What Is Breach of Fiduciary Duty?

A fiduciary duty is the legal requirement of an individual to act in the best interest of another. All parties that owe this duty are called fiduciaries and the individuals to whom the duty is owed are called principals. Lawyers have a fiduciary duty to their clients and so do guardians to their wards. In business law, directors and officers owe a fiduciary duty to their corporation and shareholders.

Business disputes often involve allegations that an officer or director breached his or her fiduciary duty. These are serious allegations that can have long-lasting financial and professional consequences for the officer or director. A conflict of interest case can even result in personal liability for the accused as well as the imposition of punitive damages.

How is fiduciary duty breached? There are many examples of fiduciary duty breaches and some are more obvious than others. Here are a few common examples of fiduciary duty breaches:

  • Starting a competing business
  • Churning and self-dealing
  • Commingling business funds with personal funds
  • Helping a business competitor
  • Ethical violations or negligent errors
  • Fraud, incompetence or misappropriation of funds
  • Spending corporate funds on things that do not benefit the corporation

To determine if fiduciary duty was breached, the court will review the actions of the officer. They will have to determine if an ordinarily prudent person would have acted the same way under similar circumstances. Did the officer act in good faith? Would someone else have acted in an equivalent manner given the same situation? These are the types of questions that must be answered.

If you are considering filing a fiduciary duty suit, or if you have been accused of breaching your fiduciary duty, it is important that you discuss your case with an experienced Orange County business attorney right away. It is important that steps be taken to protect your future and your business.