Fiduciary Duty: What It Is, and Why Understanding It Is Important
The law recognizes that some relationships are so important that a breach of that relationship is grounds for damages in civil court. These relationships carry with them a fiduciary duty and a violation of that duty may prompt a lawsuit claiming Breach of a Fiduciary Duty. Of course, the burden is on the Plaintiff to prove each element of this cause of action, so it makes sense to find out what exactly those elements are. “To establish a cause of action for breach of fiduciary duty, a plaintiff must demonstrate the existence of a fiduciary relationship, breach of that duty and damages. (Shopoff & Cavallo LLP v. Hyon, (2008) 167 Cal.App.4th 1489, 1509). A person sued for Breach of Fiduciary Duty must determine if they are in fact in a fiduciary relationship, whether they breached that duty, and if so what the damages are.
What Is a Fiduciary Duty?
“A fiduciary relationship is ‘any relation existing between parties to a transaction wherein one of the parties is in duty bound to act in the utmost good faith for the benefit of the other party. Such a relation ordinarily arises when one invests confidence in the integrity of another.
In such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent.’” (Wolf v. Superior Court, (2003) 107 Cal.App.4th 25, 29). “Whether a fiduciary duty exists is generally a question of law. Whether the defendant breached that duty towards the plaintiff is a question of fact.” (Marzec v. Public Employees’ Retirement System, (2015) 236 Cal.App.4th 889, 915). What this means is that in a lawsuit where an allegation of Breach of Fiduciary Duty exists, the judge will determine whether a fiduciary duty exists and the jury (if there is one) will determine if a violation exists. Ultimately though, the party charged must “either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law.” (Cleveland v. Johnson, (2012) 209 Cal.App.4th 1315, 1338). “[E]xamples of relationships that impose a fiduciary obligation to act on behalf of and for the benefit of another are “a joint venture, a partnership, or an agency. (Id. at 1339).
What Duties Are Owed by a Fiduciary?
There are three duties owed in a fiduciary relationship. A person in a fiduciary relationship owes a duty to use reasonable care, a duty of undivided loyalty, and a duty of confidentiality.
Breach of The Duty to Use Reasonable Care
This cause of action is very close to the cause of action for negligence. To be liable under this cause of action, the Plaintiff must show that:
- A fiduciary duty exists;
- That the person accused acted on behalf of the Plaintiff;
- That the defendant failed to serve as a reasonably careful person would act in similar circumstances;
- That the Plaintiff suffered harm; and
- The conduct of the accused was a substantial factor in causing the Plaintiff’s harm. (See CACI No. 4101).
Breach of The Duty of Undivided Loyalty
Here the accused must prove:
- A Fiduciary Duty exists;
- That the defendant either knowingly acted against the Plaintiff’s interest or acted on behalf of a party whose interest was contrary to Plaintiffs;
- That the Plaintiff did not give informed consent for the accused to behave in such a way;
- That the Plaintiff suffered harm; and
- The defendant’s conduct was a substantial factor in causing the Plaintiff’s harm. (See CACI No. 4102). In short, a fiduciary “may not undertake or participate in activities adverse to the interests of his principal.” (Sequoia Vacuum Systems v. Stransky, (1964) 229 Cal.App.2d 281, 287). In fact, to be a fiduciary requires “disclosure of acts undertaken in preparation of entering into competition.” (Id. at 287).
Breach of The Duty of Confidentiality
To secure a verdict, a Plaintiff must show:
- A Fiduciary Duty exists;
- That the accused had information relating to Plaintiff that was confidential;
- That the defendant used the sensitive information to their benefit or disclosed the confidential information;
- That Plaintiff did not give informed consent to the accused;
- That the information was not a matter of general knowledge;
- That harm came to the Plaintiff; and
- The conduct of the accused was a substantial factor in causing the Plaintiff’s harm. (See CACI No. 4103). “The law of confidential relationships governs duties of trust that one is not obligated to assume. Once a person commits himself to a confidential relationship, the law requires him to fulfill the duties attendant to the relationship. Confidential relations protects the trust that is implicit in relationships …” (Balboa Ins. Co. v. Trans Global Equities, (1990) 218 Cal.App.3d 1327, 1350-1351).
What Are the Damages?
If a Plaintiff is successful in proving a Breach of Fiduciary Duty, they will be able to recover money for actual and compensatory damages. But this is usually not the limits of what the Plaintiff will be seeking. A Breach of Fiduciary Duty Claim almost always brings with it a claim for punitive damages.
Pursuant to California Civil Code §3294 “where is it proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” What this means is that the financial exposure in cases like this is extremely high.
Are There Any Defenses?
First, elimination of any element required to prove fraud can entitle a Defendant to a verdict in their favor. Indeed, the first step in evaluating and defending against a Breach of Fiduciary Duty Claim is to determine if any of the required elements can be knocked out. If even one element can be, then the fight is over. In addition to this defense, one may assert an affirmative defense.
The statute of limitations for a Breach of Fiduciary Duty Claim is either three years or four years. If the violation can be categorized as constructive fraud, then the three years limitation under California Code of Civil Procedure §338(d) will apply. Otherwise, the four-year catch-all statute of limitations under California Code of Civil Procedure §343 applies. The point here is if the Plaintiff has failed to assert their rights promptly, then the claim should be dismissed or there should be a verdict for Defendant.
The Bottom Line
A Breach of Fiduciary Duty claim can be complicated and costly. If you have been sued you need to get in front of that lawsuit as fast as you can. You will need a lawyer and a law firm that understands the law and a track record of success. Here at Fitzgerald & Campbell, APLC we understand the law, and we know how to fight cases in and out of Court. We will provide you the defense you need so you can GET YOUR LIFE BACK!