Who Can Be Held Liable for Breach of Fiduciary Duty?
When a breach of fiduciary duty occurs, it can be devastating to those affected. While one may believe a fiduciary is always acting in the best interests of those to whom he or she owes a duty, this isn’t always the case. If and when a breach does occur, it’s important for those owed the protection of the fiduciary relationship to know who can be held liable for the resulting damages.
What Constitutes a Breach of Fiduciary Duty?
In order to determine who can potentially be held liable when a breach of fiduciary duty occurs, it is important to fully understand when a fiduciary duty applies and what constitutes a breach.
A fiduciary duty is often described as an obligation of loyalty and good faith of the highest order to a person or entity known as a beneficiary. The duty is synonymous with the highest degree of loyalty and care, and doesn’t allow for any sort of violation without exposing the violator to liability. To simplify, the “fiduciary” (the person with the duty) owes the “beneficiary” (the person to whom the duty is owed) the highest degree of care and devotion. This means the fiduciary must act with the best interests of the beneficiary in mind at all times and must refrain from taking any action that could potentially harm the beneficiary or the beneficiary’s interests.
Full disclosure of all potential conflicts of interest must be disclosed to and discussed with the beneficiary. In certain instances, this could require the fiduciary to undertake a proactive investigation to determine what would be in the best interest of the beneficiary and to act accordingly.
Fiduciary and beneficiary relationships exist all around us in our everyday lives, such as the parent/child relationship, as the parent is required by law to act in the best interests of the child. Spouses owe fiduciary duties to one another as well: each spouse is required to act in the best interests of the other in all economic and other such dealings. Fiduciary and beneficiary relationships can also be professional, such as the director of a corporation’s relationship to the company’s shareholders, a broker’s relationship with a client, the executor of a will’s obligations to the beneficiaries, a doctor/patient relationship, and an attorney/client relationship.
A breach of fiduciary duty occurs when the fiduciary acts in his or her own self-interest rather than in the best interests of those to whom they owe the duty. As stated above, a fiduciary’s actions must be free of any conflicts of interest and self-dealing; and, as a fiduciary, one cannot use the relationship with the beneficiary to their own personal advantage.
Determining Liability When a Breach Occurs
When a fiduciary fails to perform his or her obligations to the beneficiary, a breach of fiduciary duty occurs. This does not mean, however, every fiduciary that has given inaccurate advice will face civil or criminal liability for his or her actions. In fact, the business judgment rule, when applied to fiduciary duty, aims to protect fiduciaries from being held responsible for advice and/or decisions made in the course of their work that turn out to be wrong.
With that being said, the key question whenever someone is accused of breaching their fiduciary duty is whether or not the fiduciary was acting with the intent of benefitting those to whom a duty was owed, or whether the fiduciary broke the trust of the relationship and acted in their own interest. In the event the fiduciary did act to benefit himself or herself at the expense of the beneficiary, was purposefully dishonest in their business practices, or did not otherwise live up to the duties of loyalty and disclosure, legal consequences can then result.
Under Texas law, a third-party defendant can be held jointly and severally liable for his or her knowing participation in another’s breach of fiduciary duty, even if the third party doesn’t owe its own fiduciary duty to the plaintiff. This theory extends the fiduciary duty to the third party in the event they knowingly participated in the fiduciary’s breach. For example, a disloyal real estate agent could potentially sell property belonging to a client at an unfairly low price to a third party providing them with a kickback. In this situation, the agent is breaching their fiduciary duty to the seller; and, the breach could not occur without active participation from the third party.
In some cases, a fiduciary can be held personally liable if they violate their duty. For example, if a guardian breaches his or her fiduciary duty owed, he or she can be held personally liable for the resulting damages.
Joint Fiduciary Liability
Co-fiduciaries can result from having joint trustees or joint executors, meaning the duty and any resulting liability is “joint and several.” If one or both of these two co-fiduciaries breach their obligations resulting in harm to the beneficiary, each can be individually liable for the entire amount of damages.
Remedies for Breach of Fiduciary Duty Claims
After a breach of fiduciary duty occurs, assessing the damages requires careful consideration. Available remedies for a breach of fiduciary duty can include:
- Lost profits
- Out of pocket losses
- Mental anguish damages
- These must be separate from monetary losses and must be foreseeable.
- Exemplary damages
- Also called punitive damages, these damages are awarded to punish the responsible party or parties.
Breach of fiduciary duty claims are often complex. Whether the responsibilities of the fiduciary are formal or informal, the duties created are serious legal obligations that should be treated as such.
Houston Breach of Fiduciary Duty Attorneys
Trustees, business partners, and officers and directors of companies are charged with acting in the best interests of those they represent. When fiduciaries fail to act in a beneficiary’s best interest, they can be held responsible for the damages their actions cause through a breach of fiduciary duty lawsuit. If you have been accused of breaching a fiduciary duty, or if you believe a fiduciary duty owed to you has been violated, the experienced business litigation attorneys at Adair Myers Graves Stevenson can help. Contact us today to discuss your legal needs.