A Fiduciary Duty Differs from the Duty Owed in an Arm’s-Length Transaction
Many forms of conduct permissible in the work world for those acting at arm’s length are forbidden to those bound by fiduciary ties. More specifically, the duty of good faith and loyalty owed by a fiduciary to the protected party precludes blatant self-dealing. It also requires avoiding situations when the fiduciary’s personal interest conflicts with the protected party because a fiduciary is required to avoid situations where the fiduciary’s interest possibly conflicts with the interests of the party owed the fiduciary duty.
How to Determine if a Fiduciary Duty Governs a Particular Relationship
There are many instances where one party owes another a fiduciary duty just by virtue of the parties’ relationship to each other, such as business partners and employees (who owe a fiduciary duty to their employers). Further, there are times that contractual relationships may give rise to fiduciary duties.
However, in essence, the determination of the existence of a fiduciary duty is more often more complex than simply formulaic labels and titles. The determination of whether a fiduciary relationship exists depends if the claiming party has imposed trust or confidence in the alleged fiduciary resulting in the alleged fiduciary which had superiority or influence over it. Determining the existence of a fiduciary relationship generally requires a fact-specific inquiry. It is not mandatory that a fiduciary relationship be formalized in writing and the ongoing conduct between the parties can give rise to a fiduciary. Fundamentally, the essential element of a fiduciary relationship are control and dominance (by one party) and reliance (by the other). To the contrary, as a general matter, where the parties deal at arm’s length in a commercial transaction, a relation of trust or confidence sufficient to find the existence of a fiduciary relationship will not be sufficient.
The Essential Elements of a Fiduciary Duty Claim
To establish a breach of fiduciary duty claim, the plaintiff must allege:
- The existence of fiduciary relationship;
- Facts specifying the misconduct or wrongdoing that constitutes a breach of that duty; and
- Damages caused by a breach of fiduciary duty.
Interestingly, the amount of damages may include either the loss to the plaintiff or the benefit derived by the defendant at plaintiff’s expenses, and may include the chance to recover lost opportunities for profit.
Two points regarding plaintiff’s claim for damages warrant elaboration. First, the plaintiff bears the burden of proving damages. Cases involving breaches of fiduciary duty are treated as a “special breed” of cases where the normally stringent rules for damage calculation are relaxed. In fact, the Court entertains significant leeway in ascertaining a fair approximation of the loss as long as the Court’s methodology and findings are supported by inferences within the range of permissibility. At a minimum, the plaintiff must establish that the defendants’ conduct was a substantial factor in causing an identifiable loss. Second, with respect to claims for punitive damages, the limitation of punitive damages to conduct directed to the public generally does not apply in cases involving a breach of fiduciary duty. The award of punitive damages is permissible upon establishing intentional or deliberate wrongdoing, aggravating or outrageous circumstances, a fraudulent or evil motive, or simply a conscious act that willfully or wantonly disregards the rights of another.
Sometimes Misconduct Can Simultaneously Violate a Contract & Constitute a Breach of Fiduciary Duty
When a party to a contract is also a fiduciary to the other party, a contracting party may be charged with separate tort liability arising from a breach of that duty distinct from, or in addition to, the breach of the contract because conduct that breaches a contractual obligation also may constitute a breach of a duty both arising out of the relationship created by the contract itself, and independent of the contract.
What to Do Next
Call us if you have questions regarding whether a fiduciary duty has been breached.
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