Litigation concerning fiduciary relationships in the business and commercial context has become increasingly common. Broadly defined, a fiduciary is an individual or entity that has a legal obligation to act in the client’s best interests. Levy Goldenberg LLP, a leading commercial litigation firm in Manhattan, has an impressive track record of prosecuting and defending breach of fiduciary duty claims. If you have a breach of fiduciary duty claim, contact our experienced team of attorneys today for an initial consultation.
Proving a Fiduciary Duty Claim
A claim for breach of fiduciary duty carries three elements:
- A fiduciary relationship between the parties
- A breach of that fiduciary duty
- Damages directly caused by that breach
New York has statutes that codify unique fiduciary duties applicable to directors and officers, trustees or administrators of estates, managing members of limited liability companies, and partners of general or limited partnerships. In addition to these statutory sources, fiduciary duties may be outlined in operating or partnership agreements, trust instruments, and other contracts. In the absence of an applicable statute or express definition of fiduciary duties within a contract, courts will turn to the common law to determine whether a fiduciary relationship exists in a particular case.
A fiduciary relationship generally arises where one person has a duty to act or give advice for the benefit of the other. An arm’s-length transaction does not automatically create a fiduciary obligation absent additional factors, even if one of the parties has greater economic or bargaining power than the other. The nature of the relationship between the parties, whether one party has or appears to have unique or special expertise, and the vulnerability of the other party to the other, is part of the analysis. Determining whether a fiduciary relationship exists calls for a highly fact-specific inquiry.
Basic Fiduciary Duties
Fiduciaries generally owe three basic duties:
- Duty of loyalty
- Duty of care
- Duty of good faith
A duty of loyalty requires the fiduciary to act in the best interest of the beneficiary and not exploit the relationship to gain personal benefit. This duty is breached, for example, when the fiduciary engaged in self-dealing or has a conflict of interest. A duty of care obligates a fiduciary to carry out his or her responsibilities in an informed and considered fashion. This duty is breached if the fiduciary fails to act as an ordinarily prudent person would under similar circumstances or without appropriate diligence. A duty of good faith mandates a fiduciary to act in accordance with the purpose and mission of the relationship.
Common Types of Fiduciary Duty Relationships
Fiduciary duties are often triggered by professional relationships such as those involving attorneys, investment advisers, fund managers, trustees, real estate brokers, and agents. This is because professional relationships involve a significant disparity in knowledge and expertise between the professional and the client. A heightened level of trust is implicit in these relationships.
Directors and officers who manage the business affairs of a corporation stand in a fiduciary relationship with their corporation. Thus, board members and management-level corporate officers owe fiduciary obligations to stockholders and may be subject to fiduciary duty claims. Under the “business judgment rule”, there is a presumption that directors and officers act in good faith, and their business decisions are generally protected absent indicia of bad faith, fraud, or self-dealing. For example, directors and officers may be liable for breaching their fiduciary duties by:
- Diverting an opportunity away from the corporation in pursuit of an outside business interest
- Using their authority to block the corporation from seeking competitive businesses
- Canceling corporate contracts to benefit outside interests
- Forming a competitive business.
Much like directors and officers, majority stockholders of corporations owe fiduciary obligations to minority stockholders. Majority stockholders have great power to manage the affairs of the corporation and thus have an obligation to adhere to fiduciary standards of conduct and exercise their responsibilities in good faith when taking any action on behalf of the corporation. The same holds true for managing members of limited liability companies who generally owed fiduciary duties to the LLC and to other non-managing members.
Remedies
Claimants who succeed in proving that a fiduciary duty was breached may seek a wide range of remedies. Monetary relief such as compensatory and punitive damages, including attorneys’ fees and expenses related to the lawsuit, may be permitted. Equitable relief such as rescission, removal of the fiduciary, restitution, and disgorgement of professional fees, may also be awarded.
Choose The Breach of Fiduciary Duty Attorneys at Levy Goldenberg LLP
If you are considering pursuing a breach of fiduciary duty claim against professionals, corporate directors and officers, LLC members, or controlling partners of a business, or if you have been accused of breaching a fiduciary duty, having the right attorney by your side can make or break your case. Do not delay. Contact the New York City commercial litigation and business law firm of Levy Goldenberg LLP today to discuss your case.