What Constitutes a Breach of Fiduciary Duty in California?

If you’ve wondered, “What constitutes a breach of fiduciary duty in California?” a Newport Beach breach of fiduciary duty lawyer can answer all your questions and more. A breach of fiduciary duty is a serious issue with the potential to cause disastrous impacts on your most important matters.

What Does Having a Fiduciary Duty Mean?

The term “fiduciary duty” refers to a legal obligation– sometimes partly expressed in the details of a contractual agreement but largely implied and expected –that arises when two parties enter into a fiduciary relationship. A fiduciary relationship is a client or business relationship wherein one party puts their trust in the other to make decisions and fulfill other duties on their behalf. Some examples include a trustee and an inheritor or between a corporate director and shareholders.

The person with the duty is called the fiduciary, and the party entrusting them is the beneficiary. Fiduciary duties are inherent to the fiduciary relationship, meaning the relationship is based on trust and loyalty; thus, such duties are expected to be honored even if not expressed verbally or in a written format. They can be various types of relationships, including the duty of loyalty, the duty of care, and the fiduciary duty of good faith and fair dealing, among others.

The fiduciary duty of loyalty means the person must make decisions in the greatest interest of their client and not solely for their personal gain. If a dealing would be beneficial for both the beneficiary and the fiduciary, they must disclose that. Duty of care means the fiduciary is responsible for acting with reason. Should matters of negligence come up, it may come down to whether the fiduciary’s conduct was accidental or intentionally erroneous.

A fiduciary’s duty of good faith and fair dealing is the expectation that they will fulfill their job in an honest and fair manner. Other duties include the duty of prudence, the duty of confidentiality, and the duty to disclose. Prudence here means considering all options and potential disadvantages before making a decision. The duty of confidentiality is to not offer information without the client’s approval, and the duty to disclose is to not withhold any impacting info.

What It Means to Breach One’s Fiduciary Duty

Breaching something, such as a contract or legal obligation, means failing to uphold what was expected of you by violating the terms of an agreement– whether they be unspoken, like trust, or plainly stated as a term in a written document. Breaching your fiduciary duty means you infringed upon one or more aspects of your obligation to the beneficiary, whether intentionally or unintentionally, by failing to act with their greatest interests, as is the duty of the fiduciary.

Examples of a breach of fiduciary duty include the person not disclosing to their client a conflict of interest, misusing the beneficiary’s funds, covertly profiting off the client/corporation, disclosing confidential information carelessly or for their own benefit, insider trading, and more. Most breaches of fiduciary duties are handled in civil court, but there is the potential for the fiduciary to be additionally charged with criminal offenses, depending on the case.

In order to prove that a breach of fiduciary duty occurred and the fiduciary to be held liable, the burden of proof is solely on the plaintiff: the beneficiary who claims being wronged. The plaintiff’s legal representation must establish that there was indeed a fiduciary relationship when the incident at hand transpired, show the relationship and duties of the fiduciary, and whether (how) those duties were breached.

If the plaintiff is found partially responsible for the incident, the court can assert there was no true breach of duty.

FAQs

Q: How Are Breaches of Fiduciary Duty Punished in CA?

A: Offenders of a breach of fiduciary duty aren’t truly “punished” since it is not a criminal offense. As with most civil cases, there are ways to compensate the affected party and “remedy” the misconduct.

Remedies for a fiduciary duty breach typically include financial recompense for losses related to the breach itself and possibly the plaintiff’s legal fees. Sometimes, the client may also claim the right to compensation for the loss of future income if the breach negatively impacted their reputation.

Q: What Are Three Examples of Breaches of Fiduciary Duty?

A: If a director hires an employee without running a background check which would show they have a history of embezzlement, that is a breach of care. A breach of good faith would be an accountant fraudulently submitting reports and pocketing the money, which may also garner criminal charges. If an employee were to leave a company after a few months and begin a competitor company with the knowledge they had gained, this would be a breach of loyalty.

Q: How Difficult Is It to Determine Breach of Fiduciary Duty?

A: The difficulty of proving a breach of fiduciary duty varies from case to case, depending on what evidence is available to the plaintiff and their legal team. It is easier to prove a breach of fiduciary duty when there is clear documentation showing how an alleged breach led to the beneficiary’s loss. It can become complicated if the plaintiff is asserted as having had a hand in the breach and is without strong evidence or if there were multiple reasons the loss occurred.

Q: Is a Breach of Fiduciary Duty a Criminal Act in California?

A: Generally, a breach of fiduciary duty is not treated as a criminal offense but instead a civil case. However, it is possible for a breach of fiduciary duty to include unlawful activity, necessitating it also to be tried as a criminal violation. For example, if a company’s accountant is falsely reporting their finances in order to take money for themself, they are likely guilty of breaching their duties as a fiduciary along with the criminal acts of fraud and embezzlement.

Consult with a Law Professional If You Suspect a Breach of Fiduciary Duty

Ross Law Group, APC has helped numerous clients in addressing their concerns and recovering the resulting losses. Schedule a consultation with our office today for an experienced breach of fiduciary duty attorney to review your case.