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What is a breach of fiduciary duty?

On Behalf of | Jan 15, 2021 | Business Litigation |

Fiduciary duty is the term for a relationship between individuals or entities. It defines the expectations of trust, confidence and reliance upon an entity who acts on behalf of a partner or client by exercising their expertise or discretion. A fiduciary must knowingly accept the responsibility; it is often formalized in a written contract or agreement.

A breach of duty violates that agreement

A breach of fiduciary duty may occur when one party accuses the other of violating their agreement. Whether it is a CEO, board member, financial advisor or other professional, the accused may need to defend their actions in civil court.

Common areas of dispute include:

  • Is the dispute within the scope of the fiduciary duties?
  • Was fiduciary duty established before the time of the dispute?
  • Were fiduciary duties breached?

A common theme in these disputes is board members serving their own interests or a third party’s interests over those of the company. Other examples would be one party failing to disclose important information that could advance the client’s interests or failing to disclose information that would jeopardize the fiduciary agreement.

Establishing proof of a breach

Elements of a claim will likely need proof of the following:

  • There was an established duty or obligation.
  • There was a breach of that duty or obligation.
  • There were financial damages caused by the breach.
  • The entity who breached the fiduciary duty caused the damages.

The consequences

Many consequences can result from a breach of duty. Some can involve financial damages paid to the plaintiff for direct and indirect damages, as well as legal costs. There is also damage to the plaintiff’s reputation to consider — they put their trust in the fiduciary, and the violation of that trust could have a lasting impact on their own professional prospects.

Proving a breach is not always easy

It is the plaintiff’s responsibility to prove that the defendant violated their fiduciary duty. It is often useful and even essential to work with an experienced business law attorney who can skillfully navigate arbitration or litigate the case in court if necessary. Attorneys can do this by clearly defining the elements of the claim and providing proof of the breach.