We have successfully litigated many cases involving breaches of fiduciary duty. We have also advised boards of directors in properly complying with fiduciary duties.
What is a fiduciary relationship?
A fiduciary relationship is any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent.
A fiduciary relationship is a recognized legal relationship such as guardian and ward, trustee and beneficiary, principal and agent, or attorney and client.
What are a fiduciary’s duties?
Every agent owes his principal the duty of undivided loyalty. During the course of his agency, he may not undertake or participate in activities adverse to the interests of his principal. In the absence of an agreement to the contrary, an agent is free to engage in competition with his principal after termination of his employment but he may plan and develop his competitive enterprise during the course of his agency only where the particular activity engaged in is not against the best interests of his principal.
A fiduciary must give priority to the best interest of the beneficiary.
In addition to this duty of preference toward the beneficiary, the fiduciary also is required to manage the subject matter of the relationship (or res) with due care, must account to the beneficiary, and must keep the beneficiary fully informed as to all matters pertinent to the beneficiary’s interest in the res.
Is a person a fiduciary?
Before a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.
There are two types of fiduciary duties, i.e.:
(1) those imposed by law and
(2) those undertaken by agreement
What types of persons are fiduciaries imposed by law?
A. Claims Arising out of Fiduciary Relationships, Generally.
Fiduciary duties arise as a matter of law in certain technical, legal relationships. While this list of special relationships is one that is not graven in stone, it is useful to identify many of the relationships that give rise to fiduciary duties. They include relationships between:
(1) principal and agent (Recorded Picture Company [Productions] Ltd. v. Nelson Entertainment, Inc. (1997) 53 Cal.App.4th 350, 369-370 (Recorded Picture)), including real estate broker/agent and client (Smith v. Zak (1971) 20 Cal.App.3d 785, 792-793), and stockbroker and customer (Black v. Shearson, Hammill & Co. (1968) 266 Cal.App.2d 362, 367);
(2) attorney and client (Rader v. Thrasher (1962) 57 Cal.2d 244, 250);
(3) partners (Koyer v. Willmon (1907) 150 Cal. 785, 787-788; Corp. Code, §16404);
(4) joint venturers (Sime v. Malouf (1949) 95 Cal.App.2d 82, 98);
(5) corporate officers and directors, on the one hand, and the corporation and its shareholders, on the other hand (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327, 345);
(6) husband and wife, with respect to the couple’s community property (Vai v. Bank of America (1961) 56 Cal.2d 329, 337; see also Fam. Code, ? 1100, subd. (e));
(7) controlling shareholders and minority shareholders (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108-112 (Jones));
(8) trustee and trust beneficiary (Estate of Vokal (1953) 121 Cal.App.2d 252, 257);
(9) guardian and ward (Estate of Kay (1947) 30 Cal.2d 215, 226; Prob. Code, § 2101);
(10) pension fund trustee and pensioner beneficiary (Lix v. Edwards (1978) 82 Cal.App.3d 573, 578);
(11) executor and decedent’s estate (Estate of Boggs (1942) 19 Cal.2d 324, 333); and
(12) trustee and trust beneficiaries. (Penny v. Wilson (2004) 123 Cal.App.4th 596, 603; Prob. Code, §§16004, 16081, subd. (a).)
Breach of Fiduciary Duty:
Breach of fiduciary duty commonly falls under the following three categories:
1. Breach of reasonable care (negligence) [CACI 4101];
2. Breach of duty of loyalty [CACI 4102] ; and/or
3. Breach of confidentiality [CACI 4103].
Of course, intentional wrongs such as fraud (fiduciary fraud) as well as negligent misrepresentation also constitute a breach of fiduciary duty.
The elements of a cause of action for breach of fiduciary duty are:
(1) Duty: Existence of a fiduciary duty;
(2) Breach: The breach of that duty; and
(3) Causation of Damages: Damage proximately caused by that breach.