An action for breach of fiduciary duty arises when a party in a fiduciary position breaches one of the party’s fiduciary duties, resulting in damages to the other party.
When parties engage in certain relationships such as attorney and client, principal and agent, trustee and beneficiary, or partners, a fiduciary or confidential relationship arises as a matter of law. Even in the absence of such traditional categorizations, the relationship will be found to exist as a matter of fact when one party reposes trust and confidence in another who thereby gains a resulting influence and superiority over the first.
Who can breach a fiduciary duty?
A breach of fiduciary duty in a nutshell: A party who assumes a fiduciary role and owes a fiduciary duty to another as a result of that position, and fails to carry out the obligations of that fiduciary duty, is said to have breached his or her fiduciary duty. Who can breach a fiduciary duty?
- Agents under a property power of attorney;
- Guardians; and
- Other parties under a fiduciary obligation based on trust and confidence.
Elements of a Breach of Fiduciary Duty Claim
In order to establish an action for breach of fiduciary duty, the following elements must be alleged in the plaintiff’s complaint:
- A fiduciary duty existed between plaintiff and defendant;
- The defendant owed a certain fiduciary duty to the plaintiff as a result of the defendant’s fiduciary position;
- The fiduciary duty was breached by the defendant; and
- The defendant’s breach of its fiduciary duty proximately caused the injury of which the plaintiff complains.
The factors to consider in determining whether or not a fiduciary relationship exists are degree of kinship, disparity in age, health, mental condition, education, and business experience between the parties, and the extent to which the allegedly subservient party entrusts the handling of his or her business and financial affairs to the other and reposes faith and confidence in the other. The mere existence of a confidential relationship prohibits the dominant party from seeking any selfish benefit.
Breach of Fiduciary Duty Examples
The following financial transactions by a fiduciary, among others, have been proscribed by courts as being improper:
- Changing the beneficiaries of a trust;
- Changing the beneficiary of a life insurance policy;
- Changing the beneficiary of a retirement benefit plan;
- Placing funds in joint tenancy accounts;
- Otherwise converting partnership, company or business assets;
- Transferring funds from a checking account to improperly benefit the fiduciary;
- A trustee loaning money to himself, depleting money available for use by the beneficiaries;
Damages for Breach of Fiduciary Duty
A fiduciary who breaches his or her duty to another is subject to tort liability to the other for any harm caused by the breach of duty. In addition, the defendant fiduciary may be found liable for punitive damages and/or prejudgment interest.
Damages and other relief requested in a breach of fiduciary duty action may include:
- An accounting from the fiduciary;
- a constructive trust against assets of the fiduciary;
- actual damages; and/or
- punitive damages (to punish and deter).
Limitations on Fiduciary Duty Actions
Generally, the statute of limitations for a cause of action for breach of fiduciary duty is five
Causes of action that are often related to and/or included with breach of fiduciary claims include, but are not limited to:
- Common-law fraud;
- Violation of the Consumer Fraud and Deceptive Business Practices Act;
- Violations of the Racketeer Influenced and Corrupt Organizations Act (RICO);
- Fraudulent conspiracy; and
- Legal malpractice (arising out of an attorney-client relationship).