How Can I Avoid Breach of Fiduciary Duty?

Fiduciary duty is legalese for certain duties owed by two or more persons who are party to a legal relationship. Doctors, real estate agents, attorneys, business partners, corporate officers, and board members typically have fiduciary duties toward their clients, partnerships, and corporations. In these relationships, the fiduciary is the individual who acts in the best interest of the principal or beneficiary.

In a doctor-patient relationship, the doctor is the fiduciary and must act in the best interests of the patient. Similarly, directors of a corporation are fiduciaries and must act in the best interest of the corporation. State and federal laws can also define fiduciary duties for specific relationships. The following are different types of fiduciary duties:

Duty of loyalty. This duty requires the fiduciary to be loyal to the beneficiary of the relationship. This means they must act in the best interests of the beneficiary without self-dealing or toward a personal benefit in conflict.

Duty of care. This duty requires the fiduciary to meet the standard of care set for their profession and perform their duties in a reasonably prudent manner. One must also ensure that they actively participate in making careful and informed decisions.

Duty of honesty. A duty of honesty requires the fiduciary to be completely honest and fully disclose any conflicts of interest. For example, a real estate agent has a duty to loyally represent the client in a real estate transaction and should not self-deal or have a conflict of interest. In a scenario where there may be a conflict because the agent represents both the buyer and seller, the agent should fully disclose the conflicting relationship and obtain consent for moving forward with the relationship from both parties.

Duty to Act in Good Faith and Fair Dealing. This duty requires that neither party will act in a manner to prevent the other party from receiving the benefits of the contract. This duty requires that both parties do everything expected of them in the relationship and the contract to accomplish its purpose. This duty also prevents parties from interfering with others’ performances.

How to Prevent Breach of Fiduciary Duty

Breach occurs when the fiduciary fails to uphold the obligations of the implied or enumerated duties, such as a breach of trust, failure to uphold financial obligations, or act in the best interests of the beneficiary. The party accusing the breach must prove that a fiduciary duty existed and that it was breached. The best way to prevent breach of fiduciary duty is to make sure there are company-wide policies regarding fiduciary duties and no tolerance for violations and self-dealing. It is also important to create best practices to prevent violations. The following suggested practices may minimize the risk of such violations:

  • Ensure that one is aware of their duties and obligations in the relationship.
  • If there are any issues in the relationship, address them immediately.
  • Avoid conflicts of interests and the appearance of impropriety.
  • Document all actions and decisions taken in the course of the relationship so that any doubts about the standard of care provided can be evaluated thoroughly.

Consequences of a Breach and Defense

When fiduciary duties are breached, legal actions may follow. The fiduciary may have to step down from their role in the company or business and pay monetary damages. Professionals, such as doctors and lawyers, may risk losing their license to practice. A common defense for those facing legal action based on breach of fiduciary is the business judgement rule that protects fiduciaries from legal action when their actions indicate that they acted with due diligence and reasonableness.

The legal team at MacMain Leinhauser helps clients involved in conflict of interest and breach of fiduciary duties. For cost-effective and forceful representation, please contact us online or call 484-318-7106 for an initial consultation. Located in West Chester, Pennsylvania, we serve clients throughout Philadelphia, Chester County, and New Jersey.