What is Breach of Fiduciary Duty?
A fiduciary duty means one person has a responsibility to look out for the interests of another person—even above their own interests. Most of us would agree that we all have a duty to act in a responsible manner, so we don’t harm others. This is not necessarily a fiduciary responsibility since we are not normally required to look out for the interests of strangers. A fiduciary owes a special duty of care to another person that goes beyond what we, individually, owe the world in general.
Formal vs. Informal Fiduciary Relationships
There are formal fiduciary relationships and informal fiduciary relationships. An informal fiduciary relationship could be considered any relationship which is based on trust—i.e., a teacher and student, a parent and child, or two friends. These informal fiduciary relationships are based entirely on individual circumstances.
A formal fiduciary relationship is formed when one individual formally takes on a specific role for the other and can be mutual. Within the scope of that role, the first individual agrees he or she will always act in the best interests of the other individual, even above his or her own interests.
Formal fiduciary relationships could include an insurer and an insured, a broker and a client, or an attorney and a client. Within the business realm, a fiduciary duty could exist in many different ways. For a business owner, those that owe the owner a fiduciary duty could include:
- Business partners
- Corporate officers
- Agents
- Employees
- Insurers
What is Breach of Fiduciary Duty?
The only way an individual can be held responsible for a breach of fiduciary duty is if they first owed that duty. This means that to prove breach of duty, it must first be proven that a fiduciary relationship existed between the two parties. If a reasonable person would agree that an individual had the duties to show loyalty to you, to be transparent with pertinent information, and to act in good faith on your behalf, then a fiduciary duty likely existed.
Once you have shown a fiduciary duty existed, to prove breach of this duty you must also show:
- The fiduciary duty that was owed to you was clearly breached
- As a result of that breach either you suffered harm, or the other person wrongly benefitted
- You have provable damages, or you can show the wrongful benefits received by the other person as a result of the breach of fiduciary duty
To delve a little further into what constitutes a breach of duty, in the state of Texas, the following are generally considered fiduciary duties:
- The individual must not engage in self-dealing (i.e., for his or her own interests at the expense of yours)
- The individual must show loyalty and good faith
- The individual must act with integrity
- The individual must deal with you honestly and fairly in all matters
- The individual must be open with you, always engaging in full disclosure
If a breach of fiduciary duty resulted in harm to you or benefit to the other party, you could be entitled to a monetary award, although you will be required to show the level of damages suffered as a result of the breach.
Suppose your employee—despite signing an NDA and Non-Compete agreement—has been spilling company secrets to a competitor. You may have lost profits as a result and could also have mental anguish that you should be compensated for. If the other person benefited from the breach of fiduciary duty, they could also be required to turn over those benefits to you.
Key Takeaways
- A fiduciary duty is a duty to act in the best interests of another person or entity
- There are many forms of fiduciary duties in the business world
- An employee may have a fiduciary duty of loyalty to an employer
- A breach of fiduciary duty occurs when the principal fails to act responsibly and in the best interests of the other party
- Consequences for breach of fiduciary duty range widely from monetary penalties to loss of professional licenses
Contact Our Houston Business Lawyers
If you believe your business has been harmed because of a breach of fiduciary duty, we can help. Our business attorneys know what it takes to build these complex cases and win. At Roger G. Jain & Associates, P.C., we will be there every step of the way to protect you throughout the legal process and look out for your interests. Call at (713) 981-0600 or fill out our confidential contact form to learn more about your legal options.
Roger Jain is a dedicated trial lawyer who assists his clients in the following areas of practice: civil litigation, business law, criminal defense, juvenile law, estate planning and family Law.