When a party has a legal obligation to act in the best interest of another party – or parties – this obligation is known as a fiduciary duty. The relationship that creates a fiduciary duty is often referred to as a fiduciary relationship. For example, a business partnership creates a fiduciary relationship among the partners, and each partner, therefore, owes a fiduciary duty – an obligation to act in the best interests of the other partners and the partnership itself – to the other partners. If a partner fails to uphold this obligation, they may have breached their fiduciary duty, which can sometimes lead to disruptive business litigation.
Fiduciary duties typically arise from contractual or other legal relationships. Apart contracts, statutes and the actions of parties can also give rise to fiduciary obligations. Most commonly, a fiduciary duty derives from a situation in which one party is in a position of extreme trust with respect to another party. Examples include an attorney and his client, a board member and her corporation, or an accounting firm and their client.
If this extreme trust is somehow broken, a breach of the party’s fiduciary duty may have occurred. To prove the breach of a fiduciary obligation, a party must demonstrate three things. First, there must be evidence that a fiduciary duty existed when the alleged breach occurred. Once the duty is shown to have existed, the extent of the fiduciary relationship must be explored, i.e. did the act or failure to act fall within the scope of the duty. Finally, the complaining party must show that a breach of the fiduciary duty occurred.
When one suspects that a fiduciary duty has been breached – or if one has been accused of breaching such duty – the advice of an experienced attorney can be crucial. A seasoned business litigation attorney can examine the facts and determine if there was, in fact, a duty. Then they can counsel on the best way to proceed.
Source: FindLaw, “Breach of Fiduciary Duty,” accessed March 13, 2018