Understanding Fiduciary Duty In Commercial Litigation

One of the most common types of commercial litigation disputes are those involving fiduciary duties. A fiduciary duty is a special kind of legal obligation that characterizes many business relationships, such as the relationship between directors and a company, shareholders and a corporation, partners in a partnership, parties to joint ventures, and trustees of a business trust.

The commercial law that governs fiduciary duties is complex, as is the commercial litigation that follows when these duties are breached. Having a comprehensive understanding of the nature of fiduciary duties, common examples of breach, and the legal remedies available when a breach has been proved in court is essential for anyone involved in a commercial enterprise.

What Is A Fiduciary Duty In A Business Context?

Legal relationships are made up of rights and obligations. A fiduciary duty is a specific type of legal obligation that applies to fiduciaries – people who are obliged to act in the interests of another person or entity, called the ‘beneficiary’. Although there are several distinct fiduciary duties, they all give expression to the same underlying duty: to conduct oneself in the best interests of the beneficiary rather than in one’s own self-interest.

For example, in the case of a trust, the trustees have a fiduciary duty to manage the trust assets in the best interests of trust beneficiaries and not to use the trust assets to enrich themselves. Fiduciary duties essentially impose a legal obligation to be loyal to and protect the interests of the beneficiary. They form the bedrock of successful commercial relationships, and when they are breached, commercial litigation will likely ensue.

In a business context, fiduciary duties include the duty not to mismanage or misappropriate funds, the duty not to engage in self-dealing (making a deal that benefits oneself more than the entity to which one owes a fiduciary duty), and the duty not to withhold material information, such as a conflict of interest. What these duties will require of the fiduciary may vary from context to context, but they will always demand that the fiduciary act with the utmost care in respect of the beneficiary.

Common Fiduciary Relationships That Become The Subject Of Commercial Litigation

There are many different commercial relationships in which fiduciary duties may be applicable. Some of the most common are:

• The fiduciary duties owed by directors and corporate officers to the company
• The fiduciary duties that partners in a partnership owe to one another and the partnership enterprise as a whole
• The fiduciary duties that controlling shareholders of a corporation owe to minority shareholders
• The fiduciary duty that an agent bears in respect of their principal

All of these relationships require their fiduciaries to conduct themselves with the utmost good faith if the relationship is to work effectively and the underlying enterprise is to succeed. The breach of these duties will result in serious consequences for the fiduciary. If you are involved in a commercial enterprise and feel that you lack a clear understanding of what your fiduciary duties require of you, it is essential that you obtain legal advice from an experienced business law attorney.

Examples Of Fiduciary Duty Breaches

Fiduciary duties are part of an abstract and highly complex area of commercial law, so it can be difficult to grasp what they entail without concrete examples from commercial litigation. One very common breach of fiduciary duties that is litigated in Florida’s courts is the breach of the duty not to engage in self-dealing. For example, if a director of a company uses their legal authority as director to enter the company into a contract that benefits the director rather than the company, thereby binding the company to an unfavorable deal, this would be a breach of the fiduciary duty not to engage in self-dealing.

Similarly, if a partner in a partnership fails to disclose to the other partners that a lucrative business opportunity has been offered to the partnership, and they instead start their own separate enterprise and take advantage of the opportunity for themselves, this would be a breach of both the duty to disclose material information and the duty not to engage in self-dealing. Another obvious example is the misappropriation of funds: if a corporate officer or director steals company funds and uses them for their own ends, this is clearly a breach of fiduciary duty.

Proving Breach Of Fiduciary Duty In Commercial Litigation

As is the case with any civil litigation, successfully bringing a claim based on a breach of a fiduciary duty can be challenging. The claimant – formally referred to as the plaintiff – will have to prove the following in court:

1. The defendant owed the plaintiff a fiduciary duty;
2. That duty was breached by the conduct (whether an act or omission) of the fiduciary, who failed to act in the beneficiary’s best interests;
3. That the breach caused the plaintiff to suffer damages; and
4. Fault – depending on the kind of fiduciary relationship, the plaintiff may be required to prove that the fiduciary acted with some degree of fault, for example, they were grossly negligent or did not act in good faith.

It’s important to remember that the plaintiff may not always be the holder of the fiduciary duty. For example, when a director breaches a fiduciary duty, the litigation is often instituted by shareholders on behalf of the company by way of shareholder derivative action proceedings.

Remedies Available In Fiduciary Duty Cases

When the beneficiary of a fiduciary duty decides to initiate commercial litigation to vindicate a breach, it is important that they carefully consider the remedies available to them and strategically pursue a remedy that best addresses the harm caused by the breach. The most appropriate remedy will vary depending on the unique circumstances of the case, but generally speaking, the following remedies are available:

• Damages: the plaintiff can claim damages for the loss caused by the fiduciary’s breach, (for example, in the case of misappropriated company funds, the amount that was stolen)
• Removal of the fiduciary: the plaintiff can ask the court to remove the fiduciary from their position as director, agent, trustee or partner, as the case may be
• Injunction: the plaintiff can seek an injunction, in terms of which the court will order that the fiduciary cease the conduct that is giving rise to the breach and take steps to remedy the breach

To obtain the relief that is sought, the plaintiff will need to prove their case on a balance of probabilities by placing sufficient evidence before the court that persuades it that it is more likely than not that a breach was committed and loss was suffered. It is essential that a plaintiff who is contemplating suing a fiduciary for breach consult with an experienced commercial litigation attorney to obtain a comprehensive assessment of their claim and its prospects of success.

Defending Against Fiduciary Duty Claims

As with any commercial litigation, in some cases, proceedings are instituted without merit. If you need to defend a claim of breach of fiduciary duty, there are several effective ways to do so. These include proving that:

• No fiduciary duty was owed in the circumstances
• You acted in good faith, were not negligent, and had a reasonable belief that your actions were in the best interests of the beneficiary
• Your conduct did not directly cause the loss the plaintiff is alleging it suffered
• The plaintiff has ratified your conduct, or has released you from liability through some other action (or inaction)

In addition, there are many procedural grounds that you may rely upon to defend the claim, such as lack of jurisdiction, lack of standing, or proving that the statute of limitations has expired.

Navigate Your Fiduciary Duty Case Successfully With Miami’s Leading Commercial Litigation Attorneys

Xander Law Group is one of Miami’s leading commercial litigation firms and is widely respected for its formidable track record in fiduciary duty litigation. Our highly qualified commercial litigation attorneys possess an in-depth understanding of the complexities of the legal principles governing fiduciary duties and are renowned for their strategic acumen and commercial insight.

We are committed to providing our clients with exceptional legal services and round-the-clock support, so that they can focus on the success of their business and enjoy peace of mind that its best interests are consistently protected. If you are contemplating launching fiduciary duty litigation or need to defend a fiduciary duty claim, don’t hesitate to contact us today at 1-305-767-2001.