What is a Breach of Fiduciary Duty?

Fiduciary duty is a great responsibility and can be considered one of the most effective forms of trust a person or organization can place in another.

On occasion, situations arise in which that trust is broken. When that happens, it’s good to know you have options available to you.

What Is a Fiduciary?

A fiduciary is a person or persons entrusted to look after and manage the finances and best interests of another individual or organization—often referred to as the principal. People who fill this role can include estate executors, attorneys, trustees, board members, legal guardians, conservators, and others.

The basic tenet is that the fiduciary must put the other individual or organization’s interests before their own.

Fiduciaries have a particular obligation to live up to. This can be a tremendous responsibility. Fiduciaries often have to make decisions not only involving finances but also healthcare, management, and the safekeeping of valuable assets.

When Fiduciary Trust Is Broken

However, there are times when a fiduciary breaks the trust invested in them and looked after their interests rather than the best interests of their principal.

Ideally, a fiduciary’s actions on behalf of their principal must not involve any conflicts of interest and self-dealing. The fiduciary can’t use the principal for their advantage, whether it be for personal gain, profit, or committing fraud.

The consequences of failing to live up to trusted fiduciary duty can be severe. It is essential to seek legal advice when you suspect a breach of duty may have occurred.

Dealing With a Breach of Fiduciary Duty

When a trusted individual has been accused of breaching fiduciary duty, those affected by the breach can take legal action against the fiduciary.

While a civil lawsuit may seem like the first place to go, it’s not unreasonable to seek out the lesser-expensive options of mediation or arbitration to resolve conflicts.

Mediation and Arbitration as a Solution To Fiduciary Breach

Voluntary mediation expects both parties—the fiduciary and principal—to come to a consensus. This can be handled just between the two parties but often include an independent third party to help with communication lines to keep things civil.

If there are contracts or other legal agreements in place, then consensus may need to come through arbitration. If there are signed contracts involved specifying an agreement to arbitrate disputes, suing will not be an option. All disagreements will have to be settled through arbitration.

Even when taking a dispute to court is an option, it may be smarter to submit to arbitration first. The court path can be time-consuming, expensive, and stressful. It also allows private disputes to become public, and you may wish to avoid all of that.

Should the situation with a breach of fiduciary duty involve a business partner, litigation’s adversarial nature may make a business relationship more complicated.

When a fiduciary breach occurs, mediation can be the preferred avenue to take. That said, sometimes, going to court is the only option for justice to be served. Qualified legal representation can help shepherd you through the court process.

Proving Breach of Fiduciary Duty In Court

When a fiduciary breaches trust, those claiming that a breach occurred must prove that the fiduciary did not fulfill their obligations or may have acted more in their own interest than the principal’s.

Did the fiduciary act to enrich themselves at the expense of the parties to whom they had a duty? Did they mismanage assets or make a series of poor decisions affecting the principal? Were they negligent in carrying out their obligations?

All of these would be cases that could result in a claim of a breach of fiduciary duty.

In turn, the fiduciary can defend themself against accusations of a breach. Often, a fiduciary can claim to be protected by the business judgment rule, i.e., that they cannot be held liable if things happen to go wrong so long as certain conditions were met, such as the fiduciary exercising due diligence.

Should the fiduciary not successfully defend themself, and a breach has been established, there are different possible solutions. Usually, the fiduciary will be removed or replaced from their role. If the fiduciary breach involved financial loss, the fiduciary may be held accountable for those losses and be ordered to pay money to the affected party or parties.

Acquiring Legal Advice

At Heban, Murphree & Lewandowski, LLC, our experienced attorneys will use their 150 years of collective legal experience to get you the results you deserve. We will thoroughly assess your situation and devise the best plan of action to handle your case. From answering your general questions about fiduciary breaches to getting you started in the process, our committed attorneys are here for you. Contact us today!