that the breach resulted in actual damages; and
  4. Causation: The plaintiff must show that those damages were a direct consequence of the fiduciary’s breach of its duties.

Contact The Castle Law Firm For Guidance

Business disputes can be complicated and uncomfortable.  The Castle Law Firm is experienced in helping its clients resolve breach of fiduciary duty claims, and can guide you through every step of the process—from settlement negotiations to adjudicating before dispute resolution forums, as necessary.  Contact the firm online or call 312-574-0856 to schedule a free consultation today.